Empowerment war Simmers
The ugly spat between junior miner Simmer & Jack (Simmers) and its empowerment partner Vulisango has revealed fault lines beneath the empowerment structures of South Africa’s mining sector.
At the heart of the dispute, which erupted two weeks ago, is Vulisango’s claim that Simmers seeks nothing more than a docile BEE partner, unwilling to question management or act in the interests of the company or its shareholders.
Key to this claim is the dilution of Vulisango’s empowerment stake from 26% to 22% as a result of shares issued to raise money that would allow the company to pursue growth and investment opportunities.
Simmers has denied this. It says the dispute relates to one shareholder attempting to further its interest over those of the remaining shareholders in Simmers, and Vulisango directors on the Simmers board sought to create empowerment conditions for Simmers that are more onerous than the requirements of the Mining Charter.
Government has intervened in the boardroom bust-up.
Last Wednesday it announced that it is investigating Simmers for alleged BEE fronting.
Entities such as the Financial Services Board and the Johannesburg Stock Exchange (JSE) are also investigating Vulisango and former independent director Kevin Wakeford for alleged leaks of potentially price-sensitive information into the market.
The battle saw five directors resign from the Simmers board, including Wakeford, Siviwe Mapisa, Bulelwa Njenje, Ayanda Sisulu and Stuart Murray.
The saga is made even more complicated because the relationship between Simmers and Vulisango was born of the late Brett Kebble’s business empire. Although the now defunct Kebble empire was widely viewed as corrupt and is subject to many investigations for dodgy deals.
Vulisango’s current and former directors are a cluster of influential businessmen and women with ties to the Eastern Cape ANC, as well as links to government.
They include Valence Watson, chief executive of Vulisango, and brother of controversial businessmen Cheeky and Gavin Watson, and Mapisa, brother of Correctional Services Minister Nosiviwe Mapisa-Nqakula, the spouse of former police minister Charles Nqakula.
Vulisango’s share in Simmers originated in 2005 through an entity known as Jaganda, at the time part-owned by Vulisango, and a management voting pool that reportedly included Roger Kebble, Brett’s father, and Ronnie Watson, Valence’s brother.
Jaganda obtained the Simmers shares through a deal with JCI, a company at the heart of Brett Kebble’s financial sorcery. The deal apparently matures in 2010.
A similar dispute arose between Simmers and Vulisango over the structure of the Jaganda entity in 2006. Here, too, the dilution of Vulisango’s BEE shareholding was a problem when Jaganda’s stake dropped in the process of acquiring the uranium-bearing Ezulwini mine. Ezulwini developed into First Uranium, a huge boon to Simmers’s business and now listed on the Toronto stock exchange.
The resolution of this initial spat saw management sell out of Jaganda. The company was assigned at least a 26% shareholding in Simmers, with a management contract and board control.
Valence Watson told the Mail & Guardian that this deal was struck with the understanding that any future dilution of Vulisango would be discussed with the department of minerals and energy, now mineral resources.
Vulisango put Jaganda into liquidation in 2008, a move that is being countered in court by JCI.
Observers sympathetic to Simmers allege that Vulisango’s motive for liquidating Jaganda was to ensure the company could escape a full payout of the transaction with JCI but retain its influential shareholding in Simmers. They say Vulisango’s real worry about its share dilution, from 26% to 22%, weakens its case for liquidation.
But Watson rubbished this claim, saying that its dispute with JCI and the liquidation of Jaganda are related to the irregularities of the transaction with JCI, done during the Kebble era.
Simmers declined to comment on the JCI matter.
The move by Simmers to issue the additional 109-million shares, said Watson, dilutes Vulisango’s 26% shareholding, and was made without the department’s approval.
Simmers has countered that there is no departmental directive preventing it from issuing shares. In addition, it said Vulisango’s 22% shareholding is above the Mining Charter target of 15% and close to the 2014 target of 26%.
Whatever the truth, the result, once again, is damage to the company’s public image and pain for all shareholders.
The fight also takes place against a backdrop of uncertainty about amendments to the Mineral and Petroleum Resource Development Act (MPRDA), which dramatically increase ministerial discretionary powers. Critics say this increases the risk of political interference.
Mining analyst Peter Major, of Cadiz Corporate Solutions, said: “While questions hang over the conduct of all parties, what confounds me is that it appears Simmers has failed to resolve the very same tensions and issues that caused the original ‘boardroom blowout’ back in 2006.
“The company has not performed nearly as well as it should have by now. Despite hundreds of millions of rands raised in rights issues and spent on prospecting and capex for both new and existing operations, the company consistently reports higher-than-expected costs, weak or battling operations and a share price that is down from a high of R7,50 in 2007 to a miserable R1.70 today—exactly where it was nearly four years ago. Yet the gold price then was R3200 an ounce as opposed to today’s R7300 an ounce.”
Simmers ascribes the share’s performance to falls in the uranium price and its involvement with the Dealstream brokerage collapse, which saw a chunk of its shares pass to Rand Merchant Bank.
“Added to this is the impact of the collapse in global equity markets and the subsequent negative market conditions, which have been exacerbated by the strong rand and uncommonly high increases in the costs of mining consumables, fuel and energy,” Miller said in a statement to the M&G.
The department is concerned about the effect the dispute has had on the empowerment environment in South Africa. Allegations in the media prompted it to extend a routine inspection at Simmers to include publicly aired allegations.
“We are particularly concerned about the impact that the spat may have on empowerment broadly,” said Jeremy Michaels, spokesperson for the department.
Simmers would not comment on the effect of the fight on the minerals sector but, Miller said, international investors had “asked us for clarity and assurance about the requirements and regulations.
“Their primary concern is their ability to analyse their investment exposure based on transparent and consistent application by the regulators of the relevant mining regulations.
“Our response to those shareholders was that Simmers complies.”