The purpose of the meeting was for the Portfolio Committee to gain insight into the deadlocked relationship between the majority and minority partners in a BEE mining partnership, so that it could assist to resolve it. The majority partner in this dispute was Riversdale Holdings (74%), owned by Rio Tinto while the minority partner (26%) was Maweni Mining Consortium (MMC), owned by the ZAC Employee Trust (9%), plus a community trust (13%) and the Siyakhula Sonke Corporation (SSC Group) (4%). The reasons why it was important to resolve the deadlock was that:
The Zululand Anthracite Colliery (ZAC) mine at the centre of the dispute was a unique mine in the sense that it produced a high quality anthracite which was essential for the metallurgical industry in the country. The only other mine producing anthracite of a similar quality was in Swaziland. Failing this source, it would have to be imported from Vietnam or the Ukraine at double the price. It was important for the SA economy at large to keep this mine in production.
This mine was the biggest employer in the Ulundi District of KZN and employed around 1 200 people of which 66% were local people, many of whom had been working for the mine since 1985 when operations started there. Closing this mine would be a disaster for the local economy, because it would cease industrial activity in the area, would seriously curtail development and investment into the area and cause the loss of 1 200 jobs.
The ZAC board consisted of three Rio Tinto Directors and two MMC directors. Currently, MMC had withdrawn its two directors from the ZAC board, because there were allegations against the two directors. The MMC CEO and chairperson felt that one of the directors did not represent MMC interests on the ZAC board, but agreed with views expressed by the Rio Tinto component of the management, irrespective of the effect it had on the interests of MMC. As it stood, currently there was nobody representing MMC interests on the ZAC board.
MMC accused the Rio Tinto component of the ZAC management of:
▪ Making unilateral decisions generally and about investing dividends back into the business instead of paying them out to shareholders
▪ Not sharing information when MMC requested it - for example, the presentation given in this meeting.
▪ Not giving MMC a chance to bid when Rio Tinto put Riversdale Holdings and therefore its shares in ZAC up for sale.
▪ Entering into sales transactions which could adversely affect the value of the shares of MMC shareholders. (The transaction collapsed)
▪ Isolating, intimidating and victimising MMC officials and shareholders when they raised objections to decisions or asked uncomfortable questions.
▪ Ignoring invitations to do joint community projects with MMC and not including MMC in its community projects.
▪ Financial benefits for its directors from which MMC directors were excluded.
▪ Basically being ignored and undermined as legitimate business partners and minority shareholders in a business which MMC co-owned.
The Rio Tinto component of the ZAC management’s position was that:
▪ The two MMC directors on the ZAC board were part of the decisions to re-invest dividends back into the business and therefore the decision was legitimate and not unilateral.
▪ They felt that they could attend the meeting as ZAC management without any MMC representation, because the two MMC directors had been withdrawn. They were not obliged to share the presentation beforehand and they did not want MMC officials to attend the meeting, and if they did, only as observers. (The chairperson of MMC was also a ZAC employee and he was threatened by the Rio Tinto component of ZAC management with disciplinary action on return, if he left the mine premises without permission, to attend the meeting.)
▪ Rio Tinto was a good corporate citizen with corporate values of integrity, honesty and transparency and never isolated, intimidated or victimised anyone.
▪ Financial benefits that accrued to Riverdale Holdings directors did not automatically accrue to MMC directors as there was never any legal agreement or stipulation to suggest this. There was also no indication that the money came from ZAC coffers, so it had nothing to do with MMC directors.
▪ The fact that MMC could not function as a fully-fledged business partner was due to its own internal conflicts, which the Rio Tinto managers had tried to assist to resolve, but to no avail. It could only do so much. MMC had to resolve its own internal conflicts.
▪ They denied that the MMC director on the ZAC board which MMC accused of representing the interests of Rio Tinto instead of MMC actually represented the interests of Rio Tinto.
Around the 14 June 2012, the Department of Mineral Resources (DMR) did a number of inspections and then issued the company with a Section 93 order. It was an order to stop mining activities. The DMR gave reasons:
1. The DMR was aware that Rio Tinto was mining in a new order area without an approval. It was addressed.
2. Trespassing in houses and homesteads. A task team was assembled to investigate it.
3. ZAC was not submitting monthly returns. This had been addressed.
4. Meaningful participation of BEE partner lacking. A task team, chaired by the regional manager had been set up to address this, but there were problems in the task team.
5. Mine Health and Safety issues.
When the Section 93 order was issued, it was issued with a Section 47 order. This meant that the Minister intended to cancel the mining rights unless the contraventions were seen to. The company made representations to the DMR on 21 June 2012. The DMR then agreed to withdraw four of the contraventions mentioned previously, because it also wanted to promote job creation and sustainable mining, but BEE needed to be addressed.
From DMR’s viewpoint, it saw this as the root of the conflict; the fact that MMC may or may not have been given an opportunity to bid, but it was not the competency of the DMR to dictate to Rio Tinto who to sell to.
In this case the DMR had taken action as a department. The facts were before the Minister and she would be taking action based on the facts before her regarding the Section 47 order. All parties would have to wait on the outcome of her decision.
The Chairperson instructed MMC to fast-track the process of appointing directors, because Rio Tinto could not run ZAC on its own for long. He asked if the directors accepted their withdrawal and the reply came that one of them did not.
The Chairperson asked the parties to reply in writing to the questions asked. He appealed to MMC and ZAC to work things out between them. If the BEE aspect of the agreement did not work, the company was not compliant. He asked the parties to come back to the Portfolio Committee with a clarified situation and a report before the end of June 2013. If not, the Portfolio Committee would pay another oversight visit to the mine to determine the facts for itself. It was important to preserve the mine and sustain its productivity.
Members asked whether ZAC management had a constitution stipulating the roles of the MMC component and the Rio Tinto component respectively. If it existed, could the Portfolio Committee have a copy? Members asked how many foreigners ZAC employed and what ZAC management did to protect workers against loan sharks as crippling debt amongst workers was one of the factors that played a role in the unrest at Marikana mine. Members asked how management managed to keep the dust levels so low and whether mining machinery was safe to use. Members asked whether the cause of the conflict within MMC was not a question of the traditional authority not being properly constituted, resulting in community representation not happening properly, as stipulated in the Mineral and Petroleum Resources Development Act (MPRDA).
Presentation by Rio Tinto Component of Zululand Anthracite Colliery (ZAC) Management
Mr Eric Finlayson, Managing Director for Rio Tinto on the ZAC board, introduced his delegation, after which he started to sketch the background against which this meeting was taking place. He said that the ZAC Board consisted of five directors, three from Rio Tinto and two from MMC. Within the past week the two directors from MMC had been withdrawn by MMC and no new directors had been appointed. There was an internal dispute amongst the shareholders within MMC. This resulted in MMC not being part of the ZAC delegation.
The Chairperson asked MMC representatives present in the meeting, to confirm what Mr Finlayson had said.
Mr Glen Makhubela, Non-Executive Chairperson of Maweni Mining Consortium (MMC), confirmed that it was the case. MMC had raised the matter with the majority partner, as MMC still had himself as well as its CEO, Mr Fred Arendse. However, they were told by the majority partner to attend the meeting only as observers. (Mr P Sithole, a director of MMC as well as community representative was also present in the meeting.)
The Chairperson questioned the fact that MMC was the BEE partner of Rio Tinto in ZAC management, but was only there to observe and not to engage in the meeting.
Mr Makhubela added that although the CEO of MMC had requested the presentation document about to be presented by ZAC prior to this meeting, MMC did not get it. He asked that the Chairperson ask the ZAC chairperson to explain why MMC could not get the presentation before it was presented to the Committee.
Mr Finlayson replied that ZAC was invited to present to the Portfolio Committee. The senior management of ZAC was present. The two MMC directors had been withdrawn from the ZAC board of by the MMC chairperson, which was why MMC was not represented.
Mr Makhubela confirmed that MMC recalled both directors. He said there was internal conflict within MMC and that the majority partner (Rio Tinto) had a role in it. Allegations were made implicating both MMC directors on the ZAC board, but MMC was not informed about the allegations. As a result both directors had been recalled in order for them to resolve their issues within MMC, because they were no longer representing the interests of MMC.
Background to Rio Tinto’s involvement in ZAC/Importance of the mines/Shareholder structures
Mr Eric Finlayson said Riversdale Holdings owned 74% of ZAC. Rio Tinto acquired Riversdale Holdings through its purchase of Riversdale Holdings’ parent company, Riversdale Mines, an Australian company. Rio Tinto bought Riversdale Mines in order to acquire Riversdale Mines Mozambique. Rio Tinto stated in its documents dealing with Riversdale Mines in 2010 that it considered divesting Riversdale Holdings, in other words, selling ZAC. The reason for this decision was that ZAC was not a natural fit for Rio Tinto’s portfolio.
Since July 2011, after Rio Tinto took control of Riversdale Mining and Riversdale Holdings (RH), Rio Tinto had attempted to sell RH. To date potential deals failed, because buyers withdrew. Until RH is sold, Rio Tinto will manage ZAC and seek to actively participate in the management of ZAC, and to make it safe and sustainable. Rio Tinto had two other significant assets in RSA. It owned 74% of Richards Bay Minerals and it subsequently raised its interest in that asset in 2012 when it bought out its then partner BHP Billiton. It also owned 67.7% of Phalaborwa Mining Company and this asset was currently under divestment by Rio Tinto and Anglo American
Context and background to ZAC Mine
ZAC was originally opened in 1985 and solely owned by BHP Billiton until 2005when it was sold to Riversdale Holdings and BEE partner Maweni Mining Consortium. Mine produced a highly valued metallurgic product used in SA by clients such as Richards Bay Minerals, platinum and ferrochrome producers. If this product were not available locally, these clients would have to import it from overseas at double the price. ZAC was important for the national economy. It was also vital for the local economy because it was the biggest employer in Ulundi District. It employed 1200 people, of which many had worked at the mine since 1985, which meant the mine had a very stable, local workforce, who valued their employment at the mine. Unemployment levels were high in the area, but mines like ZAC could not employ more people. The consequence was that frustration was vented at the mine by disaffected elements not linked to the mine.
Given the importance of the mine to the local economy, any change in mine ownership caused uncertainty and anxiety. It happened in 2005, and also in the last 18 months when Rio Tinto tried to sell the mine. Productivity suffered, there was a potential for greater unrest, and there was a potential for the deterioration of safety performance at the mine; all issues which had to be managed. It was understandable that ZAC as an entity had a finite ability to absorb unrest. Under normal circumstances, the mine was profitable, it would return dividends and it could re-invest in itself to extend its life.
The sustainability of the mine however did require productivity to be maintained. The financial health of the mine was highly vulnerable to production disruptions and in particular to industrial action. If the cash outflow were larger than the inflow, the mine would not survive. It was up to the workforce, community, shareholders and management to work together in active partnership ensure not only its survival, but that it thrives in the future.
Ownership Structure (Slide 23)
In 2005, the mine was bought by Riversdale Holdings and MMC from BHP Billiton for R90.8 million.
MMC was incorporated specifically for the transaction. MMC at that time involved three private shareholders, a community trust and the ZAC Employee Trust. This transaction was funded by an R45million bond to ZAC and by contributions from Riversdale Holdings and MMC. MMC’s R11 million participation was funded by an R8 million loan from BHP (which had since been forgiven by BHP) and also through a R2.9 million loan to MMC from Riversdale Holdings. This loan had been repaid in full with interest, the total amounting to R6 million.
At the time of the acquisition of ZAC from BHP Billiton, the mine life was three years. As a result of extensive exploration and new shaft development twenty years had been added to the mine’s life. The mine could be productive until 2028 and could extend further.
As a result of the extended life of ZAC, its value extended. The current market value was R595 million as determined by a recent Forbes Transaction Price reading. Its value increased six-fold since the acquisition in 2005. MMC’s share was currently worth R155 million (26%).
MMC had participated in the ZAC board until the two directors were withdrawn on 27 February 2013.All developments had been minuted. Looking back at the MMC structure, it became clear that there were deficiencies in internal communication within MMC. The ZAC Employee Trust asserted that key decisions of the MMC board and of the ZAC board were not properly communicated to MMC’s shareholders. This included decisions around the R2.9 million loan by Riversdale Holdings to MMC to fund its participation in the acquisition from BHP, it included retention of MMC dividends to repay this loan, it included the retention of dividends to repay the R45 million bank loan and it included the retention of dividends to fund capital investment at the mine to extend its mine life. In the absence of this information being passed on to MMC shareholders, speculation ran rife about the misappropriation of dividends. ZAC was perceived as holding little value to MMC shareholders.
Current Ownership Structure of MMC (Slide 24)
MMC was reconstituted in 2011 with the Community Trust shares being rolled into the **?? Okupi Trust – the trust representing the traditional authorities and the community. The three original private MMC shareholders were bought out by Ngonyama Trust on behalf of the Okupi Trust and a portion of the shares were then sold to the ZAC Employee Trust and the SSC Group.
Riversdale Holdings funded the buying of the shares for the ZAC Employee trust. However, there was on-going simmering discontent about the fact that employees had to pay for their shares in the business in 2005 and to pay for interest on the loan to buy those shares. This discontent impacted on the productivity of the mine and undermined industrial relations. As a gesture of reconciliation, and a means to remove the issues in the workforce, Rio Tinto, in January 2013, despite having no legal obligation to do so, reimbursed employees for the cost of acquiring the shares, for the interest paid on the shareholder loan, and a triple dividend that was not received by employees between 2005 and 2011, resulting in a boost to the morale of the workforce at the mine and an increase in productivity.
ZAC Operational Review and Mining Charter Compliance
Mr Bryce Beath, ZAC Chief Operating Officer, presented its Operational Review and Mining Charter Compliance.
ZAC was a unique mine in KZN. It was the only mine in RSA producing this quality of anthracite. The only other mine producing the same quality was in Swaziland. If it could not be mined here it had to be imported from Vietnam and the Ukraine. ZAC was important.
Referring to slide five in the presentation, he explained that the lease area crossed four traditional community boundaries and four traditional groups as shown. The green areas had been explored. The orange areas had been established to have resources and were the basis on which the mine life had been coal was not known. There were good options for sustainability.
When BHP sold ZAC, it had a rule to not mine below 1.5m.When Riversdale drilled beyond depth, production increased. ZAC did ultra-low mining. It imported equipment from the USA, which allowed it to drill down to 70cm ridges.
Referring to slide seven, Mr Beat explained that years of uncertainty caused production drops. It had to mine 720 000 ton per year to be profitable. In 2012 it had a loss of R62 million due to labour unrest. For 2013, 831 000 tons were projected.
There were five shafts, an explosives magazine, a process plant and a railway siding on the mine premises (see presentation for details).
Low seam mining required special machines. There was a problem in maintaining the imported machines. The skills to do so did not exist in RSA.
The Chairperson asked whether the extraction was done by machine or by personnel.
Mr Beath replied that the machine was operated by a driver and a watchman. Shuttle cars, driven by personnel, transported the coal away. The operation needed machines and personnel.
There were still drill and blasting sections. Low seams of less than one meter wide were mined by drilling and blasting.
Slide 20 referred to Rom product per seam height. Seams in which coal were found were classified according to its width. The red in the graph indicated low seam, which was between one and 1.5m. Middle seam, indicated by green was between 1.5 and 2m. High seam, indicated by purple was 2m and higher while blue indicated ultra-low seam, indicating seam below 1m thick. As can be seen on the graph, the middle seam had been exhausted, leaving the mine with ultra-low seam, low seam and high seam only. Ultra low was very difficult to mine, as well as less profitable. It was balanced out by the high more profitable seams, like Ngwabe shaft.
Mining Charter Score-card
ZAC was classified as a Level 4 Contributor in 2012 by Powerdex, Economic Empowerment rating Agency. It aimed for a level 2rating for 2013. Management had ZAC subsequently audited by the BEESA Group for Mining Charter Compliance, another company specialising in BEE consulting. BEESA gave ZAC a rating of 93/100 for the period Jan-Dec 2011 and additional information based on planned actions for the financial year 2012.
Slide 20 referred to Mining Charter Progress and it showed the progress ZAC made during the last three years regarding compliance. It showed 91% in 2010, 95% in 2011 and 99% in 2012.The challenges were the area of Procurement where there was 93% compliance and Accommodation where 45 people were still sharing quarters. By June 2014 this would be resolved.
Slide 27 referred to the Financial Performance History of ZAC. It showed that ZAC earned a total of R514 million over the seven years of its existence. It also showed that R646 million had been used for Capital Expenditure to extend the mine life of the mine. It showed that dividends declared and paid amounted to R36 million from 2009-2011. ZAC declared a dividend for 2013 subject to there being cash available. In 2005-2008 ZAC did not declare dividends, because the money was re-invested in the company in line with decisions by the ZAC board.
Regarding Capital Investment, Ngwabe shaft was the most productive shaft at ZAC and currently produced 22 000 tons/month, but had the potential to produce 44 000 tons/month. R265 million had been invested into this shaft in order to increase production and extend the life of the shaft.
ZAC was doing well regarding Procurement from BEE companies in terms of Mining Charter requirements. Its target for Procurements of Capital Goods for 2013 was 30% and for 2014, 40%. Its target for the Procurement of Services for 2013 was 60% and for 2014, 70%. Its targets for the Procurement of Consumables for 2013 was 40% and for 2014, 50%. For 2013, the percentages in the respective categories previously mentioned was 42%, 79% and 65% thus far, in other words above the target level. As mentioned earlier, overall procurement from BEE institutions was 93% in 2012, as opposed to 80% in 2011 and 67% in 2010.Procurement compliance was increasing. Current BEE non-compliant suppliers were given one year in which to become BEE compliant. If the supplier failed to become BEE compliant, it lost the contract. ZAC had set up and was nurturing a number of companies in conjunction with local partners to render services it required, like landscaping and brick-making etc. (See details on Slide 31). Some were more successful than others.
Regarding Employment Equity, ZAC met all its Mining Charter Targets. It had a challenge in retaining women in the workforce. ZAC could not hold on to especially young people and women. ZAC was isolated. People come in to work on a Monday, stayed on-site for the week and left on a Friday to go home. This lifestyle and rhythm was difficult to sustain for young people. He asked the Portfolio Committee for advice on how to overcome this challenge.
ZAC had phased out Labour Brokers. (See presentation for Employee benefits). 66% of the workforce came from the ZAC area, meaning the surrounding communities, 11% from the surrounding areas, 19% from greater KZN and 4% from other provinces within the RSA.
ZAC had an integrated Human Capital Strategy which included ABET, skills and portable skills training, learnerships, internships and bursaries. (See presentation for details.) 321 Males & 57 Females had gone through specialised training on the mine during the last financial year.
The mine could accommodate 540 people at a time. The challenge in the area of accommodation was the fact that 45 people were still sharing accommodation, but by July 2014, nobody would share accommodation according to current projections.
ZAC made sure that it recruited people from the four traditional areas in a fair manner so that no tension was created by perceived preferential treatment of one above the other.
ZAC initiated several projects in line with sustainable development in the local communities surrounding the mine, like vegetable gardens, broiler chicken projects, brick making and more recently a laundry and clothing manufacturing project (see presentation for details).
Regarding Corporate Social Investment (CSI) and Corporate Social Responsibility (CSR), ZAC, together with partners in government, labour unions, business and others were involved in several CSI project amongst others de-silting of existing water catchment dams to assist in supplying water to the communities surrounding the mine and supplying clean water to the surrounding area, health awareness campaigns around TB and HIV, AIDS, and abuse, and it initiated an Annual Matric Exams Intervention to assist learners at the four high schools by providing extra lessons to prepare for the exams, meals as well as transport for learners and educators after evening classes. ZAC together with a few of its suppliers and one of the labour unions it worked with in 2013 donated school uniforms to 575 needy school learners from the surrounding areas.
Health and Safety improved dramatically due to pro-active preventative measures. No new cases of any occupational disease had been reported in 2012. The legal limit for Silica was 0.1mg/m3, while it never exceeded the 0.02mg/m3 level since 2006. The legal limit for dust was 5mg/m3 while the level at ZAC had been kept below 1.5mg/m3 since 2006. For FY 2012-2013 thus far, injuries on duty stood at seven, with no fatalities.
ZAC rehabilitated mines areas beyond the stage required by law (see presentation for details)
The Chairperson thanked ZAC for the detailed presentation.
Input by Mr Glen Makhubela, MMC non-executive chairperson
Mr Makhubela said it was an opportunity to raise concern about the relationship MMC had with the majority partner and the background and re-formation of new MMC. He was from the ZAC Employee Trust (ZET) which formed part of MMC and held 34% shares in MMC. In 2009, when ZET was part of negotiations facilitated by the DMR, it raised the issue of empowerment. At that stage it did not see any benefit saw no benefit to employees or to the community. The MMC was just fronting. He wanted to state on record that since then, people who raised all these issues were victimized by the majority shareholder management.
He was elected as non-executive chairperson of MMC, but he was employed by ZAC. When MMC took the resolution to come to this meeting, without him, Mr Makhubela being approved by ZAC management to attend the meeting, he was threatened by ZAC management with disciplinary measures if he attended. He wanted to put on record how the majority partner treated shareholders. The MMC delegation and the parties they represented were shareholders of this company, but they were not treated as shareholders.
The presentation stated what ZAC management did although some of it was just a wish-list. MMC had no say in any of those projects or decisions. All the things ZAC management said they did in the presentation had no impact on the communities surrounding the mine. The communities complained about the company, and fought with it because their fundamental problems were not addressed, but the way the presentation did not reflect any of the conflict between the community and the company. The money was re-invested and no dividends were paid, but MMC was not part of those decisions. The community was a stakeholder in MMC, but the community had no say in the decisions that were made. ZAC management expected MMC to just agree with the presentation.
He wanted to state on record that MMC was not treated as a partner by the majority partner in the ZAC partnership. He also asked the Chairperson to afford the CEO of MMC to address the meeting as well.
Mr Finlayson’s response
Mr Finlayson said the MMC people present only represented a small subset of the shareholders of MMC. He felt that it was important to point it out and he objected to the people present represented MMC.
The Chairperson said to the CEO and Chairman of MMC. Whoever had been sitting on the board should have operated on the mandate of MMC. The people representing MMC in this meeting claimed that MMC was nothing but a front. Fronting was a very serious transgression. He asked ZAC management what their response would have been if someone said to them, the ZAC CEO and chairperson, they were not representing ZAC. He said regarding reasons for the recall of the MMC board members, maybe they were no longer representing MMC. The Portfolio Committee needed to listen to MMC to understand what was going on. Workers voiced their concern over the BEE structure. This was the reason why ZAC and MMC representatives were called - to get clarity, to get the facts.
Input by Mr Fred Arendse, CEO of MMC
Mr Fred Arendse, MMC CEO since November 2011, was Head of Transformation at Anglo American Platinum Corporate office before he founded the Legacy Group. He was an experienced business person. He said in law school, students were told that there were always two sides to a story, and that his late father taught him to not just agree with what he was told, but to question.
From a business point of view, the Mining Charter called for the inclusion of entrepreneurs and community. He wanted to speak from the business side of MMC and bring certain things to the attention of the committee.
While he agreed with the submission of the ZAC chairperson, Mr Finlayson, certain other matters were omitted. On request of the stakeholders of the old MMC, he was asked to unpack the MMC –– Rio Tinto - Riversdale transaction. Some of the contention between the two partners, MMC and Rio Tinto related to some of the issues MMC management have discovered in the various transactions and MMC management put the matters on the table.
He believed that BEE has matured from small scale projects to real economic empowerment. When he unpacked the transaction between MMC and Rio Tinto/Riversdale, he heard through the media and the annual report of the majority partner that four of its directors had realised an upside windfall of an estimated R247 million. He brought this to the attention of then Riversdale Holdings and Mining and now Rio Tinto.
When MMC management looked into the records of Rio Tinto’s company structure, it realised that only one dividend was declared, hence a direct economic participation by the black partner translated into R3.2 million in 2012. He invited the Portfolio Committee to verify his claims.
The aim of the exercise was empowerment. When ZAC declared the dividend after seven years, the ZAC employees realised R1253 in dividends. As a businessman he had to ask the majority partner difficult questions. If one kept in mind that the initial deal was conceived on 16 February 2005, and employees received R 1253 after seven years, it translated into R177 per year per employee, which was not really empowerment. He raised with the majority partner that something was fundamentally wrong with BEE.
It was mentioned by the chairperson of ZAC, Mr Finlayson that the transaction failed in terms of the disposal of Riversdale Holdings. He did not explain to the Portfolio Committee why the transaction failed. MMC was trying to play a business role in an asset that it co-owned. MMC asked for the details of the transaction of the disposal, because it involved MMC as a partner, MMC was not given the details of the transaction between Riversdale/Rio Tinto and Forbes Coal, which was the potential buyer.
In a meeting held in December 2012 in London, Mr Arendse discovered that the intention of the acquirer was to potentially use ZAC assets and shareholding as leverage to acquire the holding company. Back in SA he raised the matter with the ZAC board in December, as well as through a number of letters because of the negative impact it would have on the value of share for MMC. MMC also wrote to the acquirer as well as to the financial newspaper exposing what appeared to be something contrary to the interests of MMC. On 15 February 2013 MMC learnt that the transaction had collapsed. MMC was a business and had to be respected as a business. The new really tried to participate in the operations of ZAC and to play a business roll. When MMC came across challenges it faced, it had to point it out to the majority partner. Instead of addressing the challenge, the majority partner chose to isolate, intimidate and in some cases victimise the party raising it.
He invited the Committee to audit his claims and check the documents mentioned. There was a divorce in play between the majority and the minority partner. Agreements were signed and not followed through. MMC was reduced to an irritation when it asked difficult questions. It was treated in a way which appeared to divide.
Part if the internal conflict in MMC was about a certain individual. When this person spoke he almost always represented the views of Rio Tinto.
He wanted to support the chairperson of MMC in his assertion that there was no partnership between MMC and Rio Tinto. When MMC decided to do a school project on 19 January 2013, the majority partner did not participate despite being invited, but instead had a similar programme at a different school on 14 February 2013, and did not invite MMC. There were many other examples which he would put in writing and submit to the Portfolio Committee.
He said it was inappropriate to come and bash the majority partner, but he appealed to the Portfolio Committee to look critically at the nature of the relationship between the majority and minority partners in the venture. He asked the Portfolio Committee to keep in mind that Mr Makhubela had to return to the mine, under threat of intimidation by means of disciplinary measures by the majority partner.
Mr Finlayson’s response
Mr Finlayson replied that he and his delegation had nothing to hide and he would respond to some of the matters raised.
Rewards for Riversdale Holdings directors
ZAC funds were not used to reward the Riverdale directors. There existed no legal provision anywhere that suggested that benefits which accrued to Riversdale Holdings directors similarly had to accrue MMC directors as well.
Whether to declare and pay out dividends were decided by both MMC and ZAC boards. Any suggestion that dividends were used without the explicit agreement of the boards of the two companies was untrue.
Collapse of the transaction
The allegation that Forbes Coal wanted to use ZAC as leverage to acquire Riversdale Holdings was a matter for Forbes Coal. Rio Tinto did not know how it intended funding the transaction. There were minority protection rights built into the legal processes of transactions of this nature. Any suggestion that Forbes coal could impose anything on MMC was also incorrect.
Was MMC was participating in the running of ZAC. MMC directors participated in all meaningful business decisions. Currently there were no MMC directors, which meant MMC could not influence any business decisions, and he encouraged MMC to nominate directors to represent its interests on the ZAC board.
A profound challenge that MMC had, was the internal divisions between shareholders. There was no progress in resolving the divisions. Rio Tinto had attempted to facilitate reconciliation between the parties. It attempted to formulate an umbrella agreement to formalise the relationship between shareholders, to no avail. He did not know how to resolve the situation and would appreciate suggestions in this regard. Rio Tinto could only do so much towards assisting to resolve it.
Any suggestion that Judge Ngwenya was a proxy for Rio Tinto was not correct and he rejected it.
Input by Mr Percy McCullum, Rio Tinto General Manager of Human Resources
Mr Percy McCullum, Rio Tinto General Manager of Human Resources, said Rio Tinto had two operations in SA: Phalaborwa and Richards Bay. Rio Tinto/Riversdale Mining was fully BEE compliant. It was a good corporate citizen. It did not discriminate or victimise anybody. Its corporate values were Integrity, Honesty and Transparency. It had good relationships with the communities it operated in as well as labour unions it dealt with.
Communities were dealing with the BEE structure. From Mr Beath’s slide, communities represented 50% of the BEE structure.
What were the issues? The issue was that from MMC side there was a tendency to exclude the majority partner from the BEE structure. This was apparent at several occasions over the past year. Rio Tinto tried to facilitate the umbrella agreement between the shareholders of MMC, because it believed that the parties in a relationship had to be happy, but there were ups and downs.
Rio Tinto had to mention that self-interest prevented the parties from finding solutions to the divisions.
He said there were several examples over the last six months of newspaper reports of MMC officials making allegations against Rio Tinto, trying to muddy the waters. He asked the Committee to have a balanced view on the situation.
Questions by Members (These would be answered in writing)
Ms F Bikani (ANC) asked how often dividends were paid out and whether MMC had any say in it.
Ms Bikani asked whether ZAC management had a constitution stipulating the roles of the MMC component and the Rio Tinto component respectively. If it existed, could the Portfolio Committee have a copy? It seemed that the majority shareholder made all the decisions.
Ms Bikani commented that there was no progress since the time the Portfolio Committee visited the mine. There was still conflict about who the legitimate board members were.
Ms Bikani asked whether the MMC component of the ZAC management operated on their own, with their own finances. She had the impression that the Rio Tinto component of the ZAC management operated without MMC. What were they doing to bridge the gap?
Ms Bikani said she had lots of question on ZAC’s compliance to the Mining Charter and she felt that the BEE partnership in this case, was not correctly constituted.
Mr C Gololo (ANC) remarked that the duelling parties were like a married couple, but they had to remember that they were not there to serve themselves. They had to keep the interest of the communities in mind.
Mr Gololo commented that ZAC was doing well on its Mining Charted Scorecard.
Mr Gololo replied to the challenge mentioned in the presentation, that ZAC struggled to retain young people on its staff, due to the working conditions in terms of time spent at work. He advised ZAC to build decent family accommodation and referred them to the Mining Charter as a guiding document in this regard.
Mr Gololo asked how many foreigners ZAC employed.
ZAC management replied that the workforce was 100% South African.
Mr Gololo asked which measures ZAC management had in place to protect workers against loan sharks as crippling debt was one of the factors contributing to the conflict at Marikana.
Mr J Lorimer (DA) asked whether ZAC had transgressed any of the provisions of the Mineral and Petroleum Resources Development Act (MPRDA), any other law or the Mining charter. He requested an answer from ZAC as well as from the Department of Minerals resources (DMR).
Mr Y Wang (ANC) said to MMC that it seemed that the problem was with the directorship and suggested that MMC appointed a new director to the board.
Mr Wang asked whether there was a problem with the shareholding as well. What was the cause of it?
Mr H Schmidt (DA) said there was a breakdown in confidence between MMC and ZAC. There were also problems amongst the shareholder in MMC. What was the root cause of the conflicts?
Mr Schmidt asked how ZAC management addressed the challenge of maintaining the imported mining machines.
Mr Schmidt referred to Slide 21 and said he saw ZAC had a high degree/percentage of Employee Share Ownership Planning Scheme (ESOPS). He was a great supporter of ESOPS, because in his view, this was genuine capacitation. ZAC had capacitated 9% of employees. In most other companies it was 3%, and 5% in a company was already high. If ZAC capacitated 9%, what did it do wrong? He thought ESOPS was the answer, but if it was mired in controversy, how did one deal with it?
Mr Schmidt referred to Slide 76 referring to two busses per traditional authority. 50% of the 26% shareholding of MMC in ZAC, was held by the Community Trust, but they were not present in the meeting. If he understood the Social Labour Plan correctly, a properly drafted plan was supposed to deal with communities - not royalty or the amakhosi, but elected traditional authorities. Had they been formally constituted? If not, it could point to some of the causes of the problem. Was the problem with the Community Trust? Was the problem outside of the community trust with the traditional authority? The MPRDA operated within that framework. How did one identify the problem and how did one resolve it?
Mr R Sonto (ANC) said the presentation was good, but it had to be juxtaposed against the latest audit report of ZAC, and the facts would emerge.
Mr Sonto said the BEE deal between MMC and ZAC was a headache for Rio Tinto. The question needed to be asked whether this was a desirable partnership. Rio Tinto had to meet with the MMC partners to address the historical problems. The current structure had to undergo changes. Once this structure was in order, one could talk mining business once more.
Ms N Ngele (ANC) said when the Portfolio Committee visited the mine in August 2012, the communities and workers complained that the mine was not doing anything for the community. Were the bursaries and training which had been reported in the presentation only given to employees or to the wider community as well? If it was only given to employees, what happened to them afterwards?
Ms Ngele asked how management managed to keep the dust levels so low. She asked if the mining machines in which operators almost had to lie on their backs to operate them, were safe.
The Chairperson said when the Portfolio Committee visited the mine, employees as well as the surrounding communities complained about MMC and not getting dividends. He had in his possession letters from all four traditional councils complaining about the same issue. They did not see the partnership in practice. Only in January 2013, each employee received R15 000 (according to Mr Beath)
The Chairperson referred to Slide 20 dealing with compliance with the Mining Charter where ZAC management gave itself 100% almost everywhere, even in the area of accommodation, where, by its own admission 45 people were still sharing accommodation. This had to be explained.
Regarding procurement, the Portfolio Committee needed a breakdown in order to see which parts of procurement were doing well and which parts did less well. The Portfolio Committee also needed to see the relative amounts spent with BEE-compliant suppliers versus BEE-non-compliant suppliers.
The Chairperson said it was a pity Judge Ngwenya, previously a MMC director on the ZAC board, was not present in the meeting to explain his case. Some traditional authorities also complained that they received no information about decision of the ZAC board or had a say in it.
The Chairperson said according to the presentation, employees received a R15 000 bonus in January 2013. The community was also a partner through MMC. How much money went to the community?
The Chairperson said MMC had the same directors since 2005, but removed them a week before this meeting was due, knowing that this meeting had been set up. Why was this case? The Portfolio Committee needed to hear these directors speak so that the Committee could determine whom they represented, Rio Tinto or the community? He found the timing of their withdrawal most unfortunate.
Input by Mr P Sithole, MMC Director as well as community representative and ZAC Employee
Mr P Sithole, MMC Director as well as community representative and ZAC Employee said the community around the mine had a march in 2012, because it did not receive any dividends from its investment in the mine. After the march, a task team was set up. The task team was supposed to investigate the complaints of the community regarding their investment in the mine.
The MMC director on the ZAC board (Judge Ngwenya) never reported back to the community. He regretted that Mr Arendse did not recount the history of how Judge Ngwenya got involved in MMC and where the money came from to buy the shares. The money to acquire shares came from the community, but up until now the community had not seen any dividends. The community was still complaining. Granted, the laundry had been built, but with the launch of Daliso, the laundry project, the caterers and tent hirers from the community were not given a chance to make some business. ZAC had its own suppliers.
The project referred to on Slide 60 of the presentation, Vukuzame (Esphiva) Community Garden Project, was a one-man business, not a community project.
There were a number of complaints but it came down to the complaint that the majority partner was doing very little to help the community. The majority party took one person as representing MMC, while that person never liaised with the community. For 15 months this person could not submit the names of the community representatives to the majority partner.
He wanted the Committee to re-look at this partnership.
Input by Ms Rebone Nkambule, DMR Chief Director
Ms Rebone Nkambule, DMR Chief Director, said ZAC had two operations or mining rights. One was a conversion and one a new order mining right.
Background to the new-order mining rights
The DMR and the Regional Manager at the time anticipated this problem in 2009. The DMR was on the verge of refusing the new order mining rights. It was told through lawyers that DMR’s role was not to look into the financial transactions. It was before Rio Tinto acquired the mine. The problems were anticipated. The mining rights were granted and DMR’s role was to monitor the rights.
Around 14 June 2012, the DMR did a number of inspections and then issued the company with a Section 93 order. It was an order to stop mining activities. The DMR gave reasons.
- The DMR was aware that Rio Tinto was mining in a new order area without approval - It was addressed.
- Trespassing in houses and homesteads - A task team was assembled to investigate it.
- ZAC was not submitting monthly returns. This had been addressed.
- Meaningful participation of BEE partner lacking. A task team, chaired by the regional manager had been set up to address this, but there were problems in the task team.
- Mine Health and Safety issues.
When the Section 93 order was issued, it was issued with a Section 47 order. This meant that the Minister intended to cancel the mining rights unless the contraventions were seen to. The company made representations to the DMR on 21 June 2012. The DMR then agreed to withdraw four of the contraventions mentioned previously, because it also wanted to promote job creation and sustainable mining, but the BEE needed to be addressed.
In reply to Mr Schmidt’s question on what seemed to be the real problem, as the DMR was dealing with the Section 93 and 47 orders, Rio Tinto embarked on a bidding process to sell its shares in ZAC. When this happened, MMC approached the DMR and reported that it was not given an opportunity to bid for the Rio Tinto shares in ZAC.
Rio Tinto’s conduct went against the new Companies Act which stipulated that companies had to give consideration to partners when embarking on changes like these.
As DMR had been told before that by the then ZAC Company, as a Regulator it could not interfere with business processes, it decided not to interfere, as long as the process was fair.
From the viewpoint of the DMR, it saw this as the root of the conflict; the fact that MMC may or may not have been given an opportunity to bid, but it was not the competency of the DMR to dictate to Rio Tinto who to sell to.
The task team found that the community felt that nobody on the MMC board represented the community’s interest. The community and the employees were correct when they said:
- There were no economic benefits. They saw no money.
- There were empty promises, but nothing happened.
On 14 February 2013, the DMR convened a representation session between DMR, ZAC and MMC. DMR asked for representation on why the mining rights should not be withdrawn. What the DMR needed was projections on how the different parties would be affected if the mining license was withdrawn.
What the DMR received from both parties were personal bashings. It did not help to resolve the deadlock. She appealed to the Portfolio Committee to not encourage personal bashings, but to hold both parties to stick to the facts of the matter. The community did not benefit. The DMR officials had been and were being accused of choosing sides.
The DMR assessment of the situation within ZAC management was that there was a distasteful relationship between the two parties.
In terms of the Mining Charter, the company had to report to the Minister at the end of December 2013. Replying to the question of Mr Lorimer about whether ZAC transgressed any laws, the DMR would have to go back and verify the facts. She could not answer that question immediately, but would report to the Portfolio Committee at a later stage.
Input by Ms NqabileKhanyile, DMR Regional Manager KZN
Ms Nqabile Khanyile, DMR Regional Manager KZN, said there was no relationship or a very injured one, between ZAC and MMC. This needed to be repaired before there was a possibility of a resolution to the current situation. MMC also had relationship problems internally between its shareholders. Those needed to be resolved by MMC. The three parties were critical in any arrangement which would be workable.
The role of the DMR was to regulate the mining sector. DMR issued the mining rights and instituted the right legal action if the mining company was in breach of the mining lease contract of legislation.
In this case the DMR had taken action as a department. The facts were before the Minister and she would be taking action based on the fact before her. All parties would have to wait on the outcome of her decision.
In 2009, before MMC was unbundled and re-constituted, the community and the BEE partner already complained to the DMR that it was not getting any dividends from its participation in ZAC.
The DMR engaged ZAC (It was then still Riversdale Holdings) this intervention was already was outside the scope of the DMR. Riversdale declared a dividend and agreed with the DMR to give the BEE partner a triple dividend.
The DMR was in a difficult situation. The mine at Ulundi was the only one operating in the area and biggest employer. Without it, there would be no industrial activity. It was important as a source of jobs and for economic injection into the area. It was also important for the DMR that the BEE partner and the community benefitted, but the DMR did not have the mandate to decide for MMC how to invest its money.
The DMR needed all the parties to explain why the situation did not work for them. The fact was that the community did not benefit. The DMR was trying everything it could within its power and mandate, but it could not resolve the issue.
Mr Lorimer asked why this matter was before the Portfolio Committee, if Rio Tinto was not in violation of the MPRDA. He asked whether it was appropriate for the Portfolio Committee to interfere in a business deal.
The Chairperson replied that the Portfolio Committee had a duty to monitor and determine whether ownership patterns happened according to the Mining Charter. The Portfolio Committee could not abdicate its responsibilities in this situation. One could also not say that ZAC was not in violation of any laws, because the Minister was considering a Section 47 order against it. It was In the interest of both parties to resolve the disputes and to repair the relationship. If it was true that employee-shareholders received only R177 per year, it could point to fronting. If the community did not get a cent, it pointed to fronting and the Portfolio Committee could not leave them on their own. They needed to be assisted.
The Chairperson asked the parties to reply in writing to the questions asked. He appealed to MMC and ZAC to work things out between them. If the BEE aspect of the agreement did not work, the company was not compliant. He asked the parties to come back to the Portfolio Committee with a clarified situation and a report before the end of June 2013. If not, the Portfolio Committee would pay another oversight visit to the mine to come and determine the facts for itself. It was important to preserve the mine and sustain its productivity.
Mr Makhubela explained, regarding the removal of directors, one of the directors was charged with allegations. MMC was not informed and when it became aware of the charges, withdrew both directors from the ZAC board.
The Chairperson instructed MMC to fast-tract the process of appointing directors, because Rio Tinto could not run the company on its own for long. He asked whether the directors accepted their withdrawal.
Mr Makhubela replied that one director rejected his withdrawal.
Ms Nqabile Khanyile, DMR Regional Manager KZN, thanked the Portfolio Committee for the opportunity to talk about this issue. The DMR accepted the conclusion by the Portfolio Committee and would abide by it. The DMR pledged it availability to assist MMC, Rio Tinto and ZAC. She appealed to them to come honestly and discuss the issues and to remove personal interest and agendas from the discussion. Unless this happened there would be very little progress.
The Chairperson thanked all parties for their participation.
Adoption of Minutes
The Committee then adopted minutes of meetings held on 10, 16, 17, 24 and 31 of October 2012, as well as minutes of 7 November 2012, all without amendments.
The meeting was adjourned.
- PC Min: Zululand Anthracite Colliery (ZAC) on its compliance to Mining Charter 2
- PC Min: Zululand Anthracite Colliery (ZAC) on its compliance to Mining Charter 1
- PC Min: Zululand Anthracite Colliery & Petra Quarry Mines on mine level of compliance to elements of Mining Charter 1
- PC Min: Zululand Anthracite Colliery & Petra Quarry Mines on mine level of compliance to elements of Mining Charter 2
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