South African business magnate Mzi Khumalo's mining empire in Zimbabwe is on the brink of collapse and the 64-year-old is said to be looking for a way out.
A debt schedule seen by the Sunday Times this week shows Metallon Corp, which Khumalo founded and chairs, is indebted to the tune of $200m.
The company also faces a court case in which it is alleged to have unlawfully sent more than $30m to the UK, claiming it was for the payment of dividends and management fees.
The Associated Mine Workers Union of Zimbabwe, the largest mining union, approached the high court in Harare this week seeking an order that Metallon’s two mines in Shamva and Mazowe be put under business rescue.
The union says about 1,400 workers at the mines are owed $40m in salaries, benefits and unremitted pensions.
Trouble has been brewing at Metallon for months as creditors have lined up with court orders allowing them to auction off company assets to settle debts.
Most recently, Metallon lost a plant at Mazowe which was completed in 2017 at a cost of $18m. It was auctioned for about $1.8m, significantly less than what the company borrowed from banks to build it.
Company bosses said they feared the banks might now seek early settlement of the loans.
One executive, who did not want to be named, said: “Our funders, such as BancABC and CABS, may want to bring forward payment dates for their facilities before any ruling is made on the corporate rescue application.”
The debt schedule shows Metallon owes:
● RTGS$20m to the Zimbabwe Electricity Supply Authority;
● $5.6m to mining services group Afmine;
● $3m to mining services company Fraser Alexander; and
● $700,000 to a car service company.
Khumalo is scrambling to find buyers for the mines, company sources said. It is understood interest has been shown by Canadian firm B2Gold, which has mines in Namibia and Mali, and Randgold, which recently merged with Barrick Gold.
“Mzi is now desperate for a way out, but he is out of options,” an insider said.
Metallon spokesperson Klara Kaczmarek said three of the company’s four Zimbabwe gold mines were mothballed.
High inflationary costs
“The difficult economic climate along with high inflationary costs has meant that production has had to cease,” she said.
“The lack of payment for gold deliveries in US dollars and the fiscal environment has meant that these operations have struggled to pay for key inputs. Other gold mining companies in Zimbabwe are in the same position.”
Kaczmarek would not confirm if Khumalo planned to exit the country. “Once the situation changes in Zimbabwe, Metallon is keen to re-establish gold mining operations across the group and continue to repay creditors,” she said.
“We continue to evaluate the best route to deliver value, but do not disclose or comment on any strategic discussions we have with third parties.”
The court case over sending funds out of the country has been brought by the national economic conduct inspectorate and the police, which say no central bank approval was obtained. The payments are said to include:
● $9.9m in management fees to the UK between 2009 and 2013;
● $5.8m in repayment of a loan for which no documentation exists;
● $25m as a “dividend payment” in 2012, when operating profit was lower than that amount;
● $87,871 to an offshore lender between 2011 and 2012; and
● $7.7m loaned to a sister company in SA.
Khumalo entered Zimbabwe in 2002, when he paid $15.5m for Lonmin’s local gold assets, and immediately faced a lawsuit from businessman Lloyd Hove, whose company, Stanmarker Mining, claimed he reneged on a deal to use one of its subsidiaries as its local partner. Instead, Khumalo entered into a partnership with Manyame Consortium, but relations there also soured and he was sued for breach of contract. Manyame was led by John Mkushi and Mthuli Ncube, who is now finance minister.
Despite increased output of 33t last year, gold miners remain under pressure, especially because of foreign currency shortages that hamper operations.
Earlier this year, gold and nickel miner RioZim suspended operations at three mines for the second time in as many months due to the forex crunch.
At a mining conference in Johannesburg this week, senior Zimbabwe executives said far-reaching reforms were needed to end currency shortages.
“The [exchange] rate must be allowed to float. If it’s not working, try something different,” said RioZim CEO Bhekinkosi Nkomo.
In Washington, Ncube told Bloomberg TV on Thursday he would introduce “a new fully fledged currency” in the next 12 months.
– Sunday Times