This article first appeared in Moneyweb.

The embattled South African Institute of Chartered Accountants (Saica) – already under unprecedented professional criticism for the role CAs played in corporate scandals at Steinhoff, VBS Bank, KPMG and elsewhere – is now under attack for flunking nearly a third of candidates who sat the board exams late last year.

Some 32% of candidates failed the exams last year, a big increase on the 20% and 11% who failed in each of the previous two years.

The clear aim is to clean up the profession’s image after CAs were found at the centre of a string of corporate scandals. Several aspiring CAs who flunked the exams seem mystified by the outcome, particularly as they had aced all previous exams – both at Saica board and university levels.

One candidate, who asked not to be named, says the results are suspect for a number of reasons. “My real gripe is the lack of transparency in marking. No percentages are given, just letters such as C (Competent) and BC (Below competent). So we never quite know what was expected of us.”

Candidates in the dark

Candidates also complain that they have no idea what weighting is attached to these different markings, nor how they should prepare for the repeat exams.

What has alarmed some is the 48% pass rate for African candidates in 2018, as opposed to 86% for whites, 78% for Indians and 73% for coloureds. This compares with a pass rate in 2017 of 69% for Africans, 89% for whites, 84% for Indians and 80% for coloureds.

A letter from several dozen affected candidates from each of the Big Four accounting firms – EY, PwC, Deloitte and KPMG – challenges Saica on steps taken to address the “unique and complex” issue of the high African failure rate, and argues against generalised solutions to remedy the specific socio-economic factors behind this failure rate.

The candidates also question Saica’s motive for reducing the pass rate, given the deluge of recent corporate scandals, often enabled by CAs. The clear aim is to raise the bar to professional entry, but candidates who failed see it differently: a far higher percentage of candidates who took their study course through University of Johannesburg (UJ) failed than did those who studied at University of Cape Town, the two universities where most CA candidates prepare for the exam. “We were told at UJ to answer questions with less technical language, and communicate as if we were speaking to someone on the street – which we did. Then we failed,” says one. “Those of us who failed have to sit the exam again at the end of the year, but we don’t know what is expected of us.”

This fear appears grounded in fact: 45% of repeat candidates who sat the exam in 2018 failed, while 71% of first-time candidates passed.

Marking strategy ‘allows for manipulation’

The candidates who wrote to Saica claim the accounting body has been less than responsive and forthcoming to opinions and inputs from various stakeholders, and has instead blamed the candidates for the high failure rate. They claim Saica has not adopted a transparent marking strategy, and that this allows for manipulation by individual exam markers.

In reply to questions from Moneyweb, Saica’s head of communications and marketing, Willi Coates, says the body’s training and examination processes are “rigorous, robust and fair and are in line with international best practice”, as outlined by the education and training standards of the International Federation of Accountants (IFAC).

This article first appeared in Moneyweb.

After three years in business rescue, Vantage Goldfields is headed for the knackers yard unless a buyer emerges in the next few days.

The company was placed in business rescue after a support pillar at Lily gold mine in Mpumalanga collapsed, claiming the lives of three workers. Lily and its sister mine Barbrook are owned by Vantage Goldfields SA (VGSA).

In January, empowerment company Siyakhula Sonke Corporation (SSC) and its subsidiary Flaming Silver were granted conditional approval for the transfer of control of mining rights by the department of mineral resources (DMR).

Flaming Silver CEO Fred Arendse announced that the offer to purchase Vantage Goldfields had become unconditional. Everything was in place, it seemed, except the money.

Business rescue practitioners Rob Devereux and Daniel Terblanche issued a statement yesterday saying Flaming Silver had still not come up with proof of the funds needed to purchase the mines. There is also no proof that the shares have been transferred to Flaming Silver by Vantage Goldfields.

Acting as the owner

But it seems SSC is carrying on as if it is the rightful owner of the mines. “We are aware that the SSC Group called a meeting with creditors in Nelspruit and that a number of issues were discussed in respect of the three engagements. Kindly note that this was not a statutory creditors meeting,” says the statement from the practitioners.

Other bidders have reportedly expressed interest in acquiring the Vantage assets, but unless the deal is closed within the next few days, liquidation proceedings will commence.

Read: It’s do or die time for one of SA’s oldest gold mines

Both Barbrook and Lily remain under care and maintenance. “The mines remain secure, but there is no post-commencement funding due to the position in respect of the transfer of shares by VGSA.”

Vantage shut its Nelspruit office late last year, apparently due to lack of funding. Since the office closure, VGSA’s records and assets have been under the control of the rescue practitioners.

This article first appeared in Moneyweb.

An interesting battle between lenders and the University of Stellenbosch’s Law Clinic, joined by Summit Financial Partners and a number of clients, is about to get underway in the Western Cape High Court.

The case will decide what charges lenders are allowed to load onto the accounts of defaulting borrowers. The National Credit Act (NCA) says lenders cannot recover more than double the outstanding debt at the time of default – an old Roman legal principle known as in duplum (‘double’).

For example, assume you borrow R1 000 and are expected to pay back R1 300 after interest, administration and other charges are added. You then default after repaying R600, leaving an outstanding debt of R700. The law says the lender may only recover double this amount, or R1 400, regardless of the amount of interest, administration and other fees accumulated from the time of default.

The banks, represented by the Banking Association of SA (Basa), have come out swinging, arguing that they are within their rights to charge administration, service and legal fees, even when these costs far exceed the in duplum limit.

Not so, says the Law Clinic’s Stephan van der Merwe. ”We argue that the intention of the NCA is to provide protection against unscrupulous collection practices for borrowers, especially the poor. The NCA, however imprecise in wording, clearly intended to include legal and other fees as part of collection costs in the in duplumlimit.”

Read: Landmark court case seeks to stop overcharging by creditors 

What’s really happening here is that lawyers are fighting for their lunch.

SA’s legal system feeds off the banks, to the point where anyone seeking legal representation against the banks is politely informed of the potential conflict of interest in representing anyone challenging the banks in court. To do so would kill the law firms’ meal ticket.

“Most of the cases you see coming before the courts each day involve the banks,” says King Sibiya, head of the Lungelo Lethu Human Rights Foundation (LLHRF), which fights unlawful evictions by banks around the country. “They keep the court system and the law firms financially afloat. They have captured the justice system.”

This article first appeared in Moneyweb.

The launch of Sibambene Coal this week puts paid to the idea that coal is a sunset industry.

Sibambene is a 51% black-empowered company, the first to be fully compliant with the Mining Charter III, and plans on investing exclusively in SA coal mining assets.

While several of the majors have divested themselves of their coal mining assets, particularly as Eskom comes under pressure to decommission its coal-fired power stations and replace coal with green energy, Sibambene sees opportunity.

Dr Sakhile Ngcobo, a director of Sibambene, says the company is on the hunt for coal assets in SA, and is speaking to mining majors looking to offload coal assets, as well as junior miners with a view to possible consolidation of assets.

Fellow director Vuslat Bayoglu, who also heads up mining investment company Menar, says despite a worldwide move to greener energies, there is a global shortage of coal amounting to more than 70 million tons a year.

South Africa has 30.8 billions tons of coal reserves, sufficient to last another 118 years, and is the world’s sixth-largest source of reserves. Current national production amounts to 260 million tons a year, of which 72 million tons are exported. Richards Bay Coal Terminal (RBCT) has an annual capacity of 91 million tons.

 

This article first appeared in Moneyweb.

Two cases involving state-owned companies illustrate the perils of taking politicians at their word.

The first involves Airport Companies South Africa (Acsa), which two decades ago enticed investors with the promise of a stock exchange listing. That never happened, leaving minority shareholders owning 4.2% with no exit option other than to sell back to Acsa.

Minority shareholders and Acsa have been locked in dispute over the value of the shares for the better part of a decade. The parties reached a settlement agreement in 2017, which was made an order of court. Acsa was ordered to buy back the minorities’ shares at fair value, which was to be determined by an independent referee.

When the independent referee, RisCura, came to a valuation of roughly R78 a share, Acsa – realising it would have to pay out about R700 million – hired a valuator of its own who arrived at a valuation nearly half this amount.

The government has since entered the picture, and has applied to the court to appeal the court order and rescind the settlement agreement.

Politicians in investors’ crosshairs

The minorities, in their replying affidavit, argue that government’s conduct is of such bad faith and its arguments so spurious that they are seeking personal cost orders against the key personnel involved: transport minister Blade Nzimande, deputy director-general of transport Rejoice Phewa, and the state attorney Dovhani Mphephu.

Should the minorities win this case and get cost orders against these individuals, we can expect a multitude of other cases seeking to hold government officials to account where they have used the public purse to pursue illogical or frivolous cases.

SA has cycled through multiple transport and public enterprises ministers since investors were first lured into Acsa in 1998. Times change, and promises made under one administration can be vaporised by the next.

Telkom had been through a reasonably successful privatisation around this time, paving the way for Acsa. Government’s entry into the dispute last year is predicated on the impact the settlement will have on state finances, though minority shareholders point out that the state has neither invested nor loaned a cent to Acsa since the early 1990s.

A lesson for investors

“There is a lesson here for foreign or local investors looking at interacting with state-owned companies,” says Alun Frost, financial advisor to the minority shareholders. “Exercise extreme caution. Promises to investors apparently mean nothing to investors. In our case, we have argued that the government has acted oppressively against the minority shareholders over a sustained period of time.”

There is another troubling aspect to the Acsa business model, adds Frost: it went from a purely commercial enterprise to a developmental tool of government. Evidence of this is the costly King Shaka International Airport in Durban, which Acsa was forced to take on its balance sheet. The initial budget of R3.5 billion was blown out of the water, with final costs tallying around R10 billion. Then government mismanaged the Acsa tariff regulator, which has been dysfunctional since 2006 – further impairing Acsa’s ability to generate reasonable returns.

Most of them from non-white South Africans looking for a bolt-hole.

This article first appeared in Moneyweb.

South Africans looking for a bolt hole in case things go pear-shaped in SA are applying in record numbers for foreign passports. Most of these are high net worth individuals looking for a Plan B in case the political or economic future deteriorates, or for ease of foreign travel and doing business abroad.

Not all of these are planning to emigrate, says Amanda Smit, managing partner at Henley & Partners SA, a global citizenship and residence advisory firm. Many would like to keep their South African passports – maintaining a direct link to family and home – while taking advantage of the benefits of living and working abroad.

Benefits and privileges

“South African high net worth individuals (HNWIs) recognise that dual citizenship or residency provides more benefits and privileges for them and their families including ease of travel, security for the future and expansion of business and banking,” says Smit.

She says the number of foreign citizenship inquiries from South Africans shot up 125% in the second half of last year over the same period in 2017.

This translated into a 53% increase in applications for foreign citizenship in the second half of 2018. There was a 364% spike in inquiries in October 2018 over the same month in 2017.

In other words, it appears that South Africa’s human capital is taking the same flight path as its financial capital.

According to data from the UN Conference on Trade and Development (Unctad) for 2017, South Africa was the third biggest exporter of capital as a percentage of GDP in the world. The so-called Ramaphoria effect appears to be doing little to stem an exodus that started under former President Zuma.

This article first appeared in Moneyweb.

The Auditor-General says there are doubts over the ability of SA Nuclear Energy Company (Necsa) and its subsidiary Pelchem to continue operating.

That is what he told Parliament’s portfolio committee on energy earlier this month. Auditor-General (AG) Kimi Makwetu said Necsa’s liabilities exceeded its assets, and that Pelchem – which makes fluorine-based products for use in steelmaking and other applications – continues to make losses.

What a turnaround a year makes. Last year, Necsa and its NTP Radioisotopses subsidiary were among the few state-owned companies to win clean audits. In 2017, NTP earned revenue of R1.3 billion, generated profits of more than R300 million and paid tax of over R80 million to the state.

In November last year energy minister Jeff Radebe suspended three Necsa board members for “insubordination” and “defiance” and within 48 hours had replaced them with a new board – an astonishing display of efficiency given the usually tortuous hiring processes that take place at this level of the public sector.

Breach of protocol

The three suspended board members are chairman Kelvin Kemm, CEO Phumzile Tshelane and audit and risk director Pam Bosman. They say the AG had private meetings with Radebe last year concerning Necsa, but Necsa was not invited to the meetings. “We were very suspicious because that action breaches established protocol,” says Kemm.

In December last year the trio brought an urgent application seeking to overturn the minister’s decision. The case was due to be heard earlier this month but was removed from the urgent roll when Radebe plonked an 800-page court file before the judge. Court rules demand that anything over 500 pages must be placed on the ordinary roll, which means the case will now be heard in June. By that time the election will have passed and Radebe may himself be replaced as energy minister.

This article first appeared at Moneyweb.

We are now in the era of the gold mining super-deal. The only question that remains is who will emerge king of the mountain.

Yesterday Barrick CEO Mark Bristow (pictured) put forward an unsolicited US$18 billion offer for Newmont Mining that he says will unlock S$7.5 billion in shareholder value through better sharing of mining facilities and other synergies. But for that to happen, Newmont would have to abandon its S$10 billion share buyout of Goldcorp, a deal that would make it undisputed king of the gold mining world, and tie the knot with Barrick.

Mining groups are in a race to hoover up the best assets in the world and extend their average life of mine. The gold price remains stubbornly subdued, while ore yields are falling and costs rising.

Barrick is barely two months into its S$18.3 billion merger with Randgold, and is now making a pitch for the biggest prize in gold mining. Has it bitten off more than it can chew? No, says Bristow. The same management team that turned Randgold into the envy of the gold mining world is now in place at Barrick, while Newmont is plagued by an exodus of key management – some of them now at Barrick. The “New Barrick” team is sufficiently resourced to take on this whale-sized meal.

Addressing the media and analysts yesterday, Bristow spelt out the case for a Barrick-Newmont merger: in addition to unlocking more than S$7 billion in synergies, it would create the world’s largest pool of Tier 1 assets (defined as having a 10 year life with annual production of at least 500 000 ounces in the lower half of the cost curve). It would also generate enough cash flow to drive future growth.

The real prize for Barrick is the ability to tear down fences between it and Newmont in the gold-rich Nevada region, allowing it to rationalise transport fleets and share processing facilities. The Barrick offer was “far superior” to Newmont’s proposed acquisition of Goldcorp, says Bristow, with expected Barrick/Newmont annual synergies 7.5 times larger than the quoted annual synergies for the Newmont/Goldcorp transaction.

This article first appeared in Groumdup.

We’ve heard about gold theft, but coal theft is the biggest game in town. It’s costing Eskom and coal companies billions of rands a year. It’s highly organised and a major concern to police.

You might wonder who would bother stealing coal, rather than gold or platinum. But precious metals are highly controlled and not easy to steal. Coal is a cinch. Steal enough of it and you can make a fortune – and many people do.

Coal theft is highly organised and backed by big money. The gangs behind the theft have sufficient cash to invest in fleets of trucks.

Thousands of trucks deliver coal each day from the Mpumalanga coal mines to Eskom, or to the railway sidings for eventual delivery to the Richards Bay Coal Terminal for export. The better quality coal goes to the export markets, the lower quality coal to Eskom power stations.

The most common way of stealing coal requires the connivance of security and machine operators within the mines. A 28-ton or 34-ton truck turns up at the coal mine, usually at night when the security presence is more low-key, and is loaded with coal. Then, with the help of company insiders, the truck by-passes the weigh bridge, which is a crucial control element in all mines where the weight and identity of the truck is recorded. The truck drives out and delivers its cargo to an undisclosed buyer, who often re-sells the coal to Eskom. This can happen several times a day at the dozens of coal mines across Mpumalanga and elsewhere, according to Mike Elliott, business rescue practitioner for the Gloria Coal Mine.