Shocked investors hear same sad song of misadventure
10 June 1998 (Business Day)
The mining battle involving SouthernEra is getting to be a clich‚, writes Simon Barber in Washington
IT IS getting to be clich‚. Toronto-listed junior mining company announces that it has African mineral rights, finds out it hasn't, then blames the resultant collapse of its share price on the government concerned and the big bad Oppenheimers.
That was American Minerals Fields' (AMF's) story earlier this year, when the Democratic Republic of Congo decided to rebid the tender the company claimed it had won for a copper and cobalt tailings project outside Kolwezi. AMF has since abandoned its suit against Anglo American for "tortiously" interfering with its rights.
Now SouthernEra Resources is singing the same sad song over its apparent loss of the M1 diamond pipe on Marsfontein farm in Northern Province and the ensuing swoon of its stock to C$4,75, from a high within the past year of C$20,80.
Chairman Chris Jennings, in a teleconference with shell-shocked investors last week, blamed his woes on apartheid-era holdovers in the minerals and energy department, and on De Beers. Like AMF, Jennings sought to portray his firm's misadventure as a deterrent to other foreign investors, hoping this might persuade the government to see things his way.
Marsfontein, one of SouthernEra's promising Klipspringer properties, is exceedingly rich and easily mined, but small; a "bonanza strike" with the potential to generate C$200m in pretax profits before being mined out within a year, according to Canaccord analyst David James.
Last year SouthernEra made a fateful decision: it would rely on Marsfontein for cash while it developed the rest of Klipspringer and increased its stake in Angola. Marsfontein ore would also keep the company's new on-site processing mill busy.
That is why it was such a shock when the matter of 29 purported heirs to the Marsfontein mineral rights erupted last December just as SouthernEra and partner Randgold were about to start mining. The heirs, preposterous or otherwise, registered their rights - with what Jennings claims was the improper connivance of the "old guard" at the ministry - and sold them to De Beers.
The M1 pipe contains a fraction of what is in Klipspringer's fissures and blows (which are projected to yield 490 000 carats a year at full capacity) and is tinier still compared to the 8,7-million carats Jennings expects to find within 80m of the surface at Camafuca in Angola. (Ultimately he is talking of a hole of Kimberly proportions.) Marsfontein was SouthernEra's financial gateway to the big time.
At Camafuca, SouthernEra is the operator in a joint venture with the Angolan government and two other partners, SAA Distributors, an SA company, and Consorcio Mineiro Camafuca-Camazambo (Comica).
It has moved to buy out of the latter two's rights, making an initial payment of C$7m in cash and new stock last year.
A second like payment was due by April this year, but had to be rescheduled.
One of the terms, as set out in SouthernEra's latest annual report, is that if "the company does not acquire the mineral rights to the farm Marsfontein and fails to make the payment, the company's interest in the (joint venture) shall be assigned to SAA and Comica". In other words, without Marsfontein, SouthernEra stands to get nothing for its first C$7m instalment plus the C$2m it has spent on developing Camafuca.
Although he insists he has alternative debt and equity finance options, it is easy to understand Jennings's frustration, and just as easy to jump to his conclusion that he has been the victim of De Beers' relentlessness, cunning and well placed friends.
But look at it from De Beers' angle: here is a talented, veteran prospector who has been an antagonist since his days with the Botswana geological survey. Now he is threatening to bring on stream a mass of new diamonds from fields De Beers long knew about but chose not to exploit.
One way or another, he could, if successful, make it even more expensive for De Beers and the Central Selling Organisation to maintain prices for their intrinsically not very valuable product.
Then he makes a misstep. He puts too many eggs in a dodgy basket (or is it a booby trap); suddenly he cannot pay his bills, and his share price is in the tank making him a target for takeover. It is time to negotiate with De Beers.
Jennings is praying Minerals and Energy Minister Penuell Maduna, alert to the alleged effect on foreign investor sentiment and angered by "the old guards" having allegedly acted behind his back in registering the heirs' rights, will countervail the De Beers squeeze, and maybe even expropriate De Beers of Marsfontein under the public interest clause of the present minerals act.
There is no question that, as Maduna has told Parliament, SA's hybrid minerals ownership policy needs reforming to vest ultimate control in the state, in line with international best practice.
The question is whether it is in SA public's interest to maximise the quantity of diamonds lifted from its soil. Just because a rich kimbelite exists does not mean that it has to be dug up immediately for the gratification of some overseas punter.
Maduna, to his credit, appears to have grasped the point. In a part of his recent speech to Parliament not quoted by SouthernEra, he said "measures" would be introduced not only to "discourage unproductive holding of prospecting and mining rights" but also to ensure retention where exploitation "may not be economic or may disrupt markets".
Why can analysts put the pre-tax value of the crystallised carbon at Marsfontein at $200m (a substantial chunk of which will end up in SA government coffers, perhaps for worthy purposes)?
Because De Beers, not Jennings, has ensured that crystallised carbon is forever. Do not mess with that.
It is a glorious way for poor southerners to exploit the vanity of rich northerners. |
