A half-billion dollar bid to give black South Africans a greater stake in their economy has ended in acrimony. JCI, one of the world's top 10 gold producers, announced it will sell off most of its remaining assets and give the money back to shareholders.
The demise of JCI as a major international mining house, announced after its annual general meeting last week, comes just over a year after the company came under the control of a black consortium led by financier Mzi Khumalo. Since then, the company's share price has halved amid bitter accusations of misjudgment, bad management, and conflict of interest.
With Mr. Khumalo widely blamed for the debacle, some observers and investors are saying that the controversy raises questions about the wisdom of "black empowerment" deals.
Backed by the new South Africa's mainly black political rulers and the leaders of its old white business elite, these assisted buyouts have helped black entrepreneurs increase their share of the country's stock market from virtually nothing in the mid-1980s to an estimated 10 percent today.
But critics claim that in many cases blacks are being fobbed off with stakes in holding companies or with minority shareholdings, thereby denying them any real say in the running of industry.
Khumalo's controversial record as the first black to head a major South African mining company - he resigned on the eve of this week's annual general meeting, where he was expected to be fired - has provided a second wind to those whites who whisper that South Africa's black business class is still too small and inexperienced to be trusted with the running of "real" companies.
Race not the problem
Yet many analysts - both black and white - say that there are no racial lessons to be derived from the failure of JCI.
They point out that for much of last year Khumalo shared the running of the company with a white executive director whose family had been involved in gold mining for generations.
And, they wonder, why did the directors representing the other shareholders fail to intervene when things started to go wrong?
"For the average investor that we are talking to it's not a question of saying now that black empowerment doesn't work," said one white analyst employed by a Johannesburg finance house. "What they are saying is that there are some people who just can't run mining companies."
Analysts say that JCI's current problems owe much to the original acquisition in late 1996, when Khumalo's black empowerment consortium agreed to pay 2.4 billion rand (nearly $500 million at today's rates) for the controlling stake in JCI then owned by Anglo American, one of five giant South African conglomerates that control most of the economy.
While Anglo made the sell-off sound like an altruistic sweetheart deal, Khumalo's consortium ended up paying 10 percent more per share than the going market rate, analysts say. Ironically, this was due to a rival bid from New African Investments Limited, a highly successful black-empowerment corporation headed by Nthato Motlana and former African National Congress leader Cyril Ramaphosa.
The ink was hardly dry on the deal when the price of gold began a dramatic year-long slide. With 70 percent of its assets in gold, JCI saw its shares slump to a third of the purchase price at one point late last year.
But many commentators say that these factors were aggravated by serious failings in management, and in particular by concern over two major deals which Khumalo apparently tried to push through without reference to the company board.
In the second, more serious instance, Khumalo also decided that JCI should pay a massive 252 million Rand ($51 million) for a 20 percent stake in Southern Mining Corp., an unproven titanium exploration company in which - it later emerged - he was a significant shareholder.
The ensuing allegations of conflict of interest forced Khumalo to step down as chief executive officer, although he remained executive chairman.
His successor as chief executive, Vaughan Bray, told a press conference this week that he believed failure to observe the normal rules of corporate governance was ultimately behind JCI's demise. "I think perhaps new shareholders coming in thought, now we've got a company, we can do with it what we please," he said.
This view is held by at least some members of South Africa's new black business elite. David Moshapalo, executive director of the Foundation of African Business and Consumer Services, a pro-empowerment body, said that he saluted Khumalo as a pioneering black entrepreneur but that rules had to be followed.
"It would be patronizing if they scaled the rules down to accommodate him because he is black," he said. "It's a new culture that we are moving into. These things are going to be a bit difficult, and we are on a steep learning curve."
In fact, few blacks seem disheartened by Khumalo's difficulties, and the share prices of Johannesburg's so-called "black- chip" companies have not been affected.
Instead, last week the influential Business Day newspaper in Johannesburg reported that returns from most black-chip companies, including Ramaphosa's NAIL and Don Ncube's Real Africa Investments Limited, were significantly ahead of the market average.