Majority shareholders in Samancor, the world’s second largest chrome mining operation, have defrauded minority shareholders – including more than 5 000 workers, as well as funds set up to benefit women and communities affected by the company’s operations – out of billions of rands.
This is according to an explosive affidavit filed today by Miodrag Kon in the South Gauteng High Court in Johannesburg.
The allegations by the former Samancor director-turned-whistleblower support an application by the Association of Mineworkers and Construction Union (Amcu) to act in the public interest and seek an accounting for a series of transactions alleged by Kon.
If the union’s application is granted, and the accounting produced by Samancor supports Kon’s allegations, it will lodge a claim on behalf of thousands of chrome workers that may stretch into the billions of rands.
According to Kon, Samancor’s major shareholders, three billionaires and the Kazakhstan government among them, have deprived the Ndizani Trust – a minor shareholder in the company established in 2007 to represent workers – of over $100 million (around R1.5 billion) during the past 14 years.
Kon details a labyrinthine series of transactions that outline the corporate pilfering. New Frame will unpack these deals in greater detail in the coming days. They include fixing the price of chrome concentrate and platinum group metals from Samancor’s tailings dumps, failing to disclose huge profits generated through the sale of Samancor assets and shifting profits out of Samancor using shelf companies in off-shore tax havens.
Samancor entered into an agreement with Sylvania – a London Stock Exchange-listed platinum company – for instance, for the re-treatment and extraction of Samancor’s tailings – extracting value from the waste left by the company’s operations. In amendments to the deal that Kon says were never openly discussed by the board, Sylvania steadily decreased the price it charged per metric tonne of chromium concentrate from as high as R72 down to R1. Sylvania also paid next to nothing for platinum group metals it took and sold from the tailings. In exchange for favourable terms, Sylvania gave 14.1 million shares to a British Virgin Islands-registered company called Portpatrick, which Kon claims was a front for Samancor’s directors and majority shareholders.
Kon further alleges that majority shareholders pulled the wool over the eyes of the workers represented by Ndizani Trust, and other minority shareholders, when Samancor assets were sold to Chinese parastatal Sinosteel. While Samancor was paid $100 million for half of one of the company’s subsidiaries, $125 million (about R1.9 billion) allegedly paid directly to Kermas – the British Virgin Islands-based company that owns Samancor – appears to have by-passed Samancor entirely.
What looks to be a Maltese shelf company was also set up under the auspices of marketing Samancor’s chrome (an otherwise standard transaction in the mining sector). Kon’s evidence, however, suggests that despite the marketing company taking in considerable commission from Samancor sales, very little marketing was done by a company which, Kon’s documents attached to the court papers reveal, did not have a single employee. He claims the Maltese company’s primary function was instead the “shifting [of] profits out from Samancor” to the Maltese company’s undisclosed shareholders – first Kermas, then International Mineral Resources (IMR), both majority shareholders.
These and other transactions mean that, by Kon’s estimate, Ndizani – Samancor’s workers’ trust – has been cheated of over $100 million since 2005.
What allowed for such extensive alleged corporate pilfering? Much of it, according to Kon, comes down to a mazelike series of agreements and acquisitions that can be traced back to, among others, the government of Kazakhstan and three billionaire oligarchs widely referred to as “the Trio”: Alexander Mashkevitch, Alijan Ibragimov and Patokh Chodiev, who has a personal net worth of $2.2 billion (R33.6 billion) according to Forbes.
Untangling the web begins with a Swiss mining company: International Mineral Resources (IMR). After fronting $165 million (R2.5 billion) for Kermas South Africa to acquire Samancor in 2005, in Kon’s telling, IMR steadily assumed control of Samancor.
In early 2006, IMR merged with Kermas. It acquired 32.5% of the shares in Kermas almost a year later. Between 2009 and 2010, IMR and its subsidiaries acquired a further 34.5%, 7% and 3% of Kermas in three separate transactions. By the end of 2010, then, the Swiss company had an effective 77% ownership of Kermas, and, by extension, Samancor.
Two highly confidential agreements between Kermas and IMR – both of which Kon has revealed in his affidavit – appear to have ensured, even before any of these acquisitions, the kind of control over Samancor’s affairs that the Swiss company needed to facilitate the looting alleged by Kon.
A 10 January 2005 Memorandum of Understanding, and a 25 January 2005 Facility Agreement, set out the parameters of the Kermas IMR acquisition of Samancor. Both documents establish the pooling of Kermas and IMR’s votes on board decisions, effectively rendering impotent the decision-making powers of Samancor’s minority shareholders, including the Ndizani Trust.
The Memorandum of Understanding further stipulated that IMR would be entitled to Samancor’s “financial, accounting, tax, legal, corporate, environmental and operational/commercial matters/data/information”, even before the Swiss company was registered as a shareholder. This ascendancy, or what Kon calls “veto power over a range of strategic decisions”, was further entrenched in the later Facility Agreement:
“IMR shall enjoy and have full ‘economic benefit’ that is derived from a 45% shareholding in [Samancor], whether or not it is a fully registered shareholder… including but not limited to receipt of dividends or distributions from [Samancor’s]… trading operations.”
Kon has also revealed a PowerPoint presentation apparently made to South Africa’s competition tribunal during the merger between IMR and Kermas. The presentation shows that IMR is owned by the Eurasian Natural Resources Corporation (ENRC), a multinational resources company that appears to be controlled by the Trio. In 2013, after an ill-fated six-year listing on the London Stock Exchange, ENRC was bought by the Eurasian Resources Group, which began investing in Kazakhstan’s resources in the mid-1990s and is owned by the Trio, along with the Kazakh government.
Amcu’s application, along with Kon’s affidavit, were filed in the high court and served on Samancor earlier today. It will also be served on Samancor’s current directors, former directors who served after 2005, as well as the entities that Samancor signed agreements with that Kon alleges prejudiced minority shareholders.