Pouroulis to storm JSE in 2008

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Loucas Pouroulis, mining entrepreneur

� Pouroulis gets Aquarius royalty
� At R8,5bn, Eland Platinum is a snip at the price
� Xstrata explains $1bn Eland deal
� Xstrata offers $1bn for Eland Platinum

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Pouroulis to storm JSE in 2008
David McKay
Posted: Wed, 17 Oct 2007

[miningmx.com] -- IT'S A NORMAL Monday morning and Loucas Pouroulis, the 48-year-old mining entrepreneur, is hoping to close funding for his ambitious platinum project.

He's listed it in a firm called Lefkochrysos Platinum, a name that doesn't exactly trip off the tongue. But it's a bold declaration of Pouroulis's separateness from Anglo American and Gencor, the mining houses that control South Africa's resources with an iron fist.

Pouroulis needs about R200m: not an inconsiderable amount of cash, even in 2007 money. However, by the end of that Monday the funds look even more difficult to raise. In fact, it's incredibly, desperately impossible.

As Pouroulis lays down his head that evening, the Dow is shedding 22% of its value. What follows is the infamous crash of 19 October 1987. Pouroulis - the Cyprus-born mining engineer - concedes that the memory the date provokes still troubles him. Lefkochrysos sees its price slump to R5 from R26/share. But it's not alone. The JSE plummets by around 11%.

The banks behind Lefkochrysos flee for their lives, and its investors, many of them retail guys with little or no direct mining experience, are staring into a black hole.

Even as the rest of the market starts to slowly recover in the months that follow, Lefkochrysos - heavily indebted, not fully capitalised - disintegrates before Pouroulis's eyes.

The joie de vivre in which Lefkochrysos was launched has evaporated and been replaced by caution and suspicion.

Pouroulis also suffers - "I lost a fortune," he says - and is subsequently dragged through the courts for several more years on charges of R65m fraud from Lefkochrysos to assoicate companies. He and fellow directors were acquitted in 1990. Pouroulis, who turns 69 this week, calls the entire ordeal "Three years of hell".

Apart from the financial loss, the catastrophic failure of Lefkochrysos carved for Pouroulis a reputation as a slightly dark, questionable mining opportunist. He virtually disappeared from public view, although he continued to run Consolidated Modderfontein (Cons Modder), a gold company mining East Rand gold in a way that prefaced Harmony Gold.

I lost a fortune

And the wariness about Pouroulis continues to this day, particularly among those who remember "Lefko-crisis" as it was, perhaps unkindly, nicknamed.

As recently as 27 August, veteran financial journalist Michael Coulson remarked in a Fin24 report: "As I recall, a market cap of something like R1.6bn was being attached to a speculative venture [Lefkochrysos Platinum] in which the original promoters had invested a minuscule amount of cash."

That view of Pouroulis was then compounded by the fact that Lefkochrysos' key asset - the Crocodile River mine - was mishandled by its subsequent buyer, Rand Mines. The mine was relisted under the name Barplats. Between 1988 and 2003, Crocodile River was opened and closed twice.

People think Pouroulis was responsible for its technical difficulties but he's keen to impress that he never operated the mine. "I'm not sure he could have made it work anyway," says Peter Major, a fund manager for Cadiz.

Pouroulis was pioneering trackless mining as a way of mining the UG2 reef, which wasn't much exploited at that time and therefore represented a point of difference regarding how Lefkochrysos was going about its business.

Says Major: "Trackless mining just screams cost at me. Many others have gone that route too."

Ironic then that on the 20-year anniversary of the 1987 crash that incinerated Lefkocrysos, Pouroulis should sign off the R7.2bn ($1bn) sale of shares in another platinum venture - Eland Platinum Holdings. That's the spectacular sum that management of Eland extracted from British mining group Xstrata plc. "There's almost something Biblical about it," says Paul Miller, a former investment banker, noting Pouroulis's prodigal return.

The Xstrata deal was agreed at R105 per Eland Platinum share, an 18% premium to the firm's share price at the time of the offer in August. At the beginning of 2006, a few months after listing, Eland Platinum was trading at around R25/share.

For its money Xstrata is getting Eland's Elandsfontein orebody and adjoining pieces, more than 100 million oz of platinum resources, near Brits. Currently, there's hopes for a 280,000 oz/year platinum group metal mine that the British firm says it hopes to soon double in size.

Pouroulis and his founding management team at Eland Platinum are to walk away with R100m. That's the amount Xstrata has paid for the 9% stake in Eland that former Elandsfontein owner Anglo Platinum recommended should be applied in golden handcuffs to Pouroulis and his management team. The sum will be proportionately shared between Pouroulis, Eland MD David Salter, financial director Jonathan Clark and Jeff Gard, a long-term colleague of Pouroulis, among others.

"It's a fair price," says Pouroulis of what Xstrata paid for Eland. "Fair to cheap."

Not all agree. Says Andy Clay, a director at Venmyn: "If the prospect was so good why wouldn't someone as sharp as Pouroulis have hung on to it, from which to further build his business?"

But Pouroulis says Xstrata isn't being sold a mere project but real cash flow, almost upfront with the first cheque for platinum concentrate from Elandsfontein due to be written in December. It also starts mining from the surface, which makes it less risky, says Pouroulis.

Investigations into the value of the mine were also conducted in a competitive environment, at least for a while. That's because BHP Billiton had completed a due diligence on Elandsfontein but withdrew its interest, fearing the project would become too deep a mine. "It's an open-pit miner and was worried [about underground mining]," says Pouroulis.

Insights on an outsider

Pouroulis is the archetypal outsider. An immigrant who came to South Africa with a degree in metallurgy and engineering from the National Technical University of Greece, he worked as an underground manager at Anglo American's Western Deep Levels. That was between 1965 and 1971.

But he struck out on his own - which, by most standards of the day, was unthinkable.

South Africa's mining houses were different propositions than they are now, with fully centralised technical teams and a job for life. A yokel from a small, copper-producing town in Cyprus thumbing his nose at the hegemony and thinking he could build his own mines attracted a lot of negative interest.

By 1977 he had founded the Salene Group of Companies, which has throughout its life produced gold, platinum, diamonds, titanium and emeralds.

By 1981, Cons Modder was listed. He also took over South Roodepoort Gold Mines from Gencor, which he ran for 15 years. But Lefkochrysos was his nemesis - a disaster some people think Pouroulis brought upon himself.

Loucas really redeemed himself with Eland

"Loucas is being far too kind to himself in blaming the market for what happened at Lefkochrysos," says Liston Meintjes, chief investment officer at Metropolitan Asset Managers. "There were platinum resources valued in that company that could never have been developed."

However, the success of Eland Platinum appears to have won Pouroulis some redemption and it's the basis for a much more aggressive return to the market.

Says Major: "Loucas really redeemed himself with Eland." Says Meintjes: "Eland has been different. Of course we listened to the patter. And of course we raised questions. But Rene [Hochreiter, then Nedbank banker who helped develop the Elandsfontein project] knows his geology and knows his mining too."

So much for Eland Platinum and its Elandsfontein mine. Barring a final hiccup with the Competition Tribunal - the final regulatory hurdle the $1bn deal must clear - the project belongs to Xstrata and its putative platinum strategy.

But Pouroulis is far from finished. Starting from first quarter 2008, Pouroulis is planning to help list three new mining exploration companies, each of them backed by either one or both of two Pouroulis family trusts: the Langa Trust and the Kleo Trust.

It's not the first time Pouroulis has used his family's wealth to launch mining projects. It was the Kleo Trust, which has Pouroulis's wife Artemis as a trustee with Paul Sadler, that helped form the Platinum Consortium.

It in turn bought control of Barplats and its Crocodile River mine in about 2005, the difficult orebody that first forced Pouroulis out of the public eye and now stamps his return.

The first two new listings are Keaton Energy (a coal exploration firm) and Trans-Africa Resources (a gold exploration entity) with prospects in Mauritania, Rwanda and the Democratic Republic of Congo. Paul Miller, formerly of Nedbank Capital, will be Keaton's CEO. He'll be joined by Loucas's son Phoevos Pouroulis, as well as David Salter, who will be a non-executive director.

Keaton Energy is pencilled in for a March listing. According to Pouroulis it has promising export coal prospects in the Mpumalanga, Limpopo and KwaZulu-Natal provinces. Miller, who is expected to provide more details later this month, says South Africa's coal market is currently thriving. "Owing to demand you can get export parity for domestic coal, which is unheard of," he says.

Trans-Africa will be led by Rene Hochreiter, another former Nedbank Capital employee and a widely respected platinum analyst, currently a partner at AllanHochreiter, a private consulting business. He'll be joined by former Anglo Platinum financial director Roeland van Kerckhoven, who will be Trans-Africa's executive chairman. Again, Pouroulis is working on a first quarter listing for Trans-Africa.

The third company is Tharisa Mining, a chrome and platinum project in South Africa that will be listed in second quarter 2008, says Pouroulis. With Gard as CEO and Salter and Pouroulis as non-executive directors, the company will set about a bankable feasibility study. "It's well on its way," Pouroulis says, without providing details. "It's quite big."

My brain is good. I feel good

There are also plans for development of a nickel venture with Salter outside South Africa's borders. All three listed entities will derive advice from Pouroulis at the centre, replicating a structure that's more common in North America with privately held companies, such as Hunter Dickinson, providing central management in projects it floats. Great Basin Gold and Anooraq Resources, Johannesburg-listed companies enjoying some success, both drew on the HDI model.

However, Pouroulis is modest with regard to his potential input. His 69th birthday was on 16 October. "I'll help where I can. My brain is good. I feel good. So I don't see why I should sit down, particularly when opportunities come your way."

The market will have to assess the listings when they come along, but Major thinks that Pouroulis has learned his lessons from Lefko by surrounding himself with experts and doing less himself.

"Loucas is always fun to listen to and you never feel you've wasted your time. He'll grab you by the arm and look you in the eye. Is he a good marketer or does he really believe himself? Maybe - he's just an optimist," Major says.

"Rene [Hochreiter] is not a bullshitter, though he can be na�ve," Major says of Trans-Africa's chances.

Key to investment decisions will be the geology the companies bring to the market and, owing to the fact some are outside South Africa, security of tenure, he says.

"We parted on good terms"

However, controversy continues to hound Pouroulis.

In returning to Barplats he quickly fell out with his Canadian partners in the Platinum Consortium. Pouroulis won't comment on the disagreement - and there's an awkward silence during the interview - but he eventually says it was a difference in management styles. "We parted on good terms," he says.

But even then the investment in Barplats provoked criticism from market watchers who said an empowerment deal with former Justice and Mines Minister Penuell Maduna had echoes of the Lefkochrysos arrangement of handing out shares at a massive discount to the going market price.

The fact of the matter is that Maduna's Gubevu Consortium bought a 26% stake in Barplats for 221c/Barplats share compared to the 710c/share attributed to Barplats by the market. The deal earned Maduna an immediate capital gain of R384m.

However, if the deal earned Maduna instant wealth, it also earned Pouroulis considerable black empowerment influence and leverage. It was through Maduna's Ngazana Consortium that Pouroulis was able to lay his hands on the Elandsfontein farm.

Commenting on the acquisition of Elandsfontein from Anglo Platinum, Pouroulis says Anglo just wanted an operator with good empowerment credentials. Pouroulis ticked all the boxes and, as one market source says, clearly recognised in South Africa's new minerals legislation that he could bring him as well as the country's black businessmen into the mining game.

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Is that perhaps why Pouroulis is almost instantly reinvesting the spectacular profits from Eland Platinum back into new mining ventures? Has he cannily recognised that the authorities in Pretoria can just as easily withdraw their co-operation?

The new listings, which squarely place Pouroulis back in the public eye many years after his hibernation, will each require empowerment deals.

Jacinto Rocha, deputy director-general at the Minerals & Energy Department and responsible for issuing mining and prospecting licences, says: "Deals like the Eland Platinum/Xstrata transaction open a policy debate on why it's okay for whites to sell their investments but blacks can't. (The Ngazana Consortium remains a 26% shareholder in Elandsfontein).

"I'm not aware of the new listings; but we are aware of the debate about what companies do with profits from deals," Rocha says.

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