Lonmin’s South African subsidiaries paid hundreds of millions of rands in dividends to Cyril Ramaphosa’s company in the three years leading up to the massacre at the company’s Marikana mine in August 2012, while failing to meet promises to build houses for its workforce and pleading poverty over wage demands.
Evidence before the Marikana commission shows that the payments, totalling $46-million, were made despite business conditions being so tough that the platinum mines paid zero dividends to their British parent company, Lonmin plc.
Although it is relatively common for South African companies to guarantee dividends for their empowerment partners, this appears not to be the case here.
In another document supplied to the commission last month, Lonmin said it had “no obligation” to pay Incwala Resources, its black empowerment partner, in years when there was no profit.
The commission, headed by retired judge Ian Farlam, is investigating the circumstances that led to the violent strikes of August 2012 during which 44 people died, most of them at the hands of police.
The promises to build the houses were made to the minerals department in order to secure new-order mining rights.
This was also at a time when Lonmin argued, in the face of escalating labour tensions, that workers’ wage demands were unaffordable.
BEE “obligations” trump wage increases
In 2012 alone, the year of the Marikana massacre, Lonmin incurred enormous losses, but it paid $14-million to Incwala, which has been controlled by Ramaphosa’s Shanduka Group since 2010.
Had this amount been distributed to Lonmin’s South African workforce, each employee might have received an additional R330 a month. But Lonmin defended the payouts on two main grounds.
One, Incwala was at risk of defaulting on loan repayments, which, it said, might have compromised Lonmin’s BEE equity structure, a requirement of the mining charter.
Lonmin spokesperson Sue Vey said: “Making additional payments to employees at the expense of [empowerment] obligations is irresponsible.”
Two, these were “advance dividends” to be subtracted from later Incwala payouts, it said.
In a written response, Shanduka in effect repeated this but characterised the payments as “loans”. It said they were not “dividends”. Shanduka said Incwala had not paid it any dividends during this period, suggesting it drew no benefit.
But this can be disputed. The situation was particularly tough at that time, with anger boiling over among Lonmin’s workforce over low wages and a long-standing default over housing promises, as evidenced by the violent outcome of the strike.
Also read: Questions and contradictions over Lonmin’s Bermuda transfers
Policies and priorities
Instead of the mines paying advance dividends to rescue Incwala, it is not clear why other options were not chosen: Shanduka itself, or its wealthy shareholders, could have paid in; the empowerment consortium might have been restructured; or third-party lenders could have been approached.
Shanduka disputes that it benefited, but this appears to be incorrect.
Money to service Incwala’s loan would still constitute a benefit to Shanduka as Incwala’s controlling shareholder. It said the payments were not influenced by political considerations.
Nevertheless, Lonmin’s apparent choice to look after its politically connected partner rather than meet the demands of its increasingly disaffected workforce underscores the manner in which empowerment principles are often distorted to favour the elite and powerful.
It also turned out to be financially destructive. Lonmin lost an estimated R500-million because of the 2012 strike, which lasted 42 days.
Ramaphosa resigned from Shanduka’s board before re-entering politics in 2013.
“The idea that Shanduka or myself received any benefit from Lonmin at the expense of the workers or participated in any irregular tax structure is absurd and malicious and not borne out by the facts,” he said in response to questions.
$621-million dividend bonanza
The Marikana commission heard its final day of evidence on Monday, when Lonmin’s former chief of operations, Mahomed Seedat, was cross-examined.
The broad question was whether Lonmin could have afforded to meet the 2012 rock drill operators’ wage demand of R12500 a month and provide decent living conditions for its workforce.
Included in the documents provided by Lonmin this week was the schedule of dividend payments paid by its two South African mining subsidiaries to its parent company, Lonmin plc, and Incwala.
From 2007 to 2012, the schedule revealed, Incwala and Lonmin reaped $621-million in dividends from the South African mines. They own 18% and 82% of the mines respectively.
Although both shareholders were paid until 2009, also a loss-making year, only Incwala was paid from 2010 on.
‘Appalling’ living conditions
‘During cross-examination on Monday, evidence leader Matthew Chaskalson asked Seedat: “Now, ordinarily, one wouldn’t pay dividends before one had discharged what are apparently current obligations. Is that not correct?”
Chaskalson was referring to the fact that, in 2006, when Lonmin successfully applied to convert its old-order mining licence, and therefore secure its right to continue mining on the platinum belt, the company promised to spend R665million building 5500 houses for mineworkers at Marikana.
But during questioning last month, Seedat conceded that, although the living conditions at Marikana were “truly appalling”, Lonmin had built no more than three show houses.
One of the key reasons Seedat gave for this was a cash crunch that was exacerbated by crashing platinum prices.
He responded to Chaskalson’s question on Monday by arguing that the mines had to pay dividends to Lonmin plc, which raised finance in foreign markets for their operations.
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