Zuma Inc hits skids

In a week that might prove a turning point for opportunistic deals by the well-connected, Aurora Empowerment Systems was chucked out of its mines and ArcelorMittal SA turned its deals with Zuma and Gupta family-linked businesses on their heads.

The week's events could also be a turning point for President Jacob Zuma's son Duduzane Zuma, his nephew Khulubuse Zuma, Nelson Mandela's grandson Zondwa Mandela, and the Gupta family, who are connected to the Zuma family. These deals were destined to catapult them into the big league of local business and bring them huge wealth. But they have all suffered significant setbacks in the past days. Should ArcelorMittal's court application succeed, its multibillion-rand potential deal with Duduzane Zuma and the Guptas will fall apart. Khulubuse Zuma and Zondwa Mandela have just a few days to clear out of the Pamodzi mines they bought - but could not fund or keep going.

Aurora Empowerment Systems and its directors should be blacklisted and never allowed to do business in mining again, the National Union of Mineworkers (NUM) said following a liquidators' decision to oust Aurora from Grootvlei and Orkney mines.

A new team of liquidators of the former Pamodzi mines on Friday gave Aurora, led by Khulubuse Zuma, the nephew of President Jacob Zuma; Nelson Mandela's grandson Zondwa Mandela, and Michael Hulley, a lawyer who has represented the president, three days to vacate the premises.

After nearly two years of broken promises, extended deadlines, unpaid wages, suspicious deaths and a suicide, the remaining liquidators acted swiftly after the firing of Enver Motala and Gavin Gainsford as liquidators on Monday.

"We are very disappointed that it took so long to remove Aurora. We know they stripped assets and had a very negative impact on the mines. We can only hope that they're gone for good," said Lesiba Seshoka, NUM spokesman.

The Department of Justice said it had fired Motala and Gainsford to "safeguard the integrity of the liquidation process". The trade unions have accused Motala in particular of protecting Aurora, granting it numerous extensions to raise money to buy the mines.

Motala and Gainsford were fired after the remaining four liquidators and the guaranteed creditor Unibank requested their removal, said Gideon du Plessis, deputy secretary general of Solidarity. A lawyer for Motala, who acted as lead liquidator, said he would go to court to be reinstated. A statement will be issued tomorrow, the lawyer said.

When inexperienced Aurora controversially took over the Pamodzi mines ahead of bidders like JSE-listed Simmer & Jack and Harmony Gold in October 2009, seven shafts at Grootvlei and six at Orkney were still operational, according to Du Plessis. Following Aurora's management stint, most of the shafts have been stripped and the proceeds sold for scrap.

It will now cost an estimated R200-million to refurbish each mine, while a new water pump station must be built at Grootvlei at a cost of at least R50-million, said Du Plessis.

"Even with that investment, the mines will never be fully operational again and we estimate a new investor may be able to restart about 40% of the previous mining activity," he said.

"Aurora is not only responsible for the massive social crisis which impoverished more than 40000 people, but they also stripped the mining asset of all value and caused SA as an investment possibility immeasurable damage," said Du Plessis.

The liquidators recommended that a security company supervise the Aurora eviction to ensure that company does not further pillage the mining assets, said Solidarity. Despite the non-payment of wages, it is estimated that Aurora made millions selling gold and scrap from the mines. Last month Khulubuse Zuma, who has a fleet of luxury cars, donated R1-million to the ANC for electioneering.

Thulani Ngubane, commercial director at Aurora, said the company "never expected" to lose its preferred bidder status. "The liquidators know very well that the Chinese are in the country to consummate the deal. By taking away our preferred bidder status, the deal is threatened," he said.

Aurora has said for months that China's Shandong Gold will buy a 65% stake in Aurora for $100-million, but the deal has not happened. The High Court granted Aurora a final extension until August to raise the money.

Ngubane said Aurora is still interested in the assets "otherwise we wouldn't have still been here".

The liquidators have said there is at least one new bidder for Pamodzi's assets.

Aurora has until Tuesday to respond to a liquidation application for R3.1-million in unpaid wages by Solidarity.

On Aurora's unpaid wages, Ngubane said: "In fact, I have to go to another meeting right now so good bye."

ARCELORMITTAL SA has come out guns blazing in support of Kumba in a court battle that can cost Duduzane Zuma and the Gupta family a promised R1.4-billion empowerment stake in the steelmaker.

In a surprise move, ArcelorMittal has asked to join the High Court application of Kumba subsidiary Sishen Iron Ore Company (SIOC) in which it seeks to have a 21.4% prospecting right, awarded to politically connected Imperial Crown Trading (ICT), set aside. The joinder application will be heard on Thursday.

ArcelorMittal offered to buy ICT for R800-million last year in order to obtain the right in Sishen, but it has now taken sides against ICT, saying the full 100% mining right should have been awarded to SIOC under the Mineral and Petroleum Resources Development Act (MPRDA) when SIOC applied for the conversion of its 78.6% right in 2008. ArcelorMittal previously held a 21.4% undivided right in Sishen, which gave it access annually to 6.25-million tons of iron ore at cost plus 3%.

"The MPRDA does not allow for the conversion of only a fraction of an old-order mining right. On the contrary, it envisages the grant of a single new-order mining right in respect of a particular mineral and land," said Mlawuli Manjingolo, head of ArcelorMittal SA's legal department, in his affidavit.

ArcelorMittal, which is using technical legal arguments to back up its case, is asking the court to register SIOC's right as 100%, set aside the decisions to accept ICT applications for prospecting and mining rights, and that the Department of Mineral Resources be interdicted from granting a prospecting right or mining right to any other party, including ICT.

The steelmaker argues that its original supply agreement is not linked to the right and should remain in place.

While ArcelorMittal's legal argument around the partial ownership of new-order rights could be argued in different ways, according to one lawyer who is not entirely convinced by the steelmaker's interpretation of the law, it is clear that the steelmaker has weighed its options and decided that the odds are better on Kumba's side of the fence.

Should the ICT transaction fall through, ArcelorMittal CEO Nonkululeko Nyembezi-Heita is likely to restructure the proposed R9.1-billion empowerment deal, of which Zuma, the Guptas and ICT shareholders are currently some of the main proposed beneficiaries. When the empowerment transaction was announced in August last year, ArcelorMittal said the Guptas were included in the deal as they played an important role in facilitating the ICT transaction.

Jagdish Parekh, a key executive in the Gupta family empire, owns 50% of ICT. As the largest shareholder in ICT, Parekh is also the main beneficiary of the ArcelorMittal transaction, with a potential stake of R1.83-billion.

The Guptas also insisted on the inclusion of Mabengela Investments, an investment vehicle led by Duduzane Zuma and Rajesh Gupta, in the consortium. Parekh's stake in ICT was bought after the shelf company was controversially awarded the lucrative prospecting right, but the value of that transaction has never been disclosed.

Gary Naidoo, a spokesman for Zuma and the Gupta family, referred questions on the possibility of a restructured empowerment deal to ICT and ArcelorMittal. "As regards to your questions relating to the Gupta family and Duduzane's role in the consortium - this is already fairly well documented in previous reports and there has been no further development in this regard," said Naidoo.

The Guptas said in an interview with City Press in March that the ArcelorMittal empowerment deal would probably not go ahead as it had not yet been presented to shareholders. A number of ArcelorMittal shareholders, including the Public Investment Corporation and Rand Merchant Bank, spoke out against the deal when it was announced.

ArcelorMittal's legal positioning is the first clear public sign that all might not be well with the ICT transaction, which has been subject to due diligence ever since the deal was announced. A number of allegations against ICT have since come to light, including that it copied parts of Kumba's application to form part of its own application, a claim ICT has denied.

It has been alleged that ICT got access to Kumba's documents over the Workers' Day long weekend in May 2009. Kumba has also laid criminal charges against ICT.

A lawyer for ICT said there are "no sinister reasons" behind the due diligence taking much longer than was originally anticipated.