Randgold’s road to contrition

[miningmx.com] — It was February 2005. I was edging a tape recorder closer to a visibly uncomfortable Brett Kebble, then CEO of Randgold & Exploration and JCI. The posed question was whether he had sanctioned Randgold selling down its stake in Randgold Resources, a London listed gold producer and explorer.

Kebble’s then public relations assistant, Brian Gibson, looked equally edgy (though curious, I expect, to know the answer). Brett dodged answering and anyway it wouldn’t have mattered. Ambient noise in the restaurant made reliable electronic recording of his comments almost impossible.

I had already speculated Kebble had “pledged’ Randgold Resources shares to raise cash, but eventually had it later confirmed by Randgold Resources CEO, Mark Bristow, that Kebble had sold about two thirds of Randgold’s 31% stake in Randgold Resources shares.

Had the crime been identified earlier, however, it could have saved JCI millions of rands. That’s according to Randgold & Exploration CEO, Marais Steyn, who said at the relisting of Randgold on Friday that for each month Kebble spent on his final gambit, a futher year was spent unravelling the financial engineering.

Five years later, and with the accounting investigation into the abuse of power at Randgold and JCI largely complete, Randgold & Exploration has made a return to the JSE. The question is what it will make of its future, and whether shareholders will support Steyn’s stated objective of becoming an investment mining firm.

(For the details of how the relisting has been managed, by virtue of a settlement with JCI, look no further than Allan Seccombe’s story of June 4. It’s not necessary to go into those details here. For more information, you can also read Allan’s JCI story which documents the current details from its point of view.)

Steyn grins in acknowledgment that Randgold shareholders may be ambivalent. Having spent the best part of five years suspended, some may want Randgold to simply stay in a holding pattern while the market decides fair value for the R500m it has in cash, as well as R450m in investments. Others may want fireworks.

It’s too early to say at present what shareholders will think of the stock.

The share is liquid, but trade was thin on Friday. It danced up to R18/share on very few deals – management buying one suspects – but settled on R14.50, equal to about R10bn in market value. That’s double the net asset value of R6.74, calculated as of December 31, 2009 and set down in Randgold & Exploration’s circular to shareholders of May 12.

A big question is what Investec, which helped refinance JCI so controversially, will decide to do with its Randgold shares. It owns about 26% of the company, as well as a further 9% slice of JCI. The bank, I doubt, will want to retain its exposure to those investments which, while superbly opportunistic at the time, are now something of a blight on reputation.

It’ll be interesting to see what Steyn does with Randgold. The plan seems to have it act as investment house in the same way Shanduka Resources invests in opportunities providing funding in return for equity. What’s important is that the board has a operational mining expertise, not currently evident.

Randgold’s chairman is David Kovarsky who heads International Ferro Metals and has major mining pedigree, but it’s more the mining engineering role that Randgold needs in order to secure its mining investment risk. Hulme Scholes, an outstanding mineral rights attorney is on the board, as is Marais.

Brenda Madumise, a non-executive director of Randgold since 2003 (and throughout the Kebble fraud era) keeps her place on the board most probably for institutional memory reasons, and because she ably helped with the investigation into Kebble’s financial affairs. As for mining expertise, however, Marais says he will outsource mining knowledge on a project basis.

Corporate governance

While on the subject of the board, and given Randgold’s corporate governance history, it’s worth looking at remuneration. Steyn is being paid an all-in package of R2.2m for the current calendar year, although a bonus is possible. Directors fees total R250,000 each for the year while the chairman is paid R450,000, but there are no share options, commissions or fees to promoters. You get the sense remuneration has to be squeakier than squeaky clean.

The circular discloses the remuneration of JCI directors which makes for some interesting comparisons. For the 12 months ended February, total salaries were just over R4m. Two bonuses of R5m each were awarded to CEO, Peter Gray, and Leslie Maxwell, the financial director. Total remuneration was R15.3m for six directors compared to R3.5m that will be paid in total to Randgold’s directors.

Litigation remains a significant background noise, and cost

Although Randgold’s legal and regulatory troubles are largely a thing of the past, litigation remains a significant background noise, and cost.

In the appendices to the circular, Randgold states High Court summons have been issued against the likes of John Stratton who is alleged to have orchestrated Brett Kebble’s murder. Charles Cornwall, a former JCI director, Hennie Buitendag, even Chris Lamprecht, who stayed on for a while at JCI and granted media interviews even while forensic accountants poured over the firm’s accounts.

Equitant Trading, an entity that comprised the interests of ANC Youth Leaguers Lunga Ncwana and Songezo Mjongile, are also the subjects of High Court summonses. All of these summons are being defended.

Sello Rasethaba, who was recently appointed head of the Limpopo Roads Agency and is reportedly a close friend of the ANC Youth League president Julius Malema, is also defending a High Court action by Randgold & Exploration. Actions against Investec, SocGen, Trinity Holdings, T-Sec, Roger Kebble, Brett’s father, and even Peter Gray, JCI’s CEO, have either been settled or resolved in court.

So far, only R215m has been collected by Randgold of which R41m was paid out by the Kebble estate. Compare this against the R2bn to R3bn claim that was levelled against the estate. It’s thought that some R2.25bn to R2.75bn was extracted from Randgold by Kebble for JCI’s gain.

It would seem the listing of Randgold helps close a chapter, if not the book, on South Africa’s most spectacular and horrifying corporate graft. Yet I suspect the listing may yet be occasionally overshadowed by legal rumblings.

In the meantime, one can only express a massive shot of good luck to Steyn and his team, though I wonder whether the board will start with a look at a name change given the coporate history and, let’s be honest, the paucity of truly economic gold opportunities likely to fall the way of Randgold.