Corporate spat over the carcass of Mine Restoration Investments
A transaction worth 20 times the value of Mine Restoration Investments’ market cap has pitted shareholders against each other
A nasty scrap has broken out over the carcass of Mine Restoration Investments (MRI), a nearly forgotten cash shell company.
While hostilities over the company, which has a value of only about R25m, may seem improbable and fruitless, there is a pending transaction worth more than 20 times the company’s current market capitalisation that appears to now hang in the balance.
MRI is not a prominent commodity play on the JSE and has dabbled unprofitably in niche mining activities. At the time of writing it has still not reported its interim results to end-August, earning the ire of the JSE.
There is, however, an attempt to revamp the company with a proposed R550m scrip-based acquisition of Langpan Mining Co, a chrome mining project in Limpopo.
Not all shareholders are backing the transaction — and Growth Equities, which says it has a 17.38% stake in MRI, has called for a shareholders meeting to shake up the board.
Growth Equities, under the control of entrepreneur Luyanda Zweni, has nominated Quinton George (a well-known, even controversial, mining investor) and Richard Tait (a former investment banker) to be reinstated on the MRI board. George and Tait — who had pushed to place MRI into business rescue — were "removed" as directors in late July.
Growth Equities also wants to oust CEO Michael Miller and FD Ulrich Bester as well as nonexecutive directors Alistair Collins, Mahlatsi Movundlela and Thato Makgalane.
The call by Growth Equities for a shareholder meeting coincided with MRI publishing a "possible reportable irregularity relating to [the] possibility of trading recklessly and the allegations made against some directors".
MRI said audit firm BDO notified the board that a reportable irregularity had been raised on August 7 and this had been reported to the Independent Regulatory Board for Auditors.
The irregularity is linked to complicated — but relatively insignificant — loan arrangements with Growth Equities.
MRI said that in April 2017 George and Tait, identified as the "implicated directors", notified the board that Growth Equities was entering into a syndication scheme over its loan to the company.
MRI argues that the facility agreements clearly show that these are stand-alone loan agreements and that the term "syndication" is incorrect.
MRI also argues that George and Tait "appeared to have substantive control of Growth Equities" — alleging that the duo used the syndication façade as a mechanism to monetise the Growth Equities loan position for personal gain.
MRI says e-mails were disclosed to the board in July that showed George and Tait tried to sell Growth Equities’ shares in MRI — "showing that the implicated directors were in fact the substantive controllers of Growth Equities".
MRI notes that from mid-March to mid-June 2020, the board tried to fully investigate the matter to understand the true extent and nature of the syndication scheme. "Ultimately, the board failed in this attempt and thus referred the matter to both Questco Corporate Advisory and BDO for a more detailed review."
Questco stepped down as MRI’s sponsor last week. Questco principal Mandy Ramsden says MRI has been asked for clarification over the intimation that her company did a detailed review of the matter. "There is a suggestion that Questco rubber-stamped this, and we need this clarified."
In the meantime, MRI has fobbed off the call for a shareholder meeting — saying it had belatedly realised that Growth Equities is no longer a shareholder in the company.
"Following an examination of and investigation into the company’s share register, the custodian of which is Computershare Ltd, it is apparent that Growth Equities sold all its shares and is no longer a shareholder of the company as of May 31 2019."
But George — who was recently fined R4m following findings by the Financial Services Conduct Authority for deceptive trading practices in the shares of ConvergeNet Holdings and Sallies — is not backing down.
He insists Growth Equities remains a significant shareholder in MRI, suggesting that the company might be making a technical point in that the shares are held in a nominee company, Ferbros Nominees. "We will go to court if we have to."
George argues that the current board is conflicted in that certain members — including Miller — are also directors in Langpan Mining.
He suggests that the R550m transaction valuation is many times more than the original purchase price of the Langpan asset and many times more than what it is realistically worth. "They will be issuing almost 140-billion new MRI shares to settle the Langpan deal … existing shareholders will be diluted out of existence."
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