Lonmin, Holgoun deal is in bad faith

[miningmx.com] – YOU don’t have to go far these days to uncover the
damp underbelly of the South African mining sector.

Once the preserve of investigative journalists, perhaps resulting in a best-selling
book, the details of today’s dubious transactions are but a click away on the
Johannesburg Stock Exchange News Service’s webpage.

Take Lonmin’s announcement on October 11 that it had settled a mineral rights
dispute with Holgoun Investment Holdings’ subsidiary, Keysha Investments.

In essence, the deal sees Lonmin pay $4m (R36m) to Keysha Investments, which is
headed by Sivi Gounden, a former director-general of the public enterprises
department and a Lonmin non-executive director until 2009.

The payment is for Keysha Investments’ irrevocable ceding of new order prospecting
rights to associated metals (chrome and nickel) on a parcel of land on Lonmin’s
Marikana mine, the location of the August massacre in which 34 miners were shot
dead, ostensibly relating to wage demands.

Keysha Investments owned the new order prospecting rights, handing it the ability to
derive revenue from the sale of the metals, because it had exploited a loophole in the
Minerals and Petroleum Development Act (MPRDA) that stated mining companies had
to apply for separate rights to all metals. The practicality that chrome and nickel are
extracted as by-products of the same platinum and palladium mining effort does not
circumvent the interpretation of the letter of the law.

We know it’s a loophole because the mines minister, Susan Shabangu, has since
indicated amendments to the MPRDA of which the divisibility of mining and
prospecting rights is one.

Only Gounden and other Lonmin directors could have recognised the economic gains in
the company’s omission over a piece of mineral-bearing property that, incidentally,
generated $11m in PGM and non-PGM sales in Lonmin’s 2009 financial year.

The legerdemain even received the tacit approval of Government. Thibedi Ramontja,
director-general of the mineral resources department, rejected Lonmin’s appeal to
have Keysha Investments’ prospecting rights revoked.

The $4m payment moved Justin Froneman and Michael Starke, analysts for SBG
Securities, to state that while the development was positive for Lonmin, Holgoun have
acted in “bad faith’ nonetheless.

“[However] we suggest that the directors of Keysha’s parent company, Holgoun
Investment Holdings, including former Lonmin non-executive director Sivandran (Sivi)
Gounden, have acted in bad faith, opportunistically and without due respect for the
principles of good corporate governance,’ the analysts wrote in a note dated October

“It is exactly this sort of behaviour that has left many investors with a negative
perception of South Africa’s current mining sector, whether justified or not.

“It is our view that the London market would be particularly unreceptive to any of the
other uranium, coal or base-metal projects attributed to Sivandran (Sivi) Gounden and
his Holgoun Investment Holdings,’ they said.

Quite what unions would think of Lonmin finding somewhere $4m in its coffers to pay
for some nimble reading of minerals legislation is best left to the imagination,
especially as Lonmin is fighting for its life: a bookbuild of between $400m to as much
as $1.5bn is due before March, 2013 if bank covenants aren’t waived.

Miningmx has requested a telephonic interview with Holgoun Group and will update
the column as and when the interview occurs.

Its head of business development, Anastasia Maimonis, told Miningmx in January that
the company had acted within the bounds of law: “We had suffered a lot of reputation
damage, but we’re confident we did everything strictly in terms of the law,’ she said.

It was Maimonis who also said Holgoun Group, which is essentially an energy
exploration company with uranium and coal prospects, favoured a joint venture
partnership with Lonmin over the area.

It would be fascinating to know if the sale of the prospecting right was motivated by
Lonmin or Holgoun Group. It’s no fun mining platinum in these troubled days.