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TheKebbleCollusion
The Kebble Collusion Ten Fateful Days in a R26 Billion Fraud
Barry Sergeant
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Barry Sergeant
First published by Jacana Media (Pty) Ltd in 2012 10 Orange Street Sunnyside Auckland Park 2092 South Africa +2711 628 3200 www.jacana.co.za Š Barry Sergeant, 2012 All rights reserved. ISBN 978-1-4314-0464-3 Also available as an e-book d-PDF ISBN 978-1-4314-0465-0 ePUB ISBN 978-1-4314-0466-7 mobi ISBN 978-1-4314-0696-8 Cover design by publicide Set in Ehrhardt 12/16.5pt Job no. 001860 See a complete list of Jacana titles at www.jacana.co.za
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Contents
Contents
Dramatis Personae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi Preface. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv Author’s Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxi Prologue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxiii Day One: The Worm Turns in Swamptown 28October1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Day Two: South Deep Hijacked 30June1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Day Three: The Start of the Cover-Up 24August2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Day Four: The Time Has Come to Speak of Fraud 14March2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 Day Five: T-Sec: Epicentre of the Frauds? 20October2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152 vii
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BarrySergeant Day Six: The Worm Turns for KPMG 23February2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178 Day Seven: Investec’s Artistry at Western Areas 10November2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215 Day Eight: Brett Kebble Reflects on a Life 7July2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227 Day Nine: The Fantastic Frolics of the Scorpions 21February2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283 Day Ten: The Fraud Nailed Up and Bleeding from Every Extremity 28March2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292 Epilogue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311 Timeline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359 Dramatis Personae: Full Listing . . . . . . . . . . . . . . . . . . . . . 363 Appendices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 374 Endnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 430 Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 457
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Contents
Appendices Appendix 1.1 Analysis of the R1 902 million cash received from the sale of the shares stolen from Randgold: Initial recipients of the proceeds from the alleged thefts . . . . . . . . . . 375 Appendix 1.2 Analysis of the R1 902 million cash received from the sale of the shares stolen from Randgold: Dates of thefts, quantities stolen, proceeds from the sales, initial recipients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 376 Appendix 2 The role of T-Sec . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 380 Appendix 3 Investec’s exposure to the Kebble companies . . . . . . . . . . . . . . 381 Appendix 4 Summary of the Investec Loan Agreement . . . . . . . . . . . . . . . 385 Appendix 5 Monty Koppel’s Letšeng Diamonds fought the Investec Raising Fee (IRF) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389 ix
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BarrySergeant Appendix 6 The Mediation Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 391 Appendix 7.1: Randgold’s four major claims . . . . . . . . . . . . . . . 394 Appendix 7.2: Interrelationship between the claim of the Randgold minorities, Investec and Randgold’s four main claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 395 Appendix 8 A summary of the Settlement Agreements . . . . . . . . . . . . . . . . 398 Appendix 9 Experts benefit from JCI and Randgold, even after the Kebble era . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400 Appendix 10 Claims and settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401
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DramatisPersonae
Dramatis Personae
Brett Kebble was the man who reigned over ‘the Kebble era’, which ran from 1 September 1997 to 24 August 2005. Kebble was the mastermind of the JCI–Western Areas–South Deep axis, and the controlling mind of Randgold. He engineered what today ranks as one of the world’s biggest unprosecuted frauds. Peter Henry Gray is the suave, style-conscious managing director of Société Générale (Johannesburg Branch) until 2001, CEO of T-Sec from 2002 to 2005, CEO of Randgold from August 2005 to July 2008, and CEO of JCI from 24 August 2005 to date. Montague ‘Monty’ Koppel is a legendary but real Londonbased lawyer-tycoon, who acquired close to 20 per cent of JCI during the Kebble era. Roger Kebble is the wrong-headed patriarch. His big breakthrough was making it onto the board of the historical Durban Roodepoort Deep gold mine, west of Johannesburg, in August 1994. He was a director, and often chairman, of several Kebble Group entities, including Randgold Resources, Western Areas, JCI and Randgold.
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BarrySergeant Chris Lamprecht was the emotionally confused financial director of Western Areas from May 2003 until March 2006 and, after the Kebble era, financial director of JCI and Randgold from August 2005 to May 2006. He had a long shadow: he has been described as ‘the de facto financial director of JCI from 2004 to 24 August 2005.’ Andrew Christoffel Nissen, a man of the cloth, was a Randgold director from July 2003 to April 2007 and a director of JCI from September 2005 to July 2011. For many years, he has been a director of Standard Bank, South Africa’s biggest bank measured by market value. Hennie Buitendag, who died in 2011, was the good-humoured financial director of Randgold and JCI during the Kebble era. Charles Cornwall, a polo-playing dilettante, was in Kebble’s inner circle and a director of JCI during the Kebble era. John Stratton, a repellent Anglo Australian, was a director of JCI during the Kebble era. John Louw was the straight shooter with a formidable intellect, the man who led Randgold’s ‘shining path’ forensic investigation immediately after the Kebble era. Déan Friedman is a leading light at KPMG Services, playing an extraordinarily ambiguous role in the long aftermath of the Kebble saga.
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DramatisPersonae David Morris Nurek is an inscrutable Investec executive who moved into the chair at both JCI and Randgold immediately after the Kebble era came to an end. Ian Liddle is the prim and proper successor to Stephen Mildenhall as chief investment officer at Allan Gray, the money manager, the biggest institutional investor in the Kebble Group companies during the Kebble era. Stephen Koseff is the opportunistic chief executive officer of Investec plc and Investec Limited throughout the Kebble era and to date. George Poole was Brett Kebble’s chief forger and lead lackey. Marais Steyn was appointed financial director of Randgold in December 2006, and CEO upon the resignation of Peter Henry Gray from the position in July 2008. Nick Holland is the self-righteous CEO of Gold Fields, which bought Western Areas and changed its name to Gold Fields Operations. Mark Wellesley-Wood is an affable Englishman who was appointed non-executive chairman of DRD in May 2000. He is one of the few people to have ever stood up to the Kebbles. Gerrie Nel and Guillaume Nel were senior prosecutors; the former of Kebble’s murder, and the latter of Kebble’s whitecollar frauds. Both came up with naught.
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Prefaceďťż
Preface
This is an extraordinary tale, for a number of reasons. It works at two main levels. First, it is about joining all the dirty dots in Brett Kebble’s brilliant and criminal business career, and in so doing, telling the stories of the many people who have worked tirelessly to cover the story up. I say shame on you. But the story is out now, and you are in it, whether you like it or not. The second level relates to me, the author, but only regarding my quest to get to the bottom of it all. It is about more than 15 years of hunting down the truth about Brett Kebble, from the time his name was first heard in the public domain until long after his death. I was in the same room as Kebble many times and observed how he worked the world. It was fascinating for a time, and then tragic. When I last saw him in July 2005, he had been over the hump years before, and he knew that he was falling deeper into the slough of despondency. Two months later, he was dead. 6
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BarrySergeant I first engaged with him towards the end of 1996. It was at the time that the great bull-chested and eloquent spinmeisterpulled off his first really big stock market heist. Then in 1997, Kebble and some of his closest cohorts decided that they were going to come after me. I stood up to the five of them and in 1998 they backed down, literally on the court steps. After that, Kebble was different with me, no doubt applying the principle that you should keep your friends close and your enemies even closer. So it came to pass that I seemed to be appointed – unofficially – as Kebble’s biographer. He knew that I was onto him and that I was not going to let go. In a strange way, he respected this. In the years that followed, we would only meet face to face. He was an excellent source of information; he spied on everyone and spent millions on his spying activities. He was a compelling presence: it was difficult to resist listening to his market intelligence, his political analyses and his outrageous and theatrical character assassinations. Kebble possessed an extraordinary intelligence, which he applied to many fields: a gracious and composed raconteur, he was also a visionary but ruthless entrepreneur; he played the piano; he loved and collected art; and he was a good reader of people. Then there was his sexuality. It is a strong force in all of us, and this was certainly true of Kebble, though it was one of the few areas that I deemed to be private. He drew people to him and he also expected absolute loyalty. He was a leader and way ahead of his time in the art of corruption. He was a man of huge appetite, a bonvivant who enjoyed lots of good food, wine and extravagant entertaining. As our strange friendship developed, I observed a boyish vulnerability in him, and I swear that on a few occasions, particularly towards the end, I saw fear in his eyes.
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Preface 6 Two months before he was murdered, I spent two hours alone with him. With practically the whole world sitting on his head, he still would not concede any personal responsibility. I didn’t touch the notes from our final exchange, recorded in a Moleskine notebook, until the end of 2011. Why the long delay? In retrospect, I think I needed years to process the emotional effects that all this had on me. I knew from that final (as it turned out) meeting that Kebble was doomed, and I knew that he knew. I did not write down everything then, and I have not written it all here. But so vivid is the whole encounter in my mind that I doubt I will ever forget it in all its detail. In my recounting of my meetings with him, I hope to shed more light on Brett Kebble’s extraordinary character as well as the wider world in which he acted. The many encounters I had with him are core to the bigger narrative, the telling of which I hope brings to readers new and important truths. After Brett Kebble was murdered, I remained on the trail, which got wider and longer at every turn. I engaged with certain people involved in the cover-up of the Kebble era; and separately, I tried many times, for years, to engage with certain other people. For reasons that will become apparent, a very good number of people flatly refused to engage with me. Predictably, some threatened me. In good, straight-shooting language, they are among the undignified punks of the world: cowardly thugs masquerading as gentlemen in suits. Those involved in the cover-up were always going to end up between the proverbial rock and a hard place. First, there is significant material, no matter how dispersed, in the public domain. This includes forensic reports, fully and partially released by, inter alia, JCI and Randgold. The findings of some xvii
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BarrySergeant important reports have been smothered. Second, the Kebble era spawned many court cases. The court papers, as a whole, have presented – and continue to present – a monumental body of ‘work’, measurable perhaps in the number of pages, which surely must add up to many thousands bursting out of dozens of lever-arch files. Third, and perhaps most important, there are the people. Many people have been involved and affected by the saga, and have been central to my efforts at joining the dirty dots. The right thing to do would be to acknowledge each by name. But because of the sensitivities at stake, I prefer to thank each of you personally and to name nobody. It is the positive conduct of these good people that has allowed this story to be put together. This book has been carefully crafted as a case study, providing layers of detail, to provide readers with facts and evidence that will allow them to make informed judgments. It has been my intention to be fair in the way that I have portrayed people and events. If some characters and entities are presented in a very harsh light, it is because as I see it there really is no evidence to support an alternative. Sadly, there have been times when it has been very difficult to take certain people at all seriously. These are the kind of people who gush out a long list of qualifications, endless achievements, along with lots of nauseating ‘holier-than-thou’ commentary. No doubt all the boasts are true, but history, especially recent history, has shown that even the perfect may be – you know – fractionally flawed. The conduct of some of these people echoes the hubristic behaviour of those in charge of large global financial institutions. In this way this narrative is about more than one greedy man and his actions in a swamptown full of other greedy men and their actions. It is also about captains of industry who do bad things xviii
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Prefaceďťż and who deeply believe they can and should get away with it. So in conclusion, we may ask whether South Africa and the world have become so inured to the seemingly never-ending allegations of corruption against leading corporates, and, more importantly, the individuals at the helm at the time, that we let them go unpunished? We need to ask why the policymakers and politicians seem to take no action, or, very ineffective action? Are they complicit in the delinquency? This book is in a sense about wanting to make the world a better place. I hope that by seeing what really went down in this sordid saga, readers will be outraged enough to want to see justice done. So be it, for now.
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Author’sNote
Author’s Note
To ease reading, ‘Randgold & Exploration Company’ is referred to as ‘Randgold’. ‘Randgold Resources’ refers to the company founded by Randgold in 1995 to focus on gold mining elsewhere in Africa. It is listed in London and the USA. SocGen refers to Société Générale, Johannesburg branch. There have been three manifestations of ‘JCI’; the one we are mainly concerned with in this narrative is Brett Kebble’s version of JCI, which has its roots in 1997, but only officially adopted the ‘JCI’ name in 2002.
Some helpful hints for readers Every so often the reader will come across infographics and tables. They have been designed, not to intimidate, but as an aid to the text, to graphically illustrate some of the more complex or just plain astonishing facts. Similarly, the appendices have been included for specialist readers who would like more technical and legal detail, and more information on sources.
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Prologue
Prologue
Some say that the Brett Kebble ‘saga’ is over – or at least that it’s been fully explained. This narrative will show that this is not so. This is a story that starts unfolding 15 years ago, in 1997, and whose reverberations are still being felt today. In 1997, Brett Kebble’s creativity in the stock market arena peaked. The shadow side of the brilliance he showed in that year was debt: a mountain of debt for Kebble personally, and a further mountain of debt for JCI,1 the key company in the Kebble empire. But debt of any kind is collected by individuals; in this case, people who have until now remained very much in the background of the saga, if not wholly invisible. It may come as a surprise then, but Kebble’s public life – which started in earnest in 1996 – was ultimately driven by debt collectors. And we all know that he ended up dead. From September 1997, Brett Kebble was in control of the Kebble Group of companies – comprising mainly three entities listed in Johannesburg: JCI (which until 2002 was known as CAM, or Consolidated African Mines), Western Areas, and Randgold. Kebble was the biggest individual shareholder in JCI. JCI’s single biggest investment, in turn, was a majority stake in Western Areas, which, in turn, originally held 100 per cent of South Deep xxiii
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BarrySergeant – 50 per cent from the end of 1998. South Deep is one of the world’s biggest unexploited gold deposits. It is situated on the Witwatersrand, the world’s biggest gold field, and can be found west of Johannesburg on the border of the Kloof–Driefontein complex of Gold Fields, one of the world’s largest gold producers. As such, Brett Kebble’s single biggest personal investment, indirect as it may have been, was in South Deep. This would be the case for the rest of Kebble’s life. The link between Kebble and South Deep drove Kebble’s decision-making, for good or for ill, until his death. Many people saw the Kebble–South Deep relationship as ‘good’ for everyone. Said John Brownrigg, a long-standing director of Western Areas: Brett’sdistinguishingfeatureisheownsthelargeststakeinmostof thecompanieshemanages.Nobodyelsedoes.Somepeoplewantto saythatisawrongstructure.Ithinkitisarightstructure.People wouldaskme,‘WhyisyourminedoingX?’I’dsay,‘It’srightfor shareholders–here’sthebiggestshareholder.’2
Unlike a surface gold mine, however, South Deep was going to take many years to develop: two decades, as it turned out. And it would absorb billions of rand before it could become cash-flow positive. Even by South African standards, this was always going to be a very deep gold mine. Mine development had started at South Deep in 1995, just as Western Areas’ then-parent company, Anglo American, decided to offer a slimmed-down version of Barney Barnato’s original JCI, including its stake in Western Areas, to interested black economic empowerment (BEE) parties. Brett Kebble’s wizardry was such that he turned an opportunity for BEE into the biggest personal opportunity of his life. By mid-1997, he controlled more than xxiv
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Prologue 50 per cent of the shares in a far slimmer version of JCI, and thus more than 40 per cent of the shares in Western Areas which in turn owned 100 per cent of South Deep. Suddenly, he controlled one of the world’s biggest gold deposits. It seemed too good to be true. But unlike Anglo American, Brett Kebble didn’t have deep pockets. On the contrary, both he personally and JCI owed a mountain of debt, and it was growing by the second. Kebble’s personal life was producing growing cash deficits as his spending habits intensified; in his corporate role, he presided over assets that were horribly cash-flow negative. For years, each of the companies, and especially Western Areas–South Deep, would gulp down millions of rand each month, before becoming cash flow positive. On a net basis, Brett Kebble and his companies were technically insolvent, from the inception of the Kebble Group in September 1997. He would do whatever it took, and more, to prevent the actual manifestation of any insolvency or liquidation. Kebble’s sheer force of personality, combined with a great deal of charm, and a growing reputation as a man with some kind of a Midas touch, kept the creditors at bay. In practice, the cash drought only worsened. From the start in 1997, Brett Kebble had a negligible stake in Randgold, but along with his father, Roger, Randgold was effectively under the control of the Kebble family. Starting in 1999, Brett Kebble simply started stealing listed investments held by Randgold, and selling these stolen shares to raise cash. The cash was then rerouted in various directions, to suit his personal and ‘professional’ purposes. In addition, Randgold issued 16.8 million new Randgold shares for no value and placed them under Brett Kebble’s control; 13.8 million of these shares were sold and the proceeds applied as instructed by Kebble. None of the proceeds flowed back to Randgold. xxv
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BarrySergeant He did also conduct a number of legitimate cash-raising exercises. At the end of 1998, Kebble had literally been forced to sell no less than 50 per cent of his beloved South Deep. US$235 million in cash rolled into the Western Areas coffers from Toronto-based Placer Dome, which also took management control of the new South Deep joint venture.3 Late in 2001, Western Areas raised US$104 million in cash by signing up to a ‘hedge book’. This essentially provided cash upfront for Western Areas, which, inter alia, sold call options over 1.8 million ounces of gold at an average strike price of around US$300 per ounce for gold that would be produced over the next decade. This is no misprint: the call options were done at around US$300 an ounce. The hedge book would prove to be one of the most toxic in global gold-mining history: over the decade ahead, gold bullion would easily clear the US$1 000 an ounce mark, and later, in the latter parts of 2011, push on in an attempt to assault the US$2 000 an ounce level. The Western Areas hedge book became a loss maker of unimaginable proportions. Hedge books are a zero sum game: every cent lost by Western Areas was being made by the parties holding the hedge book. Investec, one of the three ‘hedge banks’ attached to the winning end of the deal, was based in South Africa, and in due course assisted in lending to various entities under Brett Kebble’s control – and to him personally. In 2003, JCI defaulted on debt that it owed to Investec. By this point, it should be stressed, Investec, like any seriously concerned creditor, had substantial and detailed knowledge of the Kebble ‘empire’ – of the corporate entities, and Brett Kebble’s personal finances. The debt collectors were closing in.
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TheWormTurnsinSwamptown
DAy ON E
The Worm Turns in Swamptown 28 October 1996
A twisted start Alltruthpassesthroughthreestages.First,itisridiculed. Second,itisviolentlyopposed.Third,itisaccepted asbeingself-evident. – Arthur SchopenhAuer
I first bumped heads with Brett Kebble during and after his first really big heist, which dates, formally, to 28 October 1996. This is when Randgold, listed in Johannesburg,4 announced details of the acquisition of BHP Minerals Mali, from the then-BHP, a big Australian resources house. BHP would later merge with Billiton to form the world’s biggest diversified resources group, BHP Billiton. I had taken a sabbatical of kinds into the world of investment banking and its first cousins, stockbroking and corporate finance. 1
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BarrySergeant Back then, the Johannesburg Stock Exchange and just about every stockbroker could be found at 11 Diagonal Street, in a modern, glass-fronted high-rise. In honour of the JSE’s5 original location, one of the restaurants in the new building was named Between the Chains.6 But it was to the Red Room, adjacent to The Floor, that dealers flocked at the close of business, to lubricate vocal cords parched by the open outcry system. Down on The Floor, fortunes were made and lost, until technology ended these good old days. It was a stressed environment, like so many other markets, and a good number of dealers came to the Red Room long before the sun started to sink from its midday peak. This market was especially endowed: Johannesburg has always been, at its core, a mining town with the morals of a fetid swamp. In 1895, just nine years after gold had been struck on what would become the world’s biggest gold fields, Johannesburg boasted more than 100 bordellos, each paired, so to speak, with a bookmaker, and each paired, so to speak again, with a saloon. Men would drink to inspire their next move and when that failed, they would drown their sorrows, fornicating on their way to take the next big bet at the bookies. It was, after all, the world’s biggest gold rush. Today Johannesburg is a sprawling city, the world’s largest that does not have a major river siding or a seaside position. It is a huge bordello of a city, pretty soulless, running on crass materialism. For someone with the gifts and ambitions of Brett Kebble, Johannesburg was a place of great beauty. He would take on its top business brains, and leave a mark forever. 6
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TheWormTurnsinSwamptown In the early 1990s, I went to work as an investment analyst for Ed Hern, Rudolph Incorporated, a stockbroking outfit. All market activity in South Africa was exploding after the 1994 elections, when resources companies in particular were keen to show off their previously hidden offshore assets. Within a few years, I had worked in both of the Americas, Australia, Western Europe, the United Kingdom and various parts of Africa north of the Limpopo River. The 1990s had kicked off with solid interest in exploration stocks and there was little doubt in my mind that West Africa needed thorough scrutiny. I spent a good amount of time in the backwaters and badlands of Ghana, Mali, Burkina Faso and Côte d’Ivoire. When Ed Hern, Rudolph was sold to the Board of Executors (BoE)–NatWest Markets joint venture in 1995, I was among the last to applaud, but following the democratic elections in 1994, the global brokers were moving into South Africa and buying everything in sight. The new joint venture, known as BoE NatWest, operated BoE Securities, a South African stockbroker, which inherited Ed Hern, Rudolph’s offshore partner at the time, NatWest Markets, which had, in turn, a strong resources country partner in County NatWest, Australia. At that time, I strung together a deal involving a portfolio of contiguous gold assets in Ghana, later known as the Ahafo project. Ownership of neighbouring properties within the project was fragmented, involving mainly Gencor (from South Africa), Normandy (Australia) and La Source (the commercial arm of BRGM,7 based in Paris, France). My self-appointed task was to consolidate the properties into Eldorado, Gencor’s Canada-based gold exploration partner, back then anyway. It was a tough nut to crack. I called on the offices of County NatWest’s Martin Pile in Perth and also BoE Securities’ London office, which, for all its style (including a four- or five-hour working day), seemed a little lost. 3
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BarrySergeant In early 1997, the package of Ghana gold properties was fairly valued at around US$200 million. Brian Gilbertson, then CEO of Gencor, liked what he heard and saw at my final presentation and, in his usually efficient manner, gave the transaction an immediate thumbs-up. A subsequent sharp correction in the gold price had a significant impact on the outcome of the deal. Back on the main trail, it was on 28 October 1996 that Randgold detailed its plans to acquire BHP Minerals Mali, and vend it into Randgold Resources, a newly established 100 per cent subsidiary of Randgold. According to the chairman of both Randgold and Randgold Resources, Peter Flack, as quoted in the media, Randgold Resources had purchased BHP Minerals Mali for US$82 million ‘settled in cash and through the issue of Randgold Resources shares’.8 Randgold implemented further transactions and activities to further fund the development of Randgold Resources and its exploration activities, focused across West Africa.9 In one of the moves, Randgold raised funds via its whollyowned subsidiary, Randgold Finance (British Virgin Islands), which issued a US$48 million convertible bond10 that was listed on the Luxembourg Stock Exchange.11 Randgold Resources had now issued a grand total of 12 550 000 shares, of which Randgold held 76 per cent, at a total cost of US$38.92 million. The reality seemed to be that, in little over a year, the ‘value’ of unlisted Randgold Resources had increased from US$5 million to US$320 million12 – according to the valuations ‘divulged’ by the directors of Randgold. yet all that Randgold and Randgold Resources had done was buy a lossmaking debt-riddled gold mine. (To be fair, however, there were also a number of essentially unknown, undeveloped assets within BHP Minerals Mali.) Randgold’s 1996 annual review, at page 11, stated that ‘the 4
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TheWormTurnsinSwamptown market value’ of Randgold’s stake in Randgold Resources post the BHP Minerals Mali transaction – which was still unlisted – was US$244 million. On page 10 of the same document, Flack had the heart to explain that the value of Randgold Resources, including BHP Minerals Mali, had been calculated at US$25.50 per share, ‘being the directors’ value’. The US$244 million comprised by far the single biggest component of the overall parent-company Randgold’s net asset value (NAV). Trailing far behind was Randgold’s stake in Harmony Gold, which of course was listed and whose market value therefore could not (easily) be manipulated: US$51 million on 6 September 1996. This was a mean story all right: in little more than a year, Randgold’s valuation of Randgold Resources had shot up from US$0.63 a share in 1995 to US$25.50 a share. It took me months to unpack the BHP Minerals Mali transaction. It was as complicated as hell, and a tasty example of the kind of snake oil that Kebble would run on for nearly a decade. With my knowledge of gold assets in West Africa, I had serious reservations about Randgold’s valuation of BHP Minerals Mali, and, thus, with the valuation of Randgold Resources. Early in 1997, I sent a draft copy of my report, intended eventually for investment managers, to one fund manager in Cape Town and another in London. It was standard procedure – certainly in those days – for investment analysts to send draft reports to key clients, who would sometimes revert with valuable comments that could then be incorporated into the final report.13 Here, however, one, or perhaps both, ‘leaked’ my draft to Randgold. In February, as a director of Randgold, Brett Kebble demanded a meeting at the Randgold head office in Crown Mines, just south of central Johannesburg. I asked Philip Wessels, the then-chief executive of BoE Securities, to accompany me. Kebble met us at reception and, without warning, led us into a large boardroom 5
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BarrySergeant occupied by 20 people, perhaps more, including representatives of the company’s attorneys Bowman Gilfillan Hayman Godfrey,14 investment bankers Simpson McKie James Capel and auditors Deloitte & Touche.15 It was an interesting collection of elegant suits, all backing a deal that was – in my opinion – wrongly priced from the outset. Peter Flack, in his usual severe pinstripes, waved my draft report around and said, in a nutshell, that it was defamatory: how dare anyone criticise this deal, given that such esteemed experts had signed it off? All the highly paid, highly qualified gentlemen nodded in agreement. Flack never looked me in the eye once; nor did Brett Kebble. None of them pointed out a single fact or figure that was ‘wrong’. Kebble picked up the report, read a sentence aloud, and then pronounced his verdict: ‘This is a falsehood,’ he said. Brett Kebble was, of course, well on his way to becoming a world-class expert in the subject of ‘falsehoods’, as the world would eventually discover. But there was something unnerving in his tone of voice; it was a threatening tone and it was the first of a few times that Kebble threatened me. But I was not presented with any information that would change my valuation of BHP Minerals Mali, and, thus, Randgold Resources. At this point, Wessels announced that he was going to say nothing at all, as he had not known this was to be a ‘formal meeting’. He would be back once he had briefed legal counsel. As we drove away, Wessels muttered something about BoE’s ‘reputational integrity’. He seemed to me to not be concerned about the accuracy or otherwise of my report, only about BoE’s name. Wessels wasted no time calling on Gerhard Kemp, a gold analyst, and assigning him to the ‘Randgold issue’. Kemp had been a mine surveyor with Anglo American for many years on the West Rand, but had never been to West Africa. Weeks later, Kemp produced a 6
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TheWormTurnsinSwamptown seriously redacted version of my original report. In March 1997, the Johannesburg-based weekly, Financial Mail, published an article that focused on a report by Smith Borkum Hare investment analysts Bobby Craig and Gavin van der Wath, in which questions were asked about Randgold Resources. Flack said the report was ‘misleading’ because it double-counted the debt in Syama – a producing but problematic gold mine owned by BHP Minerals Mali. Craig stood by his assessment. Mark Bristow, the CEO of Randgold Resources, had this to say to the media: ‘Randgold Resources has to be compared with its Canadian and Australian peers. When you do that, you find our valuations are conservative and realistic.’ Flack said Randgold Resources would raise money to accomplish its expansion plans and that ‘we will not jeopardise those plans by trying to fool the market with a load of rubbish’. Indeed. In July 1997, Randgold Resources listed in London at US$15.50 a share, just above half the price that Flack and his cohorts had crowed, if not dictated, and I had criticised. In the background, in Johannesburg, Randgold’s stock price was tanking. My analysis of Randgold’s 1996 transaction, the Mali assets, placed me in direct conflict with the directors of Randgold, led by the inscrutable Peter Flack, who was surrounded by the likes of Brett Kebble, his father Roger and Mark Bristow. My analysis, roundly condemned by them at the time, was a huge threat to Kebble’s huge ambitions. As it turned out, the meeting at Crown Mines was only the start of a protracted savage attack on me.
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2012/09/22 1:54 PM