Mark Wellesley-Wood: CEO, DRDGold

Alec Hogg

23 November 2006

Rawas Mine problem – yet another problem for Investec involving JCI and Kebble deals.

MONEYWEB: Well, on to another court case. We seem to be having legal issues raised in a good way tonight, David Shapiro. Mark Wellesley-Wood joins us now from London. He is the chief executive of Durban Roodepoort Deep. And Mark, this reminds me of a luncheon meeting we had, probably five years ago, not too long after you had taken over as the chief executive of DRD and, at that point in time, having a look and starting to uncover and digging away at a deal that the Kebbles had conducted while they were in control of Durban Roodepoort Deep. But just to go back over it, there was a one time gold mine in Indonesia called Rawas. For matters of context, how big a mine or significant an operation is this?


MARK WELLESLEY-WOOD: Yes. This is a bit of an old dog. And it was owned by Laverton [Gold], which was a company in Australia which JCI had a shareholding in. It wasn’t a very successful mine. It only managed to do – I think it made a profit for one month, and I think about 22 months of production while it lasted. There was a lower gold price then, to be fair, but also there were a lot of technical problems. The mill was too big, the grade wasn’t there, it was too spotty, it was losing a lot of money. And it became a dog. So Laverton tried to sell it, and of course nobody with any sense wanted to buy it. They tried selling it to Randgold, but by that time Mark Bristow’s own dog kennel was looking pretty full then. So we had this wonderful idea that this was an opportunity for DRD.


MONEYWEB: Which at the time was being controlled by the Kebbles, or Roger Kebble …


MARK WELLESLEY-WOOD: Which was being controlled by the Kebbles. Now don’t forget this is where [indistinct] of the shareholding, cross-directorships, and is the largest credit to this company because they have been advancing it funds to keep it going on tick. And they couldn’t keep it going, the creditors were about to call it in, it was about to go bust. And then miraculously DRD had this wonderful brainwave that this would be a fantastic opportunity for it. So that’s the background.


MONEYWEB: But it was a serious brainwave as well, because it’s R122m worth of shares that were issued to take it on.


MARK WELLESLEY-WOOD: Yes. And this is the next strange bit, because then, knowing that this was a dog, they basically had to keep it from the board and from the shareholders. So they back-dated a resolution and changed a share price so that it fell below any of the disclosure thresholds. So the shareholders didn’t get a circular about this. And all defence to the non-executives of the board at the time. I know you’ve just been talking to Nic Frangos and a non-executive’s responsibilities. I think you have to be pretty eagle-eyed to have spotted that this was one paragraph in the back of a series of round-robin board resolutions, tucked away on like page 70 of a 100-page board pack. You wouldn't have spotted it at all.


MONEYWEB: Mark, who was the seller of Rawas?


MARK WELLESLEY-WOOD: Well, Laverton and the creditors. The creditors then got the shares, these 8.8m shares, which of course they freebeed into the market, got their cash, and JCI got its cash and got off scot-free.


MONEYWEB: When you took over in 2000, this is one of the issues that you started digging around in. How did you discover, or was it very easy to discover that there had been problems?


MARK WELLESLEY-WOOD: Well, it wasn’t, because I know, when we had that lunch, [indistinct] go back and say, well Mark came in here, so he’s going to clean up DRD and it took much longer. I think you are beginning to see in the Randgold and JCI matter exactly how professional and how – I was going to say devious and deceptiveness – these things are buried away. Even forensic auditors have great difficulty trying to catch up with some of these smart deals. Something like Rawas, we knew it was wrong. At that stage it was one of 20 matters that we were trying to sort out. But this one kind of lasted the course. It actually became the real bête noir falling out between Roger and I. It wasn’t a personal issue, it was because we couldn’t resolve this particular matter.


MONEYWEB: What happened to the Rawas mine after DRD took the … ?


MARK WELLESLEY-WOOD: I don’t think it’s seen the light of day. I think the plant was removed, it’s probably been re-vegetated by now. Maybe at a higher gold price it may be worth trying to dig it up again, but I mean it will still be a fraction of the value that it was purported to have then.


MONEYWEB: So now the challenge gets more interesting, because you would like to recover that money for DRD. How are you going to go about doing it?


MARK WELLESLEY-WOOD: Well, we had a court case running. As you say, it’s a complex matter. We’ve had to go through a whole circular process to relist these shares which were illegally issued, which is a mission in itself. And of course we’ve had to bring the evidence of witnesses. And then of course it was on its time track. JCI last year, as you know, was on its knees, and we had to take a bit of a view. And at that time it probably seemed right to settle, because JCI didn’t have any money. At least they were telling us they didn’t have any money. And so, yes, we thought we would see if we get into a settlement. But then of course we didn’t know about the Investec deal in the background and, as soon as that broke, and that news came about, we said, hang on a minute, there is value here, there are assets here, we will continue with our claim.


MONEYWEB: So that claim has not been settled – you are going to continue to look for R100m-plus from JCI?


MARK WELLESLEY-WOOD: Absolutely. It was a value claim in the beginning, it has not been settled, it is a value claim. We’ve had this in our 20-F disclosures to shareholders, something like five years. The board and ourselves aren’t going to walk away from it.


MONEYWEB: When will it be heard in court?


MARK WELLESLEY-WOOD: Well, we are getting quite advanced; the lawyers are swapping all the pre-trial information, which they do, but I don’t have a date yet. But it will come up.


MONEYWEB: Mark Wellesley-Wood, chief executive of DRD. Yet another little problem for Investec to deal with. They’ve got themselves into a really messy situation, haven’t they?


DAVID SHAPIRO: Yes. Look, they also did the deal in an effort to keep the companies afloat. I mean, they were also exposed. But it just becomes tiresome, and you’ve got to have legal teams. You heard the costs. You can see how long it takes and how slowly courts move. And I suppose as long as top management is not involved, I suppose it can go on. But once top management does become involved, it takes their eye off the ball.

Rawas Mine problem – yet another problem for Investec involving JCI and Kebble deals.

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