Frank Timis Faces Investor Anger as African Minerals Implodes

Published by MAC on 2015-06-18
Source: Bloomberg

Resource Tycoon Timis Faces Investor Anger as Miner Implodes

by Jesse Riseborough & Thomas Biesheuvel

Bloomberg

16 June 2015

There have been two sides to Frank Timis’s career since he fled Nicolae Ceausescu’s brutal dictatorship in Romania as a teenager over 30 years ago.

There’s the story of a swashbuckling natural resources investor with blue-chip backers like BlackRock Inc. and Capital Group who amassed a fortune developing projects including a $2.5 billion iron ore mine deep inside the hinterland of war-torn Sierra Leone.

But there’s also a darker element. Twice found guilty of heroin possession in Australia, Timis was deemed “unsuitable” to be a director by the Toronto Stock Exchange for failing to disclose those convictions. Oil company Regal Petroleum Plc paid a 600,000-pound ($930,000) penalty in the U.K. in 2009 for misleading statements while Timis was in charge.

Those two strands have converged in the brawl the 51-year-old dual Australian and Romanian national is now embroiled in. Timis’s Sierra Leone miner African Minerals Ltd. collapsed in March, leaving behind a trail of recrimination and multimillion-dollar losses from China to London.

The fallout threatens to derail Timis’s ambition of creating a $10 billion West African resources giant. It also raises questions about the role of U.K. market regulators, who have so far been silent on the matter, according to analysts, investors and former employees.

Bitter Feud

“There needs to be a deep investigation,” said Russell Fryer, founder of Greenwich, Connecticut-based Baobab Asset Management and an investor in the company. “African Minerals constricted newsflow to shareholders. In this case, no news was bad news. There are big questions over some of the board decisions.”

Administrators from Deloitte LLP last month attributed the collapse to last year’s 47 percent slump in iron ore that wiped out producers from Australia to China, the Ebola virus in Sierra Leone and an increasingly bitter feud with Shandong Iron & Steel Group, its partner in the Tonkolili mining project.

The London-based company was worth about $3 billion at its 2011 peak. By the time trading was halted in November, its value had tumbled 95 percent to just $51 million.

African Minerals had total debt of $766 million at the end of September, including a $400 million convertible bond, which it defaulted on in February.
Shandong Iron

“The freefall in iron ore prices last year certainly had a huge impact on our operations, and our financial position,” Timis Corp., Timis’s closely held company, said in an e-mailed response to questions. “The board fought tooth and nail to protect both the shareholders and bondholders of African Minerals from a terrible set of circumstances. With a supportive partner, we believe we could have seen our way through.”

That partner, Shandong, owned 25 percent of the mine and had a $250 million loan to African Minerals at the time of the collapse.

In April, Shandong bought African Minerals’ best asset, the idle Tonkolili mine in a deal valued at about $170 million.

More than 160 small shareholders represented by law firm Wellers Law Group LLP are now considering ways to recoup losses. They claim a rescue proposal of about $875 million from Shandong that arguably would have kept African Minerals afloat wasn’t publicly disclosed. A spokesman for Timis Corp. denies there was a “formal approach” from Shandong.

Bond Issue

In December, Shandong proposed an offer that would’ve boosted its holding in the Tonkolili operation to 82 percent, leaving African Minerals investors with 18 percent, according to a copy of a letter addressed to the board obtained by Bloomberg News. Such an offer was never made for African Minerals to reject, Timis Corp. said.

In that document, Shandong also demanded the ouster of Timis as chairman and the termination of all agreements with other companies he controlled. Shandong declined to comment.

African Minerals considered a number of options last year including a $600 million bond issue in July. That was derailed “at the 11th hour as the Ebola situation deteriorated significantly,” according to Timis Corp., which said Frank Timis personally lost $252 million in the company’s collapse.

“Had African Minerals received a formal offer during this period it would have -- like any other listed company -- been under an obligation to make an announcement to the market,” Timis Corp. said.

Feel Aggrieved

Not everyone in London’s mining community is convinced.

“Investors have every right to feel aggrieved,” John Meyer, a mining analyst at SP Angel in London, said in an interview. “They’ve been sold out by Timis. With iron-ore prices where they are, it ought to still be running. Timis’s mismanagement has allowed Shandong to take possession of the assets, leaving investors with little hope of compensation.”

Even before the company’s collapse Timis was embroiled in an internal investigation at African Minerals that probed whether he benefited from a $50 million payment that went to a company part-owned by another director.

The investigation found that Timis authorized the 2012 payment to a Cyprus-registered iron ore company, GIO Cyprus, which was subsequently shown to be linked to an African Minerals director. The probe into the payment neither proved nor disproved allegations Timis benefited from it, the company said in August. A spokesman for Timis Corp. said the internal probe was “rigorous and thorough.”
Contract Review

Last month, African Minerals’ administrators held the first meeting of creditors in London and said they’re investigating the conduct and transactions of directors prior to its bankruptcy, without naming anyone. The administrators didn’t respond to e-mailed questions from Bloomberg News.

Timis, described as a “considered risk taker” in a recent company brochure, now has another struggle on his hands.

The same month as his prize asset was bought by Shandong, Burkina Faso opened a probe of how a company Timis controlled acquired a $1 billion manganese mine under the regime of Blaise Compaore, who was ousted in October after 27 years in power.

The country’s transitional government ordered Pan African Minerals, in which Timis Corp. owns 53 percent according to a company brochure published in April, to halt work at the Tambao mine. Pan African gained its mining license in May last year.

Timis Corp. said it hopes Tambao will be operational again in the “near future” after a review found its mining permit to be “completely in order.” The company is also liasing with the governments of Burkina Faso and Romania after a Romanian security officer was kidnapped from the mine in April.

Senegal Oil

Timis, who has said his business empire could grow to $10 billion, continues to seek backing from international investors for his projects, which stretch from uranium in Niger to oil exploration in Liberia. Kosmos Energy Ltd., a New York-listed oil producer, last year pledged to invest as much as $400 million in two exploration licenses in Senegal where Timis Corp. has an interest.

Tony Sage, chairman of Australia’s Cape Lambert Resources Ltd. who loaned Timis $20 million last year to help fund his purchase of the Marampa iron ore mine in Sierra Leone, said he will continue to back his “longstanding friend.”

“It must be remembered that he went into a war-torn country when no one else would and created a world-class mining operation,” Sage, who receives a royalty of $2 a ton from Timis’s Marampa mine, said in an e-mail this month.

His vote of confidence comes even after Timis told Cape Lambert in April that the mine had been closed due to apparent sabotage. While Timis Corp. declined to provide details of the incident, it said there were sufficient funds to resume operations in the “near-term.”

Shandong, meanwhile, plans to restart the Tonkolili mine this year and has committed to investing $600 million. It has hired former African Minerals Chief Financial Officer Miguel Perry, according to two people familiar with the appointment.

“If the Chinese can restart Tonkolili, it tells me that the previous management, who know the project better than the Chinese, should have been able to do it,” Baobab’s Fryer said. “It will be very difficult to support anything he’s involved with going forward.”