FSCA was wrong to shut down JP Markets – Supreme Court

Written by Ciaran Ryan. Posted in Journalism

Ruling provides legal certainty to other online brokers operating in SA – and opens the door to a potentially massive damages claim against the authority. From Moneyweb.

The judgment overturns the liquidation order and was unanimous, with all five judges concurring. Image: Marie Eriel Hobro, Bloomberg
The judgment overturns the liquidation order and was unanimous, with all five judges concurring. Image: Marie Eriel Hobro, Bloomberg

The Financial Sector Conduct Authority (FSCA) was wrong to shut down JP Markets, then SA’s largest online broker with more than 300 000 clients, according to a judgment handed down on Wednesday by the Supreme Court of Appeal (SCA).

The SCA overturned a 2020 ruling by the South Gauteng High Court for the liquidation of JP Markets and ordered the FSCA to pay the costs of two counsel for JP Markets.

Read: JP Markets asks SCA whether regulator was right to shut it down when it wasn’t insolvent

“We are delighted with this ruling, which naturally presents us with a few options,” says JP Markets CEO and founder Justin Paulsen.

“The ruling overturns the liquidation order and what is encouraging is that it was the unanimous verdict of all five judges at the SCA.

“Our business was unlawfully destroyed by the FSCA and there has to be accountability for that,” he adds.

“We will be discussing our options with our legal team, and that will include a possible damages claim against the regulator and the resuscitation of JP Markets as an online broking business in SA.”

The ruling will also give relief to 16 other online brokers the FSCA told Moneyweb were under investigation for possible regulatory transgressions.

The FSCA says it will abide by the SCA’s judgment and commence processing the application by JP Markets for an over-the-counter (OTP) product provider licence, adding that: “JP Markets is not licensed as an OTP product provider, neither is it entitled to conduct the business of an OTP product provider, until a decision has been made by the authority on the status of its application.” (See the full FSCA statement below).

FSCA ‘overstepped’

Paulsen and JP Markets argued in court that the FSCA had overstepped its regulatory powers by liquidating a company that was not insolvent and that was attempting to bring itself under the ambit of the law by applying for a so-called over-the-counter derivatives provider (ODP) licence, which is required for the trading of a type of derivative product known as contracts for difference, or CFDs.

CFD traders can track the price movements of actual financial instruments without having to own the underlying asset. JP Markets clients could pick from more than 500 instruments, from forex to indices and individual stocks.

Darren Hanekom, attorney for JP Markets, says all allegations levelled against JP Markets and Paulsen in the media and by the FSCA have now been expunged.

“JP Markets is for all intents and purposes absolved and its character as Africa’s biggest forex broker restored,” says Hanekom.

The SCA ruling found that JP Markets had not been guilty of obfuscation, as was claimed by the FSCA, nor did it present a systemic risk to its clients or the financial markets generally, and that there was no conflict of interest in its dealings with clients.

Transparency

JP Markets was transparent in acknowledging that it was counterparty to clients in most trades, meaning it would win where a client lost a trade, and vice versa. There was no attempt to conceal this information.

Clients were broadly split into two categories: A-Book and B-Book. A-Book clients trade directly with what is known as a liquidity provider, who furnishes the bid-offer spread on a trade.

The SCA judgment dealt with JP Markets and its relationship to its B-Book clients, who constituted the bulk of the business.

Certain clients were flagged as ‘toxic’ due to the fact that they attempted to partake in collusive or prohibited trading which violated JP Markets’ terms and conditions.

The SCA found nothing objectionable in the practice of JP Markets issuing differentiated spreads to clients that had been deemed ‘toxic’.

There was no obfuscation by JP Markets in so doing, said the SCA, contradicting the ruling of the lower court.

Flawed decision

The SCA ruling says the decision to liquidate JP Markets was neither “just nor equitable”, which is part of the legal test for the closure of any company by the regulator.

“The starting point must be that JP Markets is a solvent company and a substantial concern. It employs 70 permanent employees at a monthly cost of more than R1 million,” says the SCA ruling.

“It paid in excess of R1 billion to thousands of clients during the period of three months preceding the liquidation application.

“It was not disputed that its own cash equity amounted to approximately R220 million.”

‘Covid crash’ sparked alarm

As part of its motivation in applying to the South Gauteng High Court to close down JP Markets, the FSCA pointed to numerous complaints received by clients during the ‘Covid crash’ on March 16, 2020, a crash severe enough to trigger a trading halt in thousands of brokerages across the world.

Due to a technical error, JP Markets continued to quote prices on trading instruments that were either incorrect or absent. Affected clients were restored to the positions they had been in before the trading halt.

“Whilst clients who had lost money were refunded, the profits of others were reversed, which understandably might have caused dissatisfaction and complaints,” reads the SCA ruling.

“JP Markets nevertheless pointed out that around 100 dissatisfied clients did not represent a large percentage of its approximately 300 000 clients. It said that it did its utmost to retain clients in a very competitive environment. It said it would be counterproductive to arbitrarily deny withdrawal requests or to cause unnecessary delays, and that it did not do so.

“The evidence therefore did not establish that the business of JP Markets constituted a systemic risk to its clients or to financial markets generally. It follows that the only remaining relevant factor was that JP Markets had been doing business as an ODP [OTC derivative provider] without a licence. In this regard it was in the first place not irrelevant that it was not the only one to do so.”

In the course of the legal process, it emerged that few of JP Markets’ competitors had applied for an ODP licence, and that the FSCA had not taken steps against any of these.

Vindicated – Justin Paulsen, founder of JP Markets. Image: Supplied

FSCA responds to SCA judgment

The FSCA has noted the decision of the Supreme Court of Appeal (SCA) to overturn the judgement of the Gauteng Division of the High Court, which had allowed for the liquidation of JP Markets (Pty) Ltd. The FSCA has also noted the Honourable Court’s interpretation with reference to the fair and equitable principle.

The Authority intends to abide by the judgment and will now proceed with the processing of the application by JP Markets for an over-the-counter (OTP) product provider licence, and the consideration of all outstanding enforcement actions.

The FSCA brings to the attention of the public that JP Markets is not licensed as an OTP product provider, neither is it entitled to conduct the business of an OTP product provider, until a decision has been made by the Authority on the status of its application.

Members of the public should always check that an entity or individual is registered with the FSCA to provide financial advisory & intermediary services and what category of advice it is that the entity is registered to provide. There are instances where persons are registered to provide basic advisory services for a low-risk product and then offer services of a far more complex and risky nature.

The FSCA reminds customers who wish to conduct financial services with an institution or person to check beforehand with the FSCA on either the toll free number (0800 110 443) or on [its website here] whether such institution or person is authorised to render financial services.

Zimbabweans ask Gauteng High Court to declare them permanent residents

Written by Ciaran Ryan. Posted in Journalism

Not an unexpected move as their exemption permits granted by Home Affairs expire in November. From Moneyweb.

Residential housing in Alexandra with Sandton skyscrapers as a backdrop. Image: AdobeStock

The Zimbabwean Exemption Permit Holders Association, representing roughly 250 000 Zimbabweans in SA, has asked the Gauteng High Court to declare them permanent residents, as their Zimbabwe Exemption Permits expire in November 2021.

They are also asking the court to direct the Minister of Home Affairs to issue them with SA ID documents on the grounds that they are permanent residents of SA in terms of the Immigration Act read together with the Identification Act.

They are also asking the court to review and set aside the decision by Home Affairs not to renew residency permits “knowing that the holders of the permit have known no other home besides South Africa for more than 10 years”.

This decision was unconscionable, irrational, unreasonable and unconstitutional, according to the court papers.

Zimbabwean Exemption Permit holders have a constitutional right to an equal path to citizenship in SA, and that right is being withheld, the association says.

Permit evolution

In April 2009, cabinet approved what was known as the Dispensation of Zimbabweans Project (DZP), allowing permit holders to work, conduct business and study in SA.

According to Home Affairs, 295 000 Zimbabweans applied for the permit and just over 245 000 were issued.

This was an attempt to regularise the residence status of those Zimbabweans residing illegally in SA due to political and economic instability at home.

Read:Zimbabwe journalist Chin’ono denied bail after second arrest

‘Zim dollar now in real peril’ … back on the slippery slope again

Those permits started expiring in December 2014, prompting Home Affairs to introduce a new permit scheme called the Zimbabwean Special Dispensation Permits (ZSPs), which were valid for three years.

Nearly 198 000 ZSPs were issued, according to the Department of Home Affairs. When the ZSPs expired in 2017 they were replaced by Zimbabwean Exemption Permits, or ZEPs.

These permits, like their predecessor, allowed Zimbabweans to work, study and conduct business in SA, but were not renewable and did not entitle the holder to apply for permanent residence in SA.

According to papers before the court, these permits were issued in terms of Section 31 of the Immigration Act which allows the Minister of Home Affairs to grant foreigners the rights of permanent residence for a “specified or unspecified period when special circumstances exist” that justify the decision.

The applicants in the case say the ZEP is a permanent residence permit valid for a specific period of time as allowed by the Immigration Act, and that they are therefore entitled to ID documents.

‘Legitimate expectation’

“It is further submitted that the holders of Zimbabwean Exemption Permits have a legitimate expectation for the renewal of their current permit, and for permanent residence, without any further conditions, and the right to apply for citizenship in the Republic of South Africa.”

Read: Immigrants take Home Affairs to court, say it has all but collapsed

According to Advocate Simba Chitando, who is representing the applicants in the case: “The problem faced by many hundreds of thousands of Zimbabweans in SA is that they have been here for 10 years or longer under a variety of different permits, and it is generally conceded that they make a huge contribution to the SA economy, yet these permits do not allow them to enjoy the benefits that come with permanent residence, such as full access to banking facilities, or the right to accumulate pension savings.

“We argue that it is past time to grant permanent residence to those Zimbabweans who have been living and working in SA in a kind of no-man’s land. We believe it is reasonable to expect to be granted permanent residence when the ZEPs expire, which they do in November 2021.”

Supreme Court slaps down Spur over tax deduction claims

Written by Ciaran Ryan. Posted in Journalism

Citing ‘misrepresentations and non-disclosures’, and reversing an earlier high court nod of approval. From Moneyweb.

Sars initially allowed Spur to claim the deductions but reversed this decision following an audit. Image: Supplied
Sars initially allowed Spur to claim the deductions but reversed this decision following an audit. Image: Supplied

The Supreme Court of Appeal (SCA) last week overturned a Western High Court ruling that a R48 million contribution to a Spur employee share trust was an expense in the production of income, and was therefore deductible.

In 2004, Spur launched a share incentive scheme for employees, with Spur Holding Company (HoldCo) being the sole capital and income beneficiary. In December that year, an amount of R48.4 million was paid into the trust by Spur. The trust deed was amended in 2010 to allow participants to benefit from dividends received by the trust, though Spur HoldCo remained the sole capital beneficiary.

“The purpose of the scheme was to promote the continued growth and profitability of Spur,” according to the SCA judgment.

Participants in the scheme were given ordinary shares in an entity (NewCo) and were prevented from dealing freely in these shares for a period of seven years.

Shortly thereafter, NewCo’s share capital was altered to create NewCo preference shares. The trust acquired 1 000 preference shares in NewCo, with an agreement that dividends would be paid at 75% a year of the prime interest rate, to be redeemed five years later – in December 2009.

When 2009 came around, the preference shares were redeemed at the rate of R48.4 million as previously agreed, while dividends amounting to R22.5 million were to be distributed to the trust.Read:Taxpayers beware, Sars will catch up on any undeclared income
How Spur is using delivery services to fight backSpur posts full-year profit, despite group revenue declining

The redemption of the preference shares and the payment of the dividends were settled by way of NewCo distributing to the trust a total of 6.7 million Spur HoldCo ordinary shares.

In December 2009, NewCo declared a dividend of R286.27 per ordinary share totalling R28.6 million to the ordinary shareholders of NewCo.

The share incentive scheme was terminated and NewCo deregistered on December 10, 2012, though the trust continues to hold Spur HoldCo shares that were distributed to it by NewCo.

Deductions claimed

A dispute arose with the South African Revenue Service (Sars) when Spur claimed the contribution of R48.4 million it made to the trust as a deduction against its income in terms of Section 11(a) of the Income Tax Act, with the claimed deductions spread over the period 2005 to 2012.

Spur claimed deductions of R3.46 million in 2005; R6.92 million for the years 2006 to 2011; and R3.46 million for 2012.

According to the SCA ruling, Sars initially allowed the claimed deductions but reversed this decision following an audit. The basis of the disallowance was that the R48.4 million contribution was not incurred in the production of Spur’s income over the period.

Sars reasoned that Spur HoldCo was the only party to benefit from the contribution to the trust.

The participants to the contribution were not beneficiaries, and this was confirmed by a Spur witness who confirmed that the R48 million in the form of Spur Corporation shares is still sitting in the trust, which means the participants have not benefitted directly from the contribution.

‘Misrepresentations and non-disclosures’

“Clearly, there must be a sufficiently close connection or link between the expenditure and the income earning operations of a taxpayer. The determination of whether the necessary link exists will require an examination of all the facts of a particular case,” reads the judgment.

“In light of what I have stated above, I therefore find that the misrepresentations and non-disclosures by Spur caused the Commissioner [of Sars] not to assess Spur correctly within the three-year period after the original statements.”

Though Section 99(1) of the Tax Administration Act does not allow Sars to make an assessment three years after the original assessment, this limited period does not apply where fraud, misrepresentation or non-disclosure of material facts is involved.

Sars’s appeal against the earlier Western Cape High Court ruling in Spur’s favour was upheld by the SCA, and Spur was ordered to pay the costs of the appeal.

Brian Joffe may be vacating the CEO seat at Long4Life, but his magic sauce remains

Written by Ciaran Ryan. Posted in Journalism

And he will stay on as chair of the group. From Moneyweb.

With Brian Joffe’s exit the board is now searching for a new CEO. Image: Supplied
With Brian Joffe’s exit the board is now searching for a new CEO. Image: Supplied

The big news out of Long4Life is that Brian Joffe will be vacating the CEO position, but will stay on as chair at the end of the current financial year.

The announcement, made on Thursday at the tail end of the presentation of the group’s interim results to August 2021, gives no insights into the reasons for Joffe’s departure.

Joffe spent 27 years building Bidvest into an international behemoth before leaving the group in 2017. He brought the same formula of selecting entrepreneurial managers and reasonably valued businesses to his next venture, Long4Life. Joffe’s now into his mid-70s so he will no doubt want to enjoy some of fruits of his labours built up over more than three decades.

Long4Life was always going to be a group to follow, given the Joffe association and his past record at Bidvest.

As Sasfin market commentator David Shapiro remarked many years ago, Joffe’s success was his ability to spot opportunities others didn’t see. For many years Bidvest looked like an ill-fitting agglomeration of businesses that lacked a coherent theme, but Joffe saw something others didn’t: the ability to bind these businesses together through synergy or cross-marketing. He rarely made mistakes. He encouraged management to be bold, and was willing to add a little capital where needed to get things moving in the right direction.

The same formula that worked at Bidvest was clearly in evidence at Long4Life, and shareholders will take comfort that he is not entirely retired from the company.

Current chair Graham Dempster will assume the role of deputy chair. Meanwhile the board has started the process of searching for a new CEO.

Results

The group’s interim results were clearly impact by the Covid lockdowns in 2020, so comparisons with 2019 are more meaningful. The group comprises three divisions – sports and recreation; beverages; and personal care and wellness.

The Covid restrictions were most evident in the beverages division, where revenue, at R630 million, was down 4% over 2019.

It wasn’t all bad news though, as the lockdowns focused management’s attention on costs and logistics, while building up the market presence of Chill Beverages and Inhle.

The result was a 43% surge in trading profit to R69.6 million.

Especially hard hit was the Personal Care and Wellness division, made up of brands like Sorbet, a beauty therapy network with 200-plus stores, Lime Light and Candi & Co, involved in a growing hair and beauty market, and ClaytonCare, which deals with patient rehabilitation and recovery.

Overall, sales in this division were 12% up on 2019, largely as a result of strong occupancy levels at ClaytonCare facilities and an acquisition by Lime Light.

The third division, Sports and Recreation, managed a slight 2% increase in 2019 revenue for the comparable period in 2019, but reported a trading profit 4% down at R148.1 million (on revenue of R1.1 billion) due to foreign exchange losses. But for the impact of the forex loss, trading profit was 7% higher. This division is made up of brands such as Sportsmans Warehouse and Shelflife, which suffered from the limited team and school sports over the trading period.

Source: Long4Life 2021 interim results presentation

The group paid a maiden dividend of 10c a share, having forsaken dividends in prior periods during a share buyback scheme.

Long4Life management says it is optimistic about the future, though a key risk is the possibility of a fourth wave of Covid infections as well as continued supply chain constraints.

The group says it has received an unsolicited expression of interest to acquire all the shares in Long4Life, and is currently evaluating the bid.

There’s a 54 bitcoin discrepancy at shuttered crypto exchange iCE3

Written by Ciaran Ryan. Posted in Journalism

Provisional liquidator has asked Zurich-based tech provider Merkeleon to help unravel the discrepancy. From Moneyweb.

A dispute with its platform provider Merkeleon seems to have marked the start of the problems for iCE3. Image: Chris Ratcliffe/Bloomberg

A dispute with its platform provider Merkeleon seems to have marked the start of the problems for iCE3. Image: Chris Ratcliffe/Bloomberg

There’s a roughly 54 bitcoin (R45 million) discrepancy in the accounts of provisionally liquidated crypto exchange iCE3, which shut its doors in March this year after announcing it would no longer process requests for crypto withdrawals.

Thousands of iCE3 clients have been left wondering what has happened to their crypto and whether they stand any chance of getting some of it back.

Read:iCE3x suspends trading after discovering account discrepancies

Crypto exchange iCE3 to be liquidated, suspends all withdrawals

That question has been answered, at least in part. The provisional liquidator, Dewald Breytenbach of National Liquidators, says he now has physical control of some of the affected wallets. Breytenbach says the provisional liquidators discovered just 22 bitcoin (BTC) where they expected to find 76.

Discrepancies were also discovered in smaller cryptocurrencies such as Ethereum (ETH), Litecoin and others. “In some instances, we discovered more [smaller] cryptos than we expected, and in other instances we discovered less, so it’s all over the place,” says Breytenbach.

iCE3 put a freeze on trading when the discrepancies first came to light, though it was allowing withdrawals

“The problem [at iCE3] appears to have started when a dispute arose between iCE3 and its platform provider, Merkeleon, based in Europe,” says Breytenbach.

“iCE3 and its founder Gareth Grobler assumed this was a partnership, while Merkeleon had an entirely different understanding. Grobler says he developed the software on which the exchange operated, while Merkeleon took care of the administration, for which it invoiced iCE3 every month.

“A decision was taken to shut down the exchange in February this year after there appeared to be a discrepancy between what cryptos there should be in the wallets and what was actually there,” adds Breytenbach. “We have been in touch with Merkeleon and we are hopeful that we will get the information we require.”

Moneyweb previously sent questions to Merkeleon, but did not receive a reply.

There’s a saying in cryptos: not your keys, not your coins.

This means if you leave your crypto in a wallet provided by a crypto exchange, that comes with an element of risk, as the iCE3 saga demonstrates. Had clients removed their cryptos into a wallet like MetaMask or Exodus, they would not be now left in the dark as to whether or not their cryptos exist.

As Moneyweb previously reported, there exists a rather thin corpus of legal precedent on who owns cryptos in failed exchanges.

Read: The liquidation of iCE3 is a watershed moment for SA’s crypto industry

One case that serves as a useful guide is New Zealand crypto exchange Cryptopia, which had more than 900 000 account holders and NZ$170 million (R1.76 billion) in crypto assets at the time of liquidation. The exchange was hacked in January 2019 and somewhere between 9% and 14% of its cryptocurrency was stolen, equivalent to about NZ$30 million (R311 million).

The court found that all cryptocurrency holdings were held on trust by Cryptopia, meaning these assets could not be counted as part of the property of the liquidated estate.

Merkeleon is expected to throw light on the nature of the relationship with iCE3, and to provide a full accounting of the cryptos under its administration.

Breytenbach tells Moneyweb that one iCE3 client owed close to R2 million has taken his case to the court, and is asking it to force the provisionally liquidated estate to return his crypto.

Clients can download a claims form at the iCE3 website.

6 years in business rescue, Barbrook and Lily gold mines cannot escape the court system

Written by Ciaran Ryan. Posted in Journalism

Despite a rescue plan approved by creditors. From Moneyweb.

Vantage Goldfields says implementation of the rescue plan has been impeded by (disputed) creditor Arqomanzi making a hostile bid for its assets. Image: Supplied
Vantage Goldfields says implementation of the rescue plan has been impeded by (disputed) creditor Arqomanzi making a hostile bid for its assets. Image: Supplied

It’s nearly six years since a support pillar at Vantage Goldfields’ Lily Mine in Mpumalanga collapsed, taking the lives of Solomon Nyirenda, Yvonne Mnisi and Pretty Nkambule. The company subsequently placed the Lily Mine in business rescue.

The bodies of the three workers remain buried 50 metres underground at the site. All this time the families have been waiting for the mine to reopen so they can claim the remains of their loved ones.

In February this year it seemed the long wait was over, when it was announced that Australian group Macquarie Metals would come to the rescue of Vantage Goldfields, which owns both the Barbrook and Lily mines.

Read: Australian group Macquarie Metals comes to rescue of Vantage Goldfields

Vantage Goldfields CEO Mike McChesney said Macquarie Metals would settle the R212 million owed to creditors and recommence mining operations by July this year.

The first order of business would be to sink a decline shaft and retrieve the bodies of the deceased workers. The plan was approved by the business rescue practitioners (BRPs), Rob Devereux and Danie Terblanche.

McChesney’s optimism seems to have been premature.

Arqomanzi, which is a (disputed) creditor making a hostile bid for the assets of Vantage Goldfields, was successful in interdicting the BRPs from implementing their plans. At this point, it is unclear when mining operations will recommence.

‘Fake’ letter

Earlier this month, Arqomanzi put out a statement claiming it had uncovered fraud relating to a letter of funding being put up by Macquarie Metals shareholder Africa Pacific Capital.

The letter formed part of the proof of funds on which the business rescue plan was predicated. Arqomanzi says it was suspicious of the letter and wrote to HSBC in Hong Kong to establish its provenance.

“On 30 September 2021, in an astonishing turn of events, Arqomanzi received written notification from HSBC in Hong Kong that the letter was not issued or sent by HSBC Hong Kong,” says the Arqomanzi statement.

Had it not been for this “fake” letter being used to mislead the courts, the mines would be operational by now and the recovery of the container with the bodies of the deceased workers would have been well underway, as would the reopening of the mines, according to Arqomanzi.

These are serious allegations requiring a serious response.

Vantage Goldfields put out a statement of its own disputing Arqomanzi’s interpretation of the “fake letter”, saying no bank would provide details about its customers in the way suggested by Arqomanzi.

Frustrating the process

“In any event Vantage has the necessary funding to complete the business rescue process but implementation of the approved plans has been impeded by Arqomanzi,” says Vantage in its response.

It goes on to say that plans to reopen the Lily and Barbrook mines and retrieve the bodies of the deceased workers have been impeded, not by Vantage, but by Arqomanzi.

“Unfortunately this continues to be delayed and frustrated by Arqomanzi’s incessant litigation,” it adds.

“Arqomanzi and its collaborator SSC [Siyakhula Sonke Empowerment Corporation] have been litigating with the Vantage group for more than three years, in six different actions, starting with an unsuccessful action by SCC when it attempted to acquire the Vantage companies but was never able to produce the funding to do so. Vantage believes all their claims will be shown to be unmeritorious.

“These actions have been aimed at stalling and delaying the rescue of the Vantage companies, to the detriment of employees, creditors and the community.”

Read:Dog fight over the carcass of Vantage Goldfields

Moves to reopen Lily and Barbrook gold mines

Surreal happenings around Lily and Barbrook sale

The Vantage statement says Arqomanzi does not have valid business rescue plans, nor does it have the funding required.

“Arqomanzi’s actions are just futile delaying tactics with no clear rescue plan to proceed. Employees and others who sold their claims to Arqomanzi are unlikely to ever see their money from Arqomanzi.”

History of litigation

Earlier this year, Arqomanzi succeeded in its attempt to interdict the BRPs implementing their rescue plan for the mines. That ruling by Mpumalanga High Court Judge President Francis Legodi is currently on appeal before the Supreme Court of Appeal in Bloemfontein.

Arqomanzi says it will now lay criminal charges in SA, Australia and Hong Kong relating to the so-called fake letter, and will report the matter to the relevant regulatory authorities.

Following that ruling, Arqomanzi approached the court a second time to determine what percentage of voting rights it held in the business rescues of Vantage Goldfields (VGL), Barbrook and Mimco (which owns the Lily mine) so that it can participate in the vote on the plans.

It is also asking the court to confirm whether Section 11 approval is needed for a change of ownership in terms of the Minerals and Petroleum Resources Development Act (MPRDA). The BRPs say this is not needed.

On July 29, Arqomanzi launched a new application to hold the BRPs in contempt of court for supposedly violating previous court judgments putting a freeze on implementing the rescue plans.

It is asking the court to impose a fine of R1 million on the BRPs and to suspend any fees due to them after July 25, 2020.

On August 4 this year, the BRPs launched a counter-application challenging certain aspects of judgments previously issued by Legodi and Judge Henk Roelofse, which put a freeze on their ability to implement the business rescue plan.

The BRPs want certain clauses of the judgments declared null and void, and an order prohibiting Arqomanzi from attempting to amend the already approved business rescue plans. This matter is set down for hearing on November 18.

The rise and rise of SA’s bulk commodities

Written by Ciaran Ryan. Posted in Journalism

Particularly iron ore and coal, which will be around for a long time yet. From Moneyweb.

SA’s high quality iron ore attracted a hefty premium as the world economy rebounded from the Covid collapse, with sales jumping 59% in 2021. Image: Bloomberg News
SA’s high quality iron ore attracted a hefty premium as the world economy rebounded from the Covid collapse, with sales jumping 59% in 2021. Image: Bloomberg News

This was a week of clangers in the mining sector: the once mighty AngloGold Ashanti no longer features on the top 10 list of mining companies as measured by market cap; the ongoing collapse in the rhodium price (now half of where it was in April); and the realisation that SA’s coal sector might be around a lot longer than environmental lobbyists would prefer.

Read: AngloGold Ashanti bumped off list of Top 10 mining companies

Rhodium price in USD

Rhodium accounts for a relatively small part of platinum group metal (PGM) mining by volume in SA, but has a much greater impact on profits. The graph above explains why.

That also accounts for some of the recent drop in share prices of PGM producers like Impala Platinum, whose price is down 37% since May. As Moneyweb previously noted, rhodium may have accounted for just 6.5% and 7.5% of Implats’ and Amplats’ mineral output, but it gifted these companies 25% and 34% of their total revenue in 2020.

Read: How a tiny by-product metal is making billions for PGM producers

The latest drop in price suggests we are headed into less frothy waters, through rhodium continues to change hands at prices well above 2019 levels.

Declining demand from the automotive sector and a scarcity of semi-conductor chips is behind the recent plunge in the metal price.

The outsized contribution of PGMs to SA mining was emphasised in the latest PwC SA Mine report, published this week, showing PGMs accounted for 38% of total mine sales in financial year 2021, following a doubling in sales over the previous year.

Bulk commodities

The other major story to emerge from the PwC report is the growing importance to mining of bulk commodities such as iron ore and coal.

Coal and iron ore contributed 37% of total mining revenue in 2020, and 31% in 2021, despite a 20% improvement in revenue. The declining contribution from these two bulk commodities is distorted by the doubling in revenue from sales of PGMs over the last year.

Coal sales were more or less unchanged at R133 billion in 2021 versus 2020, but SA’s high quality iron ore attracted a hefty premium as the world economy rebounded from the Covid collapse. Total iron ore sales jumped 59% in 2021 compared to 2020.

Cleaner technologies

Speaking at the Mining Indaba this week, Kumba CEO Themba Mkhwanazi said the global steel industry is under increasing pressure to decarbonise, as regulators are setting more ambitious carbon neutrality targets. Canada, the EU, UK and Japan have set themselves targets to be carbon neutral by 2050, and China by 2060.

Kumba’s premium grade iron ore drives down emissions, said Mkhwanazi, adding that partnerships with customers are producing cleaner mining technologies.

Climate change is accelerating a flight to quality, and this is to the benefit of companies like Kumba which, as part of the Anglo American stable, has revolutionised mining with the introduction of technologies designed to minimise environmental impacts.

Read:Anglo’s seen the future of mining, and it looks a lot like farming

Anglo set out to reimagine mining, and the $2bn payoff has arrived

These include the use of hydrogen-powered trucks, the build-out of solar powered energy plants and the reinvention of virtually all aspects of the mining production chain.

Coal

July Ndlovu, CEO of Thungela Coal, told the Indaba that coal will remain a key part of the energy mix into the next decade, maybe longer.

“We think Thungela represents a new generation of coal value players. We think sometimes our value chain is not understood, and we can co-exist [with green energies] going forward,” he said.

The world is not confronted with a binary choice between fossils and renewables, as the transition away from fossil fuels will take decades to complete.

Coal remains essential to 80 countries, and for many of them coal will remain the key energy source well past 2040. The pathway to green energies goes through coal, said Ndolvu, adding that clean coal technologies are not a myth, as some environmentalists have claimed, and are likely to extend the lives of coal producers, perhaps by decades. These technologies eliminated two gigatons of carbon in Asian economies in 2018.

Older generation coal-fired power stations in the US and Europe are more likely to close over the coming years, but new generation coal-fed plants, predominantly in Asia, are unlikely to close in the near term.

Transnet impedes export growth

African Rainbow Minerals Ferrous Division CEO Andre Joubert told the Indaba that Transnet’s capacity is a major bottleneck to export growth, with annual freight targets of 67 million tons (Mt) a year remaining out of reach, never mind the previously mentioned target of 76 Mt.

Transnet’s current capacity is 60 Mt a year, but over the past three years it has managed just 58 Mt.

The country loses some R5 billion a year due to this unrealised export potential, in addition to the loss of revenue to Transnet.

SA is a niche but high quality player in the world of iron ore, said Joubert, and needs to partner with Transnet to achieve its export potential. New management at Transnet Freight Rail (TFR) is much more transparent than the previous team, and a solution to the supply constraints is only possible by partnering with the organisation.

The University of Pretoria graduate bringing bitcoin to Africa

Written by Ciaran Ryan. Posted in Journalism

Kgothatso Ngako wants to share the excitement of bitcoin with the more than 1bn people on the continent by translating its materials into all major African languages. From Moneyweb.

What started as a passion project for Kgothatso Ngako has become a full-time occupation. Image: Supplied
What started as a passion project for Kgothatso Ngako has become a full-time occupation. Image: Supplied

Kgothatso Ngako first heard about bitcoin in 2015 while studying computer science at the University of Pretoria. He immediately grasped its potential to transform Africa and the world.

“I saw it as a tool to deliver sovereignty and freedom to the ordinary people, rather than relying on governments to do this. The first thing that struck me was here is a way to save money and not have your savings destroyed by inflation. At that point I decided I wanted to get involved in the crypto space full time.”

In 2019 he launched Exonumia, an open-source platform with the mission to translate content about bitcoin into native African languages.

So far, material has been translated into eight African languages, and includes the original ‘white paper’ written by bitcoin founder Satoshi Nakamoto, and several of his explanatory emails and other materials intended to encourage wider bitcoin adoption in Africa.

Read: Cryptocurrency banking potential in Africa

The languages mostly covered so far are: IsiZulu, Sesotho, IsiNdebele, TshiVenda, Kiswahili, Oshiwambo and Khoekhoegowab. This week, Shona was added to the list, with the translations made possible with a grant from crypto exchange BitMex.

Next to come are translations into Arabic, Somali, Hausa, Igbo, Berber, Chewa and several other west African languages.

Ngako comes from a Sotho-speaking home, with English very much a second language. The South African schooling system forced him to acquire a mastery of English, and in doing so he found a new fascination – language and translations.

Huge response

What started as a labour of love for Ngako has now turned into a full-time occupation.

“I got specialists involved for most of the translations. We have since expanded the team across Africa, but it is all run from SA. We did this all on a shoestring budget, but the response we have been getting has been huge, and we can measure that from the pageviews on our website,” says Ngako.

Ngako’s colleague Happy Mahlangu has been responsible for many of the translations into South African indigenous languages, as well as the translation into Zulu of the book ‘Layered Money’ by Nik Bhatia.

Earlier this year Ngako formed a non-profit organisation – also called Exonumia – and brought on board three fellow directors who share his passion of bringing bitcoin to Africa: Siyabonga Mjali, Matlapane Sebetoa and Sibongile Rakgatjane.

Serendipitous encounter

Ngako grew up and went to school in Mamelodi, north of Pretoria, and planned to become an engineer – until an enthusiastic techie at a University of Pretoria career expo convinced him to study computer science.

He imagined he might end up as a software engineer for Facebook or one of the other tech giants, but then caught the crypto bug.

“I was doing a software project and was offered payment via PayPal or bitcoin. Stupidly, I took payment in rands via PayPal, and then I saw what happened to the price of bitcoin and I was kicking myself,” he says.

“I decided I better start paying attention to it and understand why its price was accelerating the way it was.”

Read: Hilton College matric student solves multi-billion dollar crypto puzzle

In explaining the purpose behind Exonumia (a name for numismatic items such as tokens, medals or scrip), Ngako references Austrian economist Ludwig von Mises from his book ‘Theory and History’.

Mises stresses that those limited to a grasp of native languages only are relegated to subordinate positions of society when new rulers come to power and enforce a new language as the medium of instruction for both economic and political activities.

“The longer such a society continues to conduct day-to-day affairs without using their native dialects, then those native dialects die out because they become insufficient tools for those looking to partake in activities of value,” says Ngako.

“Our project is aimed at delivering sovereignty and financial liberty to all people living in Africa.”

He adds: “Maybe for the first time in history, we have a system of private monies such as bitcoin that are beyond the control of politicians and central banks.

“China, as powerful as it is, tried to ban cryptos, and look what impact it had on prices – very little.

“These are exciting times, and we want to share this excitement with the more than one billion people on the continent.”

You can sponsor a language translation here.

You can contribute translations to the project here.

AngloGold Ashanti bumped off list of Top 10 mining companies

Written by Ciaran Ryan. Posted in Journalism

Replaced by Royal Bafokeng Platinum as platinum, iron ore and coal now dominate the mining landscape. From Moneyweb.

Strong iron ore price movements saw Kumba move up to second place. Image: Bloomberg
Strong iron ore price movements saw Kumba move up to second place. Image: Bloomberg

The once mighty AngloGold Ashanti has been bumped off the list of SA’s Top 10 mining companies, replaced by Royal Bafokeng Platinum, according to the PwC SA Mine 2021 report released on Tuesday.

Read: Royal Bafokeng Platinum rewards shareholders with R1.5bn interim dividend

“The gold sector experienced the largest negative share price movements as a result of the declining gold stocks and lack of investor confidence in the precious metal,” says the report.

“In addition, gold was also ranked as the least preferred commodity in June 2021 and this is reinforced by the drop in position by AngloGold Ashanti and Gold Fields.”

Market cap of Top 10 mining companies

Source: EquityRT, Iress, PwC analysis

Strong iron ore price movements saw Kumba Iron Ore move up to second place, on the back of its record financial performance.

In terms of ranking, Impala Platinum was the biggest climber, moving from sixth place to replace AngloGold Ashanti in the top three, after its market capitalisation more than doubled between June 2020 and June 2021.

Read: PGMs boom powers Implats to bonanza profits

In addition to Impala Platinum, Sibanye-Stillwater moved from fifth place to fourth place. Both these improvements in ranking are attributable to the favourable platinum group metal (PGM) prices.

Higher prices for PGMs and iron ore were the main drivers behind the 63% jump in mining revenue for the year to June 2021, according to the report.

Sector shows resilience

Mining was among the most resilient sectors in the SA economy, benefitting from a 71% average increase in PGM prices and a 48% increase in iron ore prices. These higher prices helped offset the drop in production that occurred at the start of the hard lockdown in March 2020.

Read: How miners have come to the rescue of the fiscus – and shareholders

There was a 13% increase in mining production over the previous year, with diamonds, manganese ore and chromium leading the way. Diamond production was up 30% year on year, while coal was down 6%.

Iron ore prices increased by more than 200% from the prior year and this was largely driven by China’s rapid economic recovery and subsequent reopening of other global steel markets.

Another sign of the health of the sector is the level of dividends paid to shareholders.

A total distribution of R76 billion was made for the year to June 2021, up from R43 billion the prior year. Impala Platinum paid a dividend of R11 billion (2020: R0.9 billion) for the year to June 2021, while Kumba gave R25 billion (2020: R19 billion) to shareholders.

Dividend yield

Source: Stats SA, PwC analysis

Though gold mining companies struggle to make it onto the list of the Top 10 companies ranked by market cap, Harmony increased revenue by 42%, due largely to a 26% improvement in production and a higher average rand gold price.

“The excellent financial performance resulted in mining companies being in a very strong financial position,” says Andries Rossouw, PwC’s Africa energy, utilities and resources leader.

“Debt has largely been repaid and returns to shareholders reached record rand levels for many companies. The fiscus benefitted from increased direct and indirect taxes and mining royalties to the extent that it could support ongoing socioeconomic support during the pandemic.

“The remaining free cash flow and available cash resources leave mining companies with interesting capital allocation decisions,” adds Rossouw.

“Strategies will include expansions and new development, acquisitions, strengthening of local infrastructure and host communities, market development, and investments up and down the value chain. Execution on these strategies will require disciplined long-term sustainable mindsets.”

Class action looms over claims Telkom routinely overcharged clients for insurance

Written by Ciaran Ryan. Posted in Journalism

More than 100 000 Telkom Mobile clients could be involved. From Moneyweb.

Affected customers will automatically be included in the action unless they specifically opt out. Image: Waldo Swiegers, Bloomberg
Affected customers will automatically be included in the action unless they specifically opt out. Image: Waldo Swiegers, Bloomberg

A class action suit has been filed in the Gauteng High Court against Telkom and its insurance provider Mutual & Federal Risk Financing, which is part of the Old Mutual group, over claims that Telkom clients were routinely overcharged for insurance.

One of the claimants, Nozipho Mkubu, signed up as a Telkom Mobile client in October 2019 and agreed to a monthly charge of R132.45. When the full policy documents were provided, the insurance amount had been bumped up to R151 a month. When the Telkom invoice arrived, the amount charged was R152.32, a still higher overcharge of nearly R20 a month.

This may seem like a rather trivial oversight – and Mutual & Federal Risk Financing admits there was an overcharge due to a system error and affected clients are being reimbursed – but the figures could run into hundreds of millions of rands if the overcharge was applied to all Telkom Mobile customers, according to Gareth Miller, the driving force behind the class action suit.

“System errors – such as that claimed by Mutual & Federal Risk Financing – lend themselves to class actions, as they apply to everyone in the system,” says Miller.

As we have argued in our court papers, this is a system error, whether intentional or otherwise, that runs much deeper than is being admitted. We don’t want to be brushed off with a dismissive comment that it only happened to a few customers and they are being repaid. We want full transparency and recompense from Telkom and its insurer, Mutual & Federal.”

The applicants want an independent auditor to assess the extent of the overcharge, which Miller says could involve more than 100 000 customers.

Read:Telkom sees 40% surge in mobile service revenue

Telkom’s mobile growth continues unabated – up 36% in Q1

Telkom is wrong – there is no market failure in mobile

According to court papers, Telkom Mobile offers device insurance for its contract customers underwritten by Mutual & Federal Risk Financing which falls under Old Mutual Insure.

Once a customer agrees to take out device insurance with Telkom, an in-store contract is signed reflecting a monthly insurance amount to be deducted by debit order.

Thirty days later the customer receives the full policy document via email.

All the applicants in this case say the full policy document reflected a higher insurance amount than was agreed in the in-store contract.

The customers then receive their Telkom statements, which again reflected a higher amount than was agreed in either the in-store contract or in the full policy document.

Though just five people are listed as applicants in this case, this figure is expected to run into tens of thousands of customers – and possible many more – who will automatically be included in the action unless they specifically opt out.

The applicants are being represented by Advocate Douglas Shaw, with litigation funding being provided by Miller. The case was filed in the Gauteng High Court in June.

Companies reactive, not proactive

“Despite the fact that the overcharging has been ongoing for a number of years, Telkom and Old Mutual Insure only decided to take action [by offering to refund clients] after the class action was lodged at the High Court,” says Miller.

“Telkom and Old Mutual have agreed that there was a system or wording error on the in-store contract, which effectively equates to the document failing to show a Vat [value-added tax] amount of 14% [the Vat rate increased to 15% on April 1, 2018].

“After consultation with Telkom and Old Mutual Insure, they acknowledged the overcharge and have agreed to refund their customers. This is great news.

“What we now need to know is how extensive was the system error and whether it applied to all clients and, frankly, this is something that the auditors – and not us – should have picked up.”

Shaw and Miller have advised Telkom Mobile customers to inspect their Telkom statements and compare the insurance premium to the agreed amount reflected in the in-store contract. Enquiries can be directed to insurancerefund21@gmail.com.

Impact 

Telkom’s latest annual financial statements reflect income generated from device insurance premiums for the last two years at R294 million.

If the overcharge is endemic to the entire customer base, this would amount to R39 million that may be erroneously reflected as profit.

However, the overcharge may apply to a much longer period, says Miller, resulting in an overcharge potentially running to hundreds of millions of rands.

Karen Naidoo, speaking on behalf of Old Mutual, provided the following response:

“We can confirm that court proceedings are currently underway, and we are involved in a legal case. The matter involves Telkom, Mutual & Federal Risk Financing Limited and five individuals. We can provide you with further detail on the matter once we have served and filed papers in response to the application.

“At this stage, we can confirm that the case pertains to a system error that affected the premiums collected from customers. The system error was rectified as soon as we learnt about it and the affected customers are in the process of being reimbursed.”

Read: NCR accused of siding with banks in R60bn class action suit