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Kebble's house of cards
David McKay
Posted: Mon, 15 Aug 2005
[miningmx.com] -- THE controversy surrounding the solvency of Brett Kebble spells bad news for the web of empowerment firms that South Africa’s most famous prodigal son has created. At least three empowerment entities could be fried if Kebble goes under.
That follows the late submission last week of accounts by JCI and Randgold & Exploration and their subsequent suspension by the JSE.
The first empowerment grouping under threat is Matodzi Resources, the empowerment firm led by Sello Rasethaba that owns the Letseng diamond mine in Lesotho. JCI has undertaken to have preference shares, granted to it by Matodzi in a previous capital-raising exercise, converted into ordinary shares.
That’s intended to guarantee Matodzi’s future to its auditor. However, without a JCI to agree to the conversion Matodzi’s preference shares sink the firm’s balance sheet.
The second
empowerment company is Inkwenkwezi, led by Mafika Mkwanazi, which is hoping to buy Anglo American’s 15% in Western Areas. Randgold & Exploration has “loaned” shares in Randgold Resources to help finance that acquisition.
If the “loan” of the shares is actually a sale, the transaction could be deemed in contravention of corporate law. Down goes Inkwenkwezi, whose efforts to buy into Western Areas JCI has also endeavoured to underwrite.
In truth, it’s the loan of the shares in Randgold Resources that has Randgold & Exploration’s auditor – and shareholders – in a froth more than the actual late submission of its accounts and those of JCI. And if the shares can’t be retrieved – if they were effectively sold – Kebble would have broken SA’s Companies Act.
Selling 25% of Randgold Resources is a transaction worth R1,3bn, large enough to have warranted shareholder approval, including that of Allan Gray, the Cape fund. Stephen Mildenhall, chief investment
officer, says that the company will “consider all its options”. Mildenhall stops short of threatening legal action, but one suspects that’s what he means.
The third empowerment firm linked to Kebble is OrlyFunt, another firm led by Rasethaba. It has a selection of mineral rights formerly owned by Randgold & Exploration, as well as some shipping interests. Were Kebble’s empire as broke as some suspect its investments in OrlyFunt would have to be liquidated.
The creation of the empowerment firms is a symptom of Kebble’s cash pressure. Analysts reckon that they’ve been created to house assets that could be eventually listed, and thereby retrieve some funds for Kebble.
A fourth grouping is also at risk: Kabusha Mining & Finance, a subsidiary of Randgold & Exploration.
The other key area of concern in this affair is Kebble’s position as CEO of Western Areas, the listed gold firm that owns 50% of the large South Deep mine.
If Kebble is
compromised enough he could be deposed from Western Areas and have his JCI, which owns 39% of the company, sidelined in future developments. Forcing Kebble off the Western Areas board would certainly give the remaining shareholders more freedom to seek to recapitalise the company.
As one analyst suggests, that might be via a rights issue that JCI couldn’t follow – a step that would help dissolve the US$230m liability associated with Western Areas’ hedge book.
In that light, Kebble’s financial problems are tantamount to putting Western Areas “into play”. Allan Gray, an activist of note and 25% shareholder in Western Areas, would surely be working to turn events to its benefit. Its resources fund manager, Sandy McGregor, has been a non-executive of Western Areas for several years.
Western Areas has been a troubled backer of South Deep. However, the mine is one of the world’s finest remaining gold orebodies, which is the main reason that Allan Gray has
stuck to its shares.
Says Mildenhall of the late submission of accounts by Randgold & Exploration and JCI: “They were given an extension. To miss that is not acceptable.” Randgold & Exploration submits its annual report later this week. It’s sure to make compelling reading.
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