Botswana’s mining-friendly approach pays off

Written by Ciaran Ryan. Posted in Journalism

Results in world’s second-largest diamond find, while coal exports take off. From Moneyweb.

The Lucara diamond is the second stone bigger than 1 000 carats to be recovered at the Karowe mine in four years. Picture: Supplied

The Lucara diamond is the second stone bigger than 1 000 carats to be recovered at the Karowe mine in four years. Picture: Supplied

Just when it looked like Botswana had hit ‘peak diamond’, Vancouver-based Lucara Diamond announced in April that it had recovered a 1 758 carat diamond from its 100% owned Karowe mine in the east of the country.

This is one of the largest diamonds recovered in history, and the largest ever found in Botswana. It is the second time in four years the mine has recovered a stone of more than 1 000 carats.

Lucara snagged the 1 111 carat Lesedi La Rona stone, which at the time was the third largest diamond ever found and the second largest of gem quality, in 2015.

The Lesedi La Rona (‘Our light’ in Tswana) was bought by British jeweller Graff in 2017 for US$53 million. It was later cut into one stone of 302 carats and 66 smaller stones. These stones were reportedly sold for more than three times the purchase price.

Botswana’s regulatory stance

Speaking at the Junior Mining Indaba in Johannesburg yesterday, Botswana Chamber of Mines CEO Charles Siwawa highlighted Lucara’s find as one of the successes stemming from the government’s mining-friendly regulatory stance.

“What’s interesting about this diamond is that it was discovered by a junior miner, not one of the majors.”

The latest Lucara find is so large and rare that it is difficult to value. By way of comparison, the famous 3 106 carat Cullinan Diamond, recovered in 1905 from the Premier mine in Cullinan outside Pretoria, is the largest gem-quality stone ever recovered and is reckoned to have a value of more than $2 billion today. That stone is now known as the Great Star of Africa and is nestled in England’s royal sceptre on display at the Tower of London.

More big finds expected

Lucara CEO Eira Thomas says the recovery of two stones larger than 1 000 carats in four years affirms “the coarse nature of the resource and the likelihood of recovering additional, large, high-quality diamonds in the future, particularly as we mine deeper in the [Karowe] orebody”. 

The company has recovered 1.4 million carats at Karowe since commissioning its diamond recovery plant in 2015.

Earlier this year Botswana’s Orapa mine announced the discovery of a 41.11 carat ‘fancy blue’ diamond, which was then cut into a 20 carat polished stone of extreme rarity due to its unique colouration. The diamond has been named Okavango Blue and is expected to be sold later this year for a record price for a stone of this rarity. Orapa is the world’s largest diamond mine by area, and is jointly owned by De Beers and the Botswana government. In 2018, it produced 12.2 million carats.

Exploration licences

Botswana has issued more than 1 000 exploration licences in recent years for commodities ranging from gold and diamonds to copper, nickel, iron ore and manganese. The government has the right of first refusal to acquire 15% equity in any promising discovery. Exploration licences are easily obtained and generally issued within a month of application.

Coal mining has taken off in the country, with much of the product finding its way to SA for sale to coal traders and exporters.

“Our coal deposits are not as good as those in the Democratic Republic of Congo or Zambia,” says Siwawa, “but they are profitable, provided you do robust feasibility studies and keep your costs in the lower quartile of the cost curve.”

The development of the Trans-Kalahari railway line, linking Botswana to SA and Namibia, was put on ice nearly a decade ago when coal prices slumped. The project was conceived during the previous commodity super cycle when coal prices shot above $130 per ton, but was shelved as prices then fell to around $50 a ton. The project appears to have been revived to reduce the costs of exporting coal. Botswana is reckoned to have about two-thirds of all Africa’s coal reserves.

Standard Bank shareholders defy board in vote for greener disclosure

Written by Ciaran Ryan. Posted in Journalism

They want the bank to adopt a policy on lending to coal operations. From Moneyweb.

Protesters gathered outside Standard Bank’s head office on Thursday calling for shareholders to vote for the resolution, and delivering a message to the entire business sector – get your environmental ducks in a row or it’s going to get noisy. Image: Moneyweb

Protesters gathered outside Standard Bank’s head office on Thursday calling for shareholders to vote for the resolution, and delivering a message to the entire business sector – get your environmental ducks in a row or it’s going to get noisy. Image: Moneyweb

This is almost certainly the future of annual general meetings (AGMs) in SA. Get your environmental ducks in a row or it is going to get noisy.

Protesters were gathered outside Standard Bank’s Simmons Street head office on Thursday calling for shareholders attending the AGM inside to vote for a resolution compelling the bank to adopt and disclose a policy on lending to coal projects.

Image: Moneyweb

Non-governmental organisation Just Share says this is the first time that a South African bank, or any listed company, has faced a shareholder resolution on climate change.

The resolution was proposed by the Raith Foundation and shareholder activist Theo Botha, and supported by Just Share. When asked by Tracey Davies, director of Just Share, why the bank recommended voting against the resolution, CEO Sim Tshabalala said the bank fully supported the Paris Agreement on climate change, and agreed that climate change represented a “clear and present danger”. The bank was embarking on a process of adjusting to the requirements of climate change as it affects its activities, he said, but was compelled to balance this against developmental objectives.

‘Unlocking potential’, or putting millions at risk?

Environmental activist Greer Blizzard of Just Share pointed out that Standard Bank is one of the lead arrangers for a US$2.5 billion loan to support the East Africa Crude Oil Pipeline through Uganda and Tanzania, which the bank claims will unlock East Africa’s potential. However, the oil to be transported through this pipeline will emit more carbon than the whole of Uganda and Tanzania currently does each year.

Thousands of people will be displaced, and the pipeline will run for several hundred kilometres though the Lake Victoria Basin, putting the drinking water of millions at risk.

A coalition of African and international environmental activists recently wrote to the bank urging it not to proceed with financing the project. They point to several studies showing major opportunities for financing renewable energy infrastructure which would meet the region’s energy needs in a clean and rights-compatible manner, which would represent a much less destructive use of the bank’s finances.

“Will the bank agree to meet with local people and listen to their concerns about the East Africa Crude Oil Pipeline?” asked Greer.

CEO agrees to meet with locals

Tshabalala said he would, adding that the bank supported the Task Force on Climate-related Financial Disclosures (TCFD), joining more than 500 organisations around the world committed to improving climate-related disclosures.

The TCFD’s mission is to “develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders.”

Some 55% of shareholders voted in favour of the bank adopting and disclosing a policy on lending to coal-fired power plants and coal mines.

“This was a significant result,” said Davies after the vote. “Firstly, for a majority of shareholders to vote in favour of the resolution despite [the] board recommending against it really shows that there is much more awareness and understanding of climate risk among our investment industry than it might appear.”

Greenhouse gas resolution 

A second part to the climate-related resolution would have required the bank to report to shareholders its assessment of the greenhouse gas emissions resulting from its financing portfolio and its exposure to climate change risk in its lending, investing and financing activities. This resolution was defeated, but still managed to swing 38% of shareholders to vote in its favour.

Davies says this was an impressive vote in favour of climate-related disclosures, considering this was the first time it had been tabled. “Generally it takes several years to raise awareness behind climate-related disclosures among shareholders, and this is a far better result than has been obtained in other AGMs around the world when such resolutions were first introduced.

“It is clear we are moving rapidly in the right direction.”

Just Share commended those shareholders who voted in favour of the resolution, including Mergence Investment Managers, Old Mutual and Aeon Investment Management. ”We encourage other shareholders who voted in favour of the resolution to publicly declare that they did so,” says Davies.

“In SA, where we are still so heavily reliant on fossil fuels for energy, climate risk and the transition to a low-carbon economy pose unprecedented risks and opportunities for our society and economy. The financial sector has a crucial role to play in driving this transition and today’s developments prove that institutional investors are starting to demand it do so.

“Banks should already, at the very least, be disclosing the extent to which they are exposing their businesses, shareholders, and the planet to climate risk via their financing of fossil fuels.”

Shareholder resolutions have become one of the most powerful tools for raising awareness about climate change risk, and for forcing the business and financial sectors to take action to mitigate and avoid that risk, says Just Share.

SA’s debt collection practices await investigation

Written by Ciaran Ryan. Posted in Journalism

It’s been four years – and still no hearing. This article first appeared in Moneyweb.

The practice of ‘forum shopping’ sees micro-lenders ‘shopping’ around for courts that will grant them garnishee orders, often in faraway places, knowing full well the borrower will have no chance of putting up a defence. Picture: Moneyweb

The practice of ‘forum shopping’ sees micro-lenders ‘shopping’ around for courts that will grant them garnishee orders, often in faraway places, knowing full well the borrower will have no chance of putting up a defence. Picture: Moneyweb

It’s been four years since Judge Siraj Desai of the Western Cape High Court declared 15 garnishee orders unlawful and invalid and ordered that a much broader investigation into the debt recovery practices of law firm Flemix & Associates be undertaken.

That can has been kicked down the road for the last four years and still no hearing date has been confirmed. In terms of a court order, the Legal Practice Council must conduct a disciplinary hearing into the practices of Flemix. The hope is that this will radically reshape the micro-loan industry in SA, which has been the subject of some damning judgments by the courts.

Read: Landmark court case seeks to stop over-charging by creditors

All this stems from a case brought in 2014 by the University of Stellenbosch Law Clinic on behalf of 15 micro-borrowers against more than a dozen credit providers and their debt collector, Flemix & Associates.

The judgment was a brutal repudiation of micro-lending practices in SA.

Debt collectors were found to be flouting the law in several ways:

  • By obtaining garnishee orders (also called emolument attachment orders or EAOs) in magistrates’ courts far from where the borrowers live and work, a practice known as ‘forum shopping’, which is deemed a denial of access to justice;
  • By failing to conduct proper credit assessments prior to granting loans; and
  • By obtaining dodgy written ‘consent’ forms allowing debt recovery agents to obtain garnishee orders in distant courts.

Garnishee orders are governed by the Magistrates’ Court Act. The act previously allowed a creditor to approach the court and obtain an order for the attachment of a portion of a debtor’s salary, regardless of the size, until the debt is repaid.

Read: Micro-lender puts the banking world to shame

That law has since been changed, placing a maximum of 25% of basic monthly earnings that can be deducted from a debtor’s salary. This brings South Africa into line with other countries such as the US, UK and Germany, which place limits on how much of a borrower’s salary may be deducted in the repayment of debts. This change in the law was made after the Western Cape High Court heard how some borrowers had virtually nothing left at month end after garnishee deductions were made.

Just how bad is SA’s personal debt problem?

According to credit bureau Kudough, 73% of all household disposable income in SA is spent on debt. Roughly 40% of all credit consumers have at least one account overdue, and 58% of consumers struggle to meet their monthly repayments.

Total credit card and store debt is roughly R18 billion, with the average debt per person at a staggering R70 000.

Still, 70% of applications for credit are declined.

Flemix, a firm of attorneys collecting debts on behalf of several credit providers named as respondents in the Western Cape High Court case, claimed it had in excess of 150 000 active cases on its files with a total book value of more than R1.5 billion. Judge Desai ordered the Law Society of the Northern Provinces to determine whether Flemix and its legal counsel had “breached their ethical duties particularly with regard to forum shopping to secure emolument attachment orders”.

‘Far wider implications’

Stephan van der Merwe, senior attorney at the Law Clinic, says the 2015 judgment by the Western Cape High Court was aimed primarily at the 15 garnishee orders that were found to be unlawful and invalid. “But the court’s finding in this case has far wider implications. The judge said he could not turn away from the plight of tens of thousands of other micro-borrowers who may have been prejudiced by Flemix’s debt collection practices. That is what is to be decided in this hearing.

“This is an important hearing since the outcome will have huge importance for possibly millions of debt-affected individuals around the country.”

Judge Desai found that court clerks were issuing these orders without any evaluation of the individual’s ability to repay, and with no judicial oversight.

More disturbing was the practice of ‘forum shopping’, where micro-lenders ‘shop’ around for courts that will grant them garnishee orders, often at the other end of the country. Garnishee orders obtained in courts far from where the debtor lives or works are invalid.

Shabby practices

The case shone a light on the shabby practices of micro-lenders, who would lend money in Cape Town and run off to the Randburg Magistrates’ Court in Gauteng to obtain a garnishee order, knowing full well the borrower had no chance of putting up a defence. Lenders relied heavily on consent forms purportedly signed by borrowers that gave the credit provider the right to obtain judgment in a far-off court. Desai slapped down the lenders, concluding that these consents were “not given either voluntarily or on an informed basis”.

Flemix argued on behalf of the credit providers that they were not ‘forum shopping’ but exercising their own right to access justice by securing judgments in courts far from where the borrower lived or worked. The Association of Debt Recovery Agents, representing the formal debt collection industry, also defended the practice, for which it was rudely excoriated by the court.

Fifteen applicants in the case asked the court to have their garnishee orders declared invalid on the grounds that they are unconstitutional and were granted without judicial oversight. Flemix argued that the debtors had given written admissions of default on their debts, and consented to have judgment issued against them, even in courts far from where they live.

The court was unimpressed with many of the ‘consent’ forms purportedly signed by borrowers – some clearly forged – and said few debtors would willingly agree to repayments they could not afford. The 15 applicants in the case say they either did not sign the consent forms or that the documents were not explained to them, or that they were signed under pressure. The court heard how debt collectors were not paid if they did not secure written consents from borrowers, providing an incentive to fabricate consent forms with fake witnesses.

Forged consent

The Stellenbosch University Law Clinic case eventually made its way to the Constitutional Court where it was found that some garnishee orders were being obtained on the basis of forged ‘consent’ forms, and loans were being granted without proper credit assessments.

The National Credit Act was being flouted left and right. “The failure to conduct an assessment results in the credit agreement being reckless and unenforceable. If, in any proceedings, it appears to a court that a credit agreement being considered is reckless, the court is obliged to declare that it was a reckless agreement and suspend the agreement’s force and effect,” reads the ConCourt judgment.

Credit providers are required by law to assess the borrower’s ability to repay loans, and this required a detailed examination of their income and expenditure, but the Western Cape court doubted these even existed in the cases presented to it. Credit assessments were perfunctory or non-existent, with borrowers in some instances expected to repay more than half their monthly salaries.

One of the borrowers earned R3 759 a month when she was granted a loan of R7 982, which was to be repaid in six instalments of R1 986 a month. Most of the applicants were farmworkers, cleaners and security guards.

In the US, federal law places a cap on the amount of an employee’s earnings that may be garnished in any one week at only 25% of a debtor’s after-tax income. Germany has a graduated scale of earnings that may be attached depending on how much the borrower earns, while Australia requires borrowers to be left with a minimum of Au$447 a month, a figure that is adjusted regularly.

Six mining groups ask court to approve R5 billion silicosis settlement case

Written by Ciaran Ryan. Posted in Journalism

But some mines will continue to fight class action suit

Photo of molten gold being poured

Six gold mines and lawyers for mineworkers who contracted silicosis or TB have asked the Gauteng High Court to approve their settlement. Photo: Dan Brown via Flickr (CC BY 2.0)

This article sppeared in Groundup and Times Live: Lawyers for thousands of gold miners afflicted by silicosis or tuberculosis lined up on the side of six mining groups this week to ask the Gauteng High Court to approve a R5 billion settlement agreement.

The agreement provides for the payment of benefits worth R5 billion to mineworkers and the dependents of dead mineworkers who contracted silicosis or pulmonary tuberculosis during or after their employment from 1965. The benefits will be paid through the Tshiamiso Trust, which was set up specifically for this purpose.

The settlement agreement is regarded as one of the most complex multi-party class action settlements ever concluded. This is a sequel to the so-called Nkala class action suit brought several years ago by former gold mineworkers seeking compensation against their former employers for illnesses contracted in the course of their work.

Though the six mining companies and the mineworkers have reached agreement on the benefits to be paid, the court will have to assess whether absent mineworkers are adequately protected by the agreement. It is still unknown how many mineworkers or their dependents are entitled to claim, as many of them are scattered across the sub-continent. This will require strict scrutiny by the court.

In 2016 the case was certified as a class action by the Gauteng Local Division of the High Court, and in December 2018 the court certified four classes of claimants: (1) those who contracted silicosis or were exposed to silica dust; (2) the dependents of deceased miners with silicosis; (3) those who contracted tuberculosis; and (4) the dependents of deceased miners who contracted tuberculosis while working at the mines.

Now the court is being asked to approve the R5 billion settlement agreement between legal representatives of the mineworkers and the five mining companies. The mining companies have secured guarantees for the R5 billion claim, though the eventual claim could be higher. Of this, R845 million has been set aside for administering the Tshiamiso Trust, which will accept claims for a period of 12 years, plus one additional year to wrap things up.

Affected mineworkers will be paid out between R70,000 and R500,000 depending which of the four categories of claimants they fall into. Narrowing the claimants into four categories was done to simplify the payment process and reduce administration costs. The lowest potential payout will be R10,000 for historic cases of tuberculosis where the extent of the illness is not known.

Should the court approve the settlement, the class action suit against the five mining companies will be suspended, though will be continued against those companies that chose not to settle. Many of the likely beneficiaries are former migrant workers scattered across southern Africa, requiring the companies to post notices in neighbouring countries advising former mineworkers and their dependents of the potential benefits arising from the settlement.

Six mining groups are party to the settlement: African Rainbow Minerals, Anglo American SA, AngloGold Ashanti, Gold Fields, Harmony and Sibanye-Stillwater. The mining groups that opted to settle rather than continue fighting through the courts will be protected against any future liability arising from the same claims.

Mining companies that elected not to participate in the settlement are DRD Gold, East Rand Proprietary Mines (ERPM), Randgold and Exploration, Evander Gold, Blyvooruitzicht Gold, Doornfontein Gold, Simmer and Jack Mines and African Rainbow Minerals Gold (not the same as African Rainbow Minerals). Doornfontein and Blyvoorzicht are no longer operating and have since been deregistered.

DRD Gold and ERPM opted not to participate in the settlement agreement, and took issue with the court’s jurisdiction to certify the four classes of claimants, and indicated they would continue to fight the Nkala case in the Supreme Court of Appeal.

The mineworkers are represented by class action pioneer Richard Spoor Inc, Abrahams Kiewitz Inc. and the Legal Resources Centre.

Legal counsel for the mineworkers asked the court to approve the settlement as “fair, reasonable and adequate” on the grounds that it:

  • it provides for a comprehensive system of compensation;
  • it is easily accessible by the mineworkers as well as former mineworkers and their dependants;
  • it will commence payment of compensation within a relatively short period of time, short-circuiting protracted legal action;
  • its structure is designed to be “lawyer free” in that claimants will engage with the Trust directly, making it unnecessary for a portion of the benefits to be paid to external agents.

The Trust will also cover periodic medical examinations for current and former mineworkers at the Medical Bureau for Occupational Diseases as well as medical screening.

Blood on the JSE floor

Written by Ciaran Ryan. Posted in Journalism

Executive departures, forced share sales, cost overruns and weakening retail prospects have hammered selected stocks.

Recent share price drops are not limited to the likes of Old Mutual, Netcare and Sasol. An overall slide in stock values including the Top 40 Tradeable Index and the Health Care Index has investors weary. Picture: Bloomberg

Recent share price drops are not limited to the likes of Old Mutual, Netcare and Sasol. An overall slide in stock values including the Top 40 Tradeable Index and the Health Care Index has investors weary. Picture: Bloomberg

Last week was a shocker for corporate news. Peter Moyo was suspended as CEO of Old Mutual after barely over a year in the job over an apparent conflict of interest relating to his side project, NMT Group, in which Old Mutual was a substantial shareholder. The news spooked the share price, driving it down 12%.

Old Mutual chairman Trevor Manuel explained the suspension as a result of “a material break in trust and confidence” over Moyo’s apparent conflict of interest relating to his role as CEO of Old Mutual and his interest in NMT. Moyo told Reuters there was no wrongdoing on his part, but it is unlikely at this point that he will return to his former position. Chief operating officer Iain Williamson has been named as acting CEO. Manuel has been a stickler for greater accountability and transparency, so he could not be seen to be brushing this one under the carpet, notwithstanding the hit on Old Mutual’s market valuation.

Sasol also took a 27% pummelling last week after announcing a roughly $1 billion cost escalation on its Lake Charles Chemicals Project in the US, which is intended to diversify its sales mix and geographical footprint. The project cost is now nearly 50% more than the original budget. An element of investor fatigue over the ongoing mismanagement and cost overruns at the project are blamed for the sharp drop in share price, which is now at its lowest level in five years.

Netcare’s share price is down 23% after CEO Richard Friedland was forced to sell 10.4 million shares in the group, worth about R200 million, to cover finance costs incurred in their acquisition. The JSE has called for more transparency where directors use their shares as collateral for financial commitments. Netcare is having a rough time with sub-inflation growth in revenue and earnings, and the weak share price performance of the last two years seems to have pushed Friedland into a forced sale to cover his debt.

Tiger Brands is another share taking strain over the last month. The price dropped 18% in May after it was announced that a class action suit had been served on the company over the listeriosis outbreak in 2017 that claimed more than 200 lives. The case for the claimants is being led by class action specialist Richard Spoor, who successfully fought a previous class action suit on behalf of gold miners afflicted by silicosis or tuberculosis. Several mining houses last year conceded defeat and agreed to cough up roughly R5 billion on behalf of several thousand miners.

Tiger Brands informed investors that no specific damages were being sought at this stage. The first part of the case deals with the company’s liability, for which it has product liability insurance “appropriate for a group of its scale”. However, coverage is subject to the terms and limits of the policy, and it remains to be seen whether this will fully cover what may be a massive claim.

Tiger Brands announced last week that its unbundling of Oceana should bump up earnings by more than 20% for the current financial year ending in September. This appears to have done little to entice investors back to the shares, which are worth less than half of what they were at the start of 2018.

All the above share price drops are related to specific events. What is perhaps more worrying is the overall slide in stock values:

  • the Top 40 Tradeable Index is down 8.5% since the beginning of May 2019
  • the Health Care Equipment and Services Index is down 53% since 2016
  • the Health Care Index is down 63% since 2016
  • the Forestry and Paper Index is down 31% since October 2018
  • the Food Producers Index is down 41% since the beginning of 2018

In the platinum sector, Implats and Amplats are down 17% and 22% respectively in the last month after a sharp run-up in platinum group metal prices over the last year. Given the strength of this run, a breather is perhaps overdue.

Implats posted basic earnings of R2.3 billion for the six months to December 2018, reversing a loss of R163 million for the previous period. “While the near-term outlook for platinum remains suppressed, the medium-term outlook has improved. The current strength in both palladium and rhodium fundamentals are expected to persist for the foreseeable future,” said the company in a note accompanying its results.

Aspen and Life Healthcare are two companies taking a beating in what was, until a few years ago, a shining star on the JSE. Life Healthcare is down 17.7% over the last month. The company says its margins have been squeezed by new growth initiatives in SA and abroad, and costs incurred in driving efficiency programmes that will bear fruit later.

Aspen is down 75% since 2016, and recently announced it was reviewing its European and SA pharmaceuticals businesses. It will split the SA business into two units to optimise efficiencies. The future focus will be on emerging markets, and it expects quick results from the launch of women’s health products in the US.

Two other shares taking strain are Mr Price, down 18% in May, and Massmart, down more than 40% since January this year, the result of ongoing attrition in the retail sector. Massmart recently announced operating profit after restructure costs, non-trading items, foreign exchange movements and interest paid may be 60% below the prior period (June 2018: R271m).

Sappi is down 20% over the last month after it announced profits would fall for the year to September due to weak demand and over-supply of stable-fibres supplied by the group to the paper market.

I was groomed for corruption – Agrizzi

Written by Ciaran Ryan. Posted in Uncategorized

Daily prayer meetings and bags of cash: a day in the life of a Bosasa executive. This was first published in Moneyweb.

The whistleblower says he has received several death threats … and an offer of R60m to keep his silence. Picture: Siphiwe Sibeko, Reuters

Bosasa whistleblower Angelo Agrizzi says he has received several death threats … and an offer of R60m to keep his silence. Picture: Siphiwe Sibeko, Reuters

The day would start with a prayer meeting. Then the bags of cash would be arranged for delivery to the army of corrupt officials and politicians whose patronage built Bosasa into a multi-billion-rand-a-year enterprise.

This was a typical day at Bosasa, according to Angelo Agrizzi, former chief operating officer at Bosasa turned whistleblower. 

“No-one wakes up and decides to create a corrupt organisation,” he told Moneyweb on the sidelines of the CFO Talks anti-corruption debate in Sandton on Wednesday. “There is a grooming process that takes place.”

It starts with small gifts, then larger ones, until you are captured by the corrupt organisation and become part of the conspiracy of silence. “Then I got handed a envelope with R20 000 in cash and was told I should take my family to Mauritius for the weekend. The gifts keep getting bigger.

“Then one day you are asked to drop off a parcel for someone, and God help you if you don’t. You are told ‘if we go down, we’re all going down together’. There is a very clear threat in this, which is how they buy your silence.”

Agrizzi says he has received several death threats, as well as an offer of R60 million to keep his silence.

Capturing the captors

Earlier this year he told the Zondo commission of inquiry into state capture how bags of cash had been delivered to key correctional services personnel, including former correctional services commissioner Linda Mti and the department’s chief financial officer (CFO) Patrick Gillingham.

Read: SA cancels Bosasa prison contracts after bribe accusations

Agrizzi, Mti, Gillingham, and former Bosasa CFO Andries van Tonder were arrested by the Hawks in February on charges of corruption, money laundering and fraud. Numerous high profile ANC figures have been named by Agrizzi as recipients of bribes from Bosasa (later renamed African Global).

Speaking at the debate, Agrizzi said the system of graft at Bosasa was so endemic that staff turnover (out of 6 800 employees) was just 0.02%. Corruption was the business model, despite the existence of an ethics and governance committee that met once every four months. The 15-strong committee, populated by professors and PhDs, but was powerless against Bosasa’s “narcissistic leader” Gavin Watson, who surrounded himself with people who would do his bidding.

Read: Top prosecutors implicated in graft investigation

Watson boasted that Bosasa had a “flat organisational structure” but this was a euphemism for no structure at all. The company burned through 12 chartered accountants in two years, some of them because they could no longer stand being errand boys in a corrupt organisation.

Agrizzi bemoaned the lack of whistleblower protection in SA. “Protections for whistleblowers are non-existent. In fact, you get arrested [for blowing the whistle],” he said.

“How do you go about challenging CEOs who have captured the government?”

Under former president Thabo Mbeki, corruption was at “manageable proportions”, said Corruption Watch head David Lewis. “Under [former president Jacob] Zuma it consumed the state. The Arms deal under Mbeki was a serious episode, but it was discreet. The state capture project [under Zuma] involved the capture of the key decision-making structures of the state. State-owned enterprises [SOEs] were targeted because that’s where the money is.

”You had this dream team of Brian Molefe and Anoj Singh who came from Transnet to Eskom. The Zuma-Gupta syndicate was the best of the lot. Zuma had influence over the boards of SOEs and didn’t need to do anything else.”

Not enough to have captured No 1

But Zuma was only useful to the Guptas so long as he was president of the country, which meant the ANC itself had to be captured. This involved infiltrating local, provincial and national structures with bribable agents of corruption.

It’s time to prosecute individuals involved in corruption and send them to jail, said Lewis. The recent arrest of eThekwini mayor Zandile Gumede on charges of fraud, corruption and racketeering relating to a R208 million tender within the Durban Solid Waste unit was a good start.

Corruption is the CFO’s fault, added Agrizzi: “You are the ones who control the purse strings.”

Nicolaas van Wyk, CEO of the SA Institute of Business Accountants (Saiba), said corruption would be slowed if there was a change in the Companies Act, or a dedicated CFO Act spelling out the duties and obligations of the CFO.

Ethics training, legal counsel needed

“CFOs should be obliged to attend an ethics course once a year, and must make a declaration any time [they become] aware of an attempted or successful bribe or corrupt transaction. Furthermore, if the CFO resigns, [they] must state the reasons for resigning. This is similar to the obligation placed on an accounting officer in the Close Corporations Act.”

The question before the delegates was: What role did CFOs play in SA’s corruption scandals and what needs to be done to stop it?

“The King Report [on corporate governance] gives us guidance, and the Institute of Directors trains people on the expected role of board members,” said Sasha Monyamane, professor of governance and ethics at the University of SA (Unisa). “Every organisation proclaiming themselves as having good governance should send their people for training.”

Professional bodies need to provide more than just advice to finance executives reaching out for help in corrupt organisations. They need legal counsel and protection, said Van Wyk.

Dr Kelvin Kemm, suspended chairman of the Nuclear Energy Company of SA (Necsa), says there are far too many political appointees in state-owned companies (SOCs).

“Far too often we see ministers running the departments and SOCs. What’s the point of having a board if the minister has the power to override them?”

SA’s nuclear reactor shut down – again

Written by Ciaran Ryan. Posted in Journalism

The paperwork, it seems, was not in order. From Moneyweb.

The shutdown is costing an estimated R3.5m a day in lost sales and resulting in unnecessary deaths due to the non-availability of life-saving medicine. Picture: Matthew Lloyd, Bloomberg

The shutdown is costing an estimated R3.5m a day in lost sales and resulting in unnecessary deaths due to the non-availability of life-saving medicine. Picture: Matthew Lloyd, Bloomberg

The Pretoria nuclear medicine production unit NTP Radioisotopes, part of the state-owned Nuclear Energy Company of SA (Necsa), has been out of operation since February.

This is the third time in two years that the Safari-1 reactor has been shut down. Not because there was radiation leakage or anything as frightening as that, but because the safety paperwork was not in order.

The shutdown is costing NTP an estimated R3.5 million a day in lost sales, and – according to one person close to the company – unnecessary deaths due to the non-availability of life-saving medicine. This has also wrecked the financials of one of the few state-owned companies that had consistently made profits and won clean audits.

The reason for the shutdown? Precisely the same one given for shutting down the reactor in 2017 and 2018. This time energy minister Jeff Radebe cannot blame the board members he suspended late last year.

Technical explanation

In response to questions from Moneyweb, NTP replied: “During a production cycle in February 2019, NTP’s internal monitoring systems detected instantaneous pressure variations as monitored by the sensors in the plant. While these happen within seconds and are corrected and balanced by the plant’s ventilation system, they still require further investigation in terms of NTP’s SOPs [standard operating procedures]. Further, it is important for NTP to make sure that issues such as these are corrected at the time they take place, and before large customer production runs are in progress.”

Last year Radebe suspended three members of the Necsa board on various charges, one of which was the undue delays in restarting the Safari-1 reactor at Pelindaba, which produces world-leading nuclear isotopes used in the treatment of cancer. The three board members were then chairman Kelvin Kemm, CEO Phumzile Tshelane and chief financial officer Pamela Bosman.

Read: Suspended nuclear company execs smell rat over adverse audit

City Press reported at the weekend that Tshelane was about to be fired after going through an internal disciplinary process. One of the reported grounds for his dismissal was the signing of a non-binding agreement with Russian nuclear company Rosatom to develop modular nuclear reactors, which the charge sheet claimed would conflict with an agreement already in pace with the Australian Nuclear Science and Technology Organisation (Ansto).

Ministerial interference

This is denied by the suspended board members. Says Kemm: “The agreement with the Russians was floated with the previous minister of energy, and with Radebe when he became energy minister, but he sat on this for months and never gave us an answer one way or the other. It is a non-binding agreement that in fact does not need ministerial approval, so here we have another case – one of many involving state-owned companies – of ministers interfering in the running of their boards. I hope President Ramaphosa bears this in mind as he prepares his new cabinet.”

Tshelane says he intends to challenge his dismissal because of the irregular process followed. “I subsequently received notice of my dismissal. I am convinced that the dismissal is unjust and premature and I will be appealing the Necsa ruling,” he says.

Read: Axed Necsa board blames resistance of ‘privatisation by stealth’ for dismissal

The suspended board members say they are fall guys for a governance crisis, orchestrated by the minister, whose real ambition is to sell the nuclear facility to a US company, Lantheus Medical Imaging (LMI). If true, this would put decades of hard-won nuclear secrets in foreign hands, and infuriate the trade union movement since this would amount to privatisation of a key national asset.

Some see NTP as a pawn in a nuclear geopolitical game involving the US and Russia.

Tina Eboka remains MD of NTP despite being suspended and replaced by Tshelane last year after the first reactor shutdown. Kemm says the minister ordered that she be reinstated, overriding a Necsa board decision.

“We pointed out to the minister that we had determined the faults which had occurred under the management of Eboka and that remedial action had been implemented and that we were due to restart in days,” says Kemm. “I also pointed out that CEO Tshelane was doing exactly what good governance required and that I supported his decisions. I said that it was not correct for the minister to instruct the CEO how to run the operations. The minister then told the media that I was defiant.”

NTP’s full response to questions from Moneyweb:

NTP’s isotope production facilities were shut down between November 2017 and February 2018, and again from May 2018 to November 2018.

Because of the extended period of disuse and other work done to return the plant to its original operating specifications (following some interim changes that were made during 2018), it is essential that operations are conducted within the strict limits, guidelines and standard operating procedures (SOPs) to ensure safe operations for personnel, the environment, and the product, as determined by various licences and registrations as well as NTP’s own SOPs.

All operating and technical specifications are closely monitored by NTP production managers and the Nuclear Facility Manager (NFM), who reports to the NTP board and communicates to the National Nuclear Regulator (NNR) through various reports. The NTP NFM works closely with Necsa Licencing since Necsa is the licence holder of the NTP radiochemical facility.

During a production cycle in February 2019, NTP’s internal monitoring systems detected instantaneous pressure variations as monitored by the sensors in the plant. While these happen within seconds and are corrected and balanced by the plant’s ventilation system, they still require further investigation in terms of NTP’s SOPs. Further, it is important for NTP to make sure that issues such as these are corrected at the time they take place, and before large customer production runs are in progress. 

NTP adheres to world-class nuclear facility and isotope production standards, and always endeavours to manage and operate a safe plant for the safety of its personnel, the environment, and infrastructure, as well as product quality. This facility has been run safely since it was commissioned in the 1960s and has been compliant with all relevant safety regulations as they have been introduced over the years.

In accordance with the facility licence and our operating protocol, isotope production was temporarily halted in order to complete an internal investigation to identify the causes of these deviations, and also to remedy the identified issues. The investigation has been completed and remedial actions have been implemented, in line with our prescribed processes. In accordance with our SOPs, any technical or procedural updates have to go through rigorous change control protocols and safety assessments, as well as training all production personnel on any changes made. Once NTP has submitted its report on the investigation and corrective actions to the NNR, production will resume.  

Companies planning to go off the grid

Written by Ciaran Ryan. Posted in Journalism

Anglo Platinum, Sibanye-Stillwater, Makro and the City of Joburg are loosening their ties to Eskom. This article first appeared in Moneyweb.

The solar installation at Makro Carnival on the East Rand was created to generate 60-80% of the store’s energy needs during the day. Companies are however urged to take sound independent advice before plunging into self-generation solutions. Picture: Supplied

Forward-thinking businesses in SA are now starting to confront life without Eskom by putting plans in place to generate their own energy.

Anglo Platinum and Sibanye-Stillwater are two high profile companies at an advanced stage of planning for solar plants to generate their own electricity. The City of Joburg wants to cement a deal with Harith-owned Kelvin Power Station to purchase power as a way to prevent load shedding, which has done incalculable harm to businesses in the city.

Other companies are further advanced in their plans to reduce their dependence on Eskom power. In 2016 Makro erected solar panels on the roof of its Makro Carnival store on the East Rand to generate 60-80% of its energy needs during the day, equivalent to 30% of the store’s annual energy needs. Many smaller businesses have invested hundreds of thousands of rands in generators to serve as back-up power sources in the event of outages.

‘No plan’ from government

In his state of the city address last month, Joburg mayor Herman Mashaba said load shedding would be a reality in the coming years, and the national government had not come up with a plan to solve it. Though Eskom has attempted to block the city from sourcing electricity directly from Kelvin Power Station, Mashaba said he was looking at legal options as well as a direct approach to Kelvin over the prospect of securing a supply contract.

Kelvin has a 600 megawatt (MW) capacity, but is currently producing just 200MW, and even that will be shut down within the next two to three years. One of the options being explored is the installation of gas turbines from about 2023 onwards to ramp up output to the original design capacity of 600MW, pending the availability of a reliable gas supply. This is still just a fraction of Joburg’s total electricity consumption, but sufficient to prevent most of the outages experienced by businesses over the last six months.

The City of Joburg’s 2018 financial results show a 6% drop in electricity sales. Though some of this was due to outages, there is also evidence of businesses switching to alternative energy sources, according to Ratings Afrika’s latest Municipal Financial Sustainability Index (MFSI) for 2018.

Read: Municipal sector faces collapse – Ratings Afrika

Des Muller, MD of energy advisory group NuEnergy Developments, says there is a direct correlation between SA’s declining economic growth and the commencement of electricity blackouts starting in 2007.

“Stable and sufficient electricity supply is a precondition for any growing economy, and there is plenty evidence from around the world that those countries that can guarantee reliable power at a good price are those countries that grow the fastest,” he says. He warns that South Africa’s electricity challenges will remain in the foreseeable future and companies need to be prepared, but urges taking sound independent advice before plunging into self-generation solutions.

Aluminium businesses have already left SA

In 2012 Eskom paid energy-guzzling aluminium smelters to shut down furnaces so it could redirect power for use elsewhere in the economy. This has driven energy-intensive businesses to other countries in the Far East where power supply is stable and affordable.

As part of its medium- to long-term energy management strategy, Sibanye-Stillwater is pursuing the first 50MW phase of its solar photovoltaic (PV) project to be built on a site strategically placed between the Driefontein and Kloof mining complexes on the West Rand. “The project, originally envisioned in 2014, represents a partial solution to securing an alternative electricity supply, representing approximately 3% of our total electrical energy requirements in SA, and enables the power generated to be fed directly into the mine’s electrical reticulation while reducing our overall electricity expenditure and carbon footprint,” says the group’s head of investor relations, James Wellsted.

“We cannot disclose costs of the plant or the cost of the electricity through the PPA [power purchase agreement], however, we can state that solar PV power offers a cost-effective alternative to Eskom already.”

Sibanye-Stillwater ran a competitive tender process to appoint a developer to build, own and operate the project, and sell power back to the mining group through a PPA. This approach has a minimal upfront capital requirement for Sibanye-Stillwater and allows capital to be prioritised for core mining projects. The tender was successfully concluded in 2017, suggesting a significant forecasted return to Sibanye-Stillwater over the course of the agreement. Although several regulatory delays (including policy uncertainty and contracting issues relating to Eskom) were experienced in 2018, resolutions are expected to be reached in 2019. A decision to proceed with the PPA will then be made.

AngloPlat still to make final decision

Though Anglo Platinum has yet to make a final investment decision, it is exploring a 167 gigawatt hour (GWh) per annum solar PV plant at Mogalakwena, representing roughly 21% of its annual 777 GWh consumption.

Anglo Platinum says it wants to optimise the value of its overall portfolio, including improved energy management and planning for future energy sustainability in response to rising cost pressures in the mining sector. Efficiency measures have been implemented since 2013; however, this is not enough to counter the projected cost increases and the requirement for sustainable energy.

In 2017 the mining group started formalising its alternative energy strategy by transitioning to sustainable energy sources that reduce carbon emissions and provide predictable cost and energy efficiency.

Anglo Platinum is considering one of two options for the project development: the IPP option, or to self-build, own and operate.

These projects require a generation licence from the National Energy Regulator of South Africa (Nersa) and exemption from the minister of energy.

The mining group says it is currently negotiating land sites, host-community participation and Mining Charter 2018 compliance.

Based on current progress, the solar generation plant should be operational by mid-2021.

The Bus King of Africa

Written by Ciaran Ryan. Posted in Journalism

The IDC is taking a R2bn bet on Pat Nodada of Busmark.

Busmark CEO Pat Nodada, the man behind smart factories, tough buses and 24-hour support even in outlying areas. Picture: Supplied

Busmark CEO Pat Nodada, the man behind smart factories, tough buses and 24-hour support even in outlying areas. Picture: Ciaran Ryan

This article first appeared in Moneyweb.

The man being called the Bus King of Africa is a 42-year-old chartered accountant.

Having conquered the South African bus market, Busmark CEO Pat Nodada is now partnering with the Industrial Development Corporation (IDC) to build bus factories across Africa, starting with Zimbabwe, Kenya, Nigeria and Ghana.

It’s a bold move that will increase Busmark’s monthly output from 100 to 500 buses over the next five years. The IDC is taking a R2 billion bet that Nodada can pull this off by replicating the same formula that turned Busmark into the dominant bus maker in SA, with an estimated 40% of the local and 20% of the Zimbabwean market.

Nodada bought into the company a decade ago, retooled its Randfontein factory to supply city transporters such as Metrobus and MyCiti and promptly won a contract to supply the Gautrain fleet. That fleet is now being retired and replaced with a new one – again supplied by Busmark.

Big-brands busmaker

Busmark is a second-tier original equipment manufacturer (OEM) supplying buses to first tier OEMs such as Mercedes, Volvo, Scania and Real African Works. The engines and powertrains are imported, but everything else is made locally.

The Randfontein factory turns out 100 units a month, with the capacity to produce double this, and recently added battery-powered and hydrogen fuel cell buses to its production capability. This, says Nodada, is where the future lies.

“One of the big challenges we had to overcome was to reduce the weight of the batteries so that we could carry more passengers, and we managed to do this by making design improvements with the help of the CSIR and several local universities.”

The battery-powered bus – which is now in development and will be in action around Joburg as part of the Gautrain fleet pilot – can achieve a range of 150km before recharging. The hydrogen-powered bus is likewise attracting interest from city transport fleets under pressure to reduce their carbon footprints. Though the buses cost more than diesel ones, they are far cheaper to maintain (with just five moving parts as opposed to nearly 2 000 for diesel engines). 

Output up threefold in 10 years

Busmark’s output has shot up threefold since Nodada bought the company a decade ago, the result of a decision to diversify away from commuter to luxury city buses.

You won’t hear much about Busmark because its buses carry the OEM branding like Mercedes, Man and Volvo, but the buses boast a local content of 90% with the engines and powertrains coming from abroad. The company is 75% owned by the Nodada family, putting it beyond the prying eyes of the public, with the rest held by staff and management. 

This month 30 buses left the Randfontein factory destined for Kenya, part of an order for 90 units. The buses are designed in SA to withstand the most tortured roads, with rubber undercarriages and reinforced suspension. 

This is a prelude to the opening of a new bus assembly plant in Nairobi later this year in a joint venture with Mercedes Toyota Tsuscho that will turn out 20 units a month. A similar-sized factory will open up in Harare in July this year. A much larger factory with the capacity to churn out 250 units a month will open in Nigeria next year, followed by a fourth factory in Ghana by 2022. Smart factories are also in the works for Port Elizabeth and Durban.

Robotics and AI

Even more impressive is the plan to consolidate the scattered Randfontein plants into a single ‘smart’ factory within the next year, where robotics and artificial intelligence will churn out a new generation of SA-made buses conforming to the highest standards in the world.

Busmark is already compliant with SA, ISO and European quality standards, but Nodada is particularly proud of the fact that the company is regarded as a world leader in battery and hydrogen fuel-cell powered buses, but with a twist – these buses are built for some of the most testing roads in the world.

“We guarantee a 15-year life for any bus that comes out of our factories, regardless of where the buses are required to operate,” says Nodada.

“And we offer 24-hour support, which can be a challenge when you have a breakdown in rural Zimbabwe – but we can do it. We have had to modify our buses to withstand some of the worst roads in the world.”

What’s next once Busmark has taken the East and West African markets?

“That’s a discussion for another day,” says Nodada. “For now, our hands are pretty full with six new factories to open in the next three years. We are investing in the very latest technologies and our new factories will reflect this.

“The bus market in Africa is huge, and the push from bus operators is for more durable buses with lower operating costs. That is where we are focusing our energies: making it more profitable for bus operators across the continent. And we know how to do this.”

Standard Bank accused of ‘double dipping’ in home repo case

Written by Ciaran Ryan. Posted in Uncategorized

Outcome could be explosive for banks, opening the door to floods of claims.

Legal consultant believes tens of thousands of homes may have been unlawfully repossessed in SA since 2007. Picture: Shutterstock

Legal consultant believes tens of thousands of homes may have been unlawfully repossessed in SA since 2007. Picture: Shutterstock

This article first appeared in Moneyweb.

In a case due to come before the Eastern Cape High Court this month, Standard Bank is accused of double charging the arrears amount owed by a mortgage client, resulting in a guest lodge being repossessed and sold at auction for a fraction of its market value.

Guest lodge Homewood in Albany in the Eastern Cape was repossessed in January 2017 after falling R833 000 in arrears on an outstanding loan of R3.77 million.

The lodge owner is now asking the court to compel Standard Bank to provide a detailed breakdown of its arrears calculation, which he says was grossly overstated and resulted in him losing the lodge. He says he was forced to approach the court after the bank had failed to respond to several requests for this information. Standard Bank replies that the case has no merit, and has already been decided in its favour by the court.

Read: Are banks routinely overcharging on vehicle loans in arrears?

What is unusual about this case is that Homewood has accused the bank of ‘double dipping’ or charging twice for the same thing. This is believed to be the first time this has been argued in a South African court, though similar cases have been decided in favour of banking clients elsewhere in the world.

In its court papers, Homewood concedes that it fell into arrears on the mortgage loan after a fire broke out, prompting the bank to ‘accelerate’ the loan by calling up the full amount outstanding. Once a loan is accelerated (the full amount owing is claimed by the creditor), the law does not allow further instalments to be charged. Yet Standard Bank continued to add monthly instalments to his home loan account after accelerating his mortgage loan and obtaining judgment against him in January 2017.

Explosive admission

The bank concedes in its court papers that it made an error in calculating the arrears due to a computer glitch.

Legal consultant Leonard Benjamin, who is advising Homewood, says this is an explosive admission by the bank, and urges home owners to carefully interrogate their monthly statements if they have been sued by the banks after falling into arrears.

“I believe many people have had their homes repossessed when they were not in fact in arrears.”

Homewood claims in its court papers that each time the bank adjusts its prime lending rate, it automatically capitalises any arrears – in other words, the arrears are added to the full amount outstanding, to be repaid over the remaining term of the loan.

This has the effect of extinguishing any arrears and increasing the principal sum of the loan.

The ‘double dipping’ comes in whenever there is a change in the bank’s prime lending rate. When the prime lending rate is adjusted, the banks typically capitalise any outstanding amounts owed (which should extinguish the arrears), but in many cases continue to run parallel monthly instalment charges. In other words, banks are charging twice for the same thing.

Illogical jump

Benjamin came to this conclusion after Homewood’s arrears jumped from R833 000 to R1.39 million over a period of 18 months. The escalation made no sense, which is why Homewood is now asking for an exact breakdown of how the bank came to the arrears figure, which Benjamin says is possibly hundreds of thousands of rands less than what is being claimed.

The bank has conceded that it made an error in arriving at an arrears amount of R1.39 million, saying the correct figure was R833 000, though this too is disputed. The bank argues that it should not be compelled to provide the figures requested as the court has already ruled on the matter. It also denies that it’s arrears calculations on the adjusted figure of R833 000 is incorrect.

Yet it proceeded to cancel the mortgage bond based on an arrears amount that was more than R400 000 in error, claiming this is immaterial to its case. Homewood is asking the court to declare invalid the bank’s cancellation of the mortgage bond.

The bank then turns on Homewood and claims the lodge could not have been under any misapprehension that a mistake was made by the bank, and that the actual arrears amount was R400 000 less than originally claimed.

Going by this logic, every time the bank makes an error, it blames the customer for not picking it up.

In any event, Standard Bank argues, error or not, Homewood had stopped paying the monthly instalments and it was therefore within its rights to cancel the mortgage agreement. The bank also says it has supplied a comprehensive account statement. Benjamin says this is meaningless as it does not show how the arrears are calculated.

“I am astonished that double dipping has not been argued before in the SA courts,” says Benjamin.

“What this means is that possibly tens of thousands of homes have been unlawfully repossessed since the National Credit Act came into force in 2007, for two reasons: the banks have been incorrectly calculating arrears through double dipping, and then approaching the courts for judgment and sale in execution orders [giving sheriffs the right to sell repossessed properties at auction] based on this incorrect information. Secondly, once the bank adjusts its prime lending rate, all arrears are extinguished.

“The courts need to start paying much more attention to this, and the tremendous social upheaval caused by booting people out of their homes based on false figures and bogus legal arguments.”

The owner of Homewood also claims the bank has added unauthorised legal charges to his home loan account. Legal charges may not be added to a client’s bank account unless subject to ‘taxing’– in legal terms, this means costs must be authorised by an independent authority.

The bank is asking for the case to be dismissed with punitive costs, saying the allegations are speculative and unsupported by evidence.