Mzi Khumalo (b.November 4, 1955), is aTop South African mining magnate .
He is one of SA' s best-known businessmen. In the past 10 years he has built a corporate and personal empire consisting of Metallon Corporation and Mawenzi - the group that houses his personal investments. He's been a Chairman of Mintek since 2004. After serving 12 years on Robben Island for political offences, Mzi Khumalo joined McCarthy Holdings in 1991. In 1994 he founded Capital Alliance, he sold his interest in 1997 and became a shareholder in JCI. Mzi is an ex-director of Anglo American Corporation, Telkom SA, McCarthy Retail, Momentum Life, Southern Mining Corporation and the Financial Markets Advisory Board.
He is married to Khosi and has a daughter.
Mr Khumalo, a prominent South African businessman, is active in the financial services and mining industries of South Africa, and has served on the board of a number of companies, including Anglo American Corporation of South Africa.He founded Capital Alliance Limited and is currently Chairman of the Mawenzi Group of companies and a director of Mintek as well as a trustee of the World Wildlife Fund.
Born in the Durban township of Kwamashu in 1995, the youngest of eleven children of a policeman and a cleaner, who died when he was only nine, Mzi Khumalo began earning his living at a very early age, tinplating recycled oil cans. He then became a petrol pump attendant and learned car mechanics. He was soon well known for his resourcefulness. Some of his friends became students and African National Congress militants and they often turned to him to keep a lookout, provide a car or pass arms. "I was never really politically aware until I was much older. I think the ANC spotted me and recruited me rather than me joining out of conviction."
Trained abroad in the logistics of urban guerrilla warfare, Mr Khumalo was arrested in 1978 and sent to Robben Island, where Nelson Mandela was already imprisoned. "I came out in 1990 and started my life again from scratch after 12 years in prison. Many were broken, but some people are stronger as a result."
While in prison, he took a degree in economics. Unlike his comrades who then craved political posts, the clever township boy still had a taste for business. He became a broker, going on to form his own management consultancy. Six years after leaving prison, he found enough investors among the rising black middle class, including insurance companies with the pension funds of 300,000 Blacks, to raise the $500m needed to take a majority stake in JCI, South Africa’s fourth largest gold producer.
He thus became the first Black to take control of South Africa’s legendary mining company, the pioneer of the gold-rich "Rand" founded in 1888 by Barney Barnato who bought all the land that was needed to build the city of Johannesburg, having already made a fortune from Kimberley diamonds.
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A Black boss for South Africa’s gold
With the end of apartheid, Black empowerment has become an essential feature of the new South Africa. Even so, it may have surprised some when a Zulu ex-guerrilla warfare expert and former inmate of Robben Island with a taste for business became boss of the celebrated gold-mining company, JCI. But then, suddenly, the price of gold plummeted.
by Thierry Secrétan
"Our new boss was a political prisoner!" The news spread along the corridors of the glazed office block in the centre of old Johannesburg, headquarters of the South African gold mining company, Johannesburg Consolidated Investments (JCI). On this December day in 1996, secretaries, executives, engineers and directors, Blacks and Whites together, but mainly Whites, were assembled in the vast canteen.
The well-built Zulu began by modestly explaining that he was just one of a team. "I think people are concentrating on me because I was a prisoner. I never imagined that would become the most important part of my CV. I hated every minute of it when I was in prison, so I might as well make the most of it now". Everyone burst out laughing and the Whites felt suddenly relieved. The horrors of apartheid, exposed throughout the year by the Truth and Reconciliation Commission, had made many of them wonder what would happen to them when they had been so cruel to the Blacks.
Born in the Durban township of Kwamashu in 1995, the youngest of eleven children of a policeman and a cleaner, who died when he was only nine, Mzi Khumalo began earning his living at a very early age, tinplating recycled oil cans. He then became a petrol pump attendant and learned car mechanics. He was soon well known for his resourcefulness. Some of his friends became students and African National Congress militants and they often turned to him to keep a lookout, provide a car or pass arms. "I was never really politically aware until I was much older. I think the ANC spotted me and recruited me rather than me joining out of conviction."
Trained abroad in the logistics of urban guerrilla warfare, Mr Khumalo was arrested in 1978 and sent to Robben Island, where Nelson Mandela was already imprisoned. "I came out in 1990 and started my life again from scratch after 12 years in prison. Many were broken, but some people are stronger as a result."
While in prison, he took a degree in economics. Unlike his comrades who then craved political posts, the clever township boy still had a taste for business. He became a broker, going on to form his own management consultancy. Six years after leaving prison, he found enough investors among the rising black middle class, including insurance companies with the pension funds of 300,000 Blacks, to raise the $500m needed to take a majority stake in JCI, South Africa’s fourth largest gold producer.
He thus became the first Black to take control of South Africa’s legendary mining company, the pioneer of the gold-rich "Rand" founded in 1888 by Barney Barnato who bought all the land that was needed to build the city of Johannesburg, having already made a fortune from Kimberley diamonds.
Buying back the family silver
JCI’s history has all the makings of a TV soap opera. Rising to be life president of the De Beers mining conglomerate ("diamonds are for ever"), Barney Barnato died in mysterious circumstances at the age of 42, falling overboard from a ship under the very eyes of his nephew Solly Joel, who was later to help the future gold and diamond magnate Ernest Oppenheimer take control of De Beers after forming the Anglo-American Corporation of South Africa in 1917.
Although Anglo-American (gold) and De Beers (diamonds) present themselves as two separate companies, each has a stake in the other. Their 600 companies form one of the world’s 20 largest multinationals: a genuine second force in South Africa, where gold now accounts for only 10% of gross national product.
To encourage Black access to economic power after the fall of the apartheid regime (the essential "black empowerment"), Anglo decided that JCI would be sold only to Blacks. But business was still business and it had to go to the highest bidder. JCI was divided into three, with Anglo keeping the platinum business. The industrial holdings were sold separately under the name Johnnics and the gold and coal mines under the name JCI.
Apart from Mr Khumalo, there was another man in the running: the brilliant Cyril Ramaphosa, a young lawyer and well known ANC activist who founded the first miners’ union, the National Union of Mineworkers, in 1982, and organised the 1987 strike that spelled the end of apartheid.
In the months leading up to the sale of JCI, everyone who knew the Rand tipped Cyril Ramaphosa to win. But on 28 November 1996 Mr Khumalo won the day by offering to pay Anglo 11% more than the quoted price for the shares. Initially, this example of the new South Africa on the move was greeted with enthusiasm: JCI shares rose by 20%.
In January 1997, Mzi Khumalo paid his first visit to the JCI mines. The gold division’s director, John Brownrigg, explained the complex technicalities to him in plain language. Speaking about the workforce, he referred sometimes to "miners" and sometimes to "mineworkers". Mr Khumalo asked him the difference. "Only those with an explosives permit are entitled to be called miners; the others, categories one to eight [there are 20 categories] are mineworkers."
The "categories one to eight" are the hundreds of thousands of men who work in galleries 2,000 to 4,000 metres below ground in temperatures of 40 degrees. They drill holes in the rock for explosives and dig the rock out after the explosion. There are 500 fatal accidents every year. In constant terms, the cost of this labour did not increase from 1897 to 1970, whence the colossal fortune of the Rand companies.
But these mineworkers are not entitled to call themselves miners and have little chance of getting a permit to use explosives. Under apartheid, this discrimination was called the colour bar, meaning that skilled jobs were reserved for Whites. With no fighting fund, Cyril Ramaphosa nevertheless mobilised these "categories one to eight" for the three weeks of the famous 1987 strike. True, Mr Khumalo was in prison on Robben Island at the time, but his ignorance of all this was still surprising.
He was taken to visit a new shaft, the South Deep, being dug to open up the biggest reserve of gold-bearing ore known to date: 60 million ounces of gold buried 2,500 m underground. The tallest head frame in the world has already been erected. At this stage, there is still no cage. A shaft is dropped vertically to the required depth. The descent is made in a vast steel bucket slung on three enormous chains, exposed to the din and running water. In the depths, with a tremendous rumbling of pneumatic machinery, a giant steel hand is at work. The miners seem to dance around it, mimicking the great hand’s movements with their arms to guide its operator, perched in a cradle two metres above.
Back on the surface, Mr Khumalo confessed to being enthralled. In the stadium, he addressed the miners of different ethnic groups in Zulu, speaking in short sentences though an interpreter. He stressed the historical importance of JCI being under Black control. But he also sought to reassure the white managers, explaining that, although the shareholders had changed, JCI was still JCI. He added that he was determined to transform labour relations in the mining industry.
As the miners were leaving the stadium at the end of his speech, about a hundred of them surrounded Mr Khumalo to shake him by the hand. There was hope in their eyes. But in their huts in the compounds that evening, many admitted to not having understood a word. Why had the speech only been translated into English and Xhosa and not into Fanakalo, the miners’ dialect that everyone understands?
One year later Mzi Khumalo had already given up the chairmanship of JCI and on 29 January 1998 now resigned from the board of directors. There was talk of "cowardice"; an associate spoke of "the swallow that wanted to lay an ostrich egg". Then the unforeseeable happened: the price of gold plummeted. It is now worth less than $300 an ounce and more than half the world’s gold mines may soon have to close. City newspapers write that gold is now just another raw material.
In the course of that dramatic year, differences within the Board increased. It broke into three camps. The first, consisting of Mr Khumalo’s White partners led by Brett Kebble, wanted to make JCI a strictly gold-producing group; the second wanted to sell and share the proceeds; the third, like Mr Khumalo himself, dreamed of "a world-class African mining company". Many anxious shareholders then sold their holdings, and JCI shares lost half their value.
Who will buy what is left of JCI after Brett Kebble has dismantled it? The mining operations, including South Deep, seem to be the only profitable activity. Only Anglo has the financial capacity to buy the new company, JCI Gold. But if it buys back cheap what it sold dear, the liquidation of JCI will become the first great failure of Black empowerment. Brett Kebble has just got Anglo to agree to leave South Deep to JCI Gold on condition that it re-forms a group of Black investors. One thing is certain: if the price of gold does not recover, the men from "categories one to eight" will be sacked in their tens of thousands.
Starting again from scratch, Mr Khumalo gives himself ten to 15 years to build a new mining enterprise fully controlled by Africans, saying "When I am strong enough, I will take on the world".
http://mondediplo.com/1998/05/11safr
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5 August 2003
Mzi Khumalo
THE BALANCING ACT
By Itumeleng Mahabane
As Khumalo tries to build a sustainable business, he has to deal with demons of the past
"I have a nose for money but I'm not really a good manager."
These, his own words, perhaps best describe Mzi Khumalo, the former Robben Island prisoner and now mercurial and controversial businessman.
Despite a business career that is highlighted by some high-profile failures - most notably mining house JCI - he is now personally worth a cool R800m, conservatively estimated.
"If the test of a good businessman is the measure of his bank balance, then I'm a bloody good one," he says, disarmingly frank. But the enfant terrible of black business - Khumalo does not consider himself an empowerment player - stands accused of greed and opportunism in accumulating this wealth.
Khumalo filled newspaper column centimetres recently after accusations that he hijacked the 2001 empowerment deal between the Simane consortium and Harmony Gold (see page 22).
But there's another side to Khumalo, one of a shrewd businessman who sails a bit close to the wind at times but is true to his word.
Cluff Mining Plc COO Terence Wilkinson, who is working with Khumalo on a mining deal in Zimbabwe, says: "I rate Mzi highly . . . We shook hands on a deal and he was true to his word, delivering exactly what we had agreed, despite the goings-on at JCI."
Others in the mining industry are less flattering. Brett Kebble, who backed Khumalo in the bid to buy JCI from Anglo American in the late 1990s, is particularly bitter. Last month, he threatened to sue Khumalo for R30m for payments allegedly outstanding in the JCI deal.
All this comes at a time when Khumalo is developing his new company, Metallon Corp, as a sustainable business to hold his financial services, resources and hotel & leisure interests,
Of the post-apartheid brigade of black businessmen, Khumalo stands apart as an ambitious entrepreneur who rode the whirlwind of business. It is nearly five years since his fall from grace after his acrimonious departure from JCI and the subsequent break-up of the group.
His track record after the JCI debacle has been a mixed one. Some of his ventures, like Zarara Energy, were flops as bad as JCI, if significantly smaller. In others, like mining group Afrikander Lease, Khumalo's made a killing, quietly making more money than most other high-profile empowerment players.
Now Khumalo is back in the limelight. It is more than the Simane controversy that has put him on public display. Early last year he created Metallon, the company he intends to turn into a lasting corporate legacy. "Metallon is my dream," he says.
Since the collapse of JCI, most of Khumalo's business dealings have been speculative; he hasn't really done anything that suggests he would put together a company that would outlast him.
"When you start out, you need to build a financial foundation . Some people take five generations, others are lucky enough to do it in five years." Twelve years since he went into business, Khumalo says that he is now in a position to do that.
Khumalo's opportunistic approach has been a major stepping stone in achieving this dream. By his estimates, he made R200m out of Afrikander Lease. It's not clear how much he made out of Harmony, though he says he still holds most of the shares. However, he says he has raised money against the shares.
He says Metallon, of which he controls over 85%, has about R2bn on the balance sheet, with no debt. He expects the group to produce after-tax profits of about R300m next year.
The first pillar in Metallon is financial services. Khumalo shelled out R460m for African Harvest, snatching an asset from another black entrepreneur, Mashudu Ramano, for a second time in a year (the first one was Harmony).
Some analysts feel Khumalo overpaid for African Harvest. Both Khumalo and African Harvest MD Ethan Dube, who put together the management buyout as part of Khumalo's consortium, dispute that. "African Harvest has an asset base of R400m, with no debt."
They also maintain that Khumalo's reputation is not hurting the business. Khumalo says since he bought African Harvest, the asset management division has attracted R1bn in managed funds.
The second element of Metallon is his mining ambitions. "Metallon wants to be a diversified resources house," says Khumalo. That has always been his aim, from the days of JCI. The vision of a diversified and pan-African mining house was one of the key differences in the vision for JCI between himself and Kebble .
"These commodities are cyclical," says Khumalo. "When we bought JCI, gold was trading at US$398/oz. By the time we split, gold was trading at $260/oz. I want to have a balance of metals, so that when one goes down, another goes up. It is common sense based on historical performance."
He also firmly believes that Africa continues to offer considerable potential for those brave enough to seize the opportunity . "Someone stands to make a fortune out of resources on this continent," he grins.
That observation is the kind of obvious truism people dismiss offhand, but it's paid off for Khumalo, who expects his mines to produce between 200 000 oz and 300 000 oz of gold this year.
Independent Mines, the Zimbabwean gold operation he acquired for $15m in 2001 from Lonmin, which was desperate to get out, appears to have been a steal. A Zimbabwean mining analyst puts the nominal value of the mine at $80m. It's well below the offers of $120m Khumalo claims to be receiving, but is still unbeatable value if you believe that Zimbabwe will stabilise.
"I have a simple view on life. When the Oppenheimers started their business, it was during the Anglo-Boer War. If you want a stable environment, go to London and see how much money you make. For people like us, you can only make money in these rough environments."
At the moment he's sniffing around in the Democratic Republic of Congo and Angola. "Mozambique also represents some opportunities, but it's stabilised so everyone is going there. We prefer markets that are less stable, that's where you pick up value."
Also on the mining front there have been suggestions that Khumalo may be interested in Kumba Resources, the iron ore miner. He laughs and then replies: "I think iron ore is an excellent opportunity and we've got plenty of it in this country. Now that does not mean I'm going to rush off and participate in an empowerment deal and get 4% of Kumba. What for?"
The rationale is based on his view of the future of black mining. Khumalo believes that in 10 years there will be two to four big black mining players in the country. "Hopefully mine will be one of them," he quips.
Khumalo says people who start businesses do so with the ultimate objective of selling them. "So whoever has a decent balance sheet at a given time, whether it's Mzi or Patrice (Motsepe), can go and buy them out."
The third leg of his business empire comprises hotels & leisure, partly held through Metallon and partly by Mawenzi. The latter is the holding group for the bulk of his private businesses and which he has turned into a kind of private equity and leverage buyout unit.
Global Resorts, with interests in casino operations Caesar's Gauteng, Graceland in Mpumalanga and the Grand Palm in Botswana, is the jewel Khumalo would like in his stable, given its "unbelievable cash business".
Metallon is bidding with other groups to buy Global Resources, but the deal has hit a snag . "There are five sellers. We've reached agreement with four and we're struggling with one. We can't restructure the company until we've struck a deal with the fifth player," he says.
"It only makes sense if we can go in there and restructure the company and leverage the cash flow." Khumalo wants to issue a corporate bond on Global Resorts as the main form of debt for the acquisition.
Why is he paying so much money for the business? "I think tourism in this region is going to be great business. It's also something I've always had a passion for.
"You know I made my first money from the development of the Hilton in Durban?"
There was some controversy about that deal. He smiles and shrugs: "I had to take the cash and run."
He is also developing a conservation area in the KwaZulu Natal midlands. "I've bought a hotel site at Zimbali and we're planning a five-star hotel there.
"We're also building two hotels in Rwanda, one for the business market, the other a tourist hotel on Lake Kivu at the foot of the mountain where the gorillas live."
Throughout his business career, Khumalo has been careful not to wear the empowerment mantle too firmly.
"When I say I've never seen myself as an empowerment player, it's largely because the things that people say about empowerment go contrary to the objectives of my family," he says.
"Our objective is not just to make an average amount of money. We want to be the leading family in the resources business, not only in the region but on the continent. This is what we've been trying to do for the past 10 years and I'm happy to say that I'm on my way to doing that," Khumalo stresses.
The question is will he indeed be able to turn Metallon into an enduring asset? He is permanently confronted with the allegation that he is a bad businessman, and he counters it with the reference to his undoubted personal wealth.
He does concede certain things about himself though.
"My biggest shortcoming is that I'm not a good manager. Which is why I now surround myself with good managers.
"I have decided I'm not a Brian Gilbertson, nor do I want to be. I will hire people like Gilbertson, executive managers who build institutions and for that I need a good asset base," Khumalo says.
His Gilbertson at Metallon is Andile Reve, who was vice-president of the IDC and who was caught up in the Harmony saga over a personal loan Khumalo made to him.
Anton Rupert, the doyen of Afrikaner business, once remarked that the man he truly respected in business was the one who found success, was dragged down into failure and rose once more.
Of the leaders on the black corporate scene, Mzi Khumalo is one of the few who can knock on Rupert's door and demand that acknowledg ment.
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