Khumalo's tiff with Reserve Bank likely to be drawn out
February 24, 2009
By INGI SALGADO
Mining entrepreneur Mzi Khumalo's legal tussle with the Reserve Bank over his R1 billion offshore profit grab from selling shares in Harmony Gold six years ago is likely to be lengthy.
Round one went to Khumalo last Thursday when the Pretoria high court found that a notice of attachment issued by the bank in August was invalid and ordered the bank to pay his costs.
The bank issued a statement yesterday confirming that it had filed an application for leave to appeal to the supreme court of appeal. It believed the high court had "pronounced on a technical legal matter rather than on the merits of the underlying case".
The technicality hinges on exchange control regulations of the 1933 Currency and Exchanges Act, which the court said did not set out a time limit for the attachment of money and goods.
The bank contends that Khumalo flouted exchange control regulations by vesting the shares in an offshore entity set up in the Virgin Islands.
Khumalo's lawyer, Gerhard Rudolph, said Khumalo would oppose the bank's application for leave to appeal the judgment, but he believed this outcome was "not likely to be the end. I don't think anyone sees this as being the end of the story by any stretch."
Khumalo and his legal team were taken by surprise when the bank's notice of attachment was served on September 2, as profit earned from the sale of the Harmony shares had been under discussion since about 2003, Rudolph said. The last communication between the parties took place in 2006.
The attached assets were mainly shares in Khumalo's companies, but included a fixed property and an aircraft that had been sold by the time the notice of attachment was issued. Khumalo owns JSE-listed Metallon, while his personal investments are housed in Mawenzi.
The profit Khumalo earned from selling the Harmony shares has its roots in a black economic empowerment (BEE) deal Harmony concluded with Simane early in 2001.
In the following months Khumalo secretly acquired two-thirds of Simane. He later took out Simane's minority shareholders, allegedly using bullying tactics and apparently in a bid to meet strict requirements related to a R760 million loan to Mawenzi from Deutsche Bank in London. The cost of Khumalo's purchase of Simane was reported to be less than R100 million.
Harmony's share price for the original BEE deal was fixed at about R37. Just over a year later, the share price raced to R186.80, setting Khumalo up to earn substantial profit from selling his equity.
Khumalo, a former political prisoner on Robben Island, set the BEE ball rolling in South Africa when in 1996 he teamed up with mining magnate Brett Kebble to buy JCI from Anglo American. JCI was torn apart the following year as commodities prices fell and the partners split.
While Kebble wreaked further havoc at JCI, Khumalo went on to build his own mining empire. He became renowned for eschewing long-term BEE investments by insisting on his right to sell shares for a profit if he invested his own money with no facilitation from the company.
Apart from leaving Harmony with no BEE partner, he left Basil Read with a reduced BEE stake when in 2006 Metallon sold its almost 26 percent share in the construction firm after only eight months.
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