JOHANNESBURG (Business Day) -- Simmer & Jack [JSE:SIIF] is embroiled in a dispute with BEE partner Vulisango. Classic Business Day gets Simmer & Jack CEO Gordon Miller on the line to find out what's behind simmering tensions between the gold miner and empowerment partner.
LINDSAY WILLIAMS: Jaganda, which owns 44% of Simmer & Jack, is 51% held by empowerment shareholders Vulisango and 49% by a voting pool including some Simmer & Jack executives. Recently the shareholding group with 49% applied to liquidate Jaganda because of an "irretrievable breakdown" between the parties. In an affidavit supporting the application Simmer & Jack chief executive Gordon Miller attributed the breakdown to the "unreasonable behaviour and downright greediness" of Vulisango. Gordon, it's a very complicated situation - what's the background to the dispute?
GORDON MILLER: At the end of 2004 Simmer & Jack (Simmers) was doomed to failure. JCI [JSE:JCD] was an 86% shareholder at that point in time. The current executives devised a strategy to take Simmers out of JCI, and to raise cash to capitalise a loan account that has grown up over a number of years due to operating losses in Simmers, also to get an empowerment shareholder on top of that strategy. What did we do? We conducted a rights issue in Simmers, JCI renounced its rights in favour of Jaganda and minorities who put cash into the company. JCI then ceded its loan account claim - which at that point was about R94-million - to Jaganda. Jaganda then followed the rights - which means that Jaganda subscribed for 377-million new Simmers shares - and the subscription price was R94-million. Jaganda had the R94-million - being the loan account that JCI had ceded to it - and then Jaganda issued preference shares to JCI as payment for the loan account that JCI had ceded to them. So at the end of that Jaganda owned 377-million Simmers shares - if the Simmers share price went up the structure of the preference share is such that the bulk of the increase is trapped in Jaganda, and did not go to JCI. The ordinary shares in Jaganda therefore were potentially worth quite a lot - because its value was determined exponentially by the increase in the Simmers share price. Conversely, the ordinary shares in Jaganda have no risk whatsoever, because if the Simmers share price had collapsed then JCI - through its preference share in Jaganda - would be limited to the wreckage of the Simmers share price. However the Jaganda shareholder in that case would also have gained nothing, but neither would they have lost anything - because they effectively put nothing in. Having set up this structure we then searched for the right empowerment partners - regretfully I have to admit that we settled on Vulisango. Effectively from day one Vulisango wanted more - it's gone to this ridiculous position that Vulisango suggests that the preference share issued to JCI is invalid, and does not exist, that Jaganda must remain the encumbered owner of the 377-million Simmers shares which it bought with the R94-million loan account that JCI gave it in the first instance. The central point of the dispute between management and Vulisango is that Vulisango says: "Why doesn't Simmers withdraw its application for the rights to Number Four shaft?" Then Vulisango would go and apply for those rights - once they've received them they would sell those rights back to Simmers in exchange for new shares.
LINDSAY WILLIAMS: How can that work?
GORDON MILLER: Obviously the board said no, as one would expect them to do, and Vulisango then demanded that the Simmers board should simply issue it an additional 100-million Simmers shares for no consideration. Equally the board declined that preposterous request - so by now the relationship had degenerated into open warfare. Vulisango at that point then contended that Simmers' mining rights application was fatally flawed, and was not going to succeed. To support this allegation Vulisango went out on their own bat with an incomplete and outdated set of documents to obtain legal counsel as to Simmers' mining rights application. Based on that incomplete and outdated document counsel gave an inconsequential opinion. Simmers went out and obtained a proper opinion - based on full information - which clearly contradicted the allegations made by Vulisango.
LINDSAY WILLIAMS: The Department of Minerals and Energy (DME) - what's their view of this mining rights situation?
GORDON MILLER: We've been working very closely since May of 2005 with the regional manager in Gauteng responsible for processing of mining rights applications, and all of the elements that we need to comply with. We've been interacting and communicating on a regular basis to the point that in January 2006 he was satisfied that our application was compliant, and he then recommended it to the head office. For some reason it has got stalled there, and we presume it's being interfered with.
LINDSAY WILLIAMS: An article on well-known mining website Mining Max today says that the application had problems. DME Director General Sandile Nogxina was critical of the shareholder's agreement that he said eroded the rights of the empowerment partners. Have you spoken to this gentleman?
GORDON MILLER: Yes, we have. Before we set up the Simmers shareholder's structure in Jaganda we actually had Sandile vet the legal agreements that form the basis of the shareholder's agreement - indeed at that point in time early last year we actually amended the shareholder's agreement based on their input. I guess that things have now changed, and that relationship as contemplated has obviously degenerated and disintegrated completely - effectively that shareholder's agreement is the reason why the application has been lodged for the liquidation of that structure.
LINDSAY WILLIAMS: Vulisango says that without their participation Simmers will struggle to secure a mining licence - do you agree, and how do you counter that?
GORDON MILLER: We disagree entirely. We have other empowerment partners that are part of the Simmers structure at this point in time. From a legal standpoint Simmers is currently compliant, and Simmers will remain compliant with whatever changes occur in the future. We have a number of other independent black empowerment companies that have approached Simmers to take placements of shares for cash because they like the story - they want to get involved. As a result of that Simmers will remain compliant with the Minerals and Petroleum Resources Development Act (MPRDA).
LINDSAY WILLIAMS: Vulisango (Pty) Limited today expressed great grave concern at the lack of corporate governance, and the lack of understanding of BEE by the management of Simmer & Jack according to a press release which came out 4.45pm today. Vulisango goes on to say they seek urgent answers on the handling of the Jaganda preference share issue, the handling of the Aberdeen loans to Simmers, and management's handling of the August to September 2005 shares for cash - there's an awful lot of questions they want answered - have you seen this press release?
GORDON MILLER: No, I haven't. The issues in there are covered in my affidavit. Most of these have been raised on many occasions, and indeed they are raised by the chairman of Simmers in attempts to resolve them. Unfortunately allegations are made and no action is taken to deal with them - it's pretty unfortunate that it's ended up in this situation.
LINDSAY WILLIAMS: It's fairly unfortunate for shareholders and stock markets - the markets in general don't like uncertainty, they don't like squabbling - we've seen that particularly in the gold mining industry in the last year or so. How is it going to be resolved? Clearly the two or three parties can't work together - so what's next?
GORDON MILLER: Ultimately I guess it will come to a decision of the shareholders as to how to take things forward - it's vitally important for management to concentrate on the business, and that's what we're going to do. This dispute has caused a distraction - that's one of the reasons why the voting pool, the management group, applied for the liquidation. The dispute was resulting in a disruption of the board, the board was dysfunctional - from our perspective we as management need to get on with the business of adding value, and get away from these distractions.
LINDSAY WILLIAMS: I think everyone would agree on that, no matter what side of the fence they are standing on. "At a board meeting held today the directors of Jaganda (Pty) Limited approved a resolution to requisition the board of Simmers to convene a shareholder's meeting at which a number of issues relating to the corporate governance of Simmers will be raised, including the removal of certain Simmers executive directors." That statement was issued by Sovereignty Capital who are representing Vulisango - what do you say to that?
GORDON MILLER: I understand that's what they intend to do, but it may not turn out the way that they intend it to turn out.
LINDSAY WILLIAMS: Classic Business Day is going to speak to Vulisango and Sovereignty Capital on Wednesday.
