Aurora’s golden greed and liability hopes

Posted on December 2, 2011


Arrogance, incompetence and greed may have demolished the protection of limited liability for the politically well connected directors of South Africa’s controversial Aurora Empowerment Systems.  They may now have to pay out of their personal fortunes for the heavy debts and losses incurred in a controversial gold mining venture.

Aurora was launched two years ago, buying up the liquidated Pamodzi Gold mines and promising to become a major player in gold mining inside of a decade.  But Aurora inherited a substantial hedge book and debts when it took nominal control of Pamodzi’s 13 shafts at two mines.

The total creditors’ book totalled more than R1 billion and the mines were marginal, even at the then steadily rising gold price.  The only major beneficiary seems to have been the now sacked liquidator, Enver Motala, who claimed  commissions of R40 million.

Aurora, with Malaysian partner, AM Equity, stepped in after several attempts by the Pamodzi management to win financial backing.  But AM withdrew, apparently after carrying out a due diligence investigation, and work at the mines, Grootvlei and Orkney, stopped.
However, Aurora directors, who include President Jacob Zuma’s nephew, Khulubuse, his personal lawyer, Michael Hulley and former President Nelson Mandela’s grandson, Zondwa remained upbeat.  As miners complained that salaries were not being paid, several new financial partners were mooted as controversy mounted.
The directors now face a court-ordered investigation into what they did after Aurora was handed control of the bankrupt Pamodzi mines. It is generally agreed that, after Aurora took over, many of the moveable assets at both Grootvlei and Orkney disappeared.  There were also confirmed reports of truckloads of scrap metal being removed and sold and of the income from stores of gold disappearing.

There have also been clashes underground , with four miners, apparently trying to dig out gold in one of the closed tunnels, being shot dead by a security guard.  Such small-scale, dangerous and illegal mining is still going on.

The directors are now charged with having left the mines — seven shafts at Grootvlei east of Johannesburg and six at Orkney in the North West — in a shambles;  that, either directly or indirectly, they should be held responsible for the looting of the assets.

The new liquidators have lodged a claim for R1.7 billion as being the value of the assets of the two mines.  This is being strongly refuted by  Aurora’s commercial director, Thulbane Ngubane.  “Can they prove what they gave us was worth R1.7 billion?” he has demanded.

The miners’ unions, Solidarity and the National Union of MIneworkers, are also claiming R4.7 million in unpaid wages.

Zuma, criticised earlier this year when he gave a R2 million donation to the governing ANC, has also noted that his other profitable companies should not be liable for the losses of the failed gold venture.  This is the classic defence of limited liability, well satirised by Gilbert and Sullivan in their 1893 opera, Utopia Limited in which this chorus features:

Though a Rothschild you may be, in your own capacity
As a company you’ve come to utter sorrow,
But the liquidators say, “Never mind, you needn’t pay,”
So you start another company tomorrow!!

Using this legal device even bankruptcies can sometimes be carefully planned — and profitable — if they are properly managed.  Clearly Khulubuse Zuma thought he was insulated by separate holdings and limited liability.  “And also by his political connections,” claim the unions.

But with 5,300 miners thrown out of work and with some not having had any pay for more than a year, there is no political capital to being made by giving support to Aurora.  Especially since the miners — their families and dependents account for nearly 40,000 men, women and children — have widespread support not only from trade unionists, but among the broader, voting, public.

In the meantime, one of the original liquidators of Pamodzi, Enver Motala, faces questions about his claimed commissions, his relationship to Aurora — and whether, as the justice department maintains, he is actually Enver Dawood, a convicted fraudster.

Following his dismissal as the Pamodzi liquidator, media investigations uncovered the fact that Motala had changed his name from Dawood to Motala.  According to the justice department Enver Dawood was once convicted of 93 counts of fraud.  As such, he should have been disqualified from acting as a liquidator and being allowed to wind up failed companies in exchange for sometimes seven figure commissions.

Initially, Motala denied that he even knew who Enver Dawood was.  It later emerged that he had signed a gun licence application in 1992 where he had admitted to the convictions under the name of Dawood.

This matter is also now under investigation.  Motala has not commented, but has launched a claim for R1 million for defamation against supreme court official Jaco Cillers who described him as running an operation of “crooks and scallywags”.  The comment was secretly taped by Cilliers’ former colleague, Leon Lategan, who now works for Motala’s SBT Trust.

In his previous role at the supreme court, Lategan was responsible for allocating the liquidators who have wound up the affairs of most of South Africa’s failed companies.  According to the records, Lategan was responsible for appointing Motala to handle several lucrative liquidation deals.

“The whole thing is a terrible mess and criminal and civil court cases are almost certain to follow,” a justice department official notes.  So far as the trade unions are concerned, “all the crooks and scallywags” should be made to pay up for the losses incurred by the miners and their families and should also “go to jail”.

Whether prison sentences will feature in future is anybody’s guess.  But orders for financial payments from the Aurora directors are definitely on the cards.