Gold Fields buries BEE findings
Its decision not to write up its empowerment investigation raises yet more questions.
Gold Fields has spent “millions of dollars” on investigating a controversial empowerment deal but the findings will not be written up.
Although the investigation has resulted in a R8-million rap over the knuckles for its chief executive, Nick Holland, it has not repaired the company’s reputation or removed the mystery that has surrounded the transaction from the start.
Last week, the Gold Fields board announced that an investigation of the empowerment deal linked to its South Deep mine had been completed and the transaction remained “one of lasting benefit to the company and its BEE [black economic empowerment] stakeholders”. But the board noted it had identified areas where internal policies and procedures can be strengthened.
The whole debacle “has caused us immeasurable harm and money”, the board chairperson, Cheryl Carolus, told the Mail & Guardian.
She said the services of lawyers from the United States and South Africa were enlisted and the cost of the investigation has run into millions of dollars.
Despite this, a report on the findings of the investigation will not be put in writing, which, she claimed, is to circumvent further expenses and not deemed necessary following a thorough briefing.
A number of mining analysts said that if any serious malpractice had occurred it would have come to light by now. The deal was seen to be more fair and equitable than most because the majority of the benefits went to employees and the community.
But Andrew Cadman, a mergers and acquisitions lawyer, said that for the Gold Fields board to call for an independent investigation but then require that the results thereof not form part of a written report to the board is “most unusual and will only serve to increase the level of suspicion regarding the transaction, and rightly so”.
He said Gold Fields’ media release on the matter appeared to have been carefully scripted in order to absolve the board of any responsibility in relation to the transaction and to reveal as little as possible about the outcome of the investigation.
Cadman said the board was also responsible in law, something that is yet to be properly acknowledged.
“It appears that the directors at the time either approved a transaction which was of questionable integrity from the outset and/or failed to exercise adequate oversight in relation to its implementation.”
He said a responsible board should disclose the results of such an investigation: “Directors who have failed in their duties should have the decency to acknowledge this and resign, failing which they should be removed.”
No negative feedback yet
Carolus said the board had not received any negative feedback yet, but said the company would account to shareholders at the next relevant opportunity. She said shareholders are entitled to ask questions, which the company would address.
Carolus said among the main areas in need of improvement was the issue of communication between management and the board, with chief executive Nick Holland’s handling of this matter being a point of concern.
“There were some [two in particular] matters we felt had not been reported to the board and caused a lot of embarrassment,” she said.
The R2.1-billion deal was finalised in 2010 but prompted a great deal of media speculation over how individuals in the Invictus Consortium, Gold Field’s BEE partner, came to be part of the deal. Media were repeatedly refused the list of beneficiaries, although it was eventually released in March this year.
Press coverage also threw the spotlight on the involvement of a controversial figure, Gayton McKenzie — formerly convicted and jailed for armed robbery and former business partner of “sushi king” Kenny Kunene — who was hired as a consultant to help put the empowerment deal together.
These two matters came into focus during the examination of the processes followed in securing the deal, Carolus said. “We had no idea the media had been requesting the list for such a long period of time. It was just crazy. I don’t know why they [management] felt they couldn’t release it.”
Opened up for scrutiny
Carolus said the list is, in fact, a public document, and had been opened up for scrutiny by shareholders before the deal went ahead and there was no reason not to rerelease it.
Management’s concern would likely have been around the controversial characters whose names pepper the beneficiary list. These include:
l Jerome Brauns, one of the lawyers who defended Jacob Zuma in his rape trial;
l Baleke Mbete, then ANC chairperson;
l Nicole Lucas, daughter of then MP on the parliamentary mineral resources committee, Eric Lucas;
l Colonel Nkosana Ximba, a policeman and co-accused with the crime intelligence head, Richard Mdluli, on provisionally withdrawn charges of murder; and
l Vernon Watson, a former general manager of a Johannesburg nightclub, ZAR, which was owned by McKenzie and Kunene.
Comments by both Holland and former chairperson Mamphela Ramphele last year suggested that the names of beneficiaries had been forced on the company by the department of mineral resources as a condition for it to secure its mining licence, although Gold Fields distanced itself from the comments.
Asked if the investigation found any fault with the list of beneficiaries, Carolus said: “In all BEE transactions, there will always be some people who will not be happy. There is very high competition for people who want to be included and not everybody is going to be happy with every name [put forward].”
She said what was important was that all the parties in fact meet the requirements of the Act and that the deal’s beneficiaries included historically disadvantaged South Africans, youth and women.
Asked about the inclusion of prominent figures such as Brauns, Carolus said determining historical disadvantage was not based on a litmus test. She said any such deal could potentially look for people who are skilled.
“Attorneys would be seen as helpful and people with some business skills would become [an] asset to this consortium.”
The other matter was the use of “unorthodox consultants” like McKenzie. “I think it was bad judgment on his [Holland’s] part. He should have seen the possible consequences of reputational harm to the company … it was very poor judgment for someone at that level.”
In 2012, the M&G reported how both McKenzie and Kunene were investigated by the Hawks following accusations they had defrauded poor Sowetan communities by persuading them to participate in a mining rights application for Central Rand Gold in Johannesburg.
A source said Kunene was given the title of executive of communities by Central Rand Gold and was put in charge of procurement, while McKenzie apparently held the title of chief corporate strategist for the company.
In response to the M&G’s questions in 2011, Kunene said both he and McKenzie had become involved at Central Rand Gold as key executives. “The two of us played a strong role in the process of that mine applying for its mining rights,” he said.
That Holland would forfeit his R8-million bonus was not a sanction, Carolus said. “He offered it, we thought it was a very decent thing to do, and we accepted.”
While it is rare these days for the captain to go down with the ship, at least in the corporate sphere, Carolus said, Holland had identified that it was the right thing to do in this case. Another element of the debacle is the “sad casualties” — the children of the mine’s employees — as 60% of the transaction sits in an educational trust. “We had to wait for a year, [we] couldn’t activate that.”
Carolus said Holland was a smart businessperson and Gold Fields was keen to continue working with him.
How the deal was structured
Gold Fields’s empowerment transaction deal has been described by supporters as more fair and equitable than most others brokered in the mining industry, although elements of the deal related to its South Deep operations have been subjected to intensive public scrutiny.
But it came out of necessity when the gold mining giant’s former BEE (black economic empowerment) partner, Mvela Gold, pulled out, prompting the need for a new deal to satisfy its 2014 BEE equity ownership requirements.
The new R2.1-billion deal comprises an employee share option scheme, administered by the Thusano Share Trust. It received 10.75% of Gold Fields South Africa’s operations and benefits its 47 100 employees.
The deal also includes the South Deep transaction, in which Invictus — a broad-based BEE consortium consisting of 73 individuals and the South Deep Education Trust — and the South Deep Community Trust, together hold a 9% stake in its South Deep operations and an additional 1% of Gold Fields International Mining South Africa.
The cost of the South Deep transaction to shareholders was approximately R1.1-billion.
The education trust, by virtue of its shareholding in Invictus, will be entitled to receive 60% of all distributions made by Invictus. The 73 individuals will receive the remaining 40%.
At the time the deal was approved by shareholders in 2010 the chairperson of the Gold Fields board, Mamphela Ramphele, said the transaction “set a benchmark for the nature and structuring of empowerment transactions”.
According to a report in Business Day in March this year, Gold Fields said the education trust had received R35.3-million. Based on that, the 73 individual shareholders in Invictus would have received dividends of about R23.5-millon.