The Simmers brawl continues

Brendan Ryan | Fri, 02 Oct 2009 12:00
[miningmx.com] -- SIMMER and Jack Mines (Simmers) chairman Nigel Brunette has accused its estranged black economic empowerment (BEE) partner Vulisango of lobbying the department of mineral resources (DMR) over the company’s mining rights.

That’s denied by Vulisango CEO Valence Watson, who described Brunette’s comments as “nonsense”.

He said Vulisango had attended two meetings at the request of the DMR, which was conducting a “routine” inspection at Simmers.

But Watson confirmed Vulisango was now actively canvassing for enough shareholder support to remove Brunette and Simmers CEO Gordon Miller from the board.

He said: “We need a board that is weighted strongly towards independent directors, with people like Bernard Swanepoel on it who can restructure this company and restore value.

“We also need a CEO who is based in South Africa, unlike Miller who lives in Toronto.”

Brunette’s accusation is contained in a letter to shareholders released on Friday on the Stock Exchange News Service (Sens).

He said: “Vulisango has also lobbied – and continues to lobby – the DMR to adopt a different set of rules for Simmers than what currently applies to other mining companies operating in South Africa.

“In essence, Vulisango has informed the DMR that Simmers’ mining rights should be called into question unless: Vulisango holds a minimum of 26% and is the only recognised BEE owner in Simmers; Vulisango holds a management contract with Simmers and Vulisango has the right to appoint the majority of the directors to the Simmers board despite not holding a controlling stake.”

According to Brunette, legal opinion received by Simmers was that Simmers’ mining rights could not be based solely on its relationship with Vulisango, and that Vulisango’s position was not founded in law.

That’s rejected by Watson, who cited legal opinion received by Vulisango. He said the roots of this disagreement go back to the acquisition of the mining rights to the Ezulwini shaft owned by Simmers’ associate First Uranium.

“They applied for those rights on the basis that (empowerment vehicle) Jaganda was 50.9% black-owned.

“That level was diluted to 44% before the mining right application was approved, meaning that it was not valid any more. The solution found to avoid having to re-apply for the rights was the agreement that gave Vulisango board control and a 26% stake in Simmers, along with a management contract.”

That position was rejected by Brunette in an interview after the Simmers annual general meeting (AGM), in which he told Miningmx the conditions insisted on by Vulisango were not required for empowerment “unless there is a contract to that effect with the department of minerals and energy - and there is not”.

Brunette pointed out in Friday’s letter that, according to criteria used by the DMR to measure ownership by historically disadvantaged South Africans, Simmers scores 42%. This is well above legal requirements.

He accused the Vulisango nominees on the Simmers board - who resigned ahead of the AGM - of being focused on “the preservation of Vulisango’s percentage holding at all costs and the maximisation of value for Vulisango first and foremost, ahead of growth considerations and shareholder returns for Simmers”.

Watson rejected that. He said: “You have to be brain dead to believe that our interests are different from those of Simmers. We are the biggest winners or losers depending on what happens to the Simmers share price.

“The current share price below R2 is not in our best interests. That’s about 25% of where the price was two years ago. That value has been eroded by Miller and Brunette.”

Watson also attacked one of the restructuring proposals apparently being considered, which is for Simmers to be taken over by Toronto-listed associated First Uranium.

“Simmers had to lend $20m to First Uranium in August to avoid the First Uranium accounts being qualified and now they want this company to buy Simmers?

“Both Brunette and Miller have conflicts of interests over any First Uranium/Simmers proposal because Brunette is the chairman of both companies and Miller is the CEO of both companies.”

Brunette pointed to the significant gains achieved by Simmers’ management, including a doubling of net asset value to R3.4bn during the past financial year and a rise of 1,626% in the share price since January 2005 compared with a 58% rise in the JSE gold index over this period.

He said: “Nevertheless, the board is acutely aware of the discount and value overhang on the share price. Various options are being considered to provide value unlock, and these will be presented to shareholders in due course.”

The writer owns shares in Simmers.