Lonmin's broken promises: the housing deal that wasn't
In late 2006, Lonmin announced a R318-million housing deal that would have housed 3 000 miners. The deal involved Rand Merchant Bank (RMB) putting up the financing of the houses, while Lonmin would provide surety in the form of shares, in the event that workers were retrenched.
For years questions have swirled about why Lonmin never pursued this option to fulfil its social obligations.
Present employees at Lonmin and at RMB have no knowledge of the deal at all.
Signing the deal would also have made sense for Lonmin, that claims its financial position has prevented it from building the houses it promised to build.
But it has since emerged that the deal was never signed at all. The arrangement was announced in October 2006, by former Lonmin chief executive Brad Mills.
Lonmin’s unfulfilled housing commitments at its Marikana operations have come under increased scrutiny at the Marikana commission of inquiry.
According to news reports at the time, Mills had “interrogated the mineworker-housing situation at Lonmin over the past 18 months”. He also spent a night in one of the hostels and described workers’ housing situation as “unsustainable”.
“He said that 38% of the Lonmin workforce still lived in hostels and the plan was to work with Rand Merchant Bank to ensure that all Lonmin personnel were accommodated in family units within three to five years. RMB had agreed to finance the project and Lonmin would sign surety for the homes, which would be employee-owned.”
“As of last year, Lonmin had 26 534 employees in all, which included its contractors,” Engineering News reported.
No discussions on deal
Lonmin’s former chief operations officer, Mohamed Seedat, produced the agreement at the commission this week. He said that after he joined the company in 2007, no further discussions were had about the deal. Seedat said he was unable to find any information as to why this was so.
The deal was also formally recorded in Lonmin’s social and labour plans (SLP) – crucial to securing its mining rights. But it was never pursued, to the confusion of lawyers at the commission. It has now emerged that this was because it was never signed in the first place.
The letter from RMB, presented on Monday, is addressed to Khomo Mokhobo, then-vice-president of finance at Lonmin PLC. It says that R318-million was approved for the affordable housing project and that 3 000 houses would be built.
Since then, Lonmin’s broken promise to build 5 500 houses in total, including the 3 000 in the RMB deal, has been excused largely due to the 2008 financial crisis, which caused the platinum price to plummet.
Lonmin’s SLP for 2006 indicated that it planned to supply 5 500 housing units by 2011.
“In this regard,” the report says, “[Lonmin] has commenced discussions with Rand Merchant Bank who are likely to provide the necessary funding,” it said in August 2006.
The Mail & Guardian understands that the deal was also reflected in Lonmin’s 2007 SLP. But by 2009, all mention of the deal had vanished from Lonmin’s reports.
Social and labour plans are submitted to the Department of Mineral Resources and would have been a key reason why Lonmin was allowed to convert its old order mining rights in 2006.
The SLP further says that 780 stands were serviced in the 2005/2006 financial year.
Attempts to ascertain details from RMB about why the deal never materialised were stymied because many employees from that time no longer work at the bank.
Deal approved by RMB
But the M&G was able to establish that the deal was approved by RMB, at least from a credit perspective. A source said no legal records were found committing the bank to the deal.
Sue Vey, a Lonmin spokesperson, said: “The agreement was actually never entered into. At the Commission, Mahomed [Seedat] produced a draft agreement that was not signed. I understand that it was never entered into as the draft agreement required Lonmin to stand surety for certain of its employees repayment obligations.”
As things stand, Lonmin has only built three show houses. At the commission it has cited a number of problems that prevented it from upholding its housing promises.
Central to this was the financial crunch of 2008.
On Monday, Seedat told the commission: “So from September 2008, Lonmin had a choice: continue building these houses but you don’t know whether you’re going to be surviving the next year in terms of financials, or put all your effort into ensuring that the company survives.”
In 2007, Lonmin had conducted a survey, which revealed a huge demand for housing by workers, still living in shacks or dilapidated hostels. The housing waiting list had 5 000 names on it, dating back to 1998. The survey also revealed huge levels of cynicism by workers, who believed Lonmin would not keep its housing promises.
On Monday, advocate Tembeka Ngcukaitobi from the Legal Resources Centre cross-examined Seedat. Ngcukaitobi said, “So by 2008 you [Seedat] were already warned that your employees are in fact very angry with Lonmin, in fact the word used here is that they resent Lonmin because it breaks its promises.”
This week Mills, now executive vice-chairperson at West African Minerals, referred enquiries about the deal to his successor, Ian Farmer. Enquiries to Farmer were forwarded to Lonmin.
Farmer took leave from Lonmin before August 16 as a result of a serious illness. In a letter, released over a year later, Farmer apologised for being absent during the strike and said this about the conditions around it:
“Could more have been done with regards to social issues such as working conditions and housing? Clearly the answer to this question must be yes, but on its own this was not in my opinion a primary factor.”
Ben Magara replaced Farmer as chief executive in July 2013.