Players in South African Black Economic Empowerment (BEE) often use a complex and opaque web of directorships and shareholdings to access lucrative provincial and national tenders.

Since the recession, when BEE deals with firms on the Johannesburg Stock Exchange plummeted from R105bn in 2007 to R20bn in 2009, BEE players have been searching hard and fast to justify their business and its benefits to more than just a small political class. The ANC Youth League under Julius Malema has proposed nationalisation as one way of doing this, going so far as to investigate its viability.

The biggest recent scandal to infect South Africa’s mining industry is that of global steel giant ArcelorMittal's failure to renew mining rights in one of the world’s richest iron ore deposits, for seemingly no reason other than a slip-up. Yet no heads rolled. Instead, what emerged was a BEE deal connected to all the President’s men, including his son Duduzane.

It has all the makings of a thriller: a battle waged between some of the leading multinationals, government corruption, billions for the taking, the resignation of one long-term government official, and the death of another.

Here is what seems to have gone down:

Sishen Iron Ore Mine (SIOC), largely owned by Kumba Iron Ore, is located in South Africa's largest province, the Northern Cape, spanning 30% of the country's land mass area. The mine is said to be the world's most lucrative high-grade iron ore mine. SIOC is the world's fourth largest supplier of sea-borne iron ore. Anglo American owns 64% of Kumba, which it turn owns 74% of SIOC, its main asset.

In 2001, Kumba entered into a special pricing agreement with ArcelorMittal South Africa (AMSA), the subsidiary of the Luxembourg-based parent company, ArcelorMittal. According to the terms of the agreement, AMSA owned 21.4% of Sishen's shares. The deal allowed for AMSA to receive iron ore at cost plus 3%, providing the company with R5bn ($720m) in value annually at R200 per tonne.

But Kumba was not happy. It wanted to acquire AMSA's shares, which would have granted it monopoly. On the 30 April 2009, AMSA's rights to mine Sishen expired. 1 May was Workers Day - a public holiday – and was followed by the weekend. AMSA failed to file for an extension, even on Monday, allowing their lucrative rights to expire.

Kumba, however, lodged an application for minings rights on 30 April. Kumba executives claimed that sources at the Department of Minerals Resources (DMR) advised them to do so though at no time did they request that the application be processed earlier than required in standard operating procedures. Kumba's SIOC application was electronically logged on the system on 4 May. Each successfully registered application is provided with a unique number, and the first eight digits indicate the date of registration. Kumba's mining rights application, which required 12 months to process, was accepted because the company had not only exploited the area for 50 years but the mine was active and established.

On 4 May, another application was registered in the system by Imperial Crown Trading (ICT), a shell company manned by politically connected BEE players. Kumba was informed by DMR insiders that there was another applicant, despite it being a violation of government protocol. On 2 June 2009, the competing applicant's name was provided: ICT. The application itself was for a prospecting license, requiring just six months to process. While ICT's application was stamped on 4 May, the signature was dated 5 May, and subsequent attachments dated 8 and 9 May.

According to Kumba's complaints in a subsequent judicial review, if the application was only signed on 5 May, it appears impossible for ICT to have lodged a complete and valid prospecting request on 4 May 2009.

Kumba submitted to the court and the DMR that the prospecting license was invalid and that ICT had copied large tracts of SIOC's application preamble. On 30 November 2009, six months after application, ICT was informed they had won the rights to the 21.4% stake in the Sishen mine. On the same day, Kumba officials attended a meeting at the DMR but were not informed of the decision. Several months later, on 4 February 2010, the company was informed after several follow-ups.

The next day, Kumba cancelled the special pricing agreement with AMSA. In December, a DMR official with 13 years experience at the Department, Jacinto Rocha, had put in his resignation. February would be his last month. Rocha has since accused Kumba of "manipulating the administrative system to gain advantage and gratification".

In the South African media, AMSA soon emerged as the victim of ICT. AMSA appeared soon after to find a political solution to their problem: a BEE deal subtly engaging all members via a BEE consortium called Aiygobi, led by Sandile Zungu, one of President Jacob Zuma's BEE advisors. The deal was worth R9.1bn, transferring 26% of AMSA shares to BEE players (75%) and AMSA employees (25%).

Kumba took the case to court, citing numerous irregularities in the application process. Hennie Van Rensburg, the DMR official that had received ICT's application passed away from a heart attack at broadly around the time the case went to court.

But was AMSA really the victim?

ICT will be purchased by ArcelorMittal for R800m, facilitating the transfer of ICT's 21.4% shares to AMSA, and arming the company with connections to the highest BEE and political players in the land. This is dependent on ICT's victory over Kumba, and to ArcelorMittal shareholders giving the green light to the transaction requiring 50% + 1 approval - held up by a 'due diligence' investigation into ICT.

Kumba's legal team has been burrowing. The company revealed to a South African publication Moneyweb that Jannie Vorster, owner of Touchstone Drilling & Exploration, was listed by ICT as "as (a) possible contractor".

Though Vorster's signature was also included by ICT, Vorster himself, as he disclosed to Moneyweb, signed an affidavit stating that his signature was forged and that some of his company's documents were doctored. The publication further noted that a geologist, Ezra Thapelo Nkosi, listed by ICT as having done work for the company, denies having done so.

ICT's prospecting licence is currently being examined by the High Court. Its response is awaited with bated breath, more so given Anglo American's systemically important role in South Africa's mining industry. Meanwhile, given the Mittal family's 52% share in the company, coupled with the fact that AMSA's CEO is unlikely to have accidentally allowed for such rights to expire, it is difficult to assume that the orders were not approved from the top.

The Department of Trade and Industry (DTI) condemned AMSA's subsequent price hike of R600 per tonne, saying "that the South African economy is expected to bear the cost of its commercial error, which in turn will hamper our industrialisation efforts."

Other shareholders in ArcelorMittal South Africa, including Sanlam, are not very happy. The Public Investment Corporation, another shareholder, pulled up the strangeness of the situation in a press statement querying Mittal's inaction and the consequences.

But for AMSA, long receiving artificially-depreciated iron ore at the expense of the national budget and Kumba, this was the ideal solution. ICT's primary intention, which may soon be revealed by the High Court, might have been acquiring assets with the intent of immediately selling it at a premium. ICT's shareholders had been included, "inter alia as participants in the Ayigobi consortium."

According to the DMR, ICT is composed of 240 shares, 120 of which were issued to ICT. The remaining 50% were issued to Jagdish Parekh's Pragat Investments Ltd. Parekh also owns 25% of Ayigobi, alongside Zuma's son Duduzane's Mabengela Investments, which holds 12.5% of the Consortium.

Gugu Mtshali holds 7.5% of ICT and 4.5% of Ayigobi. Also led by BEE advisor Sandile Zungu, a special purpose vehicle called ZICO has 6.5% of shares and the Gupta family's Oakbay Investments, 6.25%. The latter, which has interlocking corporate interests with Duduzane Zuma through holdings in another company called Shiva Uranium, was brought into the BEE mix through their role as 'facilitators', despite the fact that they are naturalised citizens. Zungu, however, has vehemently defended the deal, stating on Talk Radio 702, "am not a new player in the mining industry, nor are the people in the Ayigobi consortium. Our role as a strategic partner should not be undermined."

Parekh became a 50% shareholder in ICT in early April 2009, a month before the application was filed. Parekh and Duduzane Zuma are partners in JIC Mining Services. Guptas' Oakbay Trust owns 61% of JIC. Detai Duduzane Zuma and Atul Gupta are also directors of Dominion Mine, another mine acquired for R280m through Shiva Uranium.

Kumba's chair, another business partner of the Guptas, was said to be opposed to the legal route. Though the R9.1bn has a very lucrative face value, the shares' real value have been capped, limiting AMSA's actual damage. Duduzane - who has since informed the country he will give away 70% of his shares, will take in between R91 - R209m of R916m in AMSA shares. Gupta (R46m- R104m of R458m; and Parekh, R182m-R418m of R1.83bn, with a further cash pay-out of R400m. Over 7% of ICT is owned by founder Phemelo Sehunelo, a seemingly professional player in the BEE game, and an active director of 28 companies.

Anglo-American has lost out in their attempt to acquire monopoly of Sishen via Kumba. Nor is ArcelorMittal a white lily – in 2007 it was fined R691m by the South African Competition Tribunal for price-fixing. According to the tribunal: "Price-fixing through the manipulation of supply is without doubt the most egregious contravention of competition law and principles." More recently, the European Commission fined 17 steel makers €518.5m for two decades of price-fixing, with half the fine imposed on ArcelorMittal's subsidiaries.

The Sishen scandal, however, has proved to be an ingenious way for AMSA to retain favourable terms accessing resources well below market price, while getting into bed with relevant parties - all of this, in the name of the poor.

If, according to mines minister Susan Shabangu, where two companies are applying for the same right, the company with the greater BEE presence will win out, one must question as to whether some 'poors' are more equal than others - and whether the poverty is of justice or capital.

BROUGHT TO YOU BY PAMBAZUKA NEWS

* This article was first published by The Africa Report.
* Please send comments to [email protected] or comment online at Pambazuka News.
* Pambazuka News congratulates Khadija Sharife on being shortlisted in the 2010 FAIR African Investigative Journalism Awards, for her article Treasure islands: Mapping the geography of corruption, which appeared in Issue 492.