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Monday, July 30, 2012
‘Bank robber behind BEE deal’
‘Bank robber behind BEE deal’
Jul 23 2012 6:10AM
‘Bank robber behind BEE deal’
DEAL MAKER? Gayton McKenzie. Picture: GALLO IMAGES
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For nearly two years, Nick Holland, the CEO of Gold Fields, has resolutely refused to be interviewed on a multibillion–rand “black economic empowerment” (BEE) deal that went down at Gold Fields during the 2010 World Cup.
The 2010 Gold Fields annual report would show that the BEE deal cost Gold Fields, on its numbers, R2.1bn ($298m).
The deal was seen by specialist analysts and sophisticated investors as exceptional, in that shares and assets involved in the BEE deal appeared to be simply donated by Gold Fields. There have been few mining BEE deals in South Africa where the BEE party is simply gifted, and none when the gift is worth billions of rands.
By far the main outcome of the 2010 Gold Fields BEE deal was the award of new order mining rights for South Deep, the gold mine situated west of Johannesburg. In Gold Fields’s first big BEE deal, signed in 2004, Mvelaphanda Resources agreed to pay, and did indeed pay, R4.1bn for 15% of Gold Fields’s domestic assets. In the South Deep BEE deal, billions of rands worth of Gold Fields assets and shares were simply given away.
TIGHT-LIPPED: Gold Fields CEO Nick Holland. Picture: GALLO IMAGES
Gold Fields ranks as a global Tier I gold producer, and one of the world’s top five gold producers by output. During 2011, Gold Fields paid its top executives R135.7m in aggregate; of this, R32.7m was paid to Holland. When Holland took over the CEO’s office at Gold Fields on May 1, 2008, Gold Fields was trading around $15 a share on the New York Stock Exchange.
Today it trades around $12 a share; as such it is not clear why Holland and his fellow executives are being paid such extreme amounts of remuneration. Compared to other Tier I global gold stocks such as Barrick, Goldcorp and AngloGold Ashanti, Gold Fields has underperformed, raising further questions over the quantum of bounty paid to Gold Fields’s top brass.
While Holland has refused to be interviewed over the 2010 BEE deal, which hinged mainly around South Deep, he permitted two of his internal spinmeisters, Sven Lunsche and Willie Jacobsz, to speak to the press.
The two conceded that the 2010 Gold Fields BEE deal had, in effect, been marketed by Gayton McKenzie, a convicted bank robber. According to Lunsche and Jacobsz, “advocate Jerome Brauns and Gayton McKenzie were requested by the Gold Fields executive to prepare proposals for a consortium of groups of individuals that could be included” in the BEE deal. Lunsche and Jacobsz also referred to “Gayton McKenzie (Pty) Ltd”, apparently ignorant of the fact that a convict may not own a company.
Lunsche and Jacobsz also conceded that Kenny Kunene, a convicted fraudster, was “an associate” of McKenzie, and that Kunene “amongst others, accompanied” Brauns and/or McKenzie to certain meetings. It was quickly added that “Kunene was never employed by Gold Fields in any capacity”.
Another unusual aspect of the South Deep BEE deal was that it overtly involved certain politicians, such as Baleka Mbete, who has served as speaker of the national assembly and also as deputy president of South Africa, and certain other prominent names, such as Ashwin Willemse, who once played rugby for South Africa.
When Lunsche and Jacobsz were asked about certain other names thought to be secretly embedded in the South Deep BEE deal, they replied, elliptically, that “there is no regulation or other requirement that these names be disclosed to anyone but our shareholders and the individuals were happy with this disclosure. Further disclosure would require their consent.
“However, the Gold Fields board was fully appraised of who these individuals are, were satisfied that they met the requirements for participation as determined by the board, and approved their participation.
“Furthermore, Gold Fields’s shareholders had every opportunity to inspect the names prior to the special general meeting” that was called to approve the South Deep BEE deal.
One sophisticated investor asked of the South Deep BEE deal: “Why the secrecy? Why should all the benefits not go to the poor of SA, the people for whom the ANC have struggled?”
Lunsche and Jacobsz conceded that the South Deep BEE deal was celebrated at a dinner held at Johannesburg’s ZAR Club, which had prominently featured McKenzie and particularly Kunene in various adventures.
In one article, the New York Times reported that “Kunene, a former gangster turned businessman, gave what he called ‘the mother of all parties’.
“As the revellers got tipsy on his liquor, he says he treated the most important among them – including Zizi Kodwa, President Jacob Zuma’s stylish spokesperson, and Julius Malema, the rabble-rousing leader of the governing party’s youth wing – to $1300 bottles of Dom Pérignon. Like the American rappers he emulates, Kunene him self swigged a bottle of Armand de Brignac champagne that goes for more than $1500 at his posh nightclub, ZAR, perched on the roof of a five-star hotel.”
Another highly unusual feature of the South Deep BEE deal was that it started generating cash for the BEE structure at a very early stage. According to Gold Fields’s 2010 financial statements, 0.6 million Gold Fields shares were issued by Gold Fields “to broad-based BEE partners on December 23, 2010”.
The shares were immediately sold and generated R73m in net cash, released as a dividend into the BEE structure. Within months of striking the South Deep BEE deal, certain BEE shareholders were in the cash.
“Normal” shareholders in South Deep would have waited more than 20 years to receive their first dividend.
Mine building at the South Deep site started in 1995. According to Gold Fields, the mine is now set to reach full production during 2015, two decades after the mine build commenced.
However, the upfront dividend deal for certain BEE shareholders does not stand alone.
The “normal” dividend component of the South Deep BEE deal is a cumulative preferential dividend of R20m a year for the first 10 years, R13.3m a year for the next five years, and R6.7m for the next five years, paid from the profits of South Deep.
Lunsche and Jacobsz have also refused to elaborate on the role of Gerald “Brinkley” Holden, who appears to be some kind of a foreign consultant who jets into South Africa from time to time. Holden was “not directly” involved in the South Deep BEE transaction, according to Lunsche and Jacobsz, and “is not a beneficiary of the transaction”.
This correspondent has confirmed with at least one CEO of a listed South African mining company that he was approached by Holden, with the promise that Holden would “solve” any permitting problems.
A London-based mining analyst recalls that “the whole (South Deep BEE) thing is very strange”. Gold Fields reported a significant BEE deal but at the quarterly results presentation back in 2010, it was hardly mentioned; “if you have any interest in the deal”, we were told (by Nick Holland), “please join our financial director in the room next door after the presentation”. Even among professional audiences, Holland has been loath to discuss the South Deep BEE deal.
The London-based analyst noted that while the South Deep BEE deal “was billed as 2% dilution only, but that is clearly not the whole story.
“In a document sent out later, the company admitted that the South Deep stake is probably being sold at a 60% discount”. In other words, Gold Fields’s calculation that the deal had cost Gold Fields R2.1bn was likely understated by at least R1bn.
The London-based analyst was highly critical of the South Deep BEE deal: “The BEE parties in this equation carry zero risk – all the other shareholders in Gold Fields carry the risk. Whichever way you look at it, Gold Fields gives away a chunk of the company and pays people on an annual basis to have these stakes. Gold Fields gets nothing.”
One sophisticated, long–term, shareholder in Gold Fields slammed the South Deep BEE deal, arguing that there was “no respect for the value of capital. There are huge implicit donations; shares are being gifted – Gold Fields receives no capital.”
McKenzie and Kunene first rose to prominence in the gold mining sector at Johannesburg- and London-listed Central Rand Gold (CRG).
Between 2006 and the end of 2011, CRG raised $230m in cash from investors; its latest annual financial statements reflected cash of just $5m. CRG has been a disaster, with a wake behind it of shattered promises.
CRG’s 2007 annual report shows that McKenzie was granted 250000 stock options, far more than any other employee (excluding directors); next highest were grants of 50000 options.
The options were awarded at a penny a share, when CRG was trading up around £1.40 a share. The stock has since lost 99% of its value, and currently trades at less than a penny a share.
The award of options indicated that CRG, which set out promising that it would be producing 1 million ounces of gold a year, regarded a one-time bank robber as by far its most valuable manager.
Kunene was awarded a more modest 30000 options, and later, another 20000, suggesting that as in the case of Gold Fields, he played second fiddle to McKenzie. In astonishing, possibly record-breaking, time, On September 17, 2008, CRG was awarded a package of coveted “new order” mining rights.
CRG’s audited financial statements show that in the past six years, nearly $100m has been spent on non-mining expenditure: tens of millions of dollars went on pay and bonuses for directors; further tens of millions of dollars went on other expenses, mainly “accommodation” and “travel”, and yet further tens of millions of dollars on unnamed consultants.
The New Age
Comments by Sonny
No wonder the SA Prisons are almost empty.
Between the ANC and BEE aal the Bank Robbers & other Thugs have been recruited into the mining sector.
Now we only need Malema to Nationalise all the MINES.