Aurora Mines crisis: input by Solidarity, NUM, Mineral Resources & Labour Depts, Aurora, liquidators; Alexkor Development Foundation

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Mineral Resources and Energy

12 April 2011
Chairperson: Mr F Gona (ANC)
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Meeting Summary

The Committee was briefed about developments in the crisis of Aurora operations at Orkney and Grootvlei Mines.  Aurora Empowerment Systems, a BBEEE company, had taken over the two mines, formerly owned by Pamodzi, which was in provisional liquidation. Submissions were made by trade unions, Solidarity and the National Union of Mineworkers, the Departments of Mineral Resources and Water Affairs, as well as by Aurora Empowerment Systems and the one of the joint provisional liquidators.

Solidarity accused Aurora of destroying two fully functional mines and 5 300 jobs, leaving 42 000 people without an income. The misery caused a worker to commit suicide two weeks previously. Solidarity suggested as the way forward, political intervention to remove AES, to relieve the plight of the Aurora mine workers, and to assess the condition of the mines. The National Union of Mineworkers said the Master of ignored NUM’s recommendations and chose AES as preferred bidder to take care of Pamodzi’s assets. NUM indicated its unhappiness with AES as it had no experience in mining. NUM appealed to the Committee to act swiftly to resolve the growing crisis. NUM wanted the removal of Mr Enver Motala as liquidator, because of his bias towards AES to the detriment of the suffering workers and communities at the two mines.

Aurora Empowerment Systems said the liquidator and Standard Bank, who was the financial adviser in the transaction, expressed its satisfaction with the credentials of the funding of AES. In addition AES engaged with the two major secured creditors of the mines which were the state-owned enterprise, the
Industrial Development Corporation, and a European bank. Both were satisfied with the credentials. All parties had to satisfy the High Court that their conduct was in the best interest of creditors, secured, unsecured, labour and the like. Acid mine drainage was an inherited problem. The Department of Water Affairs (DWA) was under contractual agreement to subsidise the pumping of the water. However, when the mine went into the care and maintenance phase, DWA stopped the subsidy as it was given only to fully operational mines. This affected the cash flow of the company as it had included the water subsidy in its cash flow projections. It fell behind in payment obligations. AES said it had paid all monies owed to workers at Grootvlei mine and more than 80% of what it owed to workers at the Orkney mine.

The Department of Mineral Resources said it found it disturbing that AES said that it had built the subsidy into its cash flow projections as this was not available to mines where production had stopped. Due to the financial problems it experienced, the mine’s capacity to maintain health and safety standards were compromised. Mines had to do routine statutory inspection of shaft equipment. The DMR could not find evidence that it had been done. It stopped the activities in the shafts until proof could be provided that inspections had been done and the shafts were safe. The DMR would have to determine if Grootvlei could still be considered a mine, according to the infrastructure that remained. There was an initiative underway to resolve the acid mine drainage situation within the Wits basin. Grootvlei was part of the Wits basin.

The Department of Labour said complaints from employees of Aurora Grootvlei surfaced in July 2009. The complaints were unpaid wages and overtime, and deductions not paid over to third parties like unions, pension and provident funds and insurance companies. Through a series of compliance orders, it managed to get AES to pay the money into its accounts. The Department was still in the process of tracing workers in order to pay them.

Mr Enver Motala, who later said his submission was representative of the views of all the liquidators, defended the course of action by the joint provisional liquidators and that they were not favouring AES but were acting
in the interests of the major secured creditors to the Pamodzi group. He outlined the process as it had happened from mid 2009 when Pamodzi Gold was placed in provisional liquidation, up to the present moment when a Chinese company had come to the table to finance the deal between AES and Pamodzi Gold. All indications were that the deal would go through, although there were still certain administrative formalities to conclude.

There was little time for discussion by the Committee. This would take place provisionally on 3 June 2011 with all the stakeholders present, including all the liquidators. The Chairperson wanted to make clear to the workers in distress that Parliament had heard their plight.

Alexkor Development Foundation was absent from the meeting after being issued with a final notice to appear with its audited financial statements from its inception to date. The Committee agreed to subpoena it to appear before the Committee.

Meeting report

Alexkor Development Foundation
The Chairperson noted that Alexkor Development Foundation was absent after being issued with a final notice to appear before the Committee with its audited financial statements from inception to date. In terms of prescribed legal procedures in cases like this, the Committee could proceed to subpoena it to present itself to the Committee. The Chairperson asked the Committee’s consensus to proceed in this manner and this was given.

Developments and crisis in Aurora operations at Orkney and Grootvlei Mines
The Chairperson said that the Committee had held public hearings in Carltonville, Gauteng and Klerksdorp on the impact of the old and the new Mining Charters. During these public hearings members of the public approached the Committee to make it aware of the plight of workers at the Aurora mines. They alleged that workers at Aurora had not been paid for some time. These concerns were confirmed by representatives of NUM who attended the public hearings. Back at Parliament, the Committee had assessed the situation and the legislative framework in order to take decisions. The Committee particularly looked at the Constitution for guidance to see whether the rights of the workers had been breached. Section 10 of the Constitution dealt with the right to human dignity. The workers at Orkney and Grootvlei had suffered and their dignity had been compromised. Section 23 of the Constitution dealt with labour rights of working people. These rights might have been breached. Section 27 of the Constitution dealt with the right to health care, food, water and social security. The Committee had a suspicion that the rights of the workers had been breached because the water and electricity had been switched off at these mines and the workers were living under appalling conditions. The Committee was investigating whether there were any breaches of the Mineral and Petroleum Resources Development Act MPRDA), the Mine Safety Act (MSA), the Labour Relations Act (LRA), the Basic Conditions of Employment Act (BCEA), the Unemployment Insurance Fund Act and the Insolvency Act. The Committee would assess the submissions in order to make this decision.

The Chairperson asked all present at the meeting not to focus on the shareholder or ownership patterns of the mines, but to restrict themselves to the factual representations. The purpose of the meeting was to determine whether the company had complied with the Constitution of the country, and to find a lasting solution to the current crisis. Workers had also been exposed to hazardous situations. The Committee had to assess what role had been played by the legal fraternity, which factors had been taken in to account and whether the suffering of the working people had been extended unnecessarily. The Committee would have to decide how Parliament was going to intervene.

The Chairperson gave the floor to the representative of the trade union, Solidarity.

Solidarity submission
Mr Gideon du Plessis, Deputy General Secretary of Solidarity, said that when Aurora Empowerment Systems (AES), a BBEEE company made its bid of R605 million to manage the mine in October 2009, it promised not to retrench any permanently employed staff. It took over two fully functional mines which employed 5 300 people and produced between 34kg and 100kg of gold per month between October 2009 and mid-March 2010.

Since January 2010, the mine started to pay the workers late, or only in part. The mine also deducted UIF, Pay as You Earn (PAYE), union subscriptions, pension/provident funds and garnishee orders, but never transferred any of the monies to the organisations for which they were meant. It was also not registered at the South African Revenue Service. It provided no death or disability cover for workers and owed various service providers millions of Rands. The mines went into care and maintenance on 1 April 2010.

Production stopped at both mines. 5 300 jobs were lost and 42 000 people were left without an income. Various shafts were destroyed or flooded. The wetlands were being polluted in the Grootvlei area, because the water was not pumped away. Water pumps were removed. It owed workers more than R12 million.

The mining equipment including headgear were stripped, dismantled, stolen, vandalized and sold as scrap metal, including the new Ndlovu shaft that was built in 2008 for R40 million by Pamodzi. A police investigation was underway to ascertain the facts in this regard. Open shafts 400m deep were left unfilled in areas where children were playing daily.

Mr du Plessis said that the mines where dismantled by contractors, but neither the liquidators nor the management nor owners of Aurora admitted giving any contractor permission to dismantle the equipment and selling it as scrap. These parties claimed that damage to the infrastructure of the mine was being done by vandals and illegal miners.

The economic hardship affected the workers psychologically, to the extent that one who worked as a fitter, Mr Marius Ferreira, had committed suicide on 29 March 2011. Solidarity had made trauma councillors available to this family and others in their position. The unions, Solidarity and NUM, had raised money for food parcels and were providing workers with temporary relief in this way. R5 million was spent already on this project.

Solidarity had joined forces with NUM. It corresponded with various government departments on the issues. The government departments did assist, but at the point where it was necessary to take decisive action, none followed through. The workers were only temporarily laid off, with the result that they could not claim UIF. Solidarity then made a liquidation application against Aurora, so that workers could claim UIF. Solidarity launched an investigation into the liquidation process and had endeavoured to keep the human rights violations in the public domain.

Solidarity needed the Committee’s assistance to defend the Bill of Rights as it applied to the workers at these mines as well as the
Mining Industry Growth, Development and Employment Task Team (MIGDETT) progress. It needed to address the water crisis as well as the negative impact on foreign investment in mining since the Aurora issue had received a massive amount of very negative media attention over the past two years.

Solidarity suggested as the way forward, political intervention to remove AES. It asked for political support for investigations into any form of unethical conduct. It suggested political pressure to get state departments to intervene to relief the plight of the Aurora mine workers, and it wanted the DMR inspectors to assess the condition of the mines. This was to determine if they were still safe and in a condition to be sold as mines. The water pumping station had to be restored as a matter of urgency.

Mr G Boinamo (DA, Member of the Committee on Labour) said that it was difficult to discuss the matter of the Aurora mines without discussion with its shareholders, especially after the allegations of wrongdoing made before the Committee. He asked why AES was allowed to run the mine for so long while it failed to comply with labour legislation from the outset.

Mr I Ollis (DA, Member of the Committee on Labour) asked Solidarity to tell the meeting for how long the Department of Labour (DoL) was aware of the situation.

Mr H Schmidt (DA) said that it was commendable that the Committees was starting to deal with this issue. The Committee had visited the mines. He wanted to know what the process was with the liquidator and why it was taking so long. He asked what Mr Enver Motala’s role was. His understanding was that the liquidator took all the decisions.

The Chairperson asked what stopped Solidarity from taking legal action in terms of the LRA or the BCEA, especially after Solidarity learned that the mine was being stripped of equipment and even precious metal ore.

Mr du Plessis replied that in March 2010, after salaries had not been paid for three months, the DoL issued a non-compliance order to AES. AES ignored the order. In April 2010, the DoL issued another non-compliance order. The DoL indicated to Solidarity that it should not take any action on its own, and that the DoL would represent all workers, unionised and non-unionised. AES ignored the non-compliance order. The DoL interacted with AES on a regular basis. At some stage Solidarity felt that the matter had dragged on for too long. In September 2010 the DoL issued another non-compliance order and on 30 November 2010, AES paid part of what it owed the workers at that stage. It was at this point that Solidarity had learnt that the DoL only represented workers who earned less than R12 400 per month. This realisation caught Solidarity off guard, because it meant that it was eight months behind on its legal action in the interest of the part of its constituency who earned more than R12 400.  Solidarity then started its legal process in terms of Section 77(3) of the BCEA. Solidarity was told by its legal team that AES could drag the process out over two years. In November 2010, Solidarity then decided to go for the liquidation option. It rounded up a hundred members who were collectively owed R4.6 million and filed a liquidation application against AES. The reasons were that firstly the process would be speeded up and secondly, it was the only option left to follow. Within two weeks, AES would be served with the liquidation application papers. It was difficult to litigate against AES, because it entered into contracts under other names. Solidarity wanted to make sure that it was not litigating against an empty shell.

Mr du Plessis said Solidarity and NUM together had asked on two occasions for the removal of Mr Enver Motala as liquidator. Solidarity still maintained that stance. The return date in the High Court had been extended for the sixth time. Mr Motala had spoken to Moneyweb on radio in November 2010, where he indicated that the final deadline date for AES to submit their irrevocable guarantees of funding would be 18 December 2010. If it did not happen, the liquidator would propose that AES had to be removed and a proposal would be made to the secured creditors that AES had to lose its status as the preferred bidder. This referred to AES, not the Pamodzi Gold Estate. However, this did not happen, because on 18 December 2010, the High Court extended the return date to 28 February 2011. On 28 February, it gave AES until 16 August 2011 to come up with the funding. The liquidators had given AES until the end of May 2011 to produce proof of progress in a funding deal or face cancellation. Solidarity felt that AES would use the time to destroy whatever was still left of the mine. Solidarity was interacting with the relevant state departments about the liquidation process. There was a joint letter written by Solidarity and NUM, regarding that process.

The Chairperson asked whether precious metal ore had been removed. Solidarity was in possession of communication dated 6 April 2010, that the liquidators had written through their attorneys to AES, stating that the liquidators were aware that ore was being removed from the Aurora Mine to a nearby mine for smelting. The liquidators were supposed to be the watchdogs. In terms of the care and maintenance agreement, AES had to report all its activities on the movement of ore or smelting to the liquidators, which it did not do.

While it was still mining legitimately, AES did ‘pillar mining’. This method allowed a lot of ore to be extracted, but it destroyed the ore-body.

The Chairperson asked that all questions be deferred until all the remaining submissions were heard. He handed the floor to NUM.

National Union of Mineworkers (NUM) submission
NUM said that it was honoured to represent the workers at the Grootvlei and Orkney mines. Before AES took over, the workers worked for Anglo Gold Ashanti and were then transferred to African Rainbow Minerals in 1998. In 2004 they were transferred to Harmony and then to Pamodzi Gold in 2008.

Pamodzi Gold had never been stable since its inception. It paid workers irregularly. Its financial situation deteriorated until it was placed under provisional liquidation in March 2009. At that point, the Master of the Court appointed joint liquidators, Enver Motala, Allan Pellow and Johan Botha, ignoring NUM’s nominee, although it represented the majority of workers in the company. In 2009, NUM appointed Mr Barend Petersen as an advisor to the union in the liquidation process, in order to have some insight into the process and to represent NUM’s interests. Eventually the Master of the Court acceded to NUM’s nominee but only as an adviser. Mr Motala was the principal liquidator. By April 2009, the liquidators met and the possibility was discussed of a R200 million investment in Pamodzi, but it fell through. AES was taken on as preferred bidder and had to undertake to take care of Pamodzi’s assets. NUM indicated its unhappiness with the preference of AES, because it had no experience in mining. NUM believed, as did Pamodzi, that the purchase price could not be the only consideration. Sustainable mining had to be a paramount consideration. Harmony took over Pamodzi Free State, but it was not interested in the Orkney or Grootvlei operations.

By April 2009, there were more than ten liquidation applications made against Pamodzi, by companies claiming unpaid debt, further complicating the process. Under the management of AES, the financial situation worsened for the workers. By March 2010, arrangements were made with the company that managed the provident fund, for workers to get their provident fund, because they did not get salaries. By April 2010, NUM and AES entered into a memorandum of understanding to pay outstanding wages. This agreement was not honoured by AES, which claimed to not have money.

NUM discovered that the mine made deductions for the Rand Mutual Pension Fund, but did not pay the money over to the insurance company, causing the danger of making the insurance company insolvent. Some of the money deducted from foreign workers had to be paid into bank accounts in their countries but was not. Money was also deducted for union membership, and provident funds, and not paid over to these companies. This was fraud and theft.

In May 2010, Mr Eric Qelishani a NUM representative was held hostage by workers of Pamodzi, Orkney, because of things the union had no control over. The 2010 Central Committee of NUM took a resolution to raise funds for food parcels for the AES workers. NUM raised close to R1.2 million. The South African Social Security Agency (SASSA) helped with its temporary relief fund. It gave South African workers R1080 for three months. This benefit excluded foreign workers by law. In June 2010, NUM staged a march to the offices of AES liquidator’s offices in Sandton, demonstrating its loss of trust in their conduct regarding the liquidation process and the take-over by AES. In July 2010, NUM met with AES, where it admitted that it was not very truthful in terms of its funding when it reported to NUM. In August 2010, there were companies interested in buying Aurora, but the principal liquidator ignored these bidders. In February 2011, the liquidator went to court without telling NUM. NUM wanted to point out to the Committee to two issues. Firstly the theft taking place of mining assets by AES. Secondly, the violation of legislation by deducting contributions and not paying them over to the organisation for which they were meant. Normally, the law would take its course where laws were being violated. In this case the law had become mute. The DoL refused to act against the company although it was in violation of the BCEA and making these fraudulent deductions.

Anglo Gold Ashanti had switched off the electricity in parts of the Orkney operation. This had adverse effects on the communities living around the mine. The light on top of the headgear to warn aeroplanes at night was off. This posed a grave danger, because aeroplanes would not know that it was there. This was non-compliance.

NUM thus submitted its appeal to the Committee to act swiftly to resolve the growing crisis around AES. NUM wanted to motivate for the removal of Mr Motala as liquidator, because of his bias towards AES to the detriment of the suffering workers and communities at the Grootvlei and Orkney mines. Selective justice was a miscarriage of justice. NUM members were arrested and jailed when they tried to prevent vandals and thieves from stealing assets belonging to the mine. AES was stealing assets from the mine. The mine still belonged to Pamodzi Gold. AES was removing locomotives and the headgears of the shafts from the mine to be sold for their own benefit. AES could not produce a document giving them permission to do that. NUM saw it as theft. NUM called upon the Committee to assist.

Aurora Empowerment Systems (AES) submission
Mr Zondwa Mandela, Director of AES, gave an overview of AES as a company, the history of the deal, the two assets in liquidation, water and sanitation, labour and salaries issues, legal/illegal mining activity, theft.

AES as a company and the history of the deal
Aurora Empowerment Systems was set up to take advantage of opportunities open to BBEEE companies. It made successful bids on the Orkney and Grootvlei mines. Both mines were the property of Pamodzi Gold Pty Ltd, which was under provisional liquidation.

AES had to make representation to the joint provisional liquidators (JPL) which had been appointed by the Master of the High Court, and represented creditors and labour interests. AES was assessed in respect of ownership, management and funding credentials.

Funding posed a challenge. Like all BEE companies it had to use capital from state funding agencies like the Industrial Development Corporation (IDC) or alternatively private capital, locally and abroad. The recession made the search for a funder worse. A Malaysian company was interested, but as a result of the recession, this funder pulled out.

AES had to look for alternative funding offshore. It found a Chinese gold mining company which was prepared to fund the project. This was presented to the JPL who, on the advice of Standard Bank (the financial adviser in the transaction), expressed its satisfaction. In addition AES engaged with the two secured creditors of the mines which was the state-owned enterprise, IDC, and a commercial European bank. Both parties were satisfied with the credentials of the funder. All parties had to satisfy the High Court that their conduct was in the best interest of creditors (secured and unsecured), labour and the like. Through the JPL, AES communicated the reasons for the delay to the High Court. The Court extended the liquidation order, based on the information. With enough time, AES would have satisfied the financial agreements. AES operated both mines in terms of an Interim Management Agreement with the JPL.

Water pump and acid mine drainage
This was an inherited problem due to more than a hundred years of mining and not taking cognisance of its impact on the environment. The area of the location of the mine at Grootvlei served as a catchment area for water from other mines in the area, many of which had been de-commissioned over time. The Department of Water Affairs (DWA) was under contractual agreement to subsidise the pumping of the water. Mindful of these facts, with the subsidy of the DWA, AES pumped the water initially although it was not its core business activity. The cost of this activity in labour, maintenance and treatment amounted to R6 million per month. When the mine went into the care and maintenance phase, the DWA stopped the subsidy, as the subsidy was only given to fully operational active mines. This affected the cash flow of the company, because AES had included the water subsidy into its cash flow projections. It fell behind in payment obligations. AES pumped water until February 2011, when the pump stations had to be relocated because of flooding. It would be moved to a higher level. AES had asked the JPL whether it would receive a rebate in view of this unexpected expenditure, and was awaiting its response. Currently the pumping of water was at a low and manageable scale.

Theft and Vandalism
Illegal mining and theft was endemic to the mining sector. Organised syndicates operated with impunity, using poor foreign nationals. It caused financial strain, because extra security had to be brought on board at great expense. In just one year 1483 cases of theft were lodged with the Springs Police Station, with whom AES was working closely in order to secure the mine, its assets and the workers. AES’s own employees stole as well. When AES acted against them, it strained the relationship with organised labour.

Mr Mandela said that the local DoL had assisted AES in liaising with organised labour in order to address salary backlogs. AES had managed to reduce the default. Aurora remained committed to honour its commitments in accordance with regulatory requirements.

Outstanding Salaries
ellow Aurora representative, Mr Thulani Ngubani, said that 80% of what was owed to the workers has been paid. AES was unable to pay it directly to the workers due to the court order in place. In two weeks time Aurora would receive the final order from the DoL. The DoL was screening the names for illegitimate beneficiaries. There were workers who worked for Pamodzi Gold, who came to claim money, to which they were not entitled. On reception of the final list, AES would pay the final amount.

The Chairperson asked if Mr Ngubeni said that AES paid their workers via the DoL. He asked for the amount that had been paid.

Mr Ngubeni said that there were no outstanding funds for NUM members at Grootvlei and more than 80% of outstanding salaries at Orkney had been paid.

The Chairperson asked AES to state its future intentions.

Mr Ngubani stated that Aurora had the money to hand over to the DoL as soon as it presented Aurora with the final corrected list of beneficiaries.

The Chairperson asked that Aurora put this in writing. The Committee admin support staff could type it.

Department of Mineral Resources (DMR) submission
Ntokozo Ngcwabe, Chief Director of Mining and Mineral Policy, said that Pamodzi Gold started to experience cash flow problems in 2009. It was placed under provisional liquidation. AES was appointed by the liquidator on a management contract to operate the mine until AES could raise the cash to buy the mine. The final liquidation order by the High Court was still pending. The liquidation process had been extended to August 2011.The DMR had been informed that the liquidator and management contractor could not meet the mine’s financial obligations and a recommendation to place the mine on care and maintenance had been submitted to the DMR. The DMR was awaiting the final liquidation order.

Water pumping assistance
Both Orkney and the Grootvlei mines had financial problems as a result of the problems Pamodzi Gold experienced, but Grootvlei had the additional issue of the rising acid mine drainage. The DMR became involved with the water process in March 2010. Since then there had been extensive communication in the form of letters and meetings between the DMR, AES and the liquidators. On 25 October 2010, the DMR issued a Section 93 Order in terms of the MPRDA to instruct the liquidators and AES on the steps to be taken. To the credit of the liquidators and AES, they did implement some of the measures that the DMR instructed them to take in order to treat the water, amongst other buying lime to neutralise the acid.

AES applied to the DMR for the water pumping subsidy. The application had to come from the liquidators. The liquidators applied and received R3 million for this purpose. A subsequent claim could not be granted, because at that stage the criterion had not been met. Water pumping assistance was only applicable to fully functional mines. Since the AES mine was placed on care and maintenance and production had stopped, it did not qualify for pumping assistance from the DMR. No company was entitled to the subsidy and she found it disturbing that Mr Mandela said that the subsidy was built into the cash flow statements of AES.

The DMR was informed that the water pumps that had been removed were located at a depth of almost 800m below surface. That area became flooded as the water level rose. The pump was removed for maintenance and would be relocated at a depth of 600m below surface. The reason for that decision was the safety of the maintenance staff.
Health and Safety
Mr David Msiza, DMR Chief Inspector of Mines, said that due to the financial problems it experienced, the mine’s capacity to maintain health and safety standards were compromised. The DMR decided to conduct audits of health and safety services at the mines. It checked whether rock engineers and equipment providers had been paid. These service providers had not been paid, which meant that they were not providing these services. It became apparent that the health and safety of the workers at these mines was compromised and provisions of the Mine Health and Safety Act (MHSA) were not complied with.

Mines had to do routine statutory inspection of shaft equipment. The DMR could not find evidence that it had been done. It stopped the activities in the shafts until proof could be provided that the inspections had been done and they were safe. The water pump needed repair work in the form of welding. There had to be a secondary outlet to the chamber housing the water pump which was not the case. It was unsafe to continue. When DMR engaged with management, it became apparent that the safety of the staff could not be guaranteed. The DMR issued the instruction to place the mine under care and maintenance for health and safety related reasons, until the situation could be reversed.

Ms Ngcwabe said in closing that as a result of the law regarding liquidation, the hands of the DMR were tied. The DMR made the decision to stop mining activity for safety reasons, knowing it prevented workers from working and earning, but it learnt that the workers, although working, were not paid anyway. The issuing of the final liquidation order would make it possible for the process to move ahead. The first thing that the DMR would have to do would be to determine whether Grootvlei could still be considered a mine, according to the infrastructure that remained. The water level was still under control. One good thing was that it was past the rainy season and the rate at which water was rising would be slower. There was an initiative underway to resolve the acid mine drainage situation within the Wits basin of which Grootvlei was part.

Department of Labour submission
Mr Sam Morotoba, DOL Acting Deputy Director General:
Employment and Skills Development Services and Human Resources Development, said that complaints from employees of Aurora Grootvlei surfaced in July 2009. The Aurora Orkney employees laid complaints at the Klerksdorp Labour Centre during September 2010.The DoL inspectors stared investigating the case.

The complaints were unpaid wages and overtime, a loan made from the Agency Shop Fund, as well as workers’ deductions not paid over to third parties (unions, pension and provident funds, insurance). The legal basis for DoL’s intervention in the process was that the investigations of the DoL inspectors found there were several contraventions of the BCEA. This finding made it possible for DoL to issue a Compliance Order, which could be made an Order of the Labour Court in terms of the LRA of 1995.

There were however circumstances inhibiting the powers of the labour inspectors. These were the fact that there were collective bargaining agreements between the employer and employees or their representatives, the fact that some employees fell outside the scope, and others. There were a host of other aspects that impacted on the DoL mandate in the case of AES. Amongst others, these were the Pamodzi Gold liquidation process and the ownership of Aurora Investment Companies as well as migrant workers who had since left.

DoL’s Interventions at Grootvlei Mine
In line with BCEA provisions, DoL inspectors tried to secure a written undertaking from the employer to pay outstanding wages. The total amount owed was around R4 million. DoL only represented the workers earning below the threshold of R149 575 per year, and the amount owed to them was R2 033 million. A Compliance Order was issued ito Section 69 of the BCEA and DoL made it an Order of the Labour Court. As a result R2.03 million was transferred to the DoL account by AES. The DoL office in Springs paid 1 278 workers whose details were included in the Compliance Order.

During the payout exercise, additional workers other than those on the Compliance Order also arrived to claim monies due to them. Their information could not be verified. Arrangements were made for them to lodge formal complaints and to provide information to support their claims.

Between 20 December 2010 and 15 March 2011, 270 workers had been paid via cheques and electronic financial transfers. 291 workers had not contacted the Department collect their money, but a process was underway to trace them. 493 new complaints for unpaid wages had been received. The DoL was processing these claims and a new Compliance Order would be served on AES before the end of April 2011 for payment of these outstanding wages.

DoL incurred expenses in the intervention exercise at Grootvlei mine. It emanated from providing refreshments to workers during the pay-out period, overtime payment to DoL staff who were involved in the pay-out process, extra security services during the pay-out process as well as security and transport for the safekeeping of the money.

The workers were laid off temporarily, thus technically still employed and could not claim UIF. A total of 3 000 potential claimants of UIF were identified of which 800 applied. On 22 March 2011 at a meeting between DoL, worker representatives and AES management, it was agreed that workers would be retrenched ito the BCEA. AES would provide each worker with a letter stating that he had been retrenched on 31 March 2011. DoL would oversee the process to prevent delays and would meet all parties concerned on 15 April to assess progress.

DoL’s Interventions at Orkney Mine
The DoL and COSATU/NUM process to compel AES to pay started October 2010. The total amount owed to 1170 employees (185 had since resigned) was R8.65 million. During December 2010, AES paid 25% of owed money into the bank accounts of all staff members.

A Compliance Order was served on AES on 15 February 2011[Note: presentation stated 2010] ordering AES to pay below-the-threshold workers R3.95 million. AES failed to comply. The DoL applied to the Labour Court for the Compliance Order to be made an Order of the Labour Court. This court order would be served on AES on the 18 April 2011.

This had been a complex process for DoL. There were factors that influenced the process that fell beyond DOL’s scope. DoL was committed to trace all beneficiaries and ensure that they received what was due to them. DoL depended on the cooperation, wisdom and assistance of all involved parties to change the lives of the workers at the two mines. DoL would undertake a review of progress made during September 2011, and propose further measures, according to the need to do so.

Principal Liquidator: SBT Trust submission
Mr Enver Motala, Insolvency Practitioner and Chairman of the Board, SBT Trust, stated that on 6 April 2011 he received an invitation from the Committee to brief it on the situation at the Orkney and Grootvlei mines. Of crucial importance was the fact that in both these mines there were joint provisional liquidators and joint provisional liquidators had to act jointly. No single liquidator could make decisions independently from the rest. At Grootvlei there were six, of which two were union-nominated, one by Solidarity and the other by NUM. They took decisions in consultation with the major creditors.

In terms of the relevant provisions of the Insolvency Act and Companies Act, joint provisional or final liquidators were not a law unto themselves, but had to act within the confines of both these Acts. He stated this in response to allegations that AES had been unfairly favoured by the principal liquidators. The liquidators had to take instructions from the major secured creditors. In the case of the Grootvlei mine, the major secured creditor was one of the largest European banks, Unicredit Bank, which had an exposure on East Rand Pamodzi in liquidation to an extent of over a billion rand. In the case of the Orkney mine the major secured creditor was the Industrial Development Corporation, which had an exposure in excess of R200 million. When he received the invitation from the Committee, he invited his fellow joint provisional liquidators to attend the hearing. Their response was that he received the invitation and that he had to attend the hearing alone. He did not have a problem with doing so as he had a comprehensive report to put forward to the meeting.

Pamodzi Gold Orkney (PGO) was placed in provisional liquidation on 20 March 2009, by order of the North Gauteng High Court (NGHC), Pretoria, after an application had been launched by a creditor, Engineering Labour Hire and Mining Supply. Once placed in provisional liquidation, the Master of the NGHC issued a certificate of provisional liquidation dated 21 March 2009, appointing himself, Mr Allan David Pellow and Mr Deon Marius Botha as the joint provisional liquidators (JPL). On the 23 March 2009, the NGHC granted an Extension-of-Powers Order, after the JPL in consultation with the creditors, launched an ex parte application to have their powers extended, in order to deal with the assets of PGO in the best interests of the general body of creditors.

On 17 April 2009, Pamodzi Gold East Rand Companies (ERC) were all placed in provisional liquidation by the Court. After the ERC had been placed in provisional liquidation, the Master of the Court issued certificates appointing himself, Mr Pellow, Mr Barend Petersen (representative of NUM), Mr Johan Francois Engelbrecht (representative of Solidarity), Mr Gavin Cecil Gainsford and Mr Deon Marius Botha as the JPL for the ERC. The applicants to the various winding up applications heard on 17 April 2009 that their powers as JPL would be extended once appointed, in order to deal with the assets of the ERC in the best interests of the general body of creditors. It was under these extended powers that the JPL had administered the estates of the ERC. The JPL only did what they were empowered and authorised to do by court, in the administration of these estates.

Upon taking control of ERC, it was apparent that these companies had been run, prior to their provisional liquidation, as a group. This was so notwithstanding the fact that only Grootvlei owned a gold mine. Accordingly it was necessary to administer the liquidation process working with the companies as a group and not as individual entities. This was a complicated and time-consuming process as a result of the quantum involved, the complexities of the business and the conflicting interests of the stakeholders at play. These included, but were not limited to worker interests, trade union interests, creditor interests and the interests of certain governmental departments like the DMR and DWA. All parties involved concluded that the best option in this case would have been finding a buyer for the group of PGO and ERC. Alternatively, an entity which would conduct a scheme of arrangement in terms of Section 311 of the Companies Act would be a suitable option.

The PGO and the ERC were worth more as a group of companies, than if broken up and sold as individual companies. It was important to note that the value of PGO and the ERC lay in the mining rights and not just in the assets. Without the mining rights, there was nothing to sell. The JPL wanted to sell the mining rights as well as the tangible assets to maximise the returns to creditors. It was important to note that once the Grootvlei mine was placed in final winding up, the mining licences would automatically lapse. Although PGO had new order mining rights, the JPL were of the view that, if PGO was allowed to go into final liquidation, these rights would also lapse. This process was done in consultation with the major creditors, including the IDC in South Africa. Should the mining rights be lost in both these cases, it would cause a severe devaluation of the assets, with dire consequences to the broad range of stakeholders. One had to keep in mind that one was dealing with severely distressed assets and companies that were in provisional liquidation. These were not normal, run-of-the-mill sales of going concerns. These assets supported broader communities in both the East Rand and Orkney than just vulnerable workers. The JPL believed that it was important to administer the estates in a way that would ensure the ongoing sustainability of operations at PGO and Grootvlei, which would benefit the workers and communities that these mines supported.

It was necessary to place the mines on care and maintenance shortly after they went into provisional liquidation to ensure that the value of the assets did not deteriorate while the JPL were looking for buyers. At the Grootvlei mine, roughly 100 000 litres of water needed to be pumped per day at roughly R6.5 million per day. The electricity amounted to roughly R4 million per month. The cost to pump the water alone amounted to R10 million per month. In addition, security needed to be employed as well as staff to provide services to protect the mines and the assets. As such, the JPL were advised that the mines had to be kept on limited operations in order to offset these huge costs.

In the light of this a decision was taken to conduct such limited mining operations under the guidance of suitable qualified professionals. The care and maintenance cost at PGO was roughly R2.5 million per month, which was attainable. The cost of doing the same at Grootvlei was much higher and to date the JPL could not find the funding to do it. An amount of R10 million generated at PGO was utilized to this end at Grootvlei. The JPL were in charge of the care and maintenance at Grootvlei until September 2009. The funding ran out and decision had to be made how best to protect the assets at Grootvlei. To date the JPL could not secure funding for the care and maintenance programme at Grootvlei. The JPL approached the IDC to assist with the care and maintenance programme at Orkney, but the IDC refused, because it was owed R200 million by the operation already.

Unicredit Bank provided the JPL with a loan of R50 million for the care and maintenance programme on the 15 May 2010. When the JPL received the funds, it placed the Grootvlei mine under care and maintenance and conducted limited mining operations. R23 million of this loan was used to pay Ex-Pamodzi workers whose claims were at an advanced stage. This was an unprecedented act by the JPL, because it understood the plight of the workers. It was unprecedented because the assets had not been sold and there was no draft liquidation and distribution account in existence. Unicredit agreed with the action. The JPL was under no obligation to pay workers from this loan. This amount would be reflected in any future financial statements of the liquidation process.

The JPL were in charge of the care and maintenance programme at the Grootvlei mine until September 2009. Then the funding ran out and decisions had to be made on how best to protect the assets. The JPL were unable to secure more funds.

Unicredit Bank would have continued to finance the care and maintenance and limited mining operations, if the workers and the unions at the mines did not embark on a strike. One of the conditions of the funding from Unicredit bank was that the mines had to break even, which was achieved as long as the limited operations ran. When the workers downed tools, production stopped and Unicredit pulled out as a funder.

The JPL of the ERC approached the Court to ratify the extension of powers sought earlier. It was necessary because only the JPL could make such an application. The application was launched and the court granted the order.

What the JPL did in order to secure a buyer - The tender process
The JPL of both the PGO and the ERC embarked on a transparent process to find a suitable buyer for the operations. The JPL accepted tenders from banks in South Africa and appointed the Standard Bank to conduct the transparent tender process. Standard Bank had a Specialist Mining Division, and it was, with permission from, and in consultation with the Master of the Court, mandated by the JPL to assist it with the process.

The Standard Bank of South Africa was mandated to handle the tender process. Advertisements were placed in all the major newspapers to invite tenders. Standard Bank received applications from interested parties. Those parties, who complied with the terms and conditions of the tender process, were invited to investigate PGO and the ERC. If they were still interested, they had to submit a formal offer or bid to Standard Bank, acting on behalf of the JPL. Discussions and negotiations took place at all stages of this process between the parties and their advisers, and between the JPL and their advisers, and at all times the JPL consulted with the major secured creditors. Through this process AES emerged as the preferred bidder.

A preferred bidder was chosen as such, because it best met the criteria at the time. AES met the criteria and was chosen as the preferred bidder. The IDC in the case of PGO and the Unicredit Bank, in the case of the ERC, were consulted and approved of the decision of the JPL, that AES was suitable to be the preferred bidder. Both NUM and Solidarity were consulted during this process and they supported AES’s bid. The JPL had letters from NUM confirming that, and on the basis of those letters, the JPL extended its powers and got permission from the Master and the other major secured creditors to accept AES as the preferred bidder.

AES offered R215 million or the PGO assets. It indicated that it wanted to acquire the assets, either by way of a sale of assets agreement being concluded, or in terms of a scheme of arrangement under Section 311 of the Companies Act, or alternatively , by purchasing the assets. In this regard the JPL relied heavily on the representations made by a Malaysian Consortium through Am–Equity, a BBI registered company. The agreement was that this company would make the R200 million available as soon as AES became the preferred bidder.

The JPL were at that stage satisfied that AES was the preferred bidder for the reasons of their BEE credentials, their funding arrangements and their representations as far as the long-term sustainability of the mine was concerned. At this stage there were no other meaningful offers on the table. There was another offer previously by Simmer and Jack, which had subsequently been withdrawn. A precondition of this bidder was that the JPL had to terminate the contracts of all current employees. This bidder did not want to employ any of the previous employees of Pamodzi. The JPL was trying to save the jobs of the current employees. It would have been easier to take final liquidation, and sell off the assets without considering the jobs. The JPL accepted the offer by AES, because at the time it was the offer that served the best interest of the parties concerned.

The JPL consulted with the IDC, as it was instructed to do by the laws governing the process, and the IDC approved the transactions. In the case of PGO, NUM and WUASA were the unions consulted and in the case of the ERC, it was NUM and Solidarity. All unions agreed with the transaction.

AES offered R309 million for the assets of the ERC. It indicated that it wanted to acquire the assets, either by way of a sale of assets agreement being concluded, or in terms of a scheme of arrangement under Section 311 of the Companies Act. In this regard the JPL again relied heavily on the representations made by the Malaysian Consortium through Am–Equity, a BBI registered company. It agreed to pay a total of R350 million. The JPL was satisfied that AES was the best candidate, given its funding undertakings.

Standard Bank checked all offers made, followed up by investigating the soundness of funding proposals, and there were no other serious offers on the table. In order to sort the straw from the wheat, bidders were asked to make a refundable deposit of R1 million. Some interested parties did not have the R1 million to put down, let alone put in an offer. Unicredit Bank also supported the AES bid.

The JPL subsequently entered into two Interim Trading and Contract Mining Agreements with AES, one for PGO and one for the ERC. In terms of these, AES undertook to take over the care and maintenance of the mines and limited mining operations at Grootvlei, pending the conclusion of the scheme of arrangement. AES was doing so at its own cost and risk and had to file regular reports with the JPL.

The JPL had no money. AES came with a credible funding letter from a Malaysian company. The director of the Malaysian company had already acquired a directorship in AES. Subsequently there was a dispute and he left, withdrawing his promised funding.

The secured creditors agreed with the deal, because if the care and maintenance programme could be funded by AES, the creditors did not have to put any money into it. They had no obligation to do so.

There was no money for the care and maintenance program. The only money that could possibly come to the rescue was the water pumping subsidy for the Grootvlei mine. The presenter from the DMR explained that the water pumping subsidy was only available to fully functioning mines. The JPL agreed with the DMR and it was explained to AES many times, so it was not an option either. This subsidy was only in the vicinity of R2 million per month. This would be inadequate as the cost of pumping the water at Grootvlei amounted to R10.5 million per month.

One also had to remember that Pamodzi East Rand, subsequently Grootvlei, was the last active mine in that area. There were many mining houses in the area that mined there for many years. They all closed down, leaving the responsibility for pumping the water on the shoulders of the only active mine in the area. The JPL were investigating the causes of failure for Pamodzi Gold. This was one of the reasons it failed.

Mining at Grootvlei stopped in March 2010. The water subsidy stopped then, but would resume when mining resumed. The Malaysian funders pulled out and resisted legal processes to compel them to make good on their promises. The JPL and Standard Bank tried urgently to source additional offers.

The JPL informed AES that it had to run a parallel process to find alternate buyers for the assets and they did not have an option, but to agree. Mr Motala said he and Gavin Gainsford from KPMG flew to Germany to meet a buyer that was interested and Unicredit Bank. Nothing concrete came from this meeting either.

Subsequently, AES had announced in the media on 29 April 2010 that it had secured funding from one of the world’s largest hedge funds to consummate the deal. On 12 May 2010, the JPL received from GEM Management Resources, a private equity fund based in Switzerland, on behalf of the hedge fund, written confirmation of the credit equity line in the amount of R725 million that was to be paid to AES. This was sufficient funding to buy PGO and ERC. However subsequently, this funding depended on LABAT Africa Ltd, a JSE listed company’s share price reaching certain values on the JSE.

AES bought LABAT Africa for the purpose of getting the funding, but because of the negative sentiment around the deal and the media hype around the whole situation, the company share price never reached the intended values. This deal was still valid, and should the share price reach those values, the funds would become available unconditionally.

It was not as simple as just kicking AES off the mines. It was complex and there were many different stakeholder interests at play and a dire lack of finance. If these deals had to be cancelled, the JPL would have huge damages claims against AES. The JPL would have sufficient recourse in terms of the Interim Trading and Contract Mining Agreements to litigate against AES and even litigate against the directors of AES in terms of Section 424 of the Companies Act for reckless trading. This Act was wide enough for the JPL to even deal with the management of AES.

However, that did not resolve the immediate need to finance care and maintenance at the mines in the interim. Without funding, huge disasters may occur and the state would have to fund mitigation. If any entity would provide the funding to remove AES from the mines, and if it would be in the interests of the various stakeholders, the JPL would not hesitate to do so. The JPL also invited organised labour to make funds available for care and maintenance of the mines. If it did, it would be paid out first, before the secured creditors, and the JPL would get rid of AES. The Interim Trading and Contract Mining Agreements allowed the JPL to do this.

One of the companies that showed interest in the deal was a Chinese Consortium called Grand TG. It was introduced to the JPL by a business woman, Ms Hettie Fourie, representing a company called Vamp Consortium. Grand TG made offers which were discussed with the secured creditors and subsequently amended. This Consortium never put up the funds to consummate the deal and their offer contained numerous onerous conditions which the JPL would never have been able to fulfil. After consideration of the deal, the JPL concluded that this deal would not be in the best interest of the various stakeholders. The secured creditors also did not support the offer.

Towards the end of 2010, a second Chinese company showed interest in the assets. ShangDong Gold was interested and sent a senior official to South Africa in order to inspect the mine and have discussions with the JPL. ShangDong appointed PriceWaterhouseCoopers (PWC) in Beijing to conduct a due diligence on PGO and ERC on its behalf. The JPL assisted PWC with the investigation. It met with Mr Michael Hulley, director of AES on 20 March 2011, who said that the investigation was well on track and likely to be completed by mid-April 2011.

The JPL received a letter from ShangDong Gold Group on 24 November 2010. It said that the company was listed in the Shangai and Chenzin stock exchanges and was listed as one of China’s 100 best listed companies. It owned more than 20 large gold mines in China and Asia, and owned other assets in other parts of the world. It further explained its interest in buying shares in AES, knowing the assets involved were in provisional liquidation. It stated its intent of making available 100 million USD. Standard Bank verified its credentials and the report was positive. A certificate from its bank confirmed that the funds were available. A senior delegation from the company would come to South Africa within the next two weeks in order complete any outstanding processes and documentation, after which the deal would be consummated.

There was a fallacy and a myth that the JPL had the liquidation process extended until 16 August 2011, in order to give AES another chance. There was no other buyer. The JPL was trying to rescue the deal with AES in the interest of the secured creditors, but it was running out of patience. The JPL made it clear to AES that they wanted a commitment by 31 May 2011 that the ShangDong shareholders had approved the deal and that the state council in China had approved the deal.

ShangDong indicated per letter that its board approved of the deal. It only needed PWC Beijing’s report before getting the shareholders to decide on the matter. Resources companies in China were state owned companies and had to get approval by the state council. If by 31 May 2011 there was no deal, the JPL could cancel the Interim Trading and Contract Mining Agreement with AES. It would give the JPL enough time to either find another buyer, which did not exist at the moment, or break up the assets and sell them off. The implication of the latter action would be that the jobs would be lost.

An alternative offer was made by Vergile Asia Mining Ltd which was Ms Hettie Fourie’s company. FCC Mandarin Financial services and Galaxy Asset Management Ltd, commonly known as the Vamp Consortium made an offer on the 11 March 2011 for the PGO assets of 11 million USD. The transaction adviser, Standard Bank, was awaiting the formal letter of confirmation of the availability of 100 million Hong Kong Dollars, which would also cover a further 3 million USD for care and maintenance.

A response was sent to the Vamp Consortium, asking them to consider making the offer bigger. This offer was too little, because all the money would go to the IDC. There would not be any money left to pay the concurrent creditors or the workers.

Subsequently Vamp Consortium sent another offer for 110 million. The JPL were in the process of considering this offer and were in particular making sure there were no onerous conditions attached to the offer. This offer would be discussed with the major secured creditor, the IDC, but it was unlikely that the IDC would accept an offer of less than 150 million.

Balancing the interests of stakeholders, the JPL had been engaging continually with AES, the secured creditors, organised labour and the state departments involved. The IDC and Unicredit still wanted to conclude the deal with AES, but were considering alternative investors. Mr Hulley assured the JPL at the end of March that the security at the mines was under control and that assets were secured. He promised comprehensive reports on the water treatment and pumping, refurbishment of the water pumps and staff related issues. These reports the JPL received on the 11 and 12 April 2011. The JPL would meet to consider those reports and address matters arising from it, with AES.

Concluding remarks by Chairperson
The Chairperson indicated that the time was up. He asked that whatever information was outstanding had to be submitted to the Committee in writing. The Chairperson wanted to make sure that the submission did not come from Mr Motala alone and that it represented the views of all the liquidators.

Mr Motala said that his presentation was representative of the views of all the liquidators.

The Chairperson stated that he wanted all the other liquidators to attend at the next occasion when this matter would be discussed. There was no time for a discussion. The meeting would re-convene provisionally on 3 June 2011. Aurora Empowerment Systems undertook to submit their submission in writing. The Committee wanted to work through all submissions and analyse them in order to be able to interrogate them thoroughly on 3 June 2011. He wanted the Committee to approach its analysis from the angle of looking for a solution to the current crisis as it stood. He also wanted the Committee to apply its collective mind to save the jobs that were under threat. The Committee also had to look at ways of making sure that similar incidents did not recur, not only in the mining sector, but in all other sectors. He also wanted to make clear to the workers in distress that Parliament had heard their plight.

The Committee Programme for Second Term was adopted and the meeting was adjourned.

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