Inside Aurora disaster: Zuma, Mandela actions exposed for all to see

Warren Buffett advises us to stick within our circle of competence. Straying away from things you don’t really know about can lead to trouble. Zondwa Mandela and Khulubuse Zuma are learning that lesson the very hard way. And starting to appreciate that trading on a famous family name is a double edged sword – it might get you deals, but heaven help you if they turn sour because the spotlight never fades. With all the muck around the duo’s Aurora disaster now exposed in court, Mandela and Zuma are about to face even greater censure. Last year I had a memorable interview on CNBC Africa with Solly Bhana and trade unionist Gideon du Plessis where the issues were outlined and various accusations made. It’s well worth another watch. – Alec Hogg

By Kevin Crowley

aurora4(Bloomberg) – Fifteen years after their relatives helped free South Africa from apartheid, scions of two of the nation’s most famous families met in a hotel overlooking the Indian Ocean to start a business together.

Zondwa Mandela and Khulubuse Zuma, accompanied by an entourage of friends and advisers, decided at the five-star Beverly Hills Hotel in Durban in March 2009 to set up a company that would take advantage of laws favoring black investors in mining. They didn’t put up any money.

Six years later, Nelson Mandela’s grandson and President Jacob Zuma’s nephew are fighting claims alleging fraud amounting to almost 2 billion rand ($164 million) in a civil case after gaining access to two mines near Johannesburg without paying for them. About 5,000 workers have lost their jobs, operations ceased five years ago, equipment has been sold for scrap — and almost $10 million of gold is missing, court documents show.

Mandela and Zuma “are still enjoying luxurious lifestyles despite workers suffering with no food, water or electricity,” said Joseph Montisetse, a regional secretary for the National Union of Mineworkers. “They have tarnished the image of our political leaders.”

Zondwa Mandela, 31, and Khulubuse Zuma, 44, are awaiting a judgment on whether they are personally liable for claims following the collapse of their company, Aurora Empowerment Systems Ltd. Mandela, Zuma and their fellow defendants deny they are responsible for the mining venture’s failure, saying they never had full control of the mines.

Rights Dispute

Judge Eberhard Bertelsmann, presiding over evidence collected over four years, will make a ruling within weeks at North Gauteng High Court in Pretoria, according to Johan Engelbrecht, who brought the claims against Mandela, Zuma and three others. They are Thulani Ngubane, a fellow Aurora director, and Sulliman and Fazel Bhana, a father and son duo who acted as advisers to Aurora. Ngubane didn’t respond to a request for comment. The Bhana’s said they weren’t given the opportunity to respond to evidence.

Aurora agreed in 2009 to take over the mines from the insolvent estate of Pamodzi Gold Ltd., which is controlled by liquidators including Engelbrecht. The company said it would pay 605 million rand for the two operations and invest a further 350 million rand in them.

Aurora never came up with the money, it is alleged in court documents. The company’s directors are now being sued by Pamodzi’s liquidators, who allege Aurora removed the mines’ assets and left the operations in an unworkable state.

Mandela said responsibility for the job losses and lost assets should lie with Pamodzi Gold.

Matter Inherited

“What most disturbs me with this matter is that it was inherited from Pamodzi in an unresolved liquidation process,” he said by e-mail May 26. “Pamodzi had the responsibility to protect the labor force during the most stressful and incapacitating period of their lives.”

Zuma said that as non-executive chairman, he devolved day- to-day operations to Mandela and others and lost 35 million rand of his own money paying some workers and fending off illegal miners.

“I regret my decision not to assume an executive, even operational, role in the business,” he said. “The sooner the court hands down its judgment, the sooner I can resume my life as a businessman and a deal maker.”

Mining rights were never fully transferred to Aurora, meaning the operations were still Pamodzi’s responsibility, Zuma said in sworn affidavits.

Mandela and Zuma’s venture is viewed by Mzukisi Qobo, an author on South African politics, as an example of how black economic empowerment laws, known as BEE, designed to redress economic discrimination under white-only rule that ended in 1994, can be abused.

‘Politically Connected’

“Aurora is yet another example of how BEE laws have been used as a shortcut to promote a politically connected elite,” Qobo said. “The original intention of BEE was good — to diversify economic ownership — but those who are benefiting are those who are close to the ANC,” Qobo said, referring to the ruling African National Congress.

When Aurora was conceived, the future looked bright for Zuma and Mandela. Zuma’s uncle led the ANC and became the country’s president two months later. Mandela was a young businessman with the most-celebrated family name in Africa. His grandfather, Nelson, was the country’s first black president and is credited, along with the ANC, with bringing an end to apartheid.

Zuma became Aurora’s chairman and Mandela the managing director.

‘Living my Dream’

In July 2009, Aurora bid for the Orkney mine, west of Johannesburg, from the estate of Pamodzi Gold, which had gone into liquidation earlier that year. It later made an offer for another Pamodzi mine, Grootvlei.

“I am living my dream,” Mandela said in a December 2009 interview with Bloomberg, while eating a prime cut of steak and ordering a red wine blend known as The Chocolate Block in a northern Johannesburg restaurant.

Nelson Mandela, his then 91-year-old grandfather, “gets very excited when we tell him about the gold-mining plans. He understands the potential for job creation,” Zondwa said at the meal, to which he was accompanied by a bodyguard.

Aurora was allowed to take control of the assets under a law that allows purchasers to start mining before the transfer of ownership is complete to avoid mines lying idle, the Pamodzi liquidators allege in the court proceedings.

What followed “has to count as some of the more serious cases of fraud ever perpetuated in the republic,” Advocate Wayne Gibbs said in a court-ordered, independent inquiry in September 2013.

No Pay

Gibbs was appointed by North Gauteng High Court to lead the inquiry into the affair after a series of allegations and counter-allegations between the Pamodzi liquidators and Aurora. During his 25-month inquiry, he interviewed 33 witnesses under oath, including Mandela and Zuma.

After Aurora agreed to buy the mines, problems began to arise in March 2010, when employees went on strike after they weren’t paid, Gibbs said in his report. Over the next 15 months, assets started disappearing from the sites — first scrap metal, then cables, then entire hoisting mechanisms that can be tens of meters high, Gibbs said.

While the mines produced about 120 million rand of gold over the first few months under Aurora’s control, “no accounting records were retained as to how these amounts were appropriated,” Gibbs said. Mandela declined to comment on this specific allegation, citing ongoing legal proceedings while Zuma said he wasn’t involved in day-to-day operations.

Malaysian Investor

The Grootvlei mine is now “completely destroyed,” said Montisetse, the union’s regional secretary. It is little more than a few holes in the ground and dilapidated hostels, where some workers still live, he said.

How did it happen?

When Aurora offered to buy the mines, the company said in bid documents that it had the backing of a Malaysian investor. The investment never came to fruition.

Gibbs couldn’t locate the investor. Bloomberg also couldn’t reach him for comment through two former employers, two events companies and three individuals involved in the Aurora deals.

At the heart of Aurora’s finances was father-son duo Sulliman and Fazel Bhana, Gibbs said, on the basis of testimony from Zuma and Mandela among others. The Bhanas, who were present at the March 2009 meeting at the Beverly Hills Hotel, were advisers to Aurora, tasked with organizing financing.

Aurora Funds

When Aurora was struggling to find funds, the Bhanas borrowed money from their friends and family members, whom they repaid from “operational cash flow,” Fazel Bhana told the Gibbs inquiry.

The liquidators, led by Engelbrecht, alleged these investors received as much as double their money back within a few months. Gibbs concluded they received “handsome rewards.”

The Bhanas, through their spokesman Frederick Kyle, said they were “deliberately maligned” by the Gibbs report and were denied the opportunity to respond to evidence.

Aurora didn’t gain full control of the mines and all activities were undertaken by the operations’ management with the knowledge of the liquidators, Kyle said. The liquidators met the Malaysian investor and gave Aurora the chance to seek alternative funding when he backed out, Kyle said.

“The allegations of fraud on the part of Aurora is not only laughable but has no merits whatsoever,” he said.

That’s not a view shared by Gibbs in his court-ordered inquiry.

While Gibbs accepted Zuma wasn’t involved in Aurora’s decision-making, “this doesn’t exonerate him from his statutory duty of care towards the company and to my mind he was negligent in his approach,” he said in the report.

“The other directors, unlike Zuma, didn’t merely fail their duties to be diligent, but actively participated in misrepresenting facts to the joint provisional liquidators and embezzling assets belonging to the companies,” Gibbs said.

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