The Kebble Collusion: 10 Fateful Days in a R26 Billion Fraud - Softcover

Sergeant, Barry

Softcover

ISBN 10: 1431404640 ISBN 13: 9781431404643

Publisher: Jacana Media, 2013

Synopsis

In a world of outright denial, selective amnesia, and complex financial transactions designed to confuse, obfuscate, and hide the spoils, this book unravels one of South Africa’s biggest cover-ups. This account tackles the shady financial dealings—a fraud that in today’s terms amounts to 26 billion Rand—following the murder of mining magnate Brett Kebble. Featuring a stellar cast of players, including top financial institutions, leading bankers, and lawyers, it painstakingly details the dirty dealing across the upper strata of the sociopolitical system to reveal the truth behind the murder.

About this title

About the Author

Barry Sergeant is a former journalist, a former investment banker, and the author of Brett Kebble: The Inside Story.

Excerpt. © Reprinted by permission. All rights reserved.

The Kebble Collusion

Ten Fateful Days in a R26 Billion Fraud

By Barry Sergeant

Jacana Media (Pty) Ltd

Copyright © 2012 Barry Sergeant
All rights reserved.

ISBN: 978-1-4314-0464-3

Contents

Dramatis Personae, 
Preface, 
Author's Note, 
Prologue, 
Day One The Worm Turns in Swamptown 28 October 1996, 
Day Two South Deep Hijacked 30 June 1997, 
Day Three The Start of the Cover-Up 24 August 2005, 
Day Four The Time Has Come to Speak of Fraud 14 March 2006, 
Day Five T-Sec Epicentre of the Frauds? 20 October 2005, 
Day Six The Worm Turns for KPMG 23 February 2006, 
Day Seven Investec's Artistry at Western Areas 10 November 2006, 
Day Eight Brett Kebble Reflects on a Life 7 July 2005, 
Day Nine The Fantastic Frolics of the Scorpions 21 February 2007, 
Day Ten The Fraud Nailed Up and Bleeding from Every Extremity 28 March 2011, 
Epilogue, 
Timeline, 
Dramatis Personae: Full Listing, 
Appendices, 
Endnotes, 

CHAPTER 1

DAY ONE

The Worm Turns in Swamptown

28 October 1996

A twisted start

All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.

– ARTHUR SCHOPENHAUER

I first bumped heads with Brett Kebble during and after his first really big heist, which dates, formally, to 28 October 1996. This is when Randgold, listed in Johannesburg, announced details of the acquisition of BHP Minerals Mali, from the then-BHP, a big Australian resources house. BHP would later merge with Billiton to form the world's biggest diversified resources group, BHP Billiton.

I had taken a sabbatical of kinds into the world of investment banking and its first cousins, stockbroking and corporate finance. Back then, the Johannesburg Stock Exchange and just about every stockbroker could be found at 11 Diagonal Street, in a modern, glass-fronted high-rise. In honour of the JSE's original location, one of the restaurants in the new building was named Between the Chains. But it was to the Red Room, adjacent to The Floor, that dealers flocked at the close of business, to lubricate vocal cords parched by the open outcry system.

Down on The Floor, fortunes were made and lost, until technology ended these good old days. It was a stressed environment, like so many other markets, and a good number of dealers came to the Red Room long before the sun started to sink from its midday peak.

This market was especially endowed: Johannesburg has always been, at its core, a mining town with the morals of a fetid swamp. In 1895, just nine years after gold had been struck on what would become the world's biggest gold fields, Johannesburg boasted more than 100 bordellos, each paired, so to speak, with a bookmaker, and each paired, so to speak again, with a saloon. Men would drink to inspire their next move and when that failed, they would drown their sorrows, fornicating on their way to take the next big bet at the bookies. It was, after all, the world's biggest gold rush.

Today Johannesburg is a sprawling city, the world's largest that does not have a major river siding or a seaside position. It is a huge bordello of a city, pretty soulless, running on crass materialism.

For someone with the gifts and ambitions of Brett Kebble, Johannesburg was a place of great beauty. He would take on its top business brains, and leave a mark forever.

In the early 1990s, I went to work as an investment analyst for Ed Hern, Rudolph Incorporated, a stockbroking outfit. All market activity in South Africa was exploding after the 1994 elections, when resources companies in particular were keen to show off their previously hidden offshore assets. Within a few years, I had worked in both of the Americas, Australia, Western Europe, the United Kingdom and various parts of Africa north of the Limpopo River.

The 1990s had kicked off with solid interest in exploration stocks and there was little doubt in my mind that West Africa needed thorough scrutiny. I spent a good amount of time in the backwaters and badlands of Ghana, Mali, Burkina Faso and Côte d'Ivoire. When Ed Hern, Rudolph was sold to the Board of Executors (BoE)–NatWest Markets joint venture in 1995, I was among the last to applaud, but following the democratic elections in 1994, the global brokers were moving into South Africa and buying everything in sight. The new joint venture, known as BoE NatWest, operated BoE Securities, a South African stockbroker, which inherited Ed Hern, Rudolph's offshore partner at the time, NatWest Markets, which had, in turn, a strong resources country partner in County NatWest, Australia.

At that time, I strung together a deal involving a portfolio of contiguous gold assets in Ghana, later known as the Ahafo project. Ownership of neighbouring properties within the project was fragmented, involving mainly Gencor (from South Africa), Normandy (Australia) and La Source (the commercial arm of BRGM, based in Paris, France). My self-appointed task was to consolidate the properties into Eldorado, Gencor's Canada-based gold exploration partner, back then anyway. It was a tough nut to crack. I called on the offices of County NatWest's Martin Pile in Perth and also BoE Securities' London office, which, for all its style (including a four- or five-hour working day), seemed a little lost.

In early 1997, the package of Ghana gold properties was fairly valued at around US$200 million. Brian Gilbertson, then CEO of Gencor, liked what he heard and saw at my final presentation and, in his usually efficient manner, gave the transaction an immediate thumbs-up. A subsequent sharp correction in the gold price had a significant impact on the outcome of the deal.

Back on the main trail, it was on 28 October 1996 that Randgold detailed its plans to acquire BHP Minerals Mali, and vend it into Randgold Resources, a newly established 100 per cent subsidiary of Randgold. According to the chairman of both Randgold and Randgold Resources, Peter Flack, as quoted in the media, Randgold Resources had purchased BHP Minerals Mali for US$82 million 'settled in cash and through the issue of Randgold Resources shares'. Randgold implemented further transactions and activities to further fund the development of Randgold Resources and its exploration activities, focused across West Africa.

In one of the moves, Randgold raised funds via its wholly-owned subsidiary, Randgold Finance (British Virgin Islands), which issued a US$48 million convertible bond that was listed on the Luxembourg Stock Exchange.

Randgold Resources had now issued a grand total of 12 550 000 shares, of which Randgold held 76 per cent, at a total cost of US$38.92 million. The reality seemed to be that, in little over a year, the 'value' of unlisted Randgold Resources had increased from US$5 million to US$320 million – according to the valuations 'divulged' by the directors of Randgold. Yet all that Randgold and Randgold Resources had done was buy a loss-making debt-riddled gold mine. (To be fair, however, there were also a number of essentially unknown, undeveloped assets within BHP Minerals Mali.)

Randgold's 1996 annual review, at page 11, stated that 'the market value' of Randgold's stake in Randgold Resources post the BHP Minerals Mali transaction – which was still unlisted – was US$244 million. On page 10 of the same document, Flack had the heart to explain that the value of Randgold Resources, including BHP Minerals Mali, had been calculated at US$25.50 per share, 'being the directors' value'. The US$244 million comprised by far the single biggest component of the overall parent-company Randgold's net asset value (NAV). Trailing far behind was Randgold's stake in Harmony Gold, which of course was listed and whose market value therefore could not (easily) be manipulated: US$51 million on 6 September 1996.

This was a mean story all right: in little more than a year, Randgold's valuation of Randgold Resources had shot up from US$0.63 a share in 1995 to US$25.50 a share. It took me months to unpack the BHP Minerals Mali transaction. It was as complicated as hell, and a tasty example of the kind of snake oil that Kebble would run on for nearly a decade.

With my knowledge of gold assets in West Africa, I had serious reservations about Randgold's valuation of BHP Minerals Mali, and, thus, with the valuation of Randgold Resources. Early in 1997, I sent a draft copy of my report, intended eventually for investment managers, to one fund manager in Cape Town and another in London. It was standard procedure – certainly in those days – for investment analysts to send draft reports to key clients, who would sometimes revert with valuable comments that could then be incorporated into the final report. Here, however, one, or perhaps both, 'leaked' my draft to Randgold.

In February, as a director of Randgold, Brett Kebble demanded a meeting at the Randgold head office in Crown Mines, just south of central Johannesburg. I asked Philip Wessels, the then-chief executive of BoE Securities, to accompany me. Kebble met us at reception and, without warning, led us into a large boardroom occupied by 20 people, perhaps more, including representatives of the company's attorneys Bowman Gilfillan Hayman Godfrey, investment bankers Simpson McKie James Capel and auditors Deloitte & Touche. It was an interesting collection of elegant suits, all backing a deal that was – in my opinion – wrongly priced from the outset.

Peter Flack, in his usual severe pinstripes, waved my draft report around and said, in a nutshell, that it was defamatory: how dare anyone criticise this deal, given that such esteemed experts had signed it off? All the highly paid, highly qualified gentlemen nodded in agreement. Flack never looked me in the eye once; nor did Brett Kebble. None of them pointed out a single fact or figure that was 'wrong'. Kebble picked up the report, read a sentence aloud, and then pronounced his verdict: 'This is a falsehood,' he said.

Brett Kebble was, of course, well on his way to becoming a world-class expert in the subject of 'falsehoods', as the world would eventually discover. But there was something unnerving in his tone of voice; it was a threatening tone and it was the first of a few times that Kebble threatened me. But I was not presented with any information that would change my valuation of BHP Minerals Mali, and, thus, Randgold Resources. At this point, Wessels announced that he was going to say nothing at all, as he had not known this was to be a 'formal meeting'. He would be back once he had briefed legal counsel. As we drove away, Wessels muttered something about BoE's 'reputational integrity'. He seemed to me to not be concerned about the accuracy or otherwise of my report, only about BoE's name. Wessels wasted no time calling on Gerhard Kemp, a gold analyst, and assigning him to the 'Randgold issue'. Kemp had been a mine surveyor with Anglo American for many years on the West Rand, but had never been to West Africa. Weeks later, Kemp produced a seriously redacted version of my original report.

In March 1997, the Johannesburg-based weekly, Financial Mail, published an article that focused on a report by Smith Borkum Hare investment analysts Bobby Craig and Gavin van der Wath, in which questions were asked about Randgold Resources. Flack said the report was 'misleading' because it double-counted the debt in Syama – a producing but problematic gold mine owned by BHP Minerals Mali. Craig stood by his assessment. Mark Bristow, the CEO of Randgold Resources, had this to say to the media: 'Randgold Resources has to be compared with its Canadian and Australian peers. When you do that, you find our valuations are conservative and realistic.' Flack said Randgold Resources would raise money to accomplish its expansion plans and that 'we will not jeopardise those plans by trying to fool the market with a load of rubbish'.

Indeed.

In July 1997, Randgold Resources listed in London at US$15.50 a share, just above half the price that Flack and his cohorts had crowed, if not dictated, and I had criticised. In the background, in Johannesburg, Randgold's stock price was tanking.

My analysis of Randgold's 1996 transaction, the Mali assets, placed me in direct conflict with the directors of Randgold, led by the inscrutable Peter Flack, who was surrounded by the likes of Brett Kebble, his father Roger and Mark Bristow. My analysis, roundly condemned by them at the time, was a huge threat to Kebble's huge ambitions. As it turned out, the meeting at Crown Mines was only the start of a protracted savage attack on me.

Brett Kebble wanted my beating heart on a platter

On 8 September 1997, a summons arrived on my desk. I was being sued, in my personal capacity, by some, but interestingly not all, of Randgold's directors. Five names appeared across the front of the summons: Peter Hamilton Flack, Dennis Mark Bristow, Richard Reginald de Villiers, Roger Ainsley Ralph Kebble, and, of course, Brett Kebble. I was being sued for alleged defamation. It was significant that the five were suing me in their personal capacities. Each was cited as a director of Randgold and Randgold Resources; each wanted R500 000 from me. In those days R2.5 million was a lot of money.

When my draft report unofficially hit the markets in March 1997, Randgold was trading up to as much as R40.50 a share, its all-time peak closing price, recorded on 24 February 1997. On 10 December 1997, the stock closed at R3.79 cents a share, a decline of 91 per cent from its peak earlier in the year. It seemed to me that the five directors couldn't handle the truth and so they decided to shoot the messenger.

As soon as I received the summons, I got in touch with people in London who worked for Roland 'Tiny' Rowland, founder of Lonrho, the industrial and mining conglomerate with interests across Africa. Rowland knew how to tackle anyone. In mid-1997, he had been told that JCI Limited, the non-platinum mining offshoot of the original Barnato-founded Johannesburg Consolidated Investments, might be 'interested' in buying Anglo American's stake in Lonrho. Rowland had always held Anglo American in low esteem. In its first big black economic empowerment (BEE) deal, Anglo American and its associates had unbundled the original Barnato-founded JCI into three entities, keeping the platinum interests, and selling off the industrial interests, and, separately, the non-platinum mining interests, in the form of JCI Limited. In a fourth leg of the transactions, the diamond interests had been sold to De Beers.

At the time, Mzi Khumalo was the nominal head of JCI Limited. But Brett Kebble's name was popping up all over the place. This was mid-1997, when only a very small circle of individuals knew that Brett Kebble was effectively in control of JCI Limited: he was secretly acquiring stock, and had formed an influential covert 'voting pool'. It was Flack, who had for many years practised as a lawyer, who was now using his seat as executive chairman of Randgold, and of Randgold Resources, to go 'public' in stating that Randgold wanted to 'buy' JCI Limited. Kebble would often recount how the omnipotent Julian Ogilvie Thompson, the strongman at the pinnacle of Anglo American and at its two key affiliates, De Beers and Minorco, called Flack in: this was meant, after all, to be a BEE deal.

Kebble went along and later recalled how Flack was on the back foot. As a lawyer he had, in Kebble's words, 'worshipped' Anglo American. In Kebble's version of the story, as told to the author on more than one occasion, Anglo American sought 'ordinary token empowerment'. Of course, this compared poorly with Kebble's vision, which was 'real', in its triangular perfection, where the interests of capital (shareholders), management and labour were of equal importance. Given his rapid rise, this was a time when Kebble was intensely sensitive to the criticism coming in from various quarters, not least Fleming Martin & Co, the leading South African stockbroker at the time. Kebble would enthusiastically recount that one of its partners, Richard Stuart, would have seen Machiavelli as someone who had never managed to get out of nursery school. According to Kebble, Stuart would ask various individuals why they were connected with the 'Runt-gold people'. This drove Kebble mad, and he relished spitting out the 'Runt-gold' word.

There were seasoned people around, such as Stuart, who had an educated idea of what Kebble was really up to. Kebble was starting to fire shots off the bow to all and sundry. One of his key phrases was that he would not 'grovel to their imprimatur', referring of course to Anglo American. At the same time, he complained bitterly that he was now being badmouthed by everyone: Peter Flack, Bernard Swanepoel (CEO of Harmony Gold), Anglo American, Mzi Khumalo, and so on. As chairman of Randgold, Flack was involved in intense plans for potential mergers with several larger mining entities. When Rand Merchant Bank told Flack to show that Kebble consented to Flack's vision, the Mexican standoff was on.

Meanwhile, in 1997, Khumalo continued to beef along with his own dysfunctional agenda. He wanted JCI Limited to acquire Anglo American's stake in Lonrho: European competition authorities had told Anglo American to shed its Lonrho stake on the basis that a combined unit would give the Anglo American group far too much power over mining and the pricing of platinum-group metals (PGMs).

Acting in part on the advice from Rowland's people, I offered news of the summons issued on me to Andi Spicer, then a journalist at the daily supplement Business Report in Johannesburg. In his article published on 9 October 1997, he noted that, according to the summons, my original draft report on Randgold Resources had been sent, by myself, to Standard Corporate Merchant Bank, Coronation Asset Management, Investec Asset Management, Old Mutual, Liberty Life, Sanlam, Board of Executors, Hudson Sloane (New York) and Mercury Asset Management (UK). Flack and his buddies were fishing: only two of the names were correct. Rowland's people said that getting the summons into the public domain was the best insurance in the world. My next step was to see Philip Wessels, managing director of BoE Securities, as well as an attorney that Rowland's people had referred me to. The attorney was right next to me, like my shadow, when I arrived, unannounced, in Wessels' office, with the summons in hand.

(Continues...)

Excerpted from The Kebble Collusion by Barry Sergeant. Copyright © 2012 Barry Sergeant. Excerpted by permission of Jacana Media (Pty) Ltd.
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Edition details

• Publisher: Jacana Media
• Publication date: 2013
• Language: English
• ISBN 10: 1431404640
• ISBN 13: 9781431404643
• Binding: Paperback
• Edition number: 1
• Number of pages: 496