Vulisango versus Simmers

[] — RALPH MILTON of Top-Flite Asset Management was the shareholder who made the most telling point at today’s acrimonious Simmer and Jack Mines (Simmers) annual general meeting.

He told chairman Nigel Brunette that, “this infighting is sickening. All it does is destroy value. “

Right in one and shareholders must have had an equally sickening feeling of deja vu as the news spread about the renewed confrontation between Simmers management and empowerment partner Vulisango.

We saw this movie before in 2006 and it was not pleasant. The Simmers share price got repeatedly kicked in the teeth as the two sides slugged it out.

It’s happening again with Simmers down to 180c today compared with a 12-month high of 357c and an all-time high of 780c.

The accusations were flying both inside and outside the meeting at Simmers’ offices today but for the purposes of this column I am going to try to stick to the bigger picture.

Again, it’s Milton who got straight to the bottom-line. He told Brunette that ” we still believe in the company’ but pointed to “over promising and under delivering’ by management.

That under delivery applies to the operations of Simmers and 37% held associate First Uranium. Brunette is chairman of both companies while Gordon Miller is CEO of both.

There are, of course, a string of reasons that can be cited to explain the poor performance of the Simmers’ stock price. Some – like the strength of the rand against the US dollar – are beyond the scope of management to influence.

Others – like surging working costs – should be within management’s ability to deal with but Simmers is not alone in battling to contain rising costs such as labour and power which threaten the existence of marginal mines even at gold price levels around R240,000/kg.

But others – such as getting projects into operation on time and within budget – are within management’s scope.

Brunette summed up the situation succinctly enough in his recent First Uranium chairman’s statement where he said, “there have been delays reaching some of the target dates and additional dilution of shareholders interests, and the share price has been punished accordingly.

“It is, I suppose, only natural that at this point shareholders might question the credibility of the business plan and abilities of management.’

Brunette’s message is that despite the setbacks First Uranium and Simmers have done reasonably well overall and the mines will start delivering from next year.

He tells me “We have hit all the milestones on target most of the time. We have had to raise some extra money but we are right on the cusp of getting to the point where these projects are going to print money.’

I hope he’s right. Let me put my cards on the table. I have been a shareholder in Simmers for several years and, like Milton, I still believe in the company.

But from where I sit there are a couple of things that need to be sorted out and one of them is the relationship between JSE-listed Simmers and its Toronto-listed associate First Uranium.

Simmers has never received any flow-through benefit in the rating of its shares from the higher investor ratings accorded to First Uranium.

The options are to merge or split the two companies. Simmers management has been pondering what to do about this for two years but has so far done nothing. Brunette says it’s being looked at again as a matter of priority.

Then there’s the position of CEO Gordon Miller who is now domiciled in Toronto although all the group operations are here in South Africa.

Miller defends that situation saying there are two competent COOs in place, his job requires international exposure dealing with investors because of First Uranium’s TSX listing and he spends plenty of time in SA anyway.

I prefer the example shown by Aquarius Platinum CEO Stuart Murray. Aquarius is listed on the JSE, ASX and London exchanges while all its operations bar one are located in South Africa.

Murray also has to travel the world to do his job but he’s domiciled here in South Africa.

I also have to say it does Brunette’s case no good to have Murray quit the Simmers’ board – as he has – stating he “fundamentally’ does not agree with the actions taken by Brunette against the Vulisango directors.

As for Vulisango, they need to take on board the comment of advisor Bernard Swanepoel who warned that “nobody wins in a scorched earth battle.’

This in-fighting needs to end fast for two reasons both linked to potential destruction of shareholder value.

The first is that it is going to be extremely difficult to do any restructuring of Simmers/First Uranium with opposition from a disgruntled large shareholder like Vulisango.

The second is that the longer it goes on the greater the danger of Government intervention because of the BEE implications. That could result in the greatest destruction of value of all.

The writer owns shares in Simmers.