With the biggest empowerment deal out of the way, Mzi Khumalo is looking forward to making JCI the premium African mining house, he tells Max Gebhardt
After four months of speculation and high expectations, majority ownership of JCI has been finally transferred to the African Mining Group (AMG). But for Capital Alliance chairman and head of AMG, Mzi Khumalo, there will be no rest. Although he says he would love a holiday, he laughingly adds: “There is no rest for the wicked.”
Clearly delighted that the deal is finally behind him, Khumalo is brimming with confidence about the future and the successful conclusion of negotiations with Anglo American, which he says, were difficult. “It is no wonder they are such a successful company,” he notes with clear admiration.
A week before the February 28 deadline, Anglo and AMG issued a joint announcement that the suspensive conditions relating to the sale of mining house JCI had been fulfilled. These conditions included the satisfactory conclusion of a due diligence investigation and the finalisation of the funding arrangements required by AMG to purchase JCI shares.
The group will buy 52,8-million shares, representing 34,9% of the issued share capital of JCI, at a price of R54,50 each, a cost of R2,9-billion for the mining house, which includes South Africa’s top gold mine, Western Areas.
The group plans to raise R2,4-billion of the funding through a rights issue of Saflife equity, the controlling company of Capital Alliance. The balance of the funding required will be settled by either a further rights issue of Saflife equity, preference shares or loan finance, which has apparently already been secured by Saflife.
Khumalo is not expecting any hiccups in the rights issue and is certain it will be over-subscribed.
“The rights issue has been fully underwritten and I’m quite confident that it will be over-subscribed,” Khumalo told the Mail & Guardian. Market speculation has it that Investec and SBC Warburg are the two leading underwriters for the deal.
Why did the group decide to use Saflife? Khumalo, who is also head of Saflife, wants to grow the financial-insurance company into a holding company.
“There is an element of discount in the Saflife shares which can offset the premium in the JCI shares,” he added.
Besides, he said, the company is buying into good quality assets and it seemed to be the most sensible thing to do. “It’s an opportunity to create a black-run company of real substance with a controlling interest in a company that has assets of more than R4-billion.”
But market analysts aren’t buying into the Khumalo optimism. Questioned one: “Is Saflife an insurer or a mining house?”
Many analysts feel that Khumalo and AMG struggled to raise financing for the stake, which was sold at a premium of R5,50 per share over the prevailing price when the deal was concluded, and that is why they chose the Saflife route. The decline in the gold price hasn’t helped the situation either, analysts believe.
The price set for the deal, many say, was too high. But Khumalo is adamant that he paid a fair price for the mining house. Anglo, he said, had to charge a premium, as it too has shareholders to satisfy.
“Nobody gives assets away,” Khumalo said. But he is clearly frustrated at the continual sniping at the black empowerment deal. He says he has had to tackle a lot of prejudice in the financial sector towards his company. The first question people ask him, when he approaches investors is: “Who is backing you?”
“It’s frustrating, nobody gave me money. I went around to people like Donnie Gordon [of Liberty Life] to raise the finances.”
So what does the future hold for JCI? Khumalo says he would like to see it become the premium African mining house. The group’s mines are clearly dear to his heart, along with JCI’s exploration north of the Limpopo. Khumalo hinted that he might be willing to sell JCI’s non-core assets, such as its financial investments in Amplats, to fund the group’s exploration plans.
“It all depends on the need for cash; there are many uses for those financial investments by JCI,” he said.
The gold industry is ripe for change, Khumalo believes, especially with regard to training and development on the mines.
“The industry is based on an illiterate workforce and this is messing up the safety levels.”
Another area of continual speculation in the market is whether AMG will buy up Anglo’s remaining 12% stake in JCI. Khumalo says he has had discussions with Anglo, but there are no plans in the immediate future for the purchase of Anglo’s share of JCI. Before then AMG will have to meet Anglo’s two-month extension of the deadline for payment of the 34,9% stake — which will carry no penalties.
Anglo has announced that it will not charge the group interest on the R2,9-billion price tag, which would amount to R70- million, for late payment. No explanation for the decision has been given and Anglo has decided to remain tight-lipped, answering all inquiries with a blunt “no comment”.