Pouring+money+down+legal+drains,+Gleason


 * Gleason Torque, 26 September 2005**

The Torque column, continued
There seems no end to the amount of shareholder money the managers of investment company Johnnic are prepared to squander in their efforts to perpetuate an enterprise that has nowhere left to go. Shareholders gathering for Johnnic’s general meeting on Tuesday should certainly be asking how much all this has cost and when a line will be drawn.
 * Pouring money down legal drains**

On Friday, the Competition Commission issued a terse ruling to the effect that Johnnic’s efforts to overturn Fabvest Holdings’ deal with Nedbank, in terms of which the Fabcos group secured total ownership of Premier Foods, had failed. The Commission approved the transaction without conditions.

This is the second successive blow Johnnic has sustained at the hands of regulators. An earlier application to the Securities Regulation Panel was dismissed with costs.

The argument revolves around Johnnic’s desperate efforts to reinvent itself after having unbundled its control of publisher Johncom. It is attempting to re-establish itself in the gaming and leisure industry by securing control of Tsogo Investment Holdings (TIH), which, in turn, controls Tsogo Sun, the country’s largest (and richest) operator in this sector.

Control of TIH, however, rests with Hosken Consolidated Investments (HCI) which sits on 51% of its equity – though there is an argument before the courts about 4% of this.

There is a neat irony in this – the case revolves around the alleged irregularity of the registration of the shares in companies owned by HCI. At the time, TIH’s board, which approved the transaction and the registration, was chaired by Nafhold CEO, Michael Leaf. Yet it is Leaf and Nafhold which is now challenging the registration – presumably on the grounds they did not exercise their minds at the time.

HCI, of course, now owns north of 40% of Johnnic with an offer to minorities still open. Johnnic is now attempting, through an application to the Competition Tribunal, to prevent Hosken from voting its shares at the general meeting.

An intriguing aspect of all this is that two of the country’s most important regulators have made it abundantly clear – both to Johnnic and the business community at large – that they will not allow themselves to be dragged into internecine corporate warfare.

Despite this evidence of regulatory disapproval, Nafhold has also brought an application before the National Gambling Board on the grounds that HCI’s control over TIH aborts the original intention that TIH was to be black-controlled. HCI, on the other hand, is probably the best model around of a broad-based, black-controlled, publicly-listed company – nearly 60% of its equity base is held by the SA Clothing and Textile Workers Union, Fabcos and other black shareholders.

This has about it all the marks of yet another spurious attempt to dragoon a regulator into providing a defence for poorly-founded managerial ambitions. I shall deal with Nafhold’s involvement in this affair in next week’s column but there is no doubt that it arises from efforts being made by Nafhold’s Joe Hlongwane and Leaf to shift its assets into Johnnic in a manner that circumvents whatever little control Nafcoc and its members have over their investment arm.

What puzzles me about the Johnnic war with HCI is the continued role of Johnnic chairman, Cyril Ramaphosa. He represents a company that, effectively, has very little black ownership. In fact, outside of HCI, it virtually has none and Ramaphosa presents what some black businessmen are openly calling the hired face of black ownership. Yet it is he and his board that is asking the Competition Tribunal to interdict HCI from voting its shares at the general meeting.

As I have observed frequently, I cannot see the battle between HCI and Johnnic for TIH ending in any way other than an HCI victory. What then happens to Johnnic is another matter.

Some really curious things are happening around Afrikander Gold & Uranium (Aflease), the listed mining company. And I am always interested in it because I was a director of the company back in the 1970s when it fell within the Anglo American stable.
 * A bomb waiting to be primed**

The startling arrests late last week on fraud charges totalling R40m of Tiego Moseneke, Gopolang Makokwe and Peter Skeat may not appear, on first examination, to have much to do with Aflease – but my information is that the company is deeply enmeshed in this latest farrago. And, as with so many issues involving mining companies, it is tortuous in the extreme.

Last month, Business Day reported that angry minorities in New Kleinfontein had revolted over the terms of the sale of their company to Aflease. This followed on a story last year that New Kleinfontein shareholders had asked the Scorpions to investigate fraud allegations laid against Aflease CEO, Neil Froneman and others in a consortium that parlayed the company into Aflease.

There is clearly a suggestion in all this that Froneman was, at the very least, caught in a major conflict of interest and may have secured considerable personal enrichment. The need to silence Skeat, or so I am told, arises from Skeat’s intimate knowledge of that transaction – and, I might add, of the acute problems arising out of Aflease’s claimed reserves.

These have, apparently, fallen dramatically and those who have looked at the company’s public presentations say it is virtually impossible to explain the glaring discrepancies in the numbers over the last six months.

In January, Aflease claimed that its uranium production project was underpinned by a net present value of US$339m at prices of $450 per ounce for gold and 30c/lb for uranium. The trouble is that the basis on which these resources was calculated was not compliant with any of the recognised and accepted codes (including that applied by the US Securities & Exchange Commission).

What I now hear is that, in fact, those resources have declined from 333m lbs to 124m lbs and that only 10,5m lbs can be classified as reserves. If that is true, then this is hardly a reserve that justifies launching a project with all the attendant capital expenditure on treatment plant that this demands.

There are two allied aspects to this. The first is that I understand a US west coast investment company bought into Aflease to the extent of a 20% holding. It is now asking questions to which the answers have not been provided.

Second, Aflease has an application with the SA Reserve Bank for permission to proceed with its planned merger with Canadian uranium junior, Southern Cross Resources. Presumably, it doesn’t want information about the row over New Kleinfontein or the questions about its resources and reserves to cloud the outcome of that application.

The irony in all this, quite aside from the human tragedies that are unfolding, is that Froneman and his team have been very loudly thumping the corporate governance drum over actions taken by Randgold & Exploration. They have demanded and will get a shareholder meeting to address their concerns.

That is right and proper – all companies are accountable and must stand scrutiny. But that applies no less to Aflease itself. Judging from what has been going on inside that company there is at least a case for a detailed and thorough examination of its own corporate governance record, and of the information it appears to have selectively released to its shareholders.

Aflease and Froneman have engaged in a major public relations campaign in recent months. They must be hugely satisfied at the manner in which they have been able to divert media attention away from their own problems.


 * David Gleason

From: http://www.gleasontorque.com/gleasonTorque.co.za/ArticleDetails.aspx?ArID=168**