Corporate cowboys’ Kebble coup

Information withheld

The information blackout relates to KPMG’s forensic investigation into suspect JCI transactions.

The results of a similar investigation of Randgold, by Umbono Forensic, were given to shareholders last year in an abridged report. Yet, despite shareholder demands, the boards have refused to publish any version of the JCI report.

Investors in Randgold, Kebble’s main target, have been told they will be given no information at this stage. They will not be told who in JCI — apart from Kebble — is responsible for shares siphoned out of Randgold worth more than R7-billion at current prices.

They will not be given access to the forensic investigations, nor told the breakdown or basis of the claim their directors are negotiating with the JCI’s directors — who, in the case of the chairperson and CEO, happen to be the same people.

The Randgold board claims that providing information would jeopardise a controversial secret mediation process aimed at determining how much JCI should repay to Randgold.

The independent mediators — accounting professor Harvey Weiner, mediation specialist Charles Nupen, and senior counsel Schalk Burger — would not comment.

Board upheaval

The concerns about conflicting interest relate chiefly to Gray, Nurek and Nissen’s membership of the boards of both JCI and Randgold — the company to which JCI owes billions.

Concerns have been surfacing sporadically since Gray took the reins of both companies after the Kebble era. But they burst into the open last Friday at a dramatic Randgold shareholders’ meeting, which ousted two independent directors minority shareholders forced on Gray.

The two, Johann Blersch and Tom Dale, are widely respected in the mining industry.

Expecting their removal — they were considered too disruptive — they published a stinging condemnation of corporate governance at Randgold.

‘Since our appointment in August 2006, we have become totally dissatisfied with the standard of corporate governance at Randgold,” they wrote. ‘Throughout our period of tenure as directors we have endeavoured to act independently and in an unconflicted manner and have exercised our discretion … in the best interests of the shareholders of Randgold. We have taken independent legal advice and documented our views extensively to co-directors. In a majority of instances, we have either not been allowed to speak, [or have been] ignored, overruled or outvoted.”

Blersch and Dale raised the same conflict issues, but also highlighted two crucial issues not disclosed to shareholders:

Both issues would affect the settlement.

Sewing it up

However, Blersch and Dale’s alarm is likely to come too late.

An announcement of the proposed terms of the merger deal was expected on Thursday night, and shareholders face the choice of accepting the numbers or litigation.

The proposal is likely to offer fairness to shareholders; whether it does justice to corporate governance is another matter.

One well-placed observer joked: ‘If the merger goes ahead the shareholders [will have] been raped by Investec after having been rodgered by Kebble —

‘Once the deal is closed, the Investec loan will be ratified and done. They [will have] put the dead dog to rest …

‘All players were naughty.” He said they would all agree to the deal to avoid exposure.

White knights or dark horses?

Since its 2005 loan to JCI, Investec has presented itself as a white knight whose cash injection saved value for JCI and Randgold shareholders that would have been lost had JCI been forced into liquidation or lost its major asset — a share, via Western Areas, in the South Deep gold mine.

But Investec was also protecting its own interests: the bank had a huge exposure to Western Areas’ hedging arrangement, which sold gold forward at a large discount on the current price. If Western Areas had been liquidated, those who had signed a long-term agreement for the supply of cheap gold would have looked to Investec to make good billions of rands.

Investec also structured the loan to ring-fence JCI’s main assets as security, meaning it carried very little risk, plus negotiating itself a hefty fee and profit share based on any improvement in the value of the assets.

Most controversial, however, was the loan term demanding the restructuring of the boards of both JCI and Randgold, which was not party to the loan agreement, to Investec’s satisfaction.

What emerged were two boards dominated by directors friendly to Investec and where at least three directors — Peter Gray, David Nurek and Chris Nissen — served on the board of both JCI and its biggest creditor, Randgold.

Gray, the chief executive of both companies, was also a close Kebble associate. He was the chief executive of T-Sec, the Kebble-backed brokerage firm through which most assets pillaged from Randgold were sold.

Section 417 insolvency inquiries have allegedly revealed a breakdown in the checks and balances exercised by T-Sec, though Gray has denied he could have known about Kebble’s abuse of the system.

Perhaps even more problematic are the positions of Brenda Madumise and Nissen, both re-elected to the Randgold board last Friday.

Madumise is an advocate-businesswoman who earlier worked for the ANC legal department, the ANC Women’s League, Telkom and the government. Nissen is an ANC Western Cape executive committee member and former provincial minister.

Madumise and Nissen became associated with Randgold through the 2003 Phikoloso transaction, one of the more audacious frauds perpetrated by Kebble on Randgold.

It was trumpeted at the time as an empowerment deal that would give the Phikoloso consortium shares worth R268-million in Randgold. Phikoloso paid by ceding a shelf company called Viking Pony Properties, which, in, turn ‘owned” mining assets worth R235-million. As it turned out, Viking Pony (on whose board Madumise also served) did not have the assets.

Phikoloso was a ‘broad-based” empowerment group comprising, among others, an ANC Youth League investment vehicle and companies led by Madumise and Nissen. Both were appointed to the Randgold board.

The Phikoloso transaction is being probed by the Scorpions as part of their investigation into ‘Empire K”, the ‘K referring to Kebble.

A Scorpions affidavit last month in support of an in camera court application for warrants to search the premises of 27 individuals and companies listed Madumise as among those ‘under investigation”.

Her home and the offices of South Atlantic Fisheries, a Kebble-linked company Nissen heads, were targeted for searches.

Madumise and Nissen’s historic links with Kebble, and specifically in relation to the Phikoloso transaction, raise the question of whether they could properly represent Randgold shareholders.

In the case of Nissen’s South Atlantic Fisheries, the conflict is compounded by the fact that it was funded by Investec, with JCI binding itself as surety.

Randgold and JCI respond

Randgold and JCI responded to the Mail & Guardian‘s questions as follows:

‘As shareholders are aware, the board of directors of R&E was re-elected at the meeting of shareholders which took place on March 9 2007. The current directors are satisfied that they have always acted in the best interests of shareholders and that their actions are beyond reproach. They continue to do so.

‘The board of JCI expresses the same level of confidence in its own conduct.  

‘A statement will be issued shortly updating shareholders as to the way forward. Any proposal that may be agreed upon will require the approval of shareholders. Should either company’s shareholders reject the proposal, the dispute will proceed to arbitration in terms of the mediation/arbitration agreement concluded on April 7 2006.”