The interesting relationship between a mining boss and his questionable “consultants”.
JOHANNESBURG – When a company needs to put a black economic empowerment (BEE) deal together as well as secure mining rights who does it go to? An established corporate sponsor located on the top floors of a Sandton office building? Or a convicted bank robber with a questionable (if not unknown) mining history, who seemingly owns night clubs, and counts amongst his group of friends a fellow convicted fraudster with a reputation for eating sushi off half-naked women whose main enterprise happens to also be located, on the top floor of a Sandton hotel? Well if you’re Gold Fields (JSE:GFI)’s CEO Nick Holland and his board, it’s a no brainer.
On May 10 2010, Gold Fields announced that the Department of Mineral Resources (DMR) had approved the conversion of the South Deep old order to a new order mining right. Fantastic - one would have thought, having waited years to secure the mining right, things were finally going well for the gold company. But the South Deep mining rights meant a second round of BEE.
In 2004 Mvelaphanda Resources (JSE:MVL) acquired a 15% interest in Gold Fields’s South African assets (foreign assets are excluded from BEE legislation). Mvelaphanda Resources agreed to pay R4.1bn in cash, which it took years to finally pay off. In the end, it was agreed that the 15% stake in the domestic assets would be swapped for 50m new ordinary shares in Gold Fields’s listed stock. However, Gold Fields still faced the legislated target of 26% in the hands of BEE parties by 2014.
The power brokers
Early in 2010, Gold Fields “contracted” Gayton McKenzie, a convicted bank robber and self-confessed gangster to prepare proposals for a consortium of groups and individuals that could be considered for inclusion in the BEE deal. Gold Fields also “appointed” in this respect Jerome Brauns, an advocate who represented President Jacob Zuma during his rape trial.
McKenzie and business associate Kenny Kunene’s relationship with Brauns seems to have been cemented during the Jali Commission, which probed alleged corruption in South Africa prisons. Kunene relates a story of how he warned the advocate who at the time was appointed to head up the Jali Commission, that his tea was poisoned.
“The gangsters in jail gave me a pot of extremely poisonous tea to serve to Jerome Brauns and his legal team, but I had vowed never to do another crime, so I wasn't about to break that oath by committing a multiple murder," Kunene told the Mail & Guardian. "Jerome and I became friends after this incident."
Gold Fields insists that “the main attraction” in the selection was Brauns, but Moneyweb understands that both Brauns and McKenzie came as a packaged deal. The entity tasked with preparing proposals for inclusion in the BEE Consortium was Gayton McKenzie (Pty) Ltd. McKenzie confirmed his role in structuring the deal to Moneyweb admitting to “playing a major role in putting the deal together”.
Kunene, infamously known as the “sushi king” after his much publicised party which involved the eating of sushi off half-naked women, is also part of Gayton McKenzie (Pty) Ltd. Kunene is also a convicted fraudster who was caught in the middle of a pyramid scheme. Both Kunene and McKenzie were directors of Gayton McKenzie (Pty) Ltd at the time the company was contracted by Gold Fields to draw up a BEE register.
It is thus odd that Gold Fields contracted Gayton McKenzie (Pty) Ltd to do work for it as Section 218 of the Companies Act disqualifies anyone jailed for theft, fraud, forgery or perjury from being a company director, unless the High Court sets aside the disqualification. At the time the deal was struck neither McKenzie nor Kunene had such an order from the High Court or had applied. Both have subsequently resigned from directorships, claiming ignorance of the law.
In February McKenzie told the Mail & Guardian, “when you've been imprisoned, there will always be questions about your right to be a director, while it may not be entirely fair, I do understand why these questions continuously crop up. So not acting as a director spares everyone a lot of unneeded angst."
Gold Fields is not the only mining company, where the two ex-convicts who met in prison and were released in 2003, have been involved, they have also been linked to dual listed Central Rand Gold (JSE:CRD) (CRG), a company which since 2006 has raised $230m in cash from investors, of which tens of millions has been diverted to non-mining expenditure: astonishing payments to executives “other expenses” (including millions spent on “accommodation” and “travel”), and further millions on “consulting services”, paid to unidentified persons. The fate of the combined $230m that CRG has raised from investors through the stock markets is a subject of fair clarity.
Last week Moneyweb reported that by the end of 2007, the company’s balance sheet showed total assets of $162m; by end-2010, the number had shrivelled to $56m. The net cash balance plummeted from $149m at the end of 2007 to minus $4.1m by mid-2010. The cash position was improved after further calls on investors in 2010, with nearly $43m in cash rolling in. At the end of April 2011, according to latest information, CRG had $7m in cash.
Writing in CRG’s 2010 annual report, Michael McMahon, chairman from April 14 2010 ( who’s also served as a non-executive at Gold Fields between 1999 and 2008) covered some of the issues that have influenced a fall of 99% in CRG’s stock price from its listing levels. On March 29 2011, CRG halted underground mining, citing rising acid water levels - a threat known on the Witwatersrand for years, if not decades. Since inception, CRG has spent $63m on actual mining capital expenditure. Its free cash flow over five years has been negative to the tune of $183m.
Another familiar face to have popped up at CRG is none other than Brauns: the advocate who apart from helping form the BEE consortium is also one of its main beneficiaries. He now serves as a non-executive director at CRG. Both McKenzie and Kunene were held in high regard at CRG. Kunene was awarded 30 000 shares on November 1 2007, and a further 20 000 in May 2008; all at a penny a share. 20 000 shares in the name of Kunene vested on May 9 2008, when the CRG stock price was around £1.10 a share.
McKenzie, however, was awarded 250 000 CRG shares on November 1 2007 (when the stock was trading around 140 pence a share) for a princely penny a share. McKenzie was awarded by far the most among “senior managers” at CRG; the next highest number of shares is 50 000. Based on this, it would seem that CRG rated an ex convict as its most valuable person, excluding those on the board of directors.
According to CRG, on December 9 2010 CRG was told that “Mr Gayton McKenzie would be leaving the full-time employ of the company in 2011, but would continue to provide services on a contract basis, and that Mr Kenny Kunene would similarly be leaving the full-time employ of the company shortly thereafter”.
Gold Fields flip-flop on the Sushi King
It’s thus hardly surprising that Gold Fields with a market value of $11.3bn wouldn’t want to broadcast the fact that it has a financial relationship with Kunene, given his colourful history but, when Moneyweb asked the company directly if it had any association with the “sushi king”, the reply was that “Kunene was never employed by Gold Fields in any capacity”.
However, just two days later, Kunene in an interview with the New York Times explained how both he and McKenzie helped Gold Fields retain its mining rights to the South Deep mine. The story quotes Sven Lunsche a Gold Fields spokesman saying it involved, “… a lot of political lobbying work”. When Moneyweb pointed out to Lunsche, that it appeared as if the company was saying one thing to us and another to the NYT, he accused the paper of taking his comments “completely out of context”.
He argued that at no point had Gold Fields denied, “… that Kenny was part of the group [Gayton McKenzie (Pty) Ltd] but [we] want to stress that Gayton and Jerome were the key people involved”. Yet again he confirmed that theirs was “… the drawing up of the BEE register”.
Kunene himself despite admitting to playing a somewhat minor role was determined not to have his name being linked to Gold Fields; he told Moneyweb, “…try to keep my name out of it, please man”.
Gold Fields’s CEO Nick Holland, McKenzie and Kunene
Moneyweb has established that during last year’s FIFA World Cup, McKenzie, Kunene and a few others were invited to Holland’s private residence in Northcilff, Johannesburg, where the South Deep BEE deal was discussed.
Gold Fields has admitted as much: “Holland in the normal course of exercising his duties as chief executive officer, regularly receives a diverse range of Gold Fields employees, business associates and other stakeholders at his personal home. This practice is an integral part of his approach to stakeholder management”.
His involvement with the ex-convicts included Gold Fields sponsoring a soccer tournament for prisoners at Diepkloof prison. At this tournament Holland was seen sporting with Kunene and McKenzie. Gold Fields has confirmed that it sponsored the tournament “as a responsible and engaged corporate citizen”. Holland’s relationship with the ex-convicts is a very personal one. Both Kunene and McKenzie have on many occasions met Holland and other Gold Fields executives at the company’s corporate office in Sandown, Johannesburg. Such visits also included the CEO taking among others both McKenzie and Kunene on a tour of the South Deep mine. According to Gold Fields, these visits only took place “as part of familiarising the advisers and proposed participants in the … consortium with the mine”.