Durban Roodepoort Deep, Limited (DRD) has issued proceedings in the Supreme Court of Western Australia against a number of individuals and companies for the recovery of misappropriated funds, Chairman and Chief Executive Officer Mark Wellesley-Wood told a special meeting of shareholders in Johannesburg today (Friday, 7 June, 2002).
DRD's former Chief Financial Officer and Chief Executive Officer of the company's Australasian operations, Charles Mostert, a former consultant to DRD, John Stratton, Noble Investments Pty Ltd, Leadenhall Australia Limited, Advent Investors Pty Ltd and Timothy Lebbon were all identified by Wellesley Wood as defendants.
DRD's claim relates to an agreement made in December 1999 for the acquisition by DRD from Noble, Leadenhall and Advent of 11 150 000 shares in Continental Goldfields Ltd.
In terms of the agreement, DRD agreed to acquire the Continental Goldfields shares for A$1 115 000 and to pay the sum of A$5 910 000 to Noble for "facilitating the acquisition".
The then market value of the Continental Goldfields shares was about A$0.10, so the total price payable for the shares in terms of the agreement was A$7 025 000 - more than six times their market value.
"The reason for the action is that we believe the defendants were party to a transaction whereby DRD agreed to pay more than six times the market value for shares that it did not want," Wellesley Wood said.
"It appears that the interests of DRD shareholders have been abused as DRD was substituted for an earlier purchase contract on which JCI failed to perform.
"Any strategic value in the Continental Goldfields assets could only have related to its 13% shareholding in Consolidated African Mining (CAM) to support the Kebble control structure of that company. "Conflicts of interest have…resulted in a loss for DRD shareholders…of R35 million," Wellesley-Wood said.
Rawas deal: overwhelming shareholder support for share validation
At today's meeting, DRD shareholders voted overwhelmingly in support of a resolution to secure validation of 8 252 056 DRD ordinary shares by the High Court of South Africa.
The shares were issued invalidly to various creditors of Laverton Gold and its subsidiary, BT Barisan Tropical Mining, in July and October 1999, ostensibly in exchange for the Rawas gold mine in Indonesia, which ceased operations in March, 2000.
Today's "in favour" vote represented 99.55% of the total DRD shares in issue.
"It is a great pity I have to stand before shareholders today in order to disclose this dishonest transaction and its consequences," Wellesley-Wood said.
"DRD shareholders' funds were applied to a financial rescue of Laverton Gold, from which DRD saw no benefit and for which the gain lay with companies in the CAM group.
"The financial effect was a write-off of R122 million in DRD's 2000 accounts."
Investigations had shown that the mechanics of the transaction - authorised by five DRD executive directors - Mike Prinsloo, Vic Hoops, Dick Plaistowe, Charles Mostert and Roger Kebble, none of whom were still with the company - were "disguised from the company at large, the Board as a whole and from shareholders by the avoidance of the necessary disclosure," Wellesley-Wood said.
"This concealment, together with obfuscation by the parties involved, has unfortunately involved me, my special committee, and the new Directors of the company in a lengthy and costly investigation.
"I estimate that the costs involved in rectifying this dishonest transaction have amounted to R5 million, monies which could have been far better spent."
DRD had yet to decide whether to finalise the Rawas transaction or walk away and cancel, Wellesley- Wood said.
"The legal issues are complex, and include jurisdiction, efluxion of time, pursual of remedies, and the insolvency of the Indonesian entity."
The company would consider legal action where there were reasonable prospects of success, he said.
"Our advisers have informed us that the shareholder remedy for their forced dilution is against the malfeasants and not the company; therefore, the company is not exposed to any liability itself from this matter."
There was no doubt in the minds of the new Board and Executive of DRD that shareholders' interests were abused in Rawas, Wellesley-Wood said.
"I can assure shareholders that measures have been put in place to ensure that events such as this cannot happen again."
These, he said, included:
James Duncan, Russell & Associates
+27 11 880 3924 (work)
+27 82 892 8052 (cell)
Paul Downie, Turnbull Porter Novelli
+61 893 861 233 (work)
+61 414 947 129 (cell)