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What’s mine is mine: Lonmin and the dangerous art of...

Business Maverick

South Africa, Business Maverick

What’s mine is mine: Lonmin and the dangerous art of intimidation

Out in North West province, a businessman and a lawyer are playing the biblical David to the Goliath that is Lonmin PLC, one of the world’s largest platinum producers. In many ways, it’s the story of South Africa in microcosm: a mining company and the government are in cahoots to intimidate the little guy, but history is on the little guy’s side. By KEVIN BLOOM.

I. The paper trail

“For to win one hundred victories in one hundred battles is not the acme of skill. To subdue the enemy without fighting is the acme of skill.”

In the history of the written word, never has there been a more persuasive quote on the value of intimidation. Laid down 2,500 years ago by the Chinese military strategist Sun Tzu, these simple lines were destined to influence a slew of armies in the East, from the Japanese in the eighth century AD to the North Vietnamese in the twentieth. The aphorism saved the lives of countless soldiers, and was destined for fame in the West too, although there the “savings” would turn out to be largely financial. Towards the end of the 1980s, business books with either “Sun Tzu” or “The Art of War” in the title began appearing on American and European bookshelves. And intimidation, as a strategy to squash dissent, became the go-to weapon in many a Western corporation’s arsenal.

Take, for instance, the letter sent by Hugh Eiser, one half of Eiser & Kantor Attorneys, to Ben Magara, chief executive officer of Lonmin PLC, on 1 February 2016. As an opener to the missive, Eiser felt compelled to school the boss of the London-listed platinum producer in some of the finer points of our country’s Constitution. In particular, Eiser pointed out that the company had acted to dispossess his client of the following rights of citizenship: section 16, freedom of expression; section 18, freedom of association; section 19(1)(c), freedom to campaign for a political party or cause; and section 34, access to courts.

It wasn’t a very nice letter to be writing to the CEO of a company that had reported an operating loss for the previous year of $134 million, but then Eiser had made something of a career out of not being nice to Lonmin. In the mid-2000s, he had forced the company to admit that it had been mining a secret shaft beneath the ancestral land of the Bapo Ba Mogale, the community that lived adjacent to its Marikana mine in North West Province. For the next decade, he would champion the cause of the 40,000-strong Bapo, filing claim after claim that Lonmin and the North West government were in cahoots to skimp on royalty payments. Now, he was fighting for the rights of local community activist and businessman Lesego Kgobane.        

“At a directors’ meeting of Concentrate Carriers on 10 July 2015 and prior thereto,” Eiser wrote to Magara, referring to the transportation company that Kgobane had founded in 2008, “it came to light that you had complained about our client’s membership of and active participation in the Serodumo community-based organisation… Serodumo is, as you know, challenging in court the validity of the agreement entered into in 2014, in terms of which the community inter alia exchanged its royalty claims against Eastern and Western Platinum for shares in you.”

As the Daily Maverick reported in October 2016, this deal, a major flashpoint for the Bapo Ba Mogale, wasn’t too far behind 2012’s Marikana massacre in outrage terms. The activists’ fuses were lit when three men claiming to represent the community—Lehlohonolo Nthontho, CEO of Bapo Ba Mogale Investments; Rangwane Emius Mogale, acting regent of the Bapo; and Vladimir Mogale, Emius’s son—swapped the 12 percent annual royalties off the platinum mines for R100 million in cash and R540 million in equity in Lonmin. The transaction, it was alleged in an affidavit presented to the Pretoria High Court in June 2015, went through without the consultation required under living customary law, the Mineral Petroleum Resources Development Act or the Interim Protection of Informal Land Rights Act.

Also, we reported, Nthontho hired a group of thugs to attack the activists with pangas when, come 2016, they were still refusing to shut up about the R617 million that went missing from so-called account “D”—the account that held the community’s mining royalties, which was meant to be overseen and administered by the North West government. Although Nthontho, the government and Lonmin had been listed as co-respondents in the abovementioned affidavit, which covered the disputed deal and the missing millions, the mining company hadn’t felt the need to explain itself to the local residents.

But behind the scenes, Eiser had been encouraging Lonmin to open up.

“Your insistence that our client is forced out as a shareholder,” he continued in his letter to Magara, “deprives him of his lawful right to enjoy the benefits of the company’s success in the future, and is nothing but extortion. If our client refuses to sell his shares, he cannot be forced to do so, the company will cease to trade, and our client will lose his share of the future profits. Apart from extortion, all this probably falls within the criminal definition of fraud; conduct intending to cause potential prejudice to our client.”

The next day, 2 February 2016, Eiser received a response from Peter McElligott, Lonmin’s branch secretary.

“You allege that Lonmin complained about your client’s membership and active participation in Serodumo,” McElligott wrote. “Kindly advise as to who at Lonmin made this complaint so that we can make the necessary investigations.” In the third paragraph, McElligott added that Lonmin was “unaware of a meeting of shareholders having been called and an offer having been made to [Kgobane] for shares”, adding, once again, that if evidence could be provided, the company would investigate. “We at all times support the fundamental rights enshrined in our Constitution,” he assured Eiser, “and confirm that we have no interest in suppressing lawful resistance to the [2014 shares-for-royalties] commercial transaction.”

Eiser banged a letter back that same afternoon, a letter in which he not only answered all of McElligott’s questions, but in which he alluded to the relationship between Lonmin and its politically connected shareholder Shanduka, the company founded by Deputy President Cyril Ramaphosa in 2001: 

“The matter had its genesis at a meeting attended by our client and Ms Precious Tshabalala on 11 June 2015, when she told our client the complaint about our client’s involvement in Serodumo and in community politics, had come from the Lonmin Exco… We know Ms Tshabalala is an employee of Shanduka. As you know, the writer has personal knowledge of the very close relationship between Shanduka and Lonmin. The matter was taken further by your employee Mr Sebalo Tsogang, who said exactly the same at a later stage… Prompted by the meeting with Ms Tshabalala, on 15 June 2015 our client wrote a letter to Lonmin to explain his involvement to which Lonmin takes exception, which Lonmin in the persons of Ms Tshabalala and/or Mr Tsogang, must have. At the end our client requests that Lonmin’s fury at his personal, private conduct should not redound to the company’s disadvantage. In the letter it is recorded that your Mr Charl Klopper stated to our client his involvement in Serodumo and community politics would damage the relationship between Lonmin and Concentrate Carriers.”

Attached to the letter, by way of evidence, was a copy of the notice received by Kgobane calling for the shareholders’ meeting on 10 July 2015. “Although it speaks for itself,” Eiser noted of this addendum, “we highlight the references to Lonmin…”

And then, of course, the matter went to court. 

II. ‘Meetings left and right’        

The thing about Lesego Kgobane is that he used to be the kind of person South Africa’s public servants fell over themselves to support. For most of our post-democratic history, beginning in 1994 and ending very recently, when the public sector succumbed to the Guptopian shadow and forgot the difference between up and down, the hope of the country lay in finding and funding people with exactly his ambitions.

Born in Bapong, the hometown of the Bapo Ba Mogale, in 1983, Kgobane completed his matric in Mabopane in 2001, and the next year moved to Johannesburg to study at Birnam Business College. While there he bought a bakkie and started a furniture removal business, which failed. He took the failure as a lesson, and set out to finance a larger transport company by approaching the Small Enterprise Development Agency in the Department of Trade and Industry.

“The agency advised me not to start this business in Gauteng,” Kgobane told the Daily Maverick. “They said I should register a transport company in Bapong, where there were opportunities from the mines. So I did. I instructed myself in Lonmin processes, registered as a Lonmin vendor, and moved back to Bapong in 2007.”

From 2008, with Kgobane as managing director, Concentrate Carriers grew from strength to strength. In 2011, Lonmin awarded the company a grant of R350,000, to line its tankers with an anti-corrosive agent. In 2012, when the company was looking to finance the acquisition of a competitor, Lonmin extended a R500,000 loan, which got paid back in 20 months.

“The problem started in 2014,” said Kgobane, “when Nthontho came to Bapong. I was invited to a meeting at the royal palace. Nthontho was brainwashing people, saying he was going to make it look like Dubai. He wanted to hire a CFO for [Bapo Ba Mogale Investments] in three days.”

Kgobane raised his hand, and asked how a CFO could be hired in three days when the recruitment process for such a position usually took three months. On 29 July 2014, when a second meeting was held in Bapong to pass a resolution on the royalties-for-shares swap, Kgobane raised his hand again. He wanted to know why the community wasn’t properly consulted, why the directors in Nthontho’s new company weren’t nominated via a process, and why there was no valuation report. “I asked Nthontho, ‘How much are we converting for how much?’ We didn’t have any documents pertaining to the valuation.”

All of a sudden, said Kgobane, it was “meetings left and right”. His co-directors, he alleged, were holding meetings with Lonmin in his absence. He then heard that the Lonmin Exco weren’t happy with his “political activities” at all.

Which brings us via the abovementioned exchange of legal letters to 27 October 2016, when Judge Gutta of the North West Division of the High Court made an order declaring a meeting of the shareholders of Concentrate Carriers on 24 February 2016 “invalid and of no force or effect”. Kgobane’s three partners in the company had passed a resolution at this meeting to remove him as a director, and Gutta’s conclusion was that the proper procedure hadn’t been followed—meaning, not only was Kgobane still a director and the largest shareholder in Concentrate Carriers, but his partners had to foot the bill for the court case out of their own pockets.

And then on 7 December 2016 an urgent application was brought to the same court, ordering Kgobane’s partners to allow him entry to the offices of the company “and to have complete and unfettered access to all of the records and documents”. Kgobane, it turned out, had been denied entry by hired guards. The application asked that the South African Police Service be given the right to arrest anyone who continued to keep Kgobane out, and further requested a re-audit of the company’s latest draft financial statements. Why? Because, Kgobane alleged, things had gone horribly wrong since he’d left the full-time employ of the company in July 2015.

In the founding affidavit attached to the application, Kgobane testified that while there was “a significant and pleasing increase in total revenue” for the year ended 29 February 2016, “certain critical expenses had increased out of all proportion.” There were items in the management account, he contended, that provided “prima facie evidence of gross wrongdoing.” For instance, the company’s fuel costs had increased by 107% in a year when the price of fuel had dropped; employee costs had increased by 139%, almost double the increase in revenue; the cost of tyres and tubes had increased by 106%; and the employee overtime bill had been almost equivalent to the total salary bill.

“All this is clearly evidence of gross diversion of money out of the company,” Kgobane testified, “which has had the effect of depressing its profit for the first seven months to a paltry R419,389.”

But again, what about Lonmin? Eiser, for one, hadn’t allowed the lawyers for the opposing side to forget. In a letter dated 24 November 2016, after noting that Kgobane’s patience on the shareholding and access issues had been “exhausted”—and that the three co-directors had only seemed interested in “hiding the truth” and “distorting the facts”—he’d stated the following: “We are writing to Lonmin, the instigator of all this, advising them what has transpired, notwithstanding their best efforts.”

There was something unmistakably combative in his tone, something that encompassed the scale of the mining company’s cynicism since 2014—the willful opaqueness of the royalties-for-shares swap; the R617 million that went missing from account “D”; the attacks on the activists by Nthontho’s thugs—and it was all contained in the phrase “best efforts”. It was the story of South Africa in microcosm: a mining company and the government were in cahoots to intimidate the little guy, but history was on the little guy’s side. DM

Photo: Workers underground at Lonmin Rowland Shaft setting up for drilling. Photo: Thapelo Lekgowa.


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