How to Steal a Gold Mine: The Aurora Story
LIQUIDATION of mines is not unusual. Often, they are bought, rehabilitated and returned to production. But virtually everything about the liquidation of Pamodzi’s mines at Springs on the East Rand and at Orkney in the Free State raises questions answered by a single word: fraud. Winding up by the Industrial Development Corporation coincided with the same IDC supposedly raising rescue finance. Almost everyone closely connected to the mines from then onwards seems to have been fraudster, liar, or negligent; the safeguarding institutions impotent. The ultimate victims were migrant miners, unpaid, stranded, and left in abject poverty.
Diane Hawker’s measured account shows up blatant asset stripping and looting. The principal actors bore well-known names – Mandela (Zondwa, Madiba’s grandson), Zuma (Khulubuse, the former president’s nephew) and Hulley (Michael, former President Zuma’s lawyer) – and others who would become notorious such as Fazel and Solly Bhana, who turned out to be the only substantial investors in Aurora Empowerment Systems.
The liquidation process has been reformed in recent years, but prior to 2008 was a crude instrument open to fraudsters, especially in difficult economic conditions. AES made an offer of R600 million for Pamodzi’s mines, an attractive offer to the liquidators. It claimed to be backed by a Malaysian investor and to be in the process of acquiring other businesses such as a timber firm. Many benefits were promised.
From October 2009 to September 2011 Aurora ran the mines under an extended interim trading contract. Gold was extracted and removed. But as early as February 2010 there was labour unrest over unpaid wages and gradually the scale of the scam began to emerge. Aurora had no active businesses. Was there ever a Malaysian investor with a string of names ending in Shah? Standard Bank on behalf of the liquidators tried unsuccessfully to trace him and there remains the possibility that he was simply an Internet fiction. This did not prevent Aurora’s lawyer submitting on an AM Equity letterhead a claim about a non-existent deposit of R20 million.
The kingpin in this extraordinary situation was one of the liquidators, Enver Motala. He was party to the AM Equity fraud, had financial dealings with Aurora, and had discouraged other plausible offers for the mines. In other words, he was perpetrating an inside job. During a double enquiry in 2011 by the Master of the High Court, it was discovered that Motala was himself a fiction; in reality Enver Dawood convicted of 92 counts of fraud decades earlier and ineligible as a liquidator. It is worth recording that although eventually debarred, he fought back via a series of scathing and bullying lawyer’s letters. How are lawyers able to get away with this sort of intimidation?
Unsurprisingly, Aurora kept few records of its gold operation (calculated at R122 million), but employees did. Early in 2010 as well as defaulting on wages Aurora stopped buying basic supplies and meeting essential contract costs. The directors were still extracting money while care and maintenance staff battled, under resourced, to keep the mines safe. The Bhanas seemed to fulfill a myriad of functions sealed by verbal agreements that make the true financial situation unknowable, but their extended family received millions.
Having defaulted on the purchase price, Aurora was actually in debt to Pamodzi. But then Aurora started stripping the mines of functional equipment, outright theft, and selling serviceable material at fire sale prices, some of which was needed for maintenance such as pumping. This highlighted the well-known criminal inclinations of the scrap metal industry. The liquidators were notable only for their absence, but zama zamas (some of them former, unpaid legal miners) were well aware of what was going on, moved in, and the situation became violent with underground shoot-outs.
Finally, the liquidators went to court to have the Aurora directors declared delinquent. Eventually some of them were found financially liable for R1.7 billion in stripped and destroyed assets plus the gold theft. Predictably this was interpreted in some quarters as racism, a political attempt to prevent black businesspeople succeeding in mining.
One of the Grootvlei care and maintenance team, on R60 per day, overwhelmed by the struggle to keep water levels down and by despair, committed suicide. He was owed R73 000 in unpaid wages. The Hawks have shown a curious lack of interest in pursuing this massive fraud and a case with the NPA concerning environmental damage has stalled. Some miners received payouts from the R23 million retrieved by the liquidators, but two thousand lost out mainly because their union membership had long since lapsed and there was no one to advise them. Hawker concludes that many ‘former Aurora workers never stood a chance’ (p. 143).
This is yet another book about the criminal activities of a politically connected elite that have caused South Africa to be labelled a mafia state. But it also points to a broader malaise, the failure of legal institutions to do their work diligently and efficiently and apply the law timeously. It could be argued that this is a consequence of state capture, but there is evidence that some lapses are due to incompetence and sheer indifference. Here, undoubtedly, are the makings of a failed state as many South African businessmen are now warning.
Book review by Christopher Merrett, reproduced from his web page, From the Thornveld