Analysts believe the new shareholding structure is a blow for black economic empowerment at JCI, reports Madeleine Wackernagel
THE country’s biggest black economic empowerment initiative is turning sour, say industry analysts. The confusion surrounding JCI’s new shareholding structure is a deliberate attempt at masking the fact that real control of JCI is still largely in white hands.
African Mining Group (AMG), the original bidder for Anglo American’s 34,9% stake, has come out with only 6,5%, indirectly through a stake in Saflife, with an option over another 4,9% to be exercised next April. Mzi Khumalo holds 34,9%, once again through Saflife, with another 6% through NK Properties (NKP), a R3-billion mining holding company headed by Brett Kebble. NKP owns 34,9% of Saflife, while Khumalo’s interests hold 20% of NKP.
Analysts question the complicated pyramid structure of this deal, suggesting a more sinister motive. “This is just one paper transaction after another, and goes against all international trends of unbundling and refocusing. It looks like Kebble is trying to take control via the back door,” says one analyst.
Controversy has surrounded the JCI stake sale right from the beginning. First the share price at which the sale was agreed was wildly overpriced – R54,50 against a prevailing R49. It has since fallen to R38 and is now trading at R39.
Then AMG couldn’t raise the necessary capital, leaving Khumalo to call on Saflife, the major shareholder in his Capital Alliance Group, to find the money. The rights issues flopped, and SBC Warburg, the underwriter, is now left holding R600- million worth of shares, which will be unloaded on to various institutions, further diluting the black shareholder base.
Representatives of Saflife and NKP vigorously dispute this argument. Says one: “AMG simply couldn’t raise the necessary finance. Plus circumstances worked against them – the gold price fell, in turn pushing down the share price and consequently putting off potential investors. The reality is that there isn’t that much black capital floating around.”
This view was echoed by a JCI insider: “The fact that Khumalo and other black investors have put up so much of their own capital flies in the face of the argument that this is not a black empowerment deal. There is black capital involved; just not enough of it.
“Khumalo and other black investors have taken a significant risk and stand to lose their shirts if the share price doesn’t recover. So it’s in their interests to make this deal work.”
But AMG members are not as easily convinced. Said one: “We’ve worked so long and hard for this and ended up with next to nothing; it’s a scandal.” While another said: “It is disappointing but the slump in the share price made a greater and more significant participation by black business almost impossible. Khumalo could raise the required funds through Saflife, but others didn’t have the appropriate vehicle so they couldn’t take part. The price was certainly too high but despite that bad price Khumalo found backing.”
Even those in the industry who support the JCI deal concede that AMG has been marginalised, and its role reduced to a nominal one at best. The question now is what happens to the black empowerment element if the ongoing talks with Lonrho result in a merger.
Selling JCI in its present state cannot be easy although the company is adamant it is developing a strategy to put it among the top mining houses in the world within the next three years.
“The opportunities opening up are enormous,” says a JCI insider. “The uncertainty surrounding the shareholder structure has hampered our ability to refocus and devise new strategies.
“Now that’s out of the way, we must get down to business, of which a large part is persuading investors that the group is undervalued. The intrinsic value of JCI is as good as that of our North American counterparts but our share price doesn’t reflect that; we have to get that across to the market. And we can’t look to the gold price alone to add value.
“Certainly, Khumalo is very keen to unlock the company’s potential.”
At the time of going to press, Khumalo was back in London for more talks with Lonrho executives. But no decision is expected soon, say sources in London.