JCI shareholders vote down R&E merger

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Peter Gray, CEO, Randgold & Exploration and JCI

� R&E merger with JCI hits a hurdle
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� R&E issues a slew of claims as JCI talks fail
� R&E's claims against JCI balloon to R14bn

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JCI shareholders vote down R&E merger
Allan Seccombe
Posted: Mon, 02 Feb 2009

[miningmx.com] -- THE MERGER between suspended mining groups JCI and Randgold & Exploration was scuppered by a small group of shareholders in JCI, who voted against the proposal despite what was touted as a �great deal� with one of its large claimants, Investec.

The merger needed 75% shareholder approval but achieved just 66%. The sense of disappointment and frustration was palpable amongst those in the room after the three and a half hours of stop-start proceedings.

This puts both companies back at square one, where R&E has legal claims of up to R14bn against JCI for fraud committed during the leadership of Brett Kebble and other board members. Investec will resume its legal battle with JCI and Letseng Holdings, a shareholder in JCI, will continue its fight with Investec.

could eventually kill JCI, literally

�We have been thinking about this event and what to do if it didn�t go through. We are looking at alternative ways to resolve this. We have to. It�s been nearly four years now,� JCI CEO Peter Gray told Miningmx after the vote. "It's very disappointing for all involved."

Kebble was thrown out of the companies in August 2005 and the companies were suspended for not filing financial statements. Shortly afterwards Kebble was shot dead under mysterious circumstances. Subsequent forensic investigations have revealed massive fraud in JCI related to R&E investments.

At the shareholders� meeting on Monday, JCI directors unveiled the highlights of a surprise deal with Investec struck at the last moment whereby the banking group knocked R100m off its claim against the suspended mining group and capped the amount at R275m.

This was a major advance from the R575m Investec said it was claiming and the R373m JCI estimated it had to pay.

Considering the net asset value in JCI is calculated at little more than R1bn, this was a significant advance, with directors calculating the Investec deal would put more than a rand per share into the merged entity.

The Investec loan is what the vote swung on during the long, heated shareholder meeting in Johannesburg, which was marked by long breaks and difficulties in tallying the shares cast.

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At the heart of the matter was the objection by Monty Koppel and his team representing Letseng Holdings, a 20% shareholder in JCI, who vehemently oppose paying Investec anything.

Koppel told Miningmx his concern was that Letseng would become part of R&E and unable to continue opposing the payment of money to Investec.

Intriguingly, it was said that former JCI director John Stratton, who has been named in R&E documents as one of the perpetrators and beneficiaries of the multi-billion rand fraud, was represented at the meeting through companies invested in JCI and had voted against the merger in line with Koppel. The rumour proved difficult to verify.

�Stratton was reaching from beyond the grave, so to speak, to influence today�s vote,� said one observer.

In the corridors during the numerous breaks some said Koppel was holding out for payment to Letseng of an amount rumoured to be in excess of R30m for the legal fees it has incurred in battling Investec instead of vying for a value-adding settlement for all shareholders as he and his team purported to be doing two weeks ago when asking for a postponement.

JCI and R&E officials said one shareholder simply cannot be treated with more preference than any other shareholder.

Koppel denied he was acting in his own interests and instead blamed the breakdown of the merger vote on JCI�s board not agreeing to a week-long postponement of the meeting so that the JCI/Investec transaction could be studied by JCI shareholders.

The irony of the Investec deal was that Koppel on 19 January requested the two-week break because he was confident Letseng and Investec could strike a deal and knock R100m off the claim. Instead, it was JCI�s board that struck the deal with Investec, leaving Letseng on the sidelines with the rest of JCI�s shareholders.

�I was completely shocked,� Koppel said, adding he had wanted Letseng to form part of the agreement given how actively it had opposed paying Investec anything.

Asked why Letseng had not been drawn into the JCI and Investec talks, Koppel said: �I�m a little difficult because I believe Investec is not entitled to anything.�

The terms of the Investec deal are academic now because it was contingent on the merger going ahead, which would result in JCI being delisted and the merged group under the R&E banner resuming trade. The full terms were not made public because of the merger failed.

Marais Steyn, CEO of R&E, which was not party to the Investec deal but was consulted on it, said it was a simple, �great deal� that all shareholders should have accepted, trusting that JCI�s board was acting in the best interests of all shareholders.

�It�s extremely disappointing. My biggest concern is that the legal action taken against JCI by Investec will continue and could eventually kill JCI, literally. We need to find another solution,� Steyn said.

Gray had showed a slide at the meeting, indicating the interest on Investec�s R575m claim mounting over another three or four years to a total claim of R1.2bn if no solution is found.

The critical point is that neither company can become operating entities because of the lawsuits they are involved in. They are not generating any meaningful revenue, but are instead paying millions to lawyers, running costs and in JCI�s case exploration fees.

�Randgold will have to make sure we recoup as much capital as quickly as possible. There other ways to resolve this thing and we�ve got some ideas, but this merger was the most eloquent solution,� Steyn said, adding it was also the least risky.

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