Lonmin in murky BEE plan

27 July 2014 - 12:29 By Jana Marais
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ANC deputy president Cyril Ramaphosa. File photo
ANC deputy president Cyril Ramaphosa. File photo
Image: Gallo Images

Platinum giant Lonmin stands accused of bulldozing through an empowerment deal with the impoverished Bapo Ba Mogale community, on whose land it has been mining for decades.

In terms of the proposed deal, Lonmin will convert future royalty payments that it is meant to pay to the Bapo Ba Mogale into Lonmin shares. It is understood this would see the community get a stake of 1.8% in Lonmin, worth about R423-million at Friday's share price.

However, critics say Lonmin is pushing through the deal partly so it can meet the target of 26% black ownership by the December deadline. The mining group's relationship with local communities and staff has been in the spotlight since the bloody strike at its Marikana mine led to 44 people being killed.

The Bapo Ba Mogale are set to vote on the deal on Tuesday. But some community members have voiced serious concern about whether there has been sufficient consultation on the deal and raised questions about the legality of the Bapo Ba Mogale's leadership structure, which is evidently supporting the deal.

Two critics of the deal, who were elected as community representatives on the traditional council, were suspended in January after querying the transaction and requesting community meetings to get a mandate.

"We've been debating equity. Initially, we were supposed to get 26%, then Cyril [Ramaphosa] took 18% [in a 2003 empowerment deal]. Now we were looking at 8%, and suddenly that is getting cut too with employees and individuals getting a stake. Now we're down to 1.8%," said one of the former representatives.

Ramaphosa's former investment group, Shanduka Resources, holds half of Incwala Resources, Lonmin's empowerment partner. The Bapo Ba Mogale holds 2.85% of Incwala.

On Friday, Lonmin said it was making good progress on the empowerment deal, and was on track to meet the 26% target by December.

Concern has been heightened by the fact that the Bapo community has already been short-changed.

To date, Lonmin has paid more than R370-million to a trust account controlled by the North West government, supposedly for the benefit of the Bapo Ba Mogale.

However, more than R300-million of this money has gone missing, and public protector Thuli Madonsela is probing this disappearance.

But Vladimir Mogale, a member of the Bapo royal family, denied that there was opposition to the deal from within the community.

Mogale said that Lonmin had paid legal and financial advisers to ensure the community got a good deal - and there were no concerns about a potential conflict of interest.

He said the traditional leaders had opted for door-to-door meetings to consult the community as "most people lost interest in this process", and community meetings were dominated "by a few vocal members".

Mogale maintained that the transaction would leave the community better off as it covered issues such as procurement and employment as well as fixed yearly payments.

An undated letter from the royal office said that future royalties were being swapped for equity and cash of R643-million, including R100-million in cash payable over five years, plus R5-million to be paid annually to the local economic development trust.

However, the letter doesn't mention any of the risks in owning Lonmin shares, including the possibilities of the share price dropping further or it not paying dividends.

Lonmin's share price is down 21.7% since the start of the year, and has fallen 86% from the highs of nearly R305 in 2007 to R42.80 on Friday.

Lonmin has also had two rights issues in the past five years to recapitalise its balance sheet, and has barely paid dividends. Since 2008, Lonmin paid dividends on only three occasions - a combined R3.25 a share, according to Bloomberg.

Brendan Boyle, senior researcher at UCT's Centre for Law and Society, said the lack of proper information and consultation was a concern.

"There are a number of promises about jobs and procurement, but none of it has been laid out. The proposal makes it sound like every day will be Christmas, but people need to have the facts and the time to make a considered decision."

Lonmin refused to respond to questions about the deal.

"Unfortunately, we are not able to provide the kind of detail you are requesting ... as the transaction is imminent and will be voted on by the community next week. Having this kind of detail from us at this stage might compromise the process," said Lonmin spokeswoman Sue Vey.

The royalty payments spring from a deal signed in 1969, and depend on what profit the mines make.

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