Skulduggery and dune mining

Skulduggery and dune mining
(From Noseweek)
by Erika Schutze

Residents in the Xolobeni district in Pondoland find themselves the victims of the manipulative tactics of an Australian mining company on the hunt for titanium deposits, the tunnel vision of the Department of Minerals and Energy, as well as a couple of scheming ANC bigwigs (ex of the Department of Trade and Industry) intent on becoming the BEE beneficiaries of the proposed mining deal -- without ever having consulted those to whom the land belongs.

Moreover, the BEE deal that has been set up effectively lands the local tribal shareholders in massive debt for the 26 percentage of shares that they do get: they may only earn dividends after their shares have been paid off, projected to take at least three years if revenues match expectation.

The mining company, Mineral Commodities (MRC), has been investigated by the Australian Stock Exchange and its public participation tactics have been based on co-option rather than widespread consultation. Its most recent tactic has been to launch a smear campaign against those locals opposed to dune mining, and then to sabotage community meetings.

In a scene reminiscent of the "Gum Tree Rebellion" of 1999, outsiders are coming into the area, ignoring local concerns, pushing their own agenda and sowing division. They have, however, underestimated the potential for a groundswell of resistance. In 1999, there were two week's of violence when 14 homesteads that had been ploughed to plant gum trees on behalf of SAPPI were burned to the ground. The community was supposed to be paid under a rental system to plant more trees, but it became split as some wanted trees and "development", while others questioned this land use and preferred to keep it for edible crops and grazing.

MRC and its local subsidiary, Transworld Energy and Mineral Resources (TEM), are punting titanium mining as the panacea for poverty and unemployment in the region, but an independent assessment compiled in 2005 on behalf of multi-stakeholder and intergovernmental initiative The Wild Coast Conservation and Sustainable Development Project (WCCSDP) by accountants Grant Thornton, of the capital investments, operational costs, employment opportunities and contribution to the GRP of a low road, nature-based tourism scenario for the Xolobeni tenement area, reveals that the benefits from mining and nature-based tourism are virtually identical. The difference then lies in social and environmental impacts, where nature-based tourism is a clear winner. (To read the full report, go to www.wildernessfoundation.org )
MRC proposes that with a capital investment of R1,46 billion (which includes the cost of building of a smelter), it can extract ilmenite which will be smelted to produce titanium slag, rutile, zircon and leucoxene. These minerals are in demand in the aviation industry as well as for making dyes. While estimated revenue is R11,6 billion, total wages will amount to only R1,25 billion -- and that includes wages for employees outside of the mining area. 557 direct jobs would be created.

Detractors point out that 557 jobs comprises only 0.003% of people in the region. At this stage it is not clear where the construction of a mineral separation plant and smelter will be, prompting speculation that it will be at Richards Bay. John Barnes, CEO of TEM, worked for equally controversial Richards Bay Minerals (RBM) before taking up his post at TEM. Local community members were hosted by RBM as part of an introduction to mining.

Those opposed to dune mining say that government should provide basic services and be responsible for local development. Moreover, should mining be allowed, many more locals will be dispossessed and could end up squatters unable to grow basic crops or draw on river water sources.

Botanists recognise the 22kms of land targeted for mining as forming part of the 50km stretch known as the Pondoland Centre of Endemism, one of the principle centres of plant diversity in the world.

Conservation International has declared it a global plant "hotspot". According to Div de Villiers and John Costello in Mkambati and the Wild Coast: "Biodiversity hotspots are areas where exceptional concentrations of endemic species are undergoing exceptional loss of habitat. The theory behind the biodiversity hotspots is that if a carefully selected 3% of the planet's most biologically rich environments are preserved, around 80% of all the planet's species can be saved from extinction". 196 species are endemic to Pondoland.

There are also doubts about the viability of "rehabilitating" the dunes after the mining. University of KwaZulu-Natal geologist Dr Ron Uken says, "What is left after the heavy minerals have been removed are huge piles of sand, devoid of all life." Instead of rehabilitation, there is mere "re-vegetation" with one or two fast-growing species. More often than not, the company responsible for mining simply gets put into liquidation before meeting its rehabilitation responsibilities and the community is left with the mess.

The pro-mining lobby cite the failure of previous eco-tourism initiatives in the area as evidence that mining offers better rewards. Mention is often made of the EU's R80 million investment in ecotourism with accusations that it yielded little. But this project was sabotaged, and this figure was spent on the entire Wild Coast region, not just the Amadiba eco-tourism project.

Based on tented camps set up for community-based eco-tourism, the Amadiba Coastal Communities Development Association (Accoda Trust) was set up to represent villagers' interests and distribute profits. After lengthy negotiations, a lucrative contract was ready to be signed with Wilderness Safaris in a partnership that would have injected money and professionalism into eco-tourism initiatives, particularly the refurbishments of a resort at Mkambati nature reserve. Accoda was ready to sign the deal when Zamile ‘Madiba’ Qunya, then chairman of ACCODA, rejected it at the last minute.

This rejection coincided with Qunya conspiring with PE-based attorney Max Boqwana to set up the presumptiously named Xolobeni Community Empowerment Company (Pty) Ltd (Xolco) as one of the original BEE partners. Qunya then changed the composition of Accoda so that 11 of the 12 members were mining supporters. Indeed, the Master of the Mthatha High Court has been asked to investigate allegations that money has been misappropriated from the community trust at the centre of this initiative. There were on-going allegations by local Mtentu community members that funds administered by Accoda were not reaching them.

Determined residents called in Johannesburg Social Worker John Clarke and veteran human rights attorney Richard Spoor to help them break through the media cordon that Qunya had imposed around an area that he has come to regard as his personal fiefdom. Embarrassed by an expose by SABC’s environmental program 50/50, a follow up investigation by Moneyweb financial journalist Julius Cobbert, and Clarke directing a ten-page indictment to MRC CEO Mark Caruso on behalf of nervous and intimidated residents, Barnes and Boqwana were finally forced to face angry residents in December last year.

To avoid possible interference by Qunya or his henchmen, a 12-person delegation of residents secretly traveled to Pinetown to meet Barnes and Boqwana and hear them attempt to explain away their complaints and concerns. Pressed for an explanation as to why only he and Qunya seemed to know anything about Xolco, Boqwana claimed that he was operating under instruction from DME to set up a BEE partnership in accordance with the Mining Charter, under severe time pressure, but that it had “always been the intention” to more directly involve the community in Xolco once it was more certain as to whether the mining was feasible.

Despite promises to take action for clear violations of human rights by TEM's community liaison officer Basheen Qunya and his older brother, the only tangible response was for Qunya and Boqwana to hastily ‘resign’ as Xolco directors - but not before co-opting more credible community leaders “living within and adjacent to the mining area” as Xolco directors, and installed Nomangesi Malunga – an employee of the OR Tambo District Municipality in Umtata – as chairperson.

MRC describes the proposed site as "degraded", but others claim that the red soil that characterises the area is not degraded land, but was formed naturally over aeons. Environmentalists say that a larger area than that actually mined will be negatively affected by dust, water shortages and pollution, and landfill will be widespread, leading to a strip of desert on what is now pristine coastal endemism. Two rivers with low to moderate flows will have to be tapped with devastating consequences for groundwater sources, the wetland plants of the estuarine system, as well as the agricultural yields of locals. The endemism biome will be divided up and the animal corridors will be interrupted. There are also stone age artefacts at the site indicating human settlements from the Sangoan era dating back some 300,000 years. There is only one other similar site in South Africa, at Mapungubwe in the Limpopo Province.

But perhaps the biggest source of unhappiness in the region is MRC and TEM's claim to their shareholders that they have community support. The public participation process was uneven and there are frequent charges of bribery. Xolco members have circumvented the protocol of tribal decision making processes by organising alternative meetings with selected individuals. To counter this, a crisis committee has been formed, the Amadiba Crisis Committee (ACC), and in early July it resorted to visiting their Majesties King Mpondombini Sigcau and Queen MaSobhuza Sigcau to plead its case. At the time of going to press the royal house seemed sympathetic and scheduled meetings for July 17 and 19 to debate this matter further through the local tribal authority channels.

The ACC lodged a complaint with the police, and mandated the Xolobeni Paramount Chief Yalo to make objections to the O. R. Tambo Municipality. Petitions have already gone to the Department of Minerals and Energy, the MEC for Eastern Cape Economic Affairs and Tourism, and the Department of Public Enterprises, stating opposition to mining and expressing a preference for community development options that provide for the sustainable use and conservation of the natural wealth of the area. In addition, a complaint has been lodged with the Human Rights Commission, which is investigating the situation.

GCS (Pty) Ltd has been appointed by TEM to undertake the required Environmental Impact Assessment. A time frame of 30 days has been allocated for authorities and Interested and Affected Parties to lodge comments, and 120 days for conducting the EIA, effective from June 25. But the impartiality and integrity of GCS has been questioned by Dr James Jackelman – formerly project manager for the WCCSDP - who submitted comments on the draft Environmental Scoping Report (ESR), “ I find it worrying that the EIA will not comprehensively address issues arising from road construction/upgrading to site, traffic flow to site, water supply and storage, electrical supply to site, external bulk sewage disposal, external waste disposal, siting of the MSP and smelter, household relocation issues, employment issues, beneficiation issues, vegetation removal issues, financial feasibility issues, etc.” Already this is seen to suggest that there will be further hidden costs and further degradation of the area than that already revealed.
The ACC was formed after a series of weekly meetings that attempted to plot the path forward. At one such meeting on Monday June 18, a mini rural rebellion was narrowly averted when 150 residents met at the uMgungundlovu tribal court to find out why Zamile Qunya and Boqwana had signed a BEE agreement as far back as 2003, without a full community mandate. On three occasions the crowd rose shouting “amandla” and threatened to toyi-toyi down the hill to remove weather stations erected as part of the EIA monitoring process into the dune mining proposal. By the end of the meeting, the residents from five villages affected by the dune mining proposal demanded a direct meeting with Mark Caruso, CEO of MRC, and John Barnes, to clear up the widespread confusion about the mining, in particular, the lack of consultation and public participation in the application process, as well as to respond to allegations that a front company had been set up, supposedly on behalf of those present.

According to the original agreement, Xolco was to have a junior shareholding of 9% that was ostensibly to channel benefits to the community.

The tribal council diffused the tense situation by proposing that two residents, Basheen Qunya and Mavovo Ndovela, confront the GCS consultants who were staying near the proposed mining site at Nkwanyana eco-tourism camp, and demand to know what the weather stations are and to remove them, and then to report back to the community at the June 28 tribal authority meeting at uMgungundlovu, as to how the mining application is progressing.

Essentially the tribal council was asking the two men to go and tell their new boss that there was community opposition to the mining and to ask him, John Barnes, to come and consult with the community directly so that they could convey this to him.

Instead, neither of the brothers or Barnes appeared at the scheduled meeting on June 28th, nor did the "social impact" consultant, Ayanda Peters, despite having told NOSEWEEK'S REPORTER that he would be there on that date. Attorney, Andiswa Mdoni, briefed residents on options for formulating a charge of fraud. Later on, on the specified day, Barnes was seen driving in the area, accompanied by an official from DME.

Enter the dirty tricks department. In a letter sent to the Sunday Tribune, Xolco CEO, Nomangesi Malunga, disputes the attendance at the meeting of the journalist who had reported on it under the headline, "Residents on war path".

The letter was emailed to the Sunday Tribune from the computer of Anne Barnes, wife of mining boss John Barnes.

At the same time, PRO company Maverick issued a press release on behalf of MRC, entitled "Xolobeni Tribal Authority Strongly Supports Mineral Sand Mining". The press release was accompanied by a photograph of enthusiastic men at a meeting. It was, indeed, not the meeting the reporter had attended, but an "alternative" meeting that had been set up by the mining company itself in an attempt to discredit the genuine tribal gathering. The PR photograph was shown to members of the ACC who identified the site as being at the house of Madiba Qunya in Mzamba - next to the Mzamba police station, and outside of the Xolobeni District in question.

There is also an attendance register indicating that 38 people attended, but it seems that this is only the Xolco "team" - the 18 dust station security personnel, the Xolco directors, local government councillors and selected members of the tribal authority. Considering the date of the meeting, the list of attendees is explosive - why was the secretary of the tribal authority (Mandla Ndovela) there and how is it that such a "project update" was not advertised through the Mgungundlovu tribal authority? Considering the events at the tribal authority over the previous few weeks, this press release represented the clearest evidence of fraud and manipulation. [So much for the ethics of the public relations industry. The press release was authored by Mixael de Kock current president of the Public Relations Institute of SA (PRISA), but he does not seem to uphold its ethics or Code of Conduct - Ed.]

At the follow-up meeting between the ACC and Xolco, the same Nomangesi Malunga was present, but she denied writing the letter and instead blamed it on the spin of ”mlungus".

Cultivating friends in high places has been a mark of this project from its inception. Besides Xolco as the junior BEE partner, TEM/MRC’s prospective senior BEE partner was supposed to be Ehlobo Heavy Minerals (Pty) Ltd, (EHM) set up by former DTI Director General Alistair Ruiters, and Rafiq Bagus, former advisor to Minister of Trade and Industries Alex Irwin. Ehlobo HM was poised to secure a 50.1% controlling interest in the venture in return for capital investment. However EHM and MRC/TEM terminated their negotiations in February 2007, following allegations that MRC/TEM employees and agents were undermining the eco-tourism initiatives. The negative impact of the announcement of EHM’s withdrawal on MRC’s share price prompted CEO Caruso to report that “in accordance with recommendations from the Dept of Minerals and Energy, the Company then proceeded to enhance its relationship with its local empowerment partner Xolobeni Empowerment Company.”

DME Regional Manager Nomvuyo Ketse denies having made any explicit recommendation to this effect. She also denies ever instructing Boqwana on behalf of DME: “Boqwana is TEM’s attorney not ours”.
However one stakeholder that has been particularly obtuse is the O.R. Tambo District Municipality, and Executive Mayor Kapa. She has tried to position the ORTDM’s own development agency, Ntinga, as the relevant body through which any negotiations should take place, and Ntinga was manipulated by mining interests to exaggerate the extent of local support for mining - MRC just accepted the first local agents who were pro-mining.

Following the withdrawal of EHM, TEM/MRC’s “enhanced relationship” with Xolco has meant that it will only get the minimum 28% shareholding required by law. Another 18% share goes to a Johannesburg-based company SGF Secretaries (Pty) LTD, comprised of directors of the Johannesburg accountancy firm Tuffias Sandberg, who are the appointed auditors of Xolco and presumably TEM/MRC.
It is not known how SGF Secretaries will finance their shareholding, but Xolco will have to pay US$18 million (approx R126 million) for their shares which will be funded by MRC as a “preferred dividend payment to the existing shareholders through intermediary companies once mining commences”. MRC cites this as an inducement for other investors to have confidence in the 74% balance. But they have not yet explained to Xolco directors how long it may take before the capital and technology-intensive operation yields a dividend to shareholders. Because of the commencing debt, Xolco’s shareholding will take even longer to break even on their ‘investment’ because they will have to pay $18 million to a foreign company, MRC, for the privilege of mining their own communally owned ancestral lands.

As at 31 December 2006, MRC’s total consolidated book value amounted to only $19 million. This could be viewed as tantamount to fraud: for a mere $1 million extra they will get all the shares, together with MRC’s other prospects – like its diamond tailings operation in Sierra Leone!

The Department of Land Affairs (DLA) holds the land in trust for the communal landowners and any development or usage will require a back-to-back lease agreement from DLA that is processed in terms of the ‘procedures’ of the Interim Protection of Informal Land Rights Act (IPILRA). It will be interesting to see how DME gets to issue a prospecting right without having followed the procedures prescribed by the Act.

But the draft Environmental Scoping Report presents a somewhat naïve perspective on land ownership and land tenure status of communal land in Xolobeni, as well as the decision-making processes for land occupation and use. Naïve comments such as ‘the land is planned to be handed back to the community’ demonstrate a clear lack of understanding of communal tenure. The notion of some sort of homogeneous ‘community’ in the Xolobeni area also needs to be challenged. Who is the community referred to in this instance, who represents them and who makes enforceable decisions on their behalf?
But why would DME even consider allowing such a junior mining company as MRC to speculate in SA, especially one with a shady track record when it comes to mining elsewhere. It owns Erebus PLC, which in turn owns a Sierra Leone-based diamond tailing operation in Kariba Kono, that allegedly used “questionable” mining methods. MRC has one other mineral sands venture in SA, the Tormin Mineral Sands project in the Western Cape and it believes that together these will yield a real share value that is much higher than its current listing, and on that basis markets itself to investment fund managers as a good investment.
“Preliminary information suggests that the proponent has no intent to operationalize the mining right. It has no financial resources, no technical mining expertise and no mining experience. It appears all well and good that GCS will draft the Environmental Management Plan, but it is entirely plausible that the mining proponent will simply sell on the mining right once secured and leave the implementation implications to the ‘buyer’ of the right,” says Dr Jackelman.

MRCs market capitalisation is very small, it only has three directors (two of whom are brothers), and the board only meets once a year at the AGM of shareholders. It has few overheads, and it maintains its listing on the AUSTRALIAN STOCK EXCHANGE (ASX) with the part-time services of a professional company secretary who also takes care of the obligatory reporting and adherence to the ASX rules.

Shareholders in MRC have not received any dividends for the past three years. To purchase an MRC share on the stock market on 18 May 2007, only required 17 cents Australian, but in a sudden unexplained change of fortunes, three days before the annual general meeting of shareholders the traded share price dramatically climbed to 26 cents - a leap of around 40%. This jump occurred after a report was sent to its major shareholder outlining some of the dubious developments back in Pondoland.

The ASX saw fit to query the sudden dramatic increase in the MRC's share price and volumes traded. Their website contains a letter in response to an official, Mr Vikram Naicker, which asks MRC management, in terms of the rules of the ASX, to offer an explanation for the sudden rise in volumes and price of their shares and if they have one, warning them to consider a trading halt if they were privileged to any price sensitive information, that could have a bearing on the sudden changes in the performance of their shares. MRC denied any such knowledge and could offer no explanation.

Just what are its share values based on? MRC trades entirely on "forward looking information: and relies on investor faith in intangible qualities to attract capital for the transformation of opportunity into actuality. Like any other venture capital enterprise, MRC can remain in business for only as long as its gambles pay off. The most substantial shareholder of MRC is an investment fund operated by Ward Ferry Ltd Fund Managers in Hong Kong, called the Asian Reconnaissance Fund, which has a 12% interest. Is MRC trying to inflate the value of the dune mining project so that it can be sold as soon as approval is granted?

In order to establish the exact costs vs profits involved in the mining option a Bankable Feasibility Study should be undertaken.
The CEO of the SA Human Rights Commission, Advocate Tsiliso Thipanyane has offered to now drive the investigation ‘from my desk’ and if necessary litigate on behalf of residents who have complained that their constitutional rights have been violated by the Qunya brothers and the mining proponents, to obtain the manipulated consent of the community.

MRC does not comply with the ASX "Guidelines on Corporate Governance" pursuant to ASX listing rules: The majority of the board of directors is not comprised of independent directors, and the Chairman is not an independent director. Joseph and Mark Caruso both have an interest in Zurich Bay Holdings (Pty) Ltd, a company that controls 14.92% of the issued shares of MRC. They are, therefore, not independent.

The true tragedy lies in the fact that the rights of these rural landowners would not be getting as much press coverage if the area was not of such particular interest to environmentalists. Elsewhere in the country, DME is also riding roughshod over community interests in favour of mining. On June 19 this year the parliamentary minerals and energy portfolio committee expressed its concern about operations of junior companies that are owned by largely foreign shareholders. And a study by the Bench Marks Foundation for Southern Africa for Corporate Social Responsibility released in June 2007, questions whether mining houses in the North West Province are doing enough for the surrounding communities and for the environment. The researchers also found that although the mining houses had social plans as required by the Mining Charter, they were not available to the public and were not the product of consultation with communities. The report also found that the DME has a reputation for corruption and has been the subject of numerous investigations. Ultimately, when it comes to MRC mining the Pondoland coastline, that's where the buck stops.