Guptas show money in Optimum trust, but figures indicate there should be more
Are we victims of yet another piece of spin and obfuscation from the Guptas? Last week, Oakbay Investments rejected the allegation that the family had stripped money from the Optimum Mine Rehabilitation Trust. A R1.34bn transaction had been flagged by the Financial Intelligence Centre (FIC) as suspicious was connected to the trust. The trust holds money to be used when mining ceases at Optimum.
To back up their claims, a family lawyer produced a letter from the Bank of Baroda showing that accounts in the name of the trust still had close to R1.47bn. Baroda is the South African branch of the state-owned Indian bank, which seems to be the only bank left doing business with the Guptas.
The intention of the disclosure seems to be to make out that the trust still has all the money in it that it should. It also left people to assume that the transaction the FIC was talking about was the same as the transfer of the trust’s bank accounts from Standard Bank to Baroda, after Standard Bank shut the accounts of Guptarelated businesses.
But I’m suspicious. We can see that the Bank of Baroda received the money during the course of June. We know that because Baroda’s Reserve Bank returns for end-June show a massive increase in the deposits the bank holds for nonprofit organisations, but the return for end-May does not. It stands out because the bank has such a small balance sheet; one deposit was almost a third of all the deposits it holds.
The problem is, the transaction the FIC flagged as suspicious is dated May 11. So the transaction the FIC is talking about couldn’t possibly have been the movement of the money from Standard Bank to Baroda.
So, how much should the rehabilitation trust have in it? The Optimum mine is a 30km-long open pit mine, which is going to have to deal with acid mine drainage for decades after it closes. Mining is due to cease in 2030. The operators of the mine have over the years contributed to the trust to ensure there is sufficient money available when the day comes to sort it out. By keeping it in a trust, there is no risk that rehabilitation will be dodged should the company go bankrupt one day.
The critical question is, how much was in the trust when Oakbay acquired Optimum?
We can try to come up with an answer. Optimum was briefly a listed entity before it was bought out by Glencore in 2011. At that point, the rehabilitation trust had a balance of R1.28bn, but the company acknowledged the total liability for environmental rehabilitation was R1.77bn. According to its prelisting statement, at December 2009, the trust held R967m, which then represented the full liability.
I will bet that before Glencore bought the mine, it would have insisted that Optimum restore the trust to fully funded status, giving it a balance of R1.77bn as of the 2011 financial year, and no doubt additional funding to account for operations for the period subsequent to that and before Glencore took it over.
Thereafter, we don’t know exactly what happened to the trust because it was such small fry in the context of Glencore’s overall balance sheet. Glencore’s 2012 annual report shows a leap in the funds held for rehabilitation from $74m to $248m. It is reasonable to assume the lion’s share of this reflects Optimum’s rehabilitation trust as it was taken onto the Glencore balance sheet. Glencore then put Optimum into business rescue in August 2015. Glencore’s annual report for 2015 details the deconsolidation from Optimum at that point. It makes reference to a release of provisions of $137m, which is highly likely to represent the amount held in the trust. At the exchange rate at the end of that year, that would amount to R2.7bn. That figure seems sensible enough. The Optimum rehabilitation liability jumped from R967m in December 2009 to R1.77bn by end-2011. It is completely feasible that it amounted to R2.7bn by the end of 2015.
The Guptas have told us the trust now holds R1.47bn. So, where is the rest of it? Might that be what the FIC was talking about in reference to a suspicious transaction of R1.34bn in May? And who was that paid to exactly? As I wrote last week, in order to take cash out of a trust, you need permission from the mining minister and the South African Revenue Service commissioner, who must decide whether to waive penalty taxes that should be imposed on any transfer from a rehabilitation trust. I do hope that, if the money was withdrawn, the right permissions were obtained and that they were granted for the right reasons.
THE OPTIMUM MINE IS AN OPEN PIT MINE, WHICH IS GOING TO HAVE TO DEAL WITH ACID MINE DRAINAGE FOR DECADES AFTER IT CLOSES. MINING IS DUE TO CEASE IN 2030 AT THE EXCHANGE RATE AT THE END OF THAT YEAR, THAT WOULD AMOUNT TO R2.7BN. THAT FIGURE SEEMS SENSIBLE … THE GUPTAS HAVE TOLD US THE TRUST NOW HOLDS R1.47BN