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Mzi Khumalo in Zim damages claim

Controversial mining magnate Mzi Khumalo is at the centre of a $7,4-million damages claim that got under way this week in the Harare High Court.

This is reportedly the highest ever damages claim in Zimbabwe’s history, and relates to the purchase of Lonmin’s gold mines in Zimbabwe by Khumalo’s Pemberton International Investments for $15,5-million in 2002.

Zimbabwean tourism and marketing tycoon Lloyd Hove, who also heads up Stanmarker Mining, claims his company was sidelined when Khumalo snapped up Lonmin’s Independence Mining, comprising five Zimbabwean gold mines, in violation of a joint venture agreement signed by Metallon and Stanmarker in 2002. Hove initiated discussions with Lonmin in 2001 with a view to purchasing its five gold mines, with annual output of about 190 000 ounces of gold a year, making it Zimbabwe’s largest gold mining group. A due diligence was carried out and finances arranged for the purchase of these assets.

Soon afterwards, Khumalo approached Lonmin and subsequently entered into a joint venture agreement with Stanmarker. This was at a time when the Zimbabwean government was making noises about introducing a law to compel foreign owners of mining assets to take local black partners on board.

In terms of this agreement, a new joint venture company would acquire Independence Mining, with 40% going to Stanmarker and 60% to Khumalo’s Metallon group. The Zimbabwe Independent reports that Metallon was to provide all the funding for the acquisition, while Stanmarker would seek approval from the Zimbabwean government for the joint bid in accordance with the country’s foreign investment rules.

Stanmarker has accused Khumalo and Metallon of acting in bad faith by going behind its back and purchasing Independence Mining in violation of the joint venture agreement, which expired in September 2002. According to one Zimbabwean businessman close to the case, the next day Khumalo flew to London and concluded a deal with Lonmin on behalf of Metallon, having failed to conclude a similar deal on behalf of the joint venture.

“Suddenly, the day after the joint venture agreement expires, Khumalo is on a plane to London and has bought Independence for himself,” says the businessman, who asked not to be named. “Meanwhile, Hove believes he has joint venture partners who are acting in his best interests.”

The businessman says Hove had financial backing of his own and was quite capable of doing the same deal that Khumalo did, but he chose to honour the joint venture agreement and leave the negotiations up to Metallon’s appointees. That, say those close to the case, was Hove’s fatal mistake.

Stanmarker originally claimed $12-million from Metallon based on its valuation of the assets at the time of the deal, but has since agreed to drop this to $7,4-million.

Veteran Zimbabwean advocate Chris Anderson asked Metallon negotiator Peter Gain how Khumalo paid for the Zimbabwe gold assets. Gain replied that the funds were advanced by Deutsche Bank to Mawenzi, a company controlled by Khumalo, and were to be offset by funds raised from the sale of Harmony shares on the JSE.

Around this time, Khumalo netted himself more than R1-billion through the sale of Harmony shares in what has become known as the “Simane affair”. Simane was a broad-based grouping of mine workers and community organisations that was to become Harmony’s black empowerment partner.

Khumalo managed to intercept most of these shares for himself at a hefty discount and sold many of them into the market at a handsome profit. The Industrial Development Corporation (IDC) came up with soft funding for Simane, and it was several months before Harmony realised that Khu-malo had bagged the shares for himself.

Adding further controversy to the deal, Khumalo reportedly advanced a R6-million loan to two IDC executives tied to the deal. He was a protégé of murdered mining tycoon Brett Kebble, though the two had a famous falling out in later years resulting in Khumalo’s resignation as chairperson of JCI.

In the Harare High Court this week, Stanmarker’s lawyers attempted to paint a picture of dubious business dealings by Khumalo. Gain, who helped compile the joint venture agreement, admitted that though he was authorised to negotiate on behalf of the joint venture parties, he had never had any contact with Hove. The first time he had seen him was this week in court. Stanmarker is claiming that there was no intention by Metallon to conclude a purchase agreement with Lonmin until the joint venture agreement expired and the way was cleared for Metallon to bag Independence for itself.

Metallon subsequently sold 30% of Independence to another local business grouping, Manyame Consortium, but this arrangement is in dispute.

Zimbabwe’s Business Digest reported that Khumalo had tried to buy out Manyame’s shareholders with a $3-million offer, and then list the group on the JSE. Manyame’s shareholders are now bringing a separate case to force Metallon to disclose its financial results and ascertain whether they are due any dividends.

Manyame reportedly paid $9-million for its 30% share, more than double the price Khumalo paid for his shares. At Khumalo’s $15,5-million purchase price, a 30% stake is $4,65-million. Manyame paid $1-million of it in cash, with the rest to be paid out of dividends. Manyame shareholders say they have not been given information on the operations of Metallon Gold Zimbabwe (formerly Independence Mining), and are therefore unable to ascertain the state of their loan account, which was to secure its share purchase.

Khumalo was not expected to appear in court in Harare, and lawyers involved in the case expect a decision within the next two to three weeks now that the case has been wrapped up.

Summarising the events of the week, one Zimbabwean businessman says: “Mzi Khumalo hasn’t made too many friends up here.”

Khumalo and Metallon executives could not be reached for comment at the time of going to press.

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Ciaran Ryan
Guest Author

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