Pula Graphite claims Motsepe-associated companies violated a non-compete agreement after investing in a neighbouring project. From Moneyweb.
African Rainbow Minerals (ARM) has seen its share price drop 13% since late October as the company faces a $195 million (about R3.53 billion) anti-compete claim in Tanzania.
Read: Patrice Motsepe being sued for R3.4bn in Tanzanian case
The company has lost nearly a third of its value since July, with the latest drop coming after news of the court case in Tanzania, where Pula Graphite is seeking compensation for what it says is a breach of a non-disclosure and non-compete agreement.
The size of the claim is roughly equivalent to the drop in ARM’s market cap.
The case was brought by the Tanzanian company and its Delaware-based parent company Pula Group.
It was launched in late 2023, and a ruling is expected in February 2025.
The case has inflamed discussions of resource nationalism in Tanzania, where the overwhelming majority of mines are owned and run by foreigners. Pula Graphite is a Tanzanian-registered company with substantial local shareholding.
The respondents are Patrice Motsepe and the companies in which he is involved: ARM, African Rainbow Capital and ARCH Sustainable Resource GPCo.
Case details
Pula’s anti-compete claim stems from a confidentiality agreement signed between the two sides in 2019 when they explored the possibility of collaborating to develop a graphite project in Tanzania’s Ruangwa district.
ARM executives signed a non-disclosure and non-compete agreement prior to being given access to a raft of information accumulated by Pula, which had been mining in the area for several years.
ARM executives were given unfettered access to Pula’s data and project plans, including its analysis of political and market trends
No deal was concluded between the parties.
However, in October 2022, Pula discovered that ARCH Sustainable Resources Fund – one of the groups claimed to have had access to Pula’s confidential information – had invested in a neighbouring graphite project owned by Australian exploration company Evolution Energy Minerals. Evolution is developing the Chilalo Graphite Project in southern Tanzania.
Motsepe companies ‘violated’ non-compete
An affidavit filed by Pula president Mary Stith before the Tanzanian court says the non-disclosure and non-compete agreement signed in 2019 was still in force when ARM and Motsepe entered negotiations with Evolution to invest in the Chilalo Project.
Stith argues that while the investment in Evolution was made by ARCH, this was done at the behest of ARM and Motsepe. An Australian Stock Exchange announcement in 2021 said the ARCH investment in Evolution followed a year-long due diligence period.
Pula argues in its court papers that Motsepe’s companies had violated the agreement not to use confidential information in a way that was detrimental to its interests and that the investment in Evolution “substantially facilitated the development of the Chilalo Project, which is not only within the same geographical territory as that of Pula’s Project but also a direct competitor in the graphite business”.
As a result of these claimed breaches, Pula says it continues to suffer financial losses, inconveniences and expenses.
The case was originally launched in November 2023, but only African Rainbow Capital filed a response, claiming the Tanzanian court did not have jurisdiction to hear the complaint, nor was there any cause of action – meaning it did not have the necessary facts to prove its case.
African Rainbow Capital also argued that it was not a party to the agreement and, therefore, could not be sued for breaching it.
The Tanzanian court rejected these arguments with costs in February 2024.
No contingent liability set aside
While ARM’s annual report for 2024 makes mention of the Tanzanian court case, the company does not appear to have set aside any contingent liability should the case go against it.
Should it lose, it could appeal that decision in hopes of a better result or at least delay the day of reckoning.
Earlier this year, investment house Coronation noted that ARM had a solid asset base and operated at a significant margin of safety, offering an attractive dividend yield alongside a growing earnings profile.
Read: ARM boosts green metal portfolio with Surge Copper acquisition
Moneyweb reached out to ARM for its comment on the contingent liability issue, and how it plans to argue the breach of agreement, but had not received a response by the time of publication.
Also curious is the fact that ARM, Motsepe and ARCH did not put up an appearance at the Tanzanian court. The only response received was from African Rainbow Capital.
The case is being eagerly watched in Tanzania, where the government has introduced reforms aimed at attracting mining investment and where government aims to lift mining’s contribution to GDP to 10%, from the current 7%, in the next few years.
