A multibillion-rand manganese empowerment deal is on the brink of collapse because a Chinese-led company has attempted to monopolise the deal through shareholder misrepresentation, sources close to the transaction have claimed.
The Department of Minerals and Energy will invoke Section 47 of the Minerals and Petroleum Resources Development Act to cancel the lucrative manganese prospecting rights recently awarded to two black economic empowerment (BEE) companies if the department finds that a foreign entity misrepresented its ownership structure to win rights in one of South Africa’s most important strategic assets — the Kalahari Manganese Field in the Northern Cape.
”We are not going to be soft if our investigation reveals that we were misled,” said Jacinto Roche, Deputy Director General for mineral regulation in the minerals and energy department. ”This is exactly the fronting we are fighting against.”
Roche said that he would meet with the affected parties next week partly to investigate these allegations.
About 80% of the world’s known and commercially mineable manganese reserves are found in the Kalahari Manganese Field in the Northern Cape. South Africa produces about 15% of world demand.
Two South African companies, Samancor Manganese and Assmang, dominate the production and marketing of the country’s manganese — a duopoly that the government has been applying pressure to break through the introduction of new players, specifically historically disadvantaged individuals, to the market.
A new player with significant access to the Kalahari reserves could open market share by challenging, or colluding, with Samancor and Assmang. If a new player joined forces with Samancor or Assmang they would automatically have access to the Kalahari Manganese Field, which the two companies have already developed.
At the heart of the current corporate drama in the Kalahari are a range of themes central to understanding how BEE is unfolding in South Africa.
Firstly, the case highlights a troubling BEE trend: the high number of fronts parading as black empowered companies. These are hidden in complicated shareholding structures, but it is an area that the government is beginning to investigate as this case shows.
Secondly, it reveals how different groups of politicians in business (all from within the ANC) are becoming caught in nasty turf battles.
Finally, and most crucially, it raises the conflict between two competing imperatives: in this case, a Chinese company is vying to get the choice stake in lucrative manganese fields (thereby encouraging foreign direct investment) which the government wants black business to own.
Bagging the deal
The two BEE companies involved in this dispute — Dirleton Minerals and Energy and Northern Cape Manganese Company — were awarded joint prospecting rights to exploit six of the most mineral-rich farms in the Kalahari Manganese Field in November last year.
Two representatives of the Northern Cape Manganese Company — Julius Mongwaketse and David Mogashoa — hold senior leadership positions in the ANC.
Mongwaketse is a member of the provincial executive committee in the North West and was a member of the minerals and energy portfolio committee in Parliament until 2004.
Mogashoa, in April, took the ANC to court for allegedly illegally removing him from his mayoral position in the Taung municipality, in 2000. The case is pending.
Zwelakhe Sisulu, son of ANC stalwart Walter Sisulu, is a director at Direlton.
Assmang originally held the rights to all six farms but, under the new minerals Act, promulgated in 2004, was forced to reapply for most of its rights after all minerals ownership was transferred from private ownership to the state.
After the rights were awarded to Dirleton and Northern Cape Manganese Company, they were required to form a joint venture with a technical partner — usually an international company that provides financial and technical support to the South African companies in return for a minority share in the joint venture. The law’s intention is that this technical partner provides finance and technical expertise, but that majority ownership must reside with blacks.
But this is where the deal unravelled, prompting the intervention of the minerals department to investigate claims of shareholder misrepresentation.
According to Roche, a departmental rule effective at the time the parties applied for their prospecting rights stipulated that the joint venture that would benefit from the prospecting rights had to have a minimum 51% majority held by South African black-owned companies or individuals.
But Northern Cape Manganese Company, according to its share register at the time it applied to the government for the prospecting rights, was majority owned (74%) by a Hong Kong-based entity, AML Resources Limited. The remaining 26% was held by a BEE company, NWC Manganese. Roche said that, at the time that Northern Cape Manganese Company applied for the rights, it told the government that it was 51% owned by NWC Manganese.
”According to [the department’s records], Northern Cape Manganese Company’s shareholding is 51% NWC Manganese and 49% AML,” said Roche. ”If [Northern Cape Manganese Company] misrepresented its shareholding at the time of its application the minister would be within her rights to cancel the prospecting rights.”
A hurried change of ownership?
Eddie de Atouguia, a director of the Northern Cape Manganese Company and AML, said the latter had decided in November 2004 to relinquish its 74% shareholding in the company to 49%, in line with the government’s requirement that the company be majority BEE-owned.
The share register does not yet reflect this amendment, as determined by an M&G investigation.
”The shareholders’ register has not been amended to reflect that change,” said De Atouguia. ”A written shareholders’ agreement reflecting the agreement [to change the shareholding] will be signed imminently and the shareholders’ register adjusted accordingly.”
The M&G reliably understands, however, that the relinquishment of AML’s shares in the company has come with certain demands that, if heeded, would ensure that the foreign entity retained its monopoly in the joint venture.
This foreign entity — AML — wants to automatically be appointed the technical partner in the joint venture.
The more kosher option for a fairly structured deal is an open tender where other potential technical partners could be appointed, not imposed. If the Chinese company is automatically appointed, it could create a conflict because it would play two roles: technical partner as well as ”Ore-body holder”, since it jointly owns the lucrative rights with the ANC’s heavyweight Northern Cape members: Julius Mongwaketse and David Mogashoa.
In the end, the Chinese would end up with a controlling stake of 61,75% in the new manganese company — a move that would be out of sync with the purpose of the law and which would also usurp control from the BEE company.
De Atouguia says: ”Northern Cape Manganese Company supports empowerment in South Africa. It has not insisted that AML be the technical partner in the special-purpose vehicle.”
If the deadlock between the two BEE companies is not broken the minerals and energy department is within its rights to cancel the prospecting rights on July 26.
”Our objective is to break the duopoly [held by Samancor and Assmang] and if it came to light that [Northern Cape Manganese Company, through AML] is hiding a relationship with a member of that duopoly then that is a serious conflict of interest,” said Roche.
Dirleton said it did not wish to comment, saying it was negotiating with the department.
The players
Dirleton Minerals & Energy, formed in 2000 as an empowerment company to take advantage of opportunities in the mining sector, is chaired by Zwelakhe Sisulu, son of ANC stalwart Walter Sisulu. The company is 75% owned by the Zwelakhe Sisulu Trust. Vuyisile Mdleleni, a director in the company, is also a shareholder.
Northern Cape Manganese Company (NCMC) was formed in 2002, primarily to take advantage of the Minerals and Petroleum Resources Development Act, which enabled the introduction of new players to the Kalahari Manganese Field, historically dominated by Samancor and Assmang. According to the latest NCMC share register, the company is 74% owned by Asia Minerals Resources, a Hong Kong-based manganese trading company, and 26% owned by NWC Manganese Company, a broad-based BEE company based in the Northern Cape.