London Calling - August 23 2004

London Calling! August 23 2004

Last weekend’s big London mining scandal places Charter at the centre of a ten million pounds embezzlement.

By “charter” we don’t mean the tactic adopted by BHPBilliton, the world’s most successful-ever mining company (judging by its latest results), in order to justify its aggressive forays into Africa and now India. (Anyone who thinks that dressing-up its portfolios in green and virginal white will acquit BHPBilliton of responsibility for trespassing on Orissa’s tribal land – much of it protected forest – in pursuit of iron and bauxite, needs their morals tested).

No, we’re referring to what remains of the eponymous British-South African conglomerate, granted a royal charter by Queen Victoria, the Empress of India, back in the nineteenth century.

Charter is now a shadow of its former self with only two main businesses - welding and cutting, and "gas handling". Neither of these subsidiaries are said to be involved in the latest fraud – rather someone in the top echelons of the company’s finance department. However others, both inside and outside the company, may have been involved. Thankfully Scotland Yard is on the case. (And so, presumably is Charter’s new finance director who goes by the rather unfortunate name of Robert Careless.)

International vehicle for apartheid

Now’s a good time to remind ourselves of the real crimes Charter has got away with. Dubbed by the Financial Times in 1984 “a wondrous hybrid of industrial holding company and investment trust”, the newspaper nonetheless concluded that Charter Consolidated plc “seems to enjoy the drawbacks of both and the advantages of neither”.

It was founded twenty years earlier by Harry Oppenheimer, then Anglo American-De Beers’ chief fixer, out of the rump of the old British South African company. Oppenheimer baldly declared Charter would “ease the penetration of areas where Anglo American’s direct South African connections could be embarrassing…and improve the support of bodies such as the World Bank”. For another decade and a half Charter fulfilled its function, principally through Minorco, the Luxembourg-based offshoot used by Anglo American during the worst days of violence by the apartheid regime (part-financed by Anglo) against its citizens.

Over this period, as Anglo American's British affiliate, Charter became the largest single shareholder in Rio Tinto (then RTZ); later operating a joint venture with Rio Tinto in a Cornish tin mine. By 1979 Anglo had cut back Charter’s role as a primary miner. Nonetheless, throughout the 1980s and early 1990s, it still invested in major British engineering and construction companies and Anglo-American Zimbabwe. Through the Malaysian Mining Corp (MMC) it was the means by which Anglo American secured important profits from its joint venture in Rio Tinto’s vast Argyle diamond mine – carved out of a sacred Aboriginal Women’s Dreaming Place in Western Australia.

Charter also held a key share in Cleveland Potash – the only example of submarine mine tailings disposal (STD) in the UK - and, most important, a prime stake in the world’s biggest marketer of platinum, London-based Johnson Matthey.

Killer company

This may seem dry history: even well-informed mine-watchers probably believe this major neo-colonial enterprise long ago disappeared from the face of other peoples’ earth.

But it didn’t and it hasn’t. In 1995, Charter still owned Cape Asbestos, probably the most pernicious of several asbestos mining enterprises that have killed or blighted the lives of thousands of South African miners and their families. An attempt by South African and British lawyers to join Charter and Anglo American to the recent compensation claim against Cape, unfortunately failed. By then Charter had sold out its Cape subsidiary.

Today, as testified by a new British television documentary, Charter/Cape’s abandoned and unrehabilitated apartheid-era mines spew forth blue asbestos. The victims of the companies' satanic mines and mills received only £7.5 million in compensation - a fraction of Anglo-American’s cumulative profits from its asbestos productions.

Not to mention even less than the £10 million nicked by a top Charter employee
tax free.

Chip off the old block?

Recent promises by BHPBilliton’s top koala, Chip Goodyear, to promote a corporate “Charter” prompts an intriguing question: did he get the idea from the Mines and Communities website? MAC’s “charter” page is not only the home of a radical statement on the mining industry which preceded the famous London Declaration. It’s also replete with examples of the kind of “corp-speak” in which Mr Goodyear readily indulges.

Not, I understand, that the editors of MAC would be churlish enough to initiate action for breach of intellectual property rights.

No more will they crow over the fact that, last week, the Financial Times finally acknowledged that London may be overtaking Toronto as the key global mine finance capital. It’s something MAC has been warning against for four years and is, after all, the raison d’etre for “London Calling”.

A case of the profit in one’s own country not getting widely recognised until it’s too late?

[Sources: Charter scandal: The Guardian, 21/8/2004; BHPBilliton results: FT 18/8/2004; Charter assessment: FT 26/6/1984; Oppenheimer quote: Richard Hall “The High Price of Principles”, Penguin, Harmondsworth, 1973; Malaysian Mining Corp and Argyle : Janine Roberts “Glitter and Greed”, Disinformation Ltd, New York, 2003; Charter and Rio Tinto: “Plunder” Partizans & CAFCA, London and Christchurch 1991; Cleveland Potash and Johnson Matthey: FT 8/1/2/1989; submarine tailings disposal: Roger Moody “Into the Unknown Regions”, SSC and International Books, London and Utrecht 2001; Cape Asbestos legacy: “You will know them by their trail of death”, Human Eye Films, producer Laurie Flynn, broadcast ITV Channel Three, London, 15/8/2004; Financial Times comes to London: FT 19/8/2004 article can be viewed here]

[“London Calling” is published by Nostromo Research, London. The opinions expressed do not necessarily reflect those of any other individual, organisation or editors of the MAC web site. Reproduction is encouraged with full acknowledgment]

Prospectors find rich finance seam in London's motherlode

By Rebecca Bream, Bernard Simon and Henry Tricks, Financial Times

August 19 2004

When the world's miners go prospecting these days, one of the first places they dig is London.

That may sound odd for a country whose own mining industry has been dwindling for decades. But the City of London has witnessed a boom in mining listings and financings over the past 12 months, and now rivals Toronto as the industry's main source of capital.

Mining's links to London run deep, dating back to the colonial era. In the early 20th century, the City's bankers and investors financed the construction of the South African gold industry - and the sector prospered there until a fallow period in the 1970s.

"The 1990s was the nadir, with only Rio Tinto listed in London," said Michael Coulson, chairman of the Association of Mining Analysts. "But London has retained its place as a centre for the financing of mining projects. Bankers here understand mining, it is in the blood."

According to Dealogic, since 2000 the London equity markets have seen almost €4.5bn (£3bn) in new issues from 53 mining companies - led by Xstrata, which raised €1.35bn last year.

This year, the deal sizes have shrunk - £315m has been raised from 22 share offerings, mostly on Aim, the junior London market. But mining has easily become the biggest sector on Aim in the past two years, with 100 such companies listed.

Things picked up in the late 1990s, when mining groups such as Billiton and Anglo American of South Africa moved their primary listings to London in an attempt to access a wider pool of investors and shake off fears of political risk.

At the time, Brian Gilbertson was head of Billiton, and he was in two minds about whether to list in London or New York. "We found after some inquiry that the London market appeared to be more user-friendly," he told the FT.

"The market was familiar with South African assets, the time zone was friendly, the listing requirements in the US were very complicated and the Companies Act in South Africa was based on that in the UK."

At the other end of the scale, five years ago Canada was still considered the main market for mining entrepreneurs to raise seedcorn capital, despite the damage caused by the C$6bn (£2.5bn) Bre-X scandal in the mid-1990s.

But in 1999 the successful move to London of Aquarius Platinum, which managed to fund its Kroondal mine in the City, having failed to get backing from its native South Africa, introduced the idea of Aim to junior companies.

Many observers agree that London investors are keen on junior miners because of the City's historical links with the sector, and because they are more comfortable with projects in far-flung parts of the world.

"Institutional investors here are a bit more adventurous than they are in Canada and Australia," said Mr Coulson of the AMA.

"Canadian investors are much more myopic than those in the UK," said Stephen Foss of RBC Capital Markets, himself a Canadian. However, he disputes the idea that London has overtaken Toronto as the most important city in the mining business. "London has more fundraisings but they are smaller. There is a constant competition between Toronto and London."

The Toronto Stock Exchange also insists it is holding its ground against London. According to Robert Fabes, senior vice-president, mining companies raised $1.96bn (£1.1bn) in Toronto in the first half of this year, compared with $900m on the Australian exchange and $315m in London, including Aim.

A total of 42 companies have listed on the Toronto exchange and its venture- capital subsidiary so far this year. The biggest was Centerra Gold, which was spun off by Cameco, the Saskatchewan-based uranium producer and raised more than C$200m. Eight of the 42 have market values of more than C$100m.

But much of the trading in Toronto's biggest mining companies, including Barrick Gold, Inco and Alcan, is channelled through New York, where they are also listed.

Egizio Bianchini, managing director for mining finance at Bank of Montreal, says the relative merits of London and Canada differ for integrated base metal groups and precious metal producers. "If you're trying to build a new integrated group like Xstrata or Vedanta, you have to go to Europe to raise money", Mr Bianchini says. "UK investors in general have a better perspective on the African, Asian and eastern European spheres. A lot of the large deposits that those companies own are in those spheres."

On the other hand, he notes that no leading precious metal producer still has its primary listing in London, with trading now concentrated in New York and Toronto.

Mr Gilbertson, who brought Vendanta to the London Stock Market before his controversial move to Russia's Sual Holdings this year, says tougher listing requirements in the UK mean you have to "sit down and have a few glasses of wine" before you decide to list on any big market these days.

He also resents the focus on executive pay in London. Then again, he acknowledges, that's not surprising, given the focus on the huge pay offer that wooed him to Sual.