In papers filed this week in the South Gauteng High Court in Johannesburg, the Association of Mineworkers and Construction Union (Amcu) is asking what was spent and received during a series of transactions involving chrome mining giant Samancor.
The application comes after bombshell allegations by Miodrag Kon. The former Samancor director-turned-whistleblower claims that powerful players at the company – including former government officials-turned-businessmen, a waxy Croatian tycoon who served time for embezzlement in the former Yugoslavia, and billionaires who made their riches extracting resources from the most desolate stretches of the former Soviet Union – have defrauded minority shareholders of billions of rands.
Among these minority shareholders are more than 5 000 chrome workers.
A recent paper published by the Political Economy Research Institute at the University of Massachusetts in Amherst estimates that South Africa lost as much as $198 billion to capital flight between 1970 and 2015, facilitated mainly by the shady trading of commodities like metals. If Kon’s allegations are proved true, the fleecing of Samancor chrome workers would rank among the country’s worst cases of corporate corruption.
So how did it all happen?
How the foundations were laid
Kon’s evidence paints a dramatic picture in which the rights of Samancor’s minority shareholders were steadily relinquished to a handful of powerful directors and shareholders. When the company, which is the world’s second largest chrome producer, was bought by Kermas South Africa in 2005, pieces were already being put in place to undermine funds set up to represent the interests of workers, women and communities affected by the chrome mining.
The $165 million loan facility used by Kermas to buy Samancor was provided by a Swiss mining company, International Mineral Resources (IMR). While IMR’s ownership structure is a complicated web, it can be traced back to Alexander Mashkevitch, Alijan Ibragimov and Patokh Chodiev – billionaire oligarchs widely referred to as “the Trio” – as well as the government of Kazakhstan.
Two documents disclosed by Kon, each signed five months before the Kermas takeover, appear to have ensured IMR and Kermas a free hand in Samancor’s affairs at an early stage. The Memorandum of Understanding and Facility Agreement that regulate the takeover both guarantee the pooling of IMR and Kermas votes on Samancor board decisions, effectively precluding any say minority shareholders may have had over key decisions.
The agreements also seem to guarantee IMR sweeping access to Samancor’s financial and accounting information, as well as 45% shareholding benefits and dividends, even though it had not been registered as a shareholder.
In the half a decade that followed, a series of acquisitions outlined by Kon guaranteed IMR an effective 77% ownership of Samancor. The Swiss company and its subsidiaries first acquired 32.5% of Kermas in 2007, then a further 7% and 34.5% in two separate 2009 deals, and a final 3% in 2010.
This is the context within which Kon alleges Samancor’s majority shareholders and directors fashioned a series of transactions that effectively robbed chrome workers of over $100 million.
Platinum on the cheap
Samancor’s tailings dumps, where the byproducts of the company’s mining are left behind, contain chromium concentrate and platinum group metals which have, among others, valuable catalytic properties. In 2007, soon after the Kermas takeover, Samancor entered an agreement with Sylvania, a company involved in the low-cost extraction of platinum group metals, to mine these tailings.
Alistair Ruiters and Rafique Bagus, both founding directors of Sylvania’s BEE partner, Ehlobo (which was also a minority shareholder in Kermas), were directly involved in negotiating the agreement, according to Kon. The former Samancor director, however, says that neither disclosed their interests in Sylvania to the Samancor board.
Both Ruiters and Bagus have previously occupied senior public positions. Ruiters is a former director-general of the trade and industry department, where Bagus was once a deputy director-general.
Sylvania initially paid Samancor according to a sliding scale depending on how much chrome was extracted from the tailings – a maximum of R72 and a minimum of R49.99 per metric tonne of chromium concentrate. This initial agreement did not stipulate a price for extracted platinum group metals. Sylvania only began paying Samancor 1% of the proceeds it made from platinum group metals after amendments to the agreement. These amendments, which Kon says were never discussed by the Samancor board on which he sat, also fixed the chrome price at R49.99 per metric tonne, and later slashed it to R1.
In short, Sylvania (in which Ruiters and Bagus had direct interests, according to Kon) extracted chrome from Samancor’s tailings at increasingly cut-prices, while paying nothing, and then scarcely anything, for the platinum group metals it extracted.
When Sylvania announced the plush agreement on the Australian Securities Exchange, it committed 14 million of its shares to a shadowy company called Portpatrick for facilitating the agreement.
Portpatrick, however, a company that apparently handles the affairs of hundreds of British Virgin Islands companies, where it is also registered, was a front, according to Kon. It was used to funnel the payment of the 14 million Sylvania shares to two Kermas directors instead: Branislav Lazovic and Croatian tycoon Danko Končar.
The Chinese connection
Around the same time that the tailings agreement that took from Samancor in order to give to Kermas directors like Lazovic and Končar, the two appear to have been instrumental in setting up another deal that undermined the chrome mining company’s minority shareholders.
In an email to Končar revealed by Kon, with the subject line “Sinosteel Payment Instruction – URGENT”, Lazovic outlines what “Kermas would like to see” happen regarding the “solutions for Sinosteel transaction payment”.
The email, in which Samancor executives are copied, refers to the acquisition of half of a Samancor subsidiary by Sinosteel, a behemoth Chinese parastatal. It was widely reported that Sinosteel would pay in the region of $230 million for its share in the subsidiary. Aziz Pahad, Deputy Minister of International Relations and Cooperation at the time, even included the figure in a speech in early 2007.
Emails from Nedbank Capital’s specialised finance unit show that Sinosteel ultimately paid $225 million. But the payment was split. Samancor received less than half – $100 million – of the total sum paid for a stake in its subsidiary. The remaining $125 million went directly to Kermas. This is exactly the “solution” that Lazovic outlined in his email to Končar and Samancor executives.
A Maltese shelf company?
Along with hiding the profits of the sale of Samancor’s assets, Kon claims that “there is a prima facie case” that the marketing of the company’s products has advantaged its majority shareholders at the expense of their minority counterparts.
Around the same time that the apparently nefarious Sylvania and Sinosteel deals were struck, and as part of Kermas’ acquisition of Samancor, the chrome mining company entered into a distribution agreement with Samchrome Malta. Documents revealed by Kon show that, in fact, Kermas BVI owned 1999 of the 2000 shares in the Maltese company. The final share was owned by a Danko Končar nominee. These conflicts were never disclosed, according to Kon.
Samchrome’s finances suggest that it had no employees or physical offices. It still managed, however, to make massive profits – $72 million in 2007. These were generated through what Kon has called “shifting profits out from Samancor” – charging Samancor up to 9% commission on the sales of its commodities, which were done instead through sub-agents.
Kon claims that the Maltese shelf company was able to further increase payments out of Samancor by reducing its declared profits and by underpricing the Samancor commodities it marketed.
It is through these, and other similar transactions, that Kon alleges Samancor’s minority shareholders were fleeced of billions of rands over the past 14 years, including around R1.5 billion he says rightly belongs to more than 5 000 of the company’s workers. Samancor has said in a statement that it “does not intend to address the [allegations] in the media”.