Mailbox: The Great Zupta, IDC con. Worthless Shiva mine now valued at R14.7bn.

From Biznews community member Daniel Sutherland

Nuclear power plantA brief history of the Dominion mine is that it was first owned by Aflease, and then by Uranium One.

An extensive and professional feasibility study on Dominion was published on 13 September 1996, by the then Gold and Uranium Division Geology Department of Anglo American Corporation of South Africa. It concluded decisively that despite the size of the deposit, it could not be mined economically [Noseweek issue # 198]

In November 2008, Uranium One announced that its erstwhile flagship, the Dominion mine in South Africa, was effectively closed. Uranium One wrote down mineral interests, plant and equipment to the tune of $1.8bn on Dominion, which had been attributed with a “salvage value” of $50.5m. [Noseweek issue #198]

On 14 April 2010, the Guptas used their Oakbay vehicle to acquire Dominion, apparently for the equivalent of $37m, and renamed it Shiva. Whether the Guptas paid a cent for the privilege is another question. It is evident that most if not all of the acquisition was funded by the SA Industrial Development Corporation (IDC).

When Oakbay was listed in Johannesburg in 2014, IDC loans to Oakbay amounted to R399m. Of this, R257m was capitalised interest – interest which Oakbay had not paid – and was converted into equity (shares) in Oakbay upon its listing. Yes, the Guptas had failed to pay a cent of interest – which rapidly built up to R257m. [Noseweek issue #198]

Read also: Oakbay concludes $145m Optimum Coal deal despite banking cloud

I have it on impeccable authority that Chinese investors offered $96 million for the Dominion mine, but the Guptas walked away with it for $37 million.

At Shiva, the problems are legion. The plant is inappropriate and needs to be reconfigured, at a cost of billions of rand. Who will pay for this? Even then, long-time industry experts familiar with the deposit say costs at the punative mine are unlikely to be less than $60 a pound – about twice the current world spot price for uranium. It can be said that uranium would need to trade sustainably above $100 a pound for Shiva to ever make sense as an operating mine. [Noseweek issue #198]

The cash portion of the consideration Oakbay paid Uranium One was $37 million, then about R270 million. To fund the acquisition, Oakbay took a R250 million loan from the IDC.

Oakbay’s financials show that it, too, has not been able to maintain profitability at Shiva.

Read also: Mike McWilliams: CJ Rhodes was the original Gupta. History repeats itself.

The entire debt should have been repaid by April 2013. But Oakbay’s financials state that, by the end of February this year, only R20 million had been paid and the debt with interest had grown to R399 million. [M&G – Another state bonanza for the Guptas- 5 Dec 2014]

After negotiations, the IDC agreed in June this year to restructure the debt, including a new repayment schedule that would end in 2018.

This is the background to the Oakbay listing. As its pre-listing statement showed, the IDC is taking a small (about 3.6%) stake in Oakbay in place of R257 million of the total debt
[M&G – Another state bonanza for the Guptas]

However, compared with the underlying value of R5.74 provided by Oakbay’s own financials, or to the adjusted R4.84, the IDC gave Oakbay a discount of between R93 million and R119 million.
[M&G – Another state bonanza for the Guptas]

Read also: Azar Jammine: What Gupta move to Dubai means for Zuma. Must read.

The price that the IDC paid was R9 a share, to convert the debt that Oakbay owed the IDC into equity. So, the Guptas scored an approximate R100 million windfall.

Duduzane Zuma already owns 4.7 % of Shiva uranium through Mabengela, which is named after the hills behind the Nkandla homestead.

Now Oakbay has proposed that it acquire all of the Tegeta business, outside of the Optimum mine, and paying existing shareholders with new Shiva shares. AmaBhungane calculates that the transaction will double Duduzane’s stake in Shiva to about 9.5%. [M&G – Zuma Jr is Nr 1 too 2016-02-19]

So if all those who’ve had a bash at Shiva believe it doesn’t make economic sense, it adds further credence to the notion that the Guptas’ endgame is to sell Oakbay to whoever is hired to build nuclear plants in SA.

If, say, Russia’s Rosatom ends up with that contract, it could justify buying Oakbay as part of an “offset” deal for close to its R14.7 billion “market value”. Shareholders, including the Guptas and President Jacob Zuma’s son Duduzane (who plans to sell his stake), would reap a windfall.
[RDM – Two sworn enemies in the mining industry agree – Oakbay is a dud]

The short of it is that Shiva is a worthless asset, that cannot be economically mined, unless the price for uranium is at least $100/lb, it stands at around $30/lb currently.

Yes, we have all been conned, with the help of the IDC.