Contractor gets government to agree to pay its bills

Written by Ciaran Ryan. Posted in Journalism

Exercises a lien over Department of Public Works property for non-payment of R49m. From Moneyweb.

Enough, said Falcon Suppliers after unpaid construction bills had mounted up for a year and a half. Image: Supplied
Enough, said Falcon Suppliers after unpaid construction bills had mounted up for a year and a half. Image: Supplied

Contractor Falcon Projects shows that it is possible to get government’s attention for non-payment of bills: exercise a lien over the property. A lien is a right to claim or keep possession of property belonging to another person until a debt owed by that person is settled.

Falcon Projects, a small BEE builder that won three tenders for the upgrade of kitchen equipment on behalf of the Department of Defence in Pretoria, has been exercising a lien on the property because of the mounting unpaid invoices for more than a month.

Pleas had been falling on deaf ears

Writing letters, pleading and pointing out the contractual obligations of the Department of Public Works and Infrastructure (DPWI), which is the body responsible for funding state-owned properties of this kind, came to naught.

But once Falcon instructed its attorneys ENSAfrica to exercise a lien on the property, things started to move in the right direction.

Moneyweb understands that the DPWI has agreed to settle the outstanding bill by the first week of July.

Falcon’s legal advisor, Douglas Molepe of ENSAfrica, tells Moneyweb the lien will remain in place until the bill is finally settled.

Three contracts

In 2017, Falcon Projects won three contracts for the upgrading of kitchen equipment, two of them at the army facility at Thaba Tshwane in Pretoria, and the third at the SA Army College, also in Pretoria.

Two of the contracts were for R12.85 million each and the third was for R16.7 million – a total of R42.4 million.

Work commenced on the building shortly thereafter, but DPWI started to fall into arrears on payments on all three projects from September 2018. This eventually accumulated into total short payments of around R49 million across all three projects, which includes interest and other amounts.

“This is what can happen to small contractors dealing with government,” says Molepo.

“It can be a life and death matter for a small business and while the sum outstanding may seem like a large amount of money, that is money that the contractor has to find from other sources.”

Read:Government owes construction contractors R5.5bn

Government owes SMEs more than R3bn

In email correspondence seen by Moneyweb, Falcon was paying security of R40 000 a month on the property which was under construction.

In effect, it was paying for the DPWI’s security while the DPWI was ignoring repeated calls to settle its bills.

DPWI officials seemed surprised

A trail of email correspondence between government officials and Falcon Projects shows surprise on the part of senior executives in DPWI as to why it had taken so long to pay the outstanding invoices.

In one exchange between government officials, it appears that DPWI lacked the funds to settle the invoice.

“Hopefully, this matter can now be brought to a close,” says Molepo.

Crypto exchange’s plan to disrupt the payments market kicks off

Written by Ciaran Ryan. Posted in Journalism

VALR has just launched an instant payments system that allows customers to send rands via mobile or email – at no charge. From Moneyweb.

AI is used to validate the identity of recipients to get them signed up within minutes. Image: David Paul Morris/Bloomberg
AI is used to validate the identity of recipients to get them signed up within minutes. Image: David Paul Morris/Bloomberg

In what promises to be the start of a shake-up in the SA payments sector, crypto exchange VALR announced this week that customers can now send rands free of charge to anyone via their mobile phone or email.

The payment is instant and costs nothing, but requires the recipient to open an account with VALR, which also costs nothing. A key advantage is that VALR customers can send rands to friends and clients without having to enter bank account details.

“We see a huge market here,” says Farzam Ehsani, VALR co-founder and CEO.

“We decided to launch VALR Pay because the costs of traditional banking payments in South Africa are way too high.

“Our system is fast, easy to use, and free.”

Ehsani says he expects to see a boost in sign-ups for VALR, not all of them interested in buying cryptos.

“We do expect some cross-over between those who want to use the payments system and those who want to trade cryptos with us, but I expect many people will want to sign up just to use the payments system.”

Fully compliant

Ehsani says the company has had discussions with regulators and senior legal advisors, and is fully compliant with the SA laws and regulations.

“We were very careful in designing this product to make sure it was fully compliant with the law,” says Ehsani.

Read: The future of money and payments

Payments are made in rands rather than stablecoins, which are a crypto equivalent of fiat currencies.

The first phase of the VALR Pay rollout targets the peer-to-peer market, while the second phase will focus on merchants who will be able to save 2-3% in card fees.

VALR.com was founded in 2018 with the backing of former FNB CEO Michael Jordaan and US crypto exchange Bittrex to bridge the gap between the traditional financial system and the new world of cryptocurrencies. It launched bitcoin-rand trading in June 2019 and has since processed over R60 billion in crypto trades.

Read: Cryptocurrency banking potential in Africa

In the past two years VALR’s customer base, comprising individuals and institutions, has grown to more than 150 000 accounts. It offers low trading fees and more than 55 cryptocurrencies from which to choose.

VALR customers are able to send rands to any mobile number or email address, even if the recipient does not yet have an account with VALR.

The recipient will receive an email or SMS with an invitation to sign up to VALR for free to claim the funds.

VALR uses artificial intelligence and machine learning technology to validate the identity of customers to get them signed up within minutes.

Badi Sudhakaran, VALR co-founder and chief product officer, says a rewards programme is being launched to boost sign-ups. “We will be paying R20 each time you VALR Pay someone not yet on VALR.”

VALR has raised R79 million in funding since its launch three years ago, attracting high-profile investors such as Jordaan and 4Di Capital in South Africa, as well as Bittrex and HDR from the international investor community.

Africrypt ‘hack’ of nearly R54bn dwarfs Mirror Trading

Written by Ciaran Ryan. Posted in Journalism

The founders of the company, Raees and Ameer Cajee, have disappeared to the UK – while investigators say the ‘hack’ reeks of something more sinister. From Moneyweb.

It seems the funds ‘were subjected to various dark web tumblers and mixers, resulting in severe fragmentation’. Image: AdobeStock
It seems the funds ‘were subjected to various dark web tumblers and mixers, resulting in severe fragmentation’. Image: AdobeStock

While hundreds of thousands of investors were scrambling to find out what happened to funds they had invested in failed crypto scam Mirror Trading International (MTI), a far bigger crypto disappearing act was playing out without hardly anyone paying attention.

Africrypt, which reportedly counts several high profile South Africans and celebrities among its investors, was hacked on or about April 13.

A staggering $3.6 billion (roughly R54 billion) was swiped out of multiple wallets controlled by directors of the company in a matter of hours.

This is according to an analysis, conducted by Hanekom Attorneys, of blockchain transactions involving wallets controlled by Africrypt.

The ‘hack’ is deemed extremely suspicious by investigators, not least because the two founders of Africrypt – Raees and Ameer Cajee – disappeared to the UK within days of this happening.

Though the investigation is still ongoing with multiple regulatory authorities now looking into it, this may turn out to be one of the biggest financial scandals in SA’s history. Not quite Steinhoff-scale, but way larger than MTI.

Read:Steynbergs of MTI provisionally sequestrated

An inside look at how MTI managed to prolong an extraordinary losing streak

The reason Africrypt attracted such little public attention was that clients were asked not to alert authorities as this would frustrate the recovery of assets from the hackers. That, according to Hanekom Attorneys, which represents several Africrypt clients, allowed the perpetrators time to make good their escape with crypto worth more than R50 billion.

It begs the question: how did a low-key crypto company with a trading history of little less than two years end up with crypto assets of nearly R50 billion (nearly five times the size of MTI)?

Darren Hanekom of Hanekom Attorneys believes it is unlikely all these funds came from South Africans, saying it was more likely a money laundering operation for international players, of which the Cajees were just a part.

Also suspicious is the fact that clients were requested to sign an investment agreement with Hong Kong-based RaeCreateWealth Limited, which limited the liability of the company for virtually any kind of loss. The agreement is so weighted in favour of RaeCreateWealth Limited that it exonerates it from any hacks – but this contractual limitation of liability does not apply where a crime has been committed.

Not good for SA’s reputation

Whether this was an international money laundering operation or not, the case does little to enhance SA’s reputation as a safe haven financial centre, coming so soon after the collapse of MTI, and brings urgency to the growing clamour for crypto regulations.

Some clients are known to have invested R1.5 million, with a few as much as R15 million and R20 million.

While some Africrypt clients are known to have been paid commissions for referring new clients, it does not appear to have been a multi-level marketing scheme (unlike MTI).

The real success of the company was its ability to scout for clients among a relatively limited pool of high-net-worth investors who knew each other.

While MTI was offering returns of up to 10% a month using a trading bot, Africrypt’s sales pitch was even more outrageous, with some clients being promised 10% a day, also using a computerised algorithm. Clients were invited to choose between a conservative, moderate and aggressive investment approach.

Read: Be aware: Here are some of the common investment scams

In an investor presentation, Africrypt boasted returns of 2-11% a month depending on whether you chose a passive, passive-aggressive or aggressive portfolio. In the 20 months to August 2020, there was not a single losing month.

The results were so mouth-watering that it was treated as something of a secret among the inner circle admitted to this exclusive club.

Hanekom says Africrypt bore all the hallmarks of a scam, with the Cajees posting pictures of their luxury cars and boasting on social media about their extensive experience in cryptos: “Whilst we are aware of the many opportunities available for young people in the cryptocurrency space, we were suspicious of the claims that over 100 000 Ethereum coins were mined from home-based computer systems. Given South Africa’s high electricity costs, and unstable power generating capabilities, we found this claim particularly difficult to accept.”

By way of comparison, Toronto Stock Exchange-listed Hive Blockchain Technologies, a professional crypto mining firm, mined just 71 660 Ethereum coins in 2020.

In an investor presentation, 21-year old Raees Cajee – the founder and CEO – says he first learned of bitcoin in 2009 while watching the news with his father “and ever since he was hooked”. Raees would have been about eight at the time. He apparently started mining Ethereum while still at school and was “soon building his own Artificial Intelligence models which developed into an AI driven trading system,” according to the presentation.

“It was this dynamic and innovative trading system that has fuelled Africrypt’s astronomical growth from a one-man operation running out of a bedroom to, to one of Africa’s largest and most successful AI trading companies in only a few years.”

Read: Protect your livelihood: Do not take the bait

Hanekom Attorneys has notified crypto exchanges around the world in the hope of intercepting any of the addresses and crypto marked as suspicious should they be presented for sale.

Source: Africrypt Investor Presentation 2020

The matter has been reported to the Financial Sector Conduct Authority (FSCA), the Hawks and the SA Reserve Bank.

“This was different to MTI in one crucial respect,” says Hanekom. “In the case of MTI, clients were required to purchase bitcoin on a local exchange and ship it to an MTI bitcoin wallet.

“In the case of Africrypt, they were required to deposit funds into an FNB account which would then be used to purchase bitcoin, often on Luno. That bitcoin would then be broken up and mixed with other transactions to disguise the source.”

A Companies and Intellectual Property Commission (CIPC) database search shows Africrypt (Pty) Ltd was registered in July 2019, with two active directors: Raees Cajee and Niranjan Patel. The company’s address is listed as 49 Glenhove Road, Melrose in Johannesburg, shown below.

Africyrpt HQ in Melrose, Johannesburg

Source: Google Maps

Two other companies bearing similar names were later registered: Africrypt Investments was registered in January 2020, and Africrypt OTC in March 2021. None of these companies are listed as having auditors.

According to a report by Hanekom Attorneys: “R54 billion has been transferred from its South African account(s) through bitcoin on the blockchain, and has regrettably, now been dissipated in its entirety. Whilst we are still in the process of investigating the transfer of funds, with transactions on the blockchain being active up and until even date, upon an initial reconciliation, it seems that the funds were subjected to various dark web tumblers and mixers, resulting in severe fragmentation.”

One reason the ‘hack’ is extremely suspicious, says Hanekom, is that one of the addresses used by the so-called hackers was used for a normal crypto transaction prior to the hack.

This points to an inside job.

On April 13, chief operating officer Ameer Cajee sent the following message to clients:

Dear Client,

We regret to inform you that due to the recent breach in our system, client accounts, client wallets and nodes were all compromised. At this point it is unknown to us the extent of personal client information breached during the attack.

Unfortunately, this has forced Africrypt to halt operations. We have begun the process of attempting to retrieve stolen funds and compromised information. Our number one priority is retrieving the funds as speedily as possible, however, this process is very wary and will take a substantial amount of time to complete, if successful. Furthermore, we have begun a full system audit to determine the extent of the breach.

We urge all clients to please be patient as we attempt to resolve the situation at hand. It is understandable that clients may proceed the legal route, but we ask clients to please acknowledge that this will only delay the recovery process.

Clients will be kept updated on progress made in the recovery process and with any information regarding the parties involved in orchestrating the attack on our systems.

The company’s website has since gone offline and all further communications have ceased.

Says Hanekom: “This is many times bigger than MTI and in many ways more clever in the way it was set up and executed.

“Imagine making R54 billion disappear within 24 hours.”

He adds: “Our further analysis of the blockchain links the flow of cryptocurrency transactions to certain large local exchanges. We trust that these exchanges will be open to disclosing information relating to wallets used by Africrypt or their proxies.”

Brandon Topham, head of enforcement at the FSCA, says: “We don’t have jurisdiction but we are looking at complaints to see if there is a financial product hidden in there.”

Police accused of standing by while chrome mine is invaded

Written by Ciaran Ryan. Posted in Journalism

Case heads back to court this week, with senior police officials and politicians cited as respondents. From Moneyweb.

Police Minister Bheki Cele is among the officials deemed to be violating a previous court order and now faces a threat of imprisonment. Image: GCIS
Police Minister Bheki Cele is among the officials deemed to be violating a previous court order and now faces a threat of imprisonment. Image: GCIS

The South African Police Service (SAPS) is accused of standing by while an armed gang invaded the Nuco Chrome mining property in North West Province on multiple occasions and made off with truckloads of ore for processing off site.

In May, the North West High Court evicted the group responsible and interdicted it from removing run-of-mine material, or from mining the site.

Despite this, the theft of material continued, with the police allegedly standing by.

Nuco went back to court earlier this month and came away with a contempt of court order with an instruction for those responsible to be imprisoned for 60 days.

Two companies cited as respondents – Bashiga ba Raphafana and Bashiga ba Raphafana Holdings – were ordered to pay R200 000 each as punitive sanctions for their contempt of court. The police were also ordered to comply with the previous court order.

Failure to act

Nuco is back in court this week seeking an order to compel the police to comply with the previous order, at risk of imprisonment for those officials deemed to be violating the order – which include the Minister of Police, the SAPS provincial commissioner, and the local station commander in Phokeng in North West province.

They are accused of failing and refusing to carry out the contempt order to assist the sheriff in executing arrests as ordered by the high court.

An incident sheet provided to Moneyweb shows seven separate incursions onto the mine property.

In all seven cases, charges were laid with the police in Phokeng in North West, but apparently nothing was done to stop the incursions or arrest the perpetrators.

‘Royal family’

The problem seems to have started when Elias Setuke had himself installed as traditional leader or ‘Kgosana’ of Lefaragatlhe village in North West, along with a retinue of followers who now call themselves the royal family.

In March, the recognised traditional leadership of the Bafokeng won an urgent interdict against Setuke and his followers to stop them “inaugurating, installing or in any way recognising” Setuke as traditional leader of the village.

Setuke and his followers, operating under the two companies cited as respondents, are accused of unlawfully entering the Nuco Chrome Mining property and removing run-of-mine material.

Fourteen respondents are cited in the court application, several of whom are said to  have threatened Nuco staff with firearms and physical harm.

In an affidavit before the court, Nuco director Linda Butler is asking for Setuke and three other respondents to be held in contempt of court, and for prison sentences for Setuke and one Oscar Ratsie – both of whom have already been the subject of a court order prohibiting them from entering the mining property or loading and removing run-of-mine material, or from processing it.

None of the 14 respondents has filed a reply to the court application by Nuco.

Invitation

Butler says the problems started when she received a letter from Andrew Pheto of Pheto Development and HR Shared Services on June 9, 2020, purporting to act on behalf of the Setuke family.

The letter was an invitation to set up a meeting and discuss possible collaboration with landowners and community members regarding to the Kookfontein Mining Project, which forms part of Nuco.

She says this was a clear attempt by Setuke and his followers to insinuate themselves into a new mining project and claim rights and ownership for themselves.

A search of the Companies and Intellectual Property Commission (CIPC) database shows that the two companies bearing the name Bashiga ba Raphafana were registered shortly thereafter.

There are an estimated 2 928 tonnes of chrome ore (with platinum group metals) on stockpile at Kookfontein, which Butler says Setuke and his followers are attempting to steal.

If Nuco processed this material it could expect to generate approximately R658/t or R1.025 million profit before tax, says Butler.

No fear of police

Based on court evidence, it seems the group has no fear whatsoever of the police, who have failed to intervene despite multiple cases being filed of mine property invasions and theft of material.

The reason for the police inaction is a mystery, says Butler, but the reasons will hopefully be fleshed out in court this week.

The local sheriff was told by police in Phokeng that they needed a legal opinion on the matter before they could render any assistance.

Moneyweb reached out to Pheto, who says he is still acting as an advisor to Setuke and his followers, but says he was unaware of the impending court action. We also reached out to Setuke via phone and message but had not received a reply by the time of publication.

Unlawful loading

On May 28, the company employed to provide security at the mine was notified that a 17-ton truck with an additional 17-ton hopper was unlawfully loading ore.

The truck was followed and intercepted, and then driven to the SAPS in Phokeng. The next day it was scheduled to be driven to a location for unloading of the material. On the way there, the mine security company was confronted by Ratsie and his 13 bodyguards. The truck was eventually allowed to proceed to the Bafokeng Civil Works site for unloading, but this time was met by Setuke and his bodyguards. They demanded the release of the truck back to the driver.

Butler claims in her affidavit that Setuke and his bodyguards used threats of violence, by wielding firearms to intimidate members of the SAPS escorting the truck.

The truck was handed over to Setuke’s men. Immediately after this incident, the mine’s security employee, Kopral Dibobo, was forced off the road while driving back to the office. He took refuge in a funeral that was taking place and managed to hide from his pursuers.

Butler says there are currently about 50 people illegally occupying the mining property and theft of material has occurred since the aforementioned court orders were granted.

Attacks

“To have to go to court to get the SAPS to act against criminality and to have to go back to have orders to compel granted and still have no joy is a costly exercise. We have also been hampered in starting operations. Not only has our security team been attacked, but of late the teams that have been sent in to fence off areas have also had to delay operations for fear of being attacked.

“The run-of-mine ore continues to be stolen and even when trucks have been intercepted, the Phokeng police have released the loaded trucks and given them back to the criminals.”

Says James Lorimer, the DA’s shadow mines minister: “It’s interesting to note that after literally years of inactivity the police are beginning to show interest in this case.

“Clearly the latest contempt application that would see the minister and the police commissioner jailed for not enforcing previous orders against the mine invaders has got police nervous.

“One has to ask whether it takes a threat to jail the minister to get police to act,” says Lorimer.

“Meanwhile in all this multi-year saga, the Department of Mineral Resources has played no role in defending the lawfully held mining rights, other than a negative role, in delay, obfuscation and possible collusion with the people trying to steal them.”

Read: Another citizen group takes its local municipality to court

The devastating effect of lockdowns on SA’s wine industry

Written by Ciaran Ryan. Posted in Journalism

19 weeks of lockdown knocked R3bn off retail sales and R3.7bn off wine tourism. From Moneyweb.

An estimated 27 000 job losses are said to be directly related to constricted production. Image: Supplied
An estimated 27 000 job losses are said to be directly related to constricted production. Image: Supplied

Wine is one of the great SA export successes of the last two decades. No respectable winery or retail store anywhere in the world is without a decent selection of South African wines, but the Covid lockdowns of the last 15 months have been devastating for wine producers.

The wine industry was effectively shut down for 19 weeks since lockdowns were first introduced in March 2020. Vinpro, which represents more than 2 600 SA wine producers, estimates that the lockdowns robbed retailers of R3 billion in revenue, and deducted another R3.7 billion from expected revenues from wine tourism.

Some in the industry put the total loss in revenue as high as R8.5 billion.

Initial predictions were that 60 to 80 wineries would go bust by mid-2022. At least 10 have gone out of business so far, paving the way for a spate of takeovers and mergers. Estimated job losses directly related to constricted production in the wine industry is put at 27 000, according to Vinpro.

Read: Wine industry: Ban lifted a little too late

The South African Liquor Brand Owners Association (Salba) says the lockdowns cost the alcohol industry R36.3 billion in sales revenue, R8.7 billion in lost excise revenue and R29.3 billion in lost tax revenue as a result of the previous three alcohol bans.

President Cyril Ramaphosa this week announced a move to Alert Level 3, with alcohol sales permitted from 10am to 6pm Monday to Thursday.

On-site sale of alcohol, such as at restaurants, is permitted up to 9pm.

The disruptions caused by lockdowns go deeper than this, as export markets are under pressure from overseas competitors, and illicit alcohol producers have captured an estimated 22% of the local market.

According to a recent study by Euromonitor, SA’s illicit alcohol trade has grown from 15% to 22% since 2017.

Export threats

Carolyn Martin, co-owner and marketing director of Creation Wine Estate, says this situation would repeat should exports be disrupted by new government regulations, as buyers would find more reliable supply chains. Export markets are under pressure as overseas buyers switch to more reliable supply chains in South America, Europe and the US.

Exports account for roughly 50% of all wines produced locally, and the full shut-down of wine production and exports for five weeks in 2020 meant the loss of overseas retail listings, not to mention severe reputational harm.

Says Martin: “Our traditional markets in the UK and Europe, especially the Netherlands, have seen premium side growth in independent and specialist wine outlets. There has been an upswing in Belgium and Denmark. In Russia, there is growth on the high end. China is also showing uplift, getting more top-tier listings due to Australia falling out of the market, but only on the premium side.”

SA lost out in the lower-tier markets as buyers switched to overseas competitors who could supply on time and in the correct volume. “We were unable to do this during the five-week lockdown and once we opened up again, the issues in the Cape Town Port slowed exports down considerably.

“All in all, we could have been out of stock in some stores for up to 11 weeks last year,” says Martin.

SA wines are performing better in the premium export markets, where consistency of quality is a crucial factor. Sales in this market segment are expected to pick up later in the year.

Read: R1m for 1% of a wine farm

“There has been huge impact on grape growers due to the buying power of producers, and that has a knock-on effect of no income, which means they will diversify, pull out vineyards and start looking at more profitable crops.”

Though the industry is resilient, it will take years to fully recover, says Martin. “It is projected that the industry will in all likelihood be smaller in terms of volume of product and the number of players, but with a focused approach to reposition and continued focus on value growth will be able to improve sustainability. This will require a collective approach by all.”

Opportunities abound

For the SA wine industry to grow, stronger government support is needed to remove trade barriers and negotiate better access. Trade deals however take time and are based on a basket of goods rather than single items.

Africa presents a great expansion opportunity, but competitors are beating us to the punch: there are more French wines in Nigeria than South African.

Martin says if we could address tariff and non-tariff barriers and improve access to Africa, the resultant increase in exports would create 19 000 jobs over the next five years. This requires a major upgrade at Cape Town Harbour, where capacity is hobbled by a shortage of equipment, and obsolete machinery that has reduced harbour capacity to 25%. This makes it more difficult to service overseas markets, says Martin.

Wine producers are wondering out loud why SA does not have a trade deal with Brics co-member China that would open up this huge market for SA wins.

Chile managed to get a deal done with China within six months.

Exports to the UK and Europe were given a boost by the extension of the 2021 SA-UK trade deal, allowing 71 million litres of duty-free wine to the UK and 115 million litres (duty-free) to Europe – which is 70 million litres more than the previous year.

How some of the indirect (and more profitable) routes into bitcoin are doing

Written by Ciaran Ryan. Posted in Journalism

Some of these crypto stocks have blown bitcoin away over the last year. From Moneyweb.

Companies that manufacture or support equipment used in bitcoin mining are one way to gain indirect exposure. Image: AdobeStock
Companies that manufacture or support equipment used in bitcoin mining are one way to gain indirect exposure. Image: AdobeStock

The recent crash notwithstanding, bitcoin has been an outstanding investment over the last year, recording a more than 300% price gain over 12 months.

But there were several more profitable ways to ride the bitcoin train, and one of these was to buy listed bitcoin miners. Research from blockchain research group Glassnode shows miners have been hoarding bitcoin at increasing rates as prices surged in the first few months of 2021.

Here is a list of some of the alternative ways to profit from bitcoin and cryptos.

Bitfarms

Bitfarms’s stock price is up 1 076% over the last year, and down 26% since the market peak in May 2021. The company is listed on the Toronto Stock Exchange is involved in bitcoin mining. Results for the first quarter of 2021 shows the company mined 548 bitcoin in the first quarter worth about $32.4 million as of March 31, and added 4 500 mining rigs to its fleet.

Source: Marketwatch.com

Voyager Digital

This stock is up 2 912% over 12 months and down 40% since the peak in May. The company’s platform allows users, either retail or institutional, to place and route trade orders to one or several trading exchanges to buy or sell cryptocurrency assets. Financial results for the December 2020 quarter show assets under management of $1.7 billion and trades per month of more than 70 000.

Source: Marketwatch.com

Hive Blockchain Technologies

This crypto miner is up 838% over 12 months and down 55% since the March peak. In 2020 it mined 2 051 bitcoin, 71 660 Ethereum and 148 796 Ethereum Classic. The surge in the prices of these crypto assets in the first half of 2021, notwithstanding the recent correction, will have pushed up revenue and margins.

Riot Blockchain

This Nasdaq-listed company’s stock price is up 1 225% over 12 months and down 60% since its March peak of $78. The company is involved in bitcoin mining in the US through its wholly-owned Whinstone facility in Texas, and through its hosted mining facilities in New York. It currently has a deployed hash rate (the rate at which bitcoin is successfully mined) capacity of 1.6 EH/s (exahashes, or computations per second, where one exahash is one quintillion hashes per second). This will expand to 2.51 EH/s by the end of June, using about 79.5 megawatts of energy. Riot Blockchain recently announced that it is selling 2.2 million shares of Canadian crypto exchange leader Coinsquare to Mogo in exchange for 2.3 million shares of Mogo.

Source: Marketwatch.com

Hut 8 Mining

This stock is up 300% over 12 months and down 60% since its March peak. It is a bitcoin miner and, like its peers, is steadily accumulating bitcoin as reserves rather than selling into the market to cover operational expenses.

Source: Marketwatch.com

Silvergate Capital

Silvergate Capital is up 559% over 12 months and down 40% since its peak in April. A digital asset bank with nearly $5 billion in crypto-backed deposits, it only went public in 2019. It allows customers to switch between fiat and crypto through its Silvergate Exchange Network. Results for the first quarter show strong growth in transaction volumes through the exchange, though the recent crash in crypto prices will likely impact revenues in the second quarter.

Coinbase

Recently listed Coinbase, the US’s largest crypto broker, earned $771 million in the first quarter of 2021, massively up from the $32 million recorded for the same quarter a year earlier. The stock debuted on the Nasdaq in April at $328 but has been on a slide since then to $223. Investment bank Raymond James recently issued a report valuing the company at $95 a share, well below its current price, based primarily on Coinbase’s vulnerability to competition from companies like Kraken, which is also contemplating a stock exchange listing.

MicroStrategy

MicroStrategy’s stock price is up 316% over 12 months and down 59% since its February peak. The firm and its CEO Michael Saylor have become the corporate face of bitcoin, with Saylor announcing several larger loans to increase the company’s reserve holdings of bitcoin. Saylor has argued persuasively that bitcoin – with its hard cap of 21 million coins in issue – is the perfect antidote to the guaranteed depreciation of the US dollar and other fiat currencies.

Canaan

Canaan is up 350% over 12 months and down 75% since its March peak. It trades on the Nasdaq and is a Chinese-based company that manufactures equipment for bitcoin mining rigs. Though profitability deteriorated in 2020 as a result of Covid-induced supply chain disruptions, the order book for 2021 looks robust.

AMD Micro Devices

AMD Micro Devices is up 50% over 12 months and down 18% since February. It produces computer processes for the gaming community, though many of its products are used to improve the efficiency of bitcoin mining rigs.

Square

Square is the electronic payments company founded by Twitter CEO Jack Dorsey and is reckoned to have about 3% of the $150 billion digital advertising market. Dorsey, like Saylor, is an advocate of bitcoin, and Square has more than 8 000 bitcoin on its balance sheet. Square stocks have since become something of an imperfect proxy for bitcoin (MicroStrategy is more closely correlated).

Source: Marketwatch.com

Mogo

This Canadian fintech company is involved in developing digital financial solutions. Its share price is up 600% over the last 12 months and down 37% since its March peak. In December 2020, it announced that it would invest $1.5 billion in bitcoin, equivalent to about 1.5% of its total assets as of the third quarter of 2020. The company says it will make additional bitcoin investments in 2021. Its MogoCrypto app was launched in 2018 to allow Canadians to buy and sell bitcoin in real-time. Results for the first quarter of 2021 show new member growth of 35% on the previous quarter, which was up 50% on the quarter before that. It announced that it would increase its ownership in Canada’s leading crypto trading platform, Coinsquare, to 37% while retaining a warrant to increase ownership up to 48%.

Source: Marketwatch.com

Tesla

And let’s not ignore Elon Musk and Tesla’s sometimes testy relationship with bitcoin.

Tesla bought $1.5 billion bitcoin in February then sold 10% a short while later at a decent profit, ostensibly to test whether it could be liquidated easily without moving the market.

Cointelegraph noted that Musk was again picking up flack, this time from Sygnia CEO Magda Wierzycka, who is quoted as saying: “What we have seen with bitcoin is price manipulation by one very powerful and influential individual.”

To which Musk replied:

“This is inaccurate. Tesla only sold ~10% of holdings to confirm BTC could be liquidated easily without moving market.

“When there’s confirmation of reasonable (~50%) clean energy usage by miners with positive future trend, Tesla will resume allowing Bitcoin transactions.”

Which means bitcoin still accounts for a sizeable (though declining) proportion of Tesla’s reserves. The company just announced the launch of the Tesla Model S Plaid which does an astonishing 0-96.5 km/h in just under two seconds with a range of 400 miles before recharging.

A punt on Tesla is a punt on the remarkable technology behind this new generation of electric vehicles and, to a lesser extent, bitcoin.

Source: Marketwatch.com

Here’s what the coming crypto regulation will look like

Written by Ciaran Ryan. Posted in Journalism

Several laws will have to be amended to bring crypto assets under regulatory scrutiny. From Moneyweb.

New rules for crypto assets. Dado Ruvic, Reuters
New rules for crypto assets. Dado Ruvic, Reuters

A number of laws will have to be amended to bring crypto assets under regulatory scrutiny, and exchanges will be required to enforce anti-money laundering and anti-terrorism laws just as banks and other financial services providers are currently required to do.

A working paper released last week by the Intergovernmental Fintech Working Group (IFWG) on crypto assets proposes changes to a number of laws to bring crypto assets under the law.

Read: SA plans to regulate crypto trading in phased manner

Some of these changes are already in the process of being implemented, while some will take a while longer, says the working paper.

  • Crypto asset service providers (CASPs) will be deemed accountable institutions under the Financial Intelligence Centre Act (FICA), which means they will be held responsible for: customer identification and verification, conducting customer due diligence, keeping customer transaction records, monitoring suspicious behaviour, reporting cash transactions above R25 000 (or the applicable threshold at any given time) and movements in the control of property that might be linked to terrorism.
  • The working group recommends that the SA Reserve Bank’s Financial Surveillance Department (FinSurv) supervises cross-border financial flows in respect of crypto assets and CASPs. This would require the minister of finance to amend Exchange Control Regulation to include crypto assets in the definition of ‘capital’ for the purposes of Exchange Control Regulations.
  • FinSurv should explicitly allow individuals, through an amendment of the Exchange Control Regulations, to purchase crypto assets within their single discretionary allowance (SDA) and the foreign capital allowance (FCA) framework. Under such a scenario, crypto purchases would be limited to R11 million a year – R1 million under the SDA and R10 million under the FCA. This also appears to require banks – some of which have specifically prohibited forex transactions for crypto purchases – to allow individuals to send money abroad for the purchase of cryptos.
  • Crypto asset trading platforms (CATPs) should be allowed to source crypto assets abroad for resale in the local market, subject to specified limits.
  • As an interim measure, the working group recommends that crypto assets be declared a financial product under the Financial Advisory and Intermediary Services (Fais) Act. “This would require CASPs to become licenced intermediaries and provide for the rendering of advice by such entities. This allows for regulatory oversight and will assist in addressing the immediate exploitation of consumers by unscrupulous entities,” says the working paper.

In the medium term, the working group recommends that financial services involving crypto assets be included in the Financial Sector Regulation (FSR) Act, and that “crypto asset-related activities as performed by CASPs be licensed activities and subject to the Conduct of Financial Institutions (CoFI) Bill, as deemed appropriate”.

The FSR Act provides for the overarching legislation, and provides for recognising financial products, financial instruments and financial services that are subject to regulation and supervision, whilst the CoFI Bill focuses on fair customer treatment and specifies how a financial institution should conduct its business in performing regulated financial activities. The CoFI Bill will repeal existing market conduct sectoral laws and replace them with a single conduct framework.

Read:Crypto regulations mean stiffer audit requirements for exchanges

Why regulation is essential for mass adoption of cryptos

Two other priorities identified by the working group are:

  1. Limiting the exposure of prudentially regulated financial institutions and financial market infrastructures to crypto assets to avoid creating financial stability risks. SA will take its lead from the Basel Committee on Banking Supervision, which is currently determining its position on cryptos.
  2. Implementing a monitoring programme for crypto assets.

Top 40 mining profits will hit 18-year high in 2021 – PwC

Written by Ciaran Ryan. Posted in Journalism

On top of a 40% jump in cash on hand in 2020. From Moneyweb.

Shareholders are in for a cash windfall. Image: Bloomberg
Shareholders are in for a cash windfall. Image: Bloomberg

PwC’s Mine 2021 report released this week forecasts mining profits to hit an 18-year high this year. This comes on top of a 15% jump in net profit in 2020 and a 40% surge in cash on hand.

“The Top 40 mining companies have never been in a stronger financial position to make a big, bold pivot towards the future. And the future is already visible today: the world is in the midst of an era-defining transition to a low-carbon, sustainable economy. Eight of the 10 largest economies have set ambitious net-zero targets. Many global companies, including several of the Top 40 miners, have made similar commitments,” says PwC.

A key finding of the Mine 2021 report is that companies embracing ESG (environmental, social and corporate governance standards) outperformed the broader market during the peak of the Covid pandemic. Investors are increasingly drawn to companies that actively embrace ESG policies.

Companies are shifting away from thermal coal towards the green economy, and that’s likely to drive demand for minerals critical to the green economy six-fold by 2040, according to the International Energy Agency. Eight of the world’s 10 biggest economies have committed to achieving net-zero emissions by mid-century, and mining companies are expected to be front and centre in this transformation.

Source: S&P Capital, IQ, MSCI

Companies are looking to drive long-term strategic value by incorporating low-carbon inputs into their products and services, says PwC.

“And many are willing to pay extra to do so. For example, this year the premium for low-carbon aluminium jumped from a relatively small US$10–$15 a metric tonne to highs of US$59 because of a surge in demand for the product in Europe.”

Miners that embed ESG into their strategies are also finding it easier to access capital.

Australia’s Port of Newcastle, the world’s busiest coal export port, recently locked in $318 million in a sustainability-linked loan, which delivers a reduced borrowing rate if the port fulfils its environmental and social commitments.

In another case of cheaper capital being showered on miners committing to ESG policies, Newmont recently announced a US$3 billion sustainability-linked revolving credit facility, which includes a pricing feature based on third-party sustainability measures. The better the company does on ESG, the lower the cost of capital.

According to MSCI ratings, only four of the Top 40 are considered leaders in managing the most significant ESG risks and opportunities. “The rest need to lift their game,” says PwC. “To capture the value that ESG offers, Top 40 miners must focus on two key areas: embedding ESG firmly into strategy and engaging stakeholders.”

The financial position of the Top 40 miners emerged stronger than ever in 2020, and outperformed major market indices, with total market capitalisation rising 64% to $1.46 trillion.

Source: S&P Capital, IQ, PwC analysis

Top 40 revenue was $545 billion (excluding trading) for 2020, up 4% from 2019. Higher prices for gold and iron ore and modest production increases in gold and copper were the main drivers of revenue growth, says PwC.

Copper was the standout performer, contributing $122 billion to group revenue.

“Its higher price points reflected increased demand, which resulted in part from a market shift towards commodities that are valuable in the global transition to a low-carbon future.

“BHP expects the world’s Paris-aligned emissions reduction targets to more than double the demand for copper and quadruple the demand for nickel over the next 30 years.”

If 2020 was a good year for the Top 40, 2021 is shaping up to be a great one, with revenue (excluding trading) forecast to rise 29%. Cash on hand is now up 40% and balance sheets are rock solid.

What will companies do with their cash war chests?

Shareholders are in for a cash windfall, with BHP, Rio Tinto and Fortescue Metals distributing their highest ever dividends for the February 2021 reporting season. Capital expenditure is forecast to expand by 33% this year for expansionary projects and the revival of projects deferred from last year.

An inside look at how MTI managed to prolong an extraordinary losing streak

Written by Ciaran Ryan. Posted in Journalism

It was losing money from the get-go, and had to lie and fabricate trading results to convince investors to climb on board. From Moneyweb.

The liquidators paint a picture of a scamster who had no clue how to close out a Ponzi scheme that had grown beyond his wildest dreams. Image: AdobeStock
The liquidators paint a picture of a scamster who had no clue how to close out a Ponzi scheme that had grown beyond his wildest dreams. Image: AdobeStock

Court papers filed by the liquidators for failed crypto scam Mirror Trading International (MTI) lift the curtain on one of the most extraordinary investment rip-offs in SA’s history.

It was rated the world’s biggest crypto scam of 2020, having roped in $588 million (R7.9 billion) worth of bitcoin in 470 000 transactions, according to the 2021 Crypto Crime Report by Chainalysis.

A data dump by Anonymous ZA puts the number of bitcoin under MTI control at 23 000, worth about R11.5 billion at current prices.

According to the liquidators, about 280 000 investors worldwide were involved.

Bitcoin CEO Johann Steynberg disappeared in December 2020 after the company stopped paying out requests for withdrawals in a bitcoin investment scheme that promised returns of up to 10% a month. These promises turned out to be nothing but smoke. The company was provisionally liquidated in December 2020.

Read:MTI CEO goes AWOL, lawyers pull out (Dec 2020)

MTI does not know if its bitcoin is safe (Dec 2020)

Steynbergs of MTI provisionally sequestrated (Apr 23)

Legal argument will be heard next week in the Western Cape High Court as to whether MTI will be finally liquidated or whether, based on an affidavit filed by 50% shareholder in MTI Clynton Marks, the provisional liquidation order should be set aside on various grounds, including that the terms and conditions of the company make it clear that those investing in the scheme were members of a club, rather than creditors.

Rather than subject MTI to liquidation, there are some within MTI who argue that it should be either placed in business rescue or allowed to reach a compromise with creditors under the Companies Act.

The provisional liquidators argue that it is impossible to rescue a scheme that is unlawful, and they are asking the court to declare MTI a Ponzi scheme, and to have it placed in final liquidation.

The court papers provide fascinating and detailed insight into the inner workings of the company.

The rise and fall of MTI

A report by the Financial Sector Conduct Authority (FSCA), included as part of the liquidators’ door-stopper of a court filing, says there were three periods to MTI’s business:

  1. The first period was a disaster, but it might have been a small disaster had it stopped there. A total of nearly 51 bitcoin were deposited with Belize-based forex broker FXChoice, but 22 or 43% of these were lost by the traders. There was no multi-level marketing involved during this stage. This was to come in the second stage.
  2. The second period was from August 2019 to October 2020 when Steynberg purportedly introduced a computerised trading bot which MTI falsely claimed to have generated exceptional returns averaging more than 10% a month, with only one losing day out of about 200. FXChoice reported to the FSCA that 1 846 bitcoin were deposited with it between January and June 2020, but of this 566 bitcoin (about 30%) were lost. These trading results were completely at odds with the wild claims of success being promoted on social media by MTI. FXChoice subsequently froze the remaining 1 280 bitcoin (recently sold by liquidators for about R1.1 billion) placed on deposit with it by MTI.
  3. The third period, and MTI’s last, was from October to December 2020. Steynberg alleged that all investors’ bitcoin were transferred from FXChoice to a new broker, Trade 300, supposedly operating out of St Kitts in the Caribbean island of Nevis. A total of 16 444 bitcoin was claimed to have been transferred in four lots, but when the FSCA investigated, it concluded that Trade 300 was a fraudulent creation of Steynberg’s and does not exist as a bona fide brokerage.

All MTI investors’ bitcoin are unaccounted for or lost

According to the affidavit filed by lead liquidator Riaan van Rooyen: “Based on evidence provided by Steynberg that the 1 282 bitcoin frozen by FXChoice were not part of MTI’s clients’ bitcoin pool, but belonged to MTI and Steynberg personally, the conclusion is inescapable that all of the bitcoin held by MTI for the purpose of trading on behalf of its clients … appear to be either siphoned away by Mr Steynberg, alternatively depleted by ongoing payments of vast amounts of bitcoin to investors in respect of referral commissions, the binary bonus scheme and the payment of fictitious profits that were declared and credited in favour of clients on their back office accounts (which had to be paid to an investor when he/she withdrew his/her investment).”

No audited accounts

The people in charge of MTI had no qualifications for the posts to which they were appointed, according to the liquidators.

Monica Coetzee was appointed by MTI’s marketing executive Cheri Marks, first as a non-executive director, then an executive director. Her background was as an estate agent and legal secretary.

Her starting salary was R15 000 a month, which was later bumped to R40 000, and then one bitcoin a month (currently worth around R500 000), which was paid to her by Steynberg via a service provider called Coin Buyers Club.

Based on the evidence provided by the liquidators, MTI was owned 50-50 by Steynberg and Clynton Marks, who would divvy up 10% of the profits between them every Monday.

Steynberg calculated what the profits were, while expenses were paid from three loan accounts in the name of Steynberg, Clynton Marks and JNX Online (one of Steynberg’s companies). Ledgers obtained under subpoena show MTI owed JNX Online R7.1 million, Clynton Marks R439 530 and Steynberg R549 529.

‘Exclusive control’

Coetzee confirmed during testimony that Steynberg had exclusive management control of MTI’s back-office system.

The accountant, RDK Accountants, requested on numerous occasions the supporting documentation and invoices for payments authorised by Steynberg, but these were never forthcoming. Steynberg was the sole signatory on the MTI bank account.

Each month Steynberg would transfer sufficient bitcoin to Coin Buyers Club to convert to rand and then pay salaries and other expenses.

Steynberg also appears to have been the only person in MTI to deal with both the broker in Belize and the server team in India. He would supply trading results from the broker to the server team for capture into the back-office system.

MTI’s accountant (who joined in August 2020) and other executives were pushing for revenue to be declared, though this never happened.

MTI’s accounts reflected only expenses, and therefore the company was showing a huge loss.

Layers of lies

When Cheri Marks confronted Steynberg about FXChoice’s statement that MTI had made substantial trading losses and that this did not correspond with the trading statements that were posted on the MTI back office, Steynberg told her that FXChoice was lying – because it was upset about losing a big client like MTI and was not happy being bombarded with clients’ queries after the Texas State Security Regulator issued a cease-and-desist order on MTI.

Evidence from FXChoice shows MTI (and presumably Steynberg) was fabricating trading results by redacting losing demo trades to show positive gains, and reporting these as genuine trades.

Steynberg was able to lie and deceive his way through this, and convince his management team that FXChoice was the one that was lying out of jealousy.

Steynberg did not consult MTI management, nor his 50% shareholder Clynton Marks, before allegedly transferring all the bitcoin from FXChoice to Trade 300. “Initially, they were all upset, but accepted Mr Steynberg’s explanation that FXChoice was lying (about the losses made by MTI),” according to Riaan van Rooyen’s affidavit.

Steynberg explained to management that FXChoice had only frozen MTI bitcoin, not the bitcoin of MTI members’ trading pool, which comprised about 10 000 bitcoin in digital wallets, according to Clynton Marks’s affidavit.

First red flag internally

The first red flag for Cheri Marks was when the FSCA put out a statement on December 17, 2020, in which it confirmed to have found information that Steynberg had created Trade 300.

Steynberg convinced his management team that Trade 300 was an unregulated broker and that would avoid the risk of funds being frozen in the future. The management team accepted this explanation.

“I pause to note that it is clear that Cheri Marks is not (and never was) prepared to accept the obvious and uncontroversial reality that Mr Steynberg ran a fraudulent scheme of gigantic proportions,” deposes Van Rooyen.

The liquidators express their frustration with the MTI management team and their lack of suspicion and scepticism at the ever-changing narrative spun by Steynberg who, they aver, was treated as a godlike figure.

Too big to handle …

The liquidators’ court filings, which include the FSCA report and supporting transcripts of interviews with Steynberg and others involved in the scam, paint a picture of a scamster who was prepared to wing it but who had no real clue how to close out a Ponzi scheme that had grown beyond his wildest dreams.

The developer of the automated trading bot, a Keith Badenhhorst, gave testimony to the effect that he was involved in the early development of a trading bot, but had virtually nothing to do with MTI for several years. This contradicted Steynberg’s testimony.

What is extraordinary about this story is that the FSCA first warned the public in August 2020 to get their money out of MTI.

Despite this, the number of investors shot from about 60 000 to some 280 000, and that says something about the marketing acumen of the people behind MTI.

They convinced investors that the FSCA, the banks and the “mainstream” were out to shut them down because they had a system that could deliver financial freedom to the ordinary man and woman.

One word explains this extraordinary growth in membership, says Van Rooyen: “Covid.”

Anglo’s coal spin-off Thungela debuts on JSE at R25

Written by Ciaran Ryan. Posted in Journalism

After short-seller Boatman Capital issued a report valuing Thungela at zero, due largely to what it says are underestimated rehabilitation costs. From Moneyweb.

Anglo says the regulations on which the Boatman report apparently draws its conclusion are ‘far from being finalised’. Image: VisMedia via Bloomberg News
Anglo says the regulations on which the Boatman report apparently draws its conclusion are ‘far from being finalised’. Image: VisMedia via Bloomberg News

Anglo American officially stepped out of the coal business on Monday when it spun off its remaining thermal coal assets into Thungela Resources, which debuted on the JSE at R25 a share.

Anglo investors received one Thungela share for every 10 Anglo shares held. Thungela holds 90% of Anglo’s thermal coal operations in SA, with the remaining 10% held collectively by employees and a community partnership.

Thungela listed with a net cash balance of R2.5 billion, with Anglo providing contingent capital support until the end of 2022 to offset any drop in coal prices, up to a maximum of $100 million in 2021 and $170 million in 2022.

The SA coal business produced 16.5 million tonnes (mt) of export coal and 12.4mt of domestic coal from seven coal mines with life spans of between three and 11 years. Cash costs were $38/t FOB (free on board) per saleable tonne and $51/t per export saleable tonne, placing the mines in the second quartile of the global energy adjusted seaborne cost curve, according to an analysis by Deutsche Bank. Exports account for about 80% of revenue.

Valuations

Liberium estimates a valuation range of £2.30-£4.90 (R43-R93) a share, with value being driven by handsome dividend yields of 10-22%.

SBG Securities valued the shares at R33.

Deutsche values the group’s equity at $600-$900 million (R8-R12 billion).

Short-seller Boatman Capital released a report prior to the listing, arguing that there will be immediate pressure on Thungela’s share price once it lists. It expects the volume of sellers to exceed demand because of under-funded environmental liabilities that will increase once new environmental laws are introduced in SA.

Other factors weighing on the share price are investor migration, as Anglo shareholders received Thungela whether they wanted them or not.

Many may choose to exit the shares due to the associated risks, while investors remain wary of assets exposed to greenhouse gases. Boatman Capital also suggests Thungela may have overstated demand from Asia for its coal.

Why ‘zero’

Boatman argues that National Environment Management Authority (Nema) regulations could bump up environmental costs for Thungela nearly three times to R18.8 billion as opposed to the R6.45 billion provisioned by the company. On this basis it comes to a valuation of “less than zero” for the company.

“Putting it all together, we find the valuation of Thungela to be below zero,” says the Boatman report.

“We appreciate that any one adjustment is subject to debate but we prefer to be ‘roughly right rather than precisely wrong’ so cannot reach a valuation other than zero.”

Analysis contains ‘basic errors’ says Anglo

Anglo American replies that the Boatman analysis contains some basic errors, such as confusing metallurgical and thermal coal forecasts, and misreading the impact of new Nema regulations on environmental liabilities going forward.

“The provision of R6.45 billion on Thungela’s balance sheet is over and above the regulatory guidance for miners in South Africa, is in accordance with IFRS (International Financial Reporting Standards) and audited, and consistent with the provisioning norms within the industry,” says Anglo in response to the Boatman report.

“The basis for provisioning under SA’s draft Nema regulations simply does not accurately reflect the actual or likely sums needed to discharge such liabilities.

“It is precisely because these sums are considered to be artificial, and arbitrarily inflated, that the draft has remained under review since 2015.

“This is an industry-wide matter in SA, so the regulations on which the Boatman report apparently draws its conclusion are far from being finalised.”