Miners at a gold mine in Orkney, South Africa had hoped the political ties of the new owners, including a grandson of Nelson Mandela, would translate into business and better conditions. It hasn't turned out that way. WSJ's Devon Maylie reports.
ORKNEY, South Africa—Zondwa Mandela set out to make his company one of the African continent's biggest gold producers. Now, the 28-year-old grandson of Nelson Mandela faces fraud charges related to a failed mining deal and angry unemployed workers who accuse him of trading on the name of South Africa's first black president.
The younger Mandela grew up among the freedom fighters who ended white-minority rule in South Africa and shaped the country's democratic landscape. But while his grandfather focused on politics, Zondwa Mandela, like some other revolutionary offspring, found business more appealing.
His ambitions led him from a small marketing company to the formation of Aurora Empowerment Systems Ltd., a partnership with another scion of South Africa's political elite, Khulubuse Zuma, a nephew of South Africa's current president, Jacob Zuma.
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Union representative Pelembe Paul, left, speaks to former workers at the defunct Orkney mine in South Africa.
In late 2009, the politically connected pair won the rights to operate two bankrupt mines outside Johannesburg by bidding to eventually purchase the mines for 605 million rand ($72 million).
Aurora said it had only to secure the funding to buy the mines outright, which was a condition of winning the bid to operate them. The mines were auctioned off by liquidators working on behalf of bankrupt mining company Pamodzi Gold.
Mr. Mandela boasted at the time that the deal would form the foundation of an empire to rival industry giant Anglogold Ashanti Ltd. "As long as we manage our operations correctly," he told reporters in Johannesburg, "nothing will stop us."
But funding for purchasing the mines never materialized, and the company's existing funds weren't enough to operate them. Neither Mr. Mandela nor Mr. Zuma had any mining experience, and Aurora was soon mired in debt. Aurora, which is itself now in bankruptcy, had been chosen by the liquidator for Pamodzi Gold to take on the mines and pay the mines' bills.
Instead, over the next year, the venture stopped paying contractors and worker salaries and stripped the mines of crucial equipment, according to the liquidator representing Pamodzi Gold and former mine employees.
Now, the Pamodzi Gold liquidator, Icon Insolvency, is suing Mr. Mandela and other Aurora managers for 1.7 billion rand in unpaid bills and services because Aurora allegedly failed to fulfill its promises to run the mines on behalf of the bankrupt Pamodzi.
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Potholes dot the road leading out of the Orkney mine.
Those civil fraud charges against Messrs. Mandela and Zuma and other managers were filed in May by the liquidator and are scheduled to go to court after the Aurora managers file an opposing affidavit due next week.
Aurora executives say they did nothing wrong and maintain that the search for investment capital in the middle of a global financial crisis was always going to be an uphill battle, despite surging gold prices at the time. "Nothing sinister was done," said Aurora's former commercial director, Thulani Ngubane.
But the Aurora case and the involvement of Messrs. Mandela and Zuma have given ammunition to critics who charge that politically connected deals in South Africa are trumping any real progress bringing historically disadvantaged South Africans into the economic mainstream.
The liquidator for Pamodzi Gold said Aurora was selected in part because it met Black Economic Empowerment policy requirements. The BEE system requires firms to meet benchmarks such as black ownership, skills training and development in poor communities.
Aurora's pitch to buy the mines also was the better offer because it included keeping all of the employees on board, the liquidator said in the May filing.
One person involved in the process, who spoke on condition of anonymity, said Aurora's political connections did indirectly influence the decision amid fears of repercussions if they weren't selected.
Critics and public commentators in South Africa say the Aurora case failed the BEE system. In an April column, a lawyer on BEE deals, Thabo Masombuka, said the Aurora case is "distasteful and unforgiveable" because of the way it harmed the financial livelihood of "ordinary" workers.
Aurora was liquated by the North Guateng High Court in October 2011.
The soured mining investment has enraged workers and union leaders, and some of them have directed their ire at the grandson of the man who delivered political freedom to black South Africans.
"The big names are stripping our people as if they do not have consciences," Zwelinzima Vavi, head of Cosatu, South Africa's biggest trade union, said when he visited one of the mines recently.
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An unused barracks at the mine
Zondwa Mandela declined to comment. Lawyers for Khulubuse Zuma didn't respond to requests to comment.
The fallout from the failed mining deal is evident here at the defunct mine in Orkney, a two-hour drive southwest of Johannesburg across an expanse of flat farmland. The mine is one of the two that Aurora won the right to operate in 2009 and then failed to get back on track. By February 2010, former workers at the Orkney mine say, Aurora had stopped paying them. In April 2011 electricity to their barracks was cut.
Dozens of former miners are still living at the closed Orkney mine in brick barracks without electricity, unable to find jobs elsewhere. They survive on food donations from local charities and promises from union organizers that a new buyer for the mine will emerge soon. After Messrs. Mandela and Zuma failed to deliver on promises, workers are concerned about the fate of the mine and themselves.
"They were liars, I'm sorry to say, professional liars," former worker and union leader Pelembe Paul said of Aurora's directors. "Someone can give them a diploma, a degree in lying."
Solly Phetoe, regional head of the Cosatu union that represents most of the mine's workers, said he believes Aurora's managers had no interest in mining and only wanted access to equipment they could sell as scrap metal.
These days, Mr. Mandela is keeping a low profile. He has avoided many of the company's liquidation hearings and hasn't commented on the mines publicly since his early, jubilant press conference.
Mr. Ngubane, Aurora's commercial director, said the company's leaders weren't being malicious or negligent but that they inherited more workers than the mines could support, given the amount of gold they were producing. Tight funding for mining deals amid the global financial crisis added to the odds stacked against the company, he said.
"Because of what happened here, it made it difficult to pursue other deals," Mr. Ngubane added.
The second mine, east of Johannesburg in Grootvlei, was sold in April for $8.4 million to a small South African mining company called Gold One International Ltd., which already owned a mine nearby. Gold One's chief executive, Neal Froneman, said the mine shafts are ruined because Aurora stopped paying to have water pumped out of them daily. So the company is planning to drill a whole new set of shafts.
"A lot of destruction," Mr. Froneman said, "took place in the last two years."
Write to Devon Maylie at devon.maylie@dowjones.com and Patrick McGroarty at patrick.mcgroarty@dowjones.com
Printed in The Wall Street Journal, page B1
A version of this article appeared June 23, 2012, on page B1 in the U.S. edition of The Wall Street Journal, with the headline: Nelson Mandela's Grandson Comes Under Fire for Failed Mining Deal.
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