Mining magnate Mzi Khumalo has lost what is reportedly the largest damages claim in Zimbabwe’s history. This is after his company, Pemberton International Investments, the investment vehicle of Metallon Gold Corporation, was ordered to pay Zimbabwe’s Stanmarker US$7,4-million in damages for a breach of contract in which it elbowed the latter out of the acquisition of Lonmin’s five gold mines in Zimbabwe.
Lonmin was Zimbabwe’s biggest mining operation, which produced 190 000 ounces of gold annually.
Stanmarker chairperson and tourism tycoon Lloyd Hove initiated negotiations with Lonmin in 2001, with a view to buying the five mines. In the deal, Metallon Gold and Stanmarker would own 60% and 40% of the investment respectively.
High Court Judge Yunus Omerjee ruled this week that there was a “breach of trust”, in that Stanmarker was kept in the dark in the subsequent negotiations between Metallon Gold and Lonmin.
Metallon then made the bid for itself and pursued negotiations with Lonmin. Its effort was successful, which resulted in it acquiring effective control of the Lonmin investments at the exclusion of Stanmarker.
“The defendant does not pass the good faith test,” Judge Omerjee ruled. “It is to be noted that the duty of good faith does not permit one partner to outsmart the other partner, as it appears to have happened,” he said.
“It is my conclusion that the defendant is way in breach of its continuing mandate imposed on it by the duty of good faith,” he ruled.
Khumalo’s woes, at home and abroad, appear far from over. Following the purchase of the five mines for $15,5-million, Metallon subsequently sold 30% of the operation 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, roughly double the value of a 30% share of the $15,5-million Metallon paid. 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 the share purchase.
On the local front, Khumalo will continue his specialty of putting out a range of fires. His flagship operation Metallon Gold has been in the process of listing for some time. That looks increasingly unlikely as last month the company lost its CEO, Greg Hunter, and financial director, Mark Rosslee. The duo joined London-listed exploration firm Central African Gold.
Khumalo’s other operations include building work at Zimbali Lodge. This takes place against the background of his continuing battle with authorities about a R200-million fine that hangs over his head in connection with the repatriation of funds he placed offshore.
This forms part of a number of questionable transactions Khumalo was involved in. A few years ago, 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 Khumalo had bagged these shares for himself. Adding further controversy to the deal, Khumalo reportedly advanced a R6-million loan to two former IDC executives tied to the deal.
Khumalo recently engaged in a roughly similar transaction. Following the purchase of a joint controlling stake with Bulelani Ngcuka’s Amabubesi Investments in construction company Basil Read, Khumalo was found to be exploiting his empowerment status. Having purchased the shares at 82c, Khumalo sold some of his shares in the open market at prices of more than R5.
This was after trying to buy out minority French shareholder Bouygues, Travalaux Public, in a move that was downplayed by Basil Read as “a formality” required by JSE rules of anyone who takes a controlling stake. The French said “Non”. In both, the sale of Harmony and Basil Read shares, Khumalo had diluted the empowerment status of the two companies and made a handsome profit in the process. The standard practice would be to sell to another black investor to maintain the empowerment shareholding.
Khumalo could not be reached for comment.
Additional reporting by Ciaran Ryan and Thebe Mabanga