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David Mckay

Zungu sticks to his knitting

David McKay | Mon, 01 Jun 2009 07:40
[miningmx.com] -- RUMOUR has it that Sandile Zungu, the mining and industrial entrepreneur, is not making the move into politics after all.

South Africa's Sunday Times speculated a fortnight ago that Zungu was to join the presidency as its chief aide, but I heard last week this role will, at most, be consultative only. This means that the business empire Zungu has created these past ten years will, in all probability, continue.

I'm not sure if empire is the right word for Zungu Investment Company, or Zico as it is abbreviated; at least, as far as its mining investments go.

This is largely because the mining hasn't quite panned out, even after an impressive start. For starters, Zico is the leader of the Micawber black economic empowerment (BEE) consortium which bought a 26% stake in the now mothballed Dominion uranium venture, controlled by Uranium One.

Dominion, the first of a number of planned uranium ventures in South Africa, never took off after missing production deadlines. The mine is now up for sale after being written off on Uranium One's balance sheet.

The Micawber consortium's stake was vendor-financed but apparently the empowerment grouping doesn't owe anything to Uranium One. That's because the Dominion empowerment deal was contained in an special purpose vehicle - ring-fenced, with limited liability.

Zico also has a stake in the JSE-listed alluvial diamond company, Rockwell Diamonds, a company whose assets are also in mothballs, and clearly in some management distress.

Rockwell shareholder Pala Investments, a private equity firm with Russian and North American links, is attempting to unseat current management including Rockwell's CEO John Bristow, a coup Zungu has joined.

The jury's out on whether this mining investment will work out for Zungu, but with rough diamond prices only now starting to improve, and a damaging tug-of-war at management level, it's not currently looking good.

The only really outright successful mining investment for Zico thus far has been its first: a 26% stake in the Doornkop South Reef project, controlled by Harmony Gold.

It was at Doornkop that Zungu burst on to the mining scene in 2003 as the bright, articulate founder of African Vanguard Resources (AVR), a company that bought a 26% stake in Harmony Gold's R1.3bn (2003 money) Doornkop project. AVR was then subsequently wrapped up in a Zungu Investments Company (Zico).

Now, however, Zico has agreed to liquidate its Doornkop holding in a yet-to-be-announced transaction. I understand the consideration will be, in part, in Harmony shares. If there's a cash element, it would provide Zico with some firepower should it attempt reinvestment in the mining sector.

In any event, Zungu will have to decide whether he wants to breathe new life into Zico. This process will probably start with a decision as to whether Zungu himself is to run the company on a day-to-day basis or whether he will find a replacement for his chief investment officer, Darryll Castle, the former Stanlib fund manager, who left Zico a couple of months ago for an operational role in Metorex.

Uranium glowing brighter, for some

Can you credit it? After restoring Uranium One's share price to a firm footing - from 64 Canadian cents/share to about C$3.56/share, Jean Nortier, the group's CEO, sees 30% sliced off the firm's share price in a day. This is following claims that one of Uranium One's Khazak investments had sold uranium to foreigners illegally.

That must be hard to take for Nortier particularly as momentum grows for other uranium producers elsewhere.

Mere rumour, but there's market tittle-tattle that First Uranium and Rand Uranium are discussing getting into bed. I've heard First Uranium's mill could be used to process material from Rand Uranium probably on a toll basis.

This would mean a bit of welcome income for First Uranium, which is somewhat behind on its production promises, and some cash flow for Rand Uranium, an unlisted firm with huge uranium potential.

Interestingly, both companies are deriving most of their income from gold which occurs with uranium (other way around actually) in some South African mines. As Uranium One's Nortier would tell both First Uranium's Gordon Miller and John Munro from Rand Uranium, cash flow is king.



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