Sishen: the plot sickens

Sishen: the plot sickens

2011-01-19 10:41

THE dispute over mineral rights in the Sishen iron-ore mine will persist and create even more uncertainty about the ownership of the mineral rights – with an enormous detrimental effect on the country’s mining industry.

The department of mineral resources’ acceptance of an application by Imperial Crown Trading 289 (ICT) to have its controversial prospecting rights over 21.4% of Sishen converted into mining rights bodes ill for what will follow. It would seem that, through the department, government has clearly chosen sides in the dispute.

The state has apparently sided with ICT – the company with political connections at the highest level. And "the highest level" means no less than President Jacob Zuma.

In this dispute Kumba Iron Ore [JSE:KIO], the owner of the mine – and by implication Anglo American [JSE:AGL] – will come up against the full might of the state in its attempts to retain ownership of Sishen.

Remember, this is not a property on which Kumba/Anglo did prospecting work, and a property containing the right mineral resources that they were fortunate enough to select, and then erect a profitable mine there. It's a mine that Anglo purchased, and for which it paid.

As it was a share-swap transaction involving other assets as well, it would be difficult or perhaps even impossible to determine what the price was, but R30bn in 2001 is a reasonably realistic guess if one were to page through the prospectuses published for listing at the time.

The fact that government has chosen to side with the department of mineral resources holds implications not only for Anglo but also for the steel market and therefore every South African.

In the course of last year Trade & Industry Minister Rob Davies clearly indicated that he regarded the dispute as an opportunity to have the economy enjoy the benefits of cheaper steel through using Sishen’s iron ore – which had been available to ArcelorMittal SA [JSE:ACL] (Amsa) at cost price – as leverage.

This ore would no longer be available at cost if ICT acquired mining rights over Sishen. It would probably mean that ICT was entitled to 21.4% of Sishen’s ore – today possibly more than the 6.25m tonnes to which Amsa was entitled because Sishen’s production has risen considerably since 2001, when this percentage was awarded to Amsa.

It seems highly improbable that ICT’s shareholders would use their likely profits from this ore for the welfare of the country rather than sell it at bull-market prices.

It's particularly interesting to compare ICT’s shareholding with the beneficiaries of Amsa’s so-called black economic empowerment (BEE) transaction. There are six shareholders: Phemelo Sehunelo, founder of the company, who owns 20 shares; Prudence Mtshali, a friend of Deputy President Kgalema Motlanthe, with 20 shares; Archie Luhlabo with 20 shares; Mojalefa Mbete with 20 shares; EdwinTshetlho, with 40 shares; and Jagdish Parekh with 120 shares and therefore owning 50% of the company.

Parekh became a shareholder only in March last year, after the prospecting rights to 21.4% of Sishen had been awarded to ICT. He said that Sehunelo had invited him because of his experience in mining and access to mining expertise. At that stage he was chief executive of JIC Mining, a fairly big mining contractor.

All of the six shareholders are beneficiaries of Amsa’s BEE transaction, but there are other individuals who are not ICT shareholders: Duduzane Zuma, the son of President Jacob Zuma; the Gupta brothers, close friends of Zuma; and Sandile Zungu, who is so close to the president that at one point after the 2009 election there was talk that he would become director-general of the Presidency.

Why were the president's son and the Gupta brothers – who strictly speaking were not previously disadvantaged South Africans as they had not resided in the country during the years of apartheid – beneficiaries in this BEE transaction?

When one approaches ICT for comment, it is clear that Sehunelo is pulling the strings. He's the only shareholder who takes it upon himself to speak about the company, despite the fact that Parekh owns 50% of the company and is the only shareholder with significant mining industry experience.

This makes one wonder whether Parekh perhaps holds his share as a nominee on behalf of other shareholders who wish avoid the spotlight.

Amsa chief executive Nku Nyembezi-Heita heavily stressed that the BEE transaction and the acquisition of ICT for R800m in cash were two separate deals.

The ICT takeover is however conditional on its controversial prospecting right over Sishen being converted into a mining right.
At the end of last year, when Amsa’s minority shareholders began to exert pressure on her to abandon both transactions, she voluntarily stated that the connection between the two transactions could no longer be denied.

From the outset the connection between the two transactions was evident, but Nyembezi-Heita failed to explain the connection – posing a challenging question.
-       Sake24

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  • Johnathan - 2011-01-19 11:01

    Stop referring to the ICT guys as "investors", please. You are insulting real investors by this practice.

  • Mute Fool - 2011-01-19 12:05

    Mr Jan de Lange, can i remind you that the 21% ICT holds has nothing to do with Kumba/Anglo. It belonged to Arcelor? Zuma's son is a PDI, his father was chased into exile by apartheid thugs and was absent for 30yrs to raise his son properly?

  • Graham - 2011-01-19 14:25

    This corupt stupid government will lead this beautiful country of ours into a Zimbabwe situation. Why do these idiots vote ANC....Soon it will be "would the last person out please switch off the lights.....Oh don't worry they are already out!"

  • Themba - 2011-01-19 15:11

    Investigate and prosecute them if true.

  • robyn - 2011-01-19 16:00

    you people tell us to have faith in this country are all the disadvantaged people in SA happy about this ??? or are most of them still so disadvantaged 16 years later that they dont understand or cant afford to read newspapers to see what is happening in South Africa ? we have too many igorant/uneducated people voting for a party that they have no understanding why they are doing it

  • darrell - 2011-01-19 19:28

    You whites are so full of hate, either adapt or get out!

  • Mute Fool - 2011-01-20 11:43

    Mr de Lange, the only thing that Kumba and white media have lost is an opportunity to undermine a black CEO (Nkululeko)? Shame on those black stooges sitting on Kumba board!!

  • SaintBruce - 2011-01-31 12:43

    If what Mr De Lange has outlined here is truthful, then I smell a Beeeg Rat. A Rat called "insider trading" - which is illegal under business law. Sorry - beneficiaries of a BEE deal with Amsa means they are now part of the Amsa controlling share and then engineer to create ICT to hijeck mining rights from their key supplier!!! This is a fiddle on a grand scale if ever I saw one but their mistake was to use Kumba documents ( where did they get these from ?....DMR perhaps??) in their rights application. Very fishy indeed. The CEO of Amsa has admitted that the two deals are connected - no kidding. Very Fat Rats in the making here. read Misha Glenny's book - McMafia to find out why this kind of deal is called a 'spider trap' - masterminded in communist Bulgaria.

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