COMPANY COMMENT: MTN overshoots from prudence to paralysis

Very pleased about that, but a week’s not going to cut it," was how one MTN Zakhele shareholder responded to news that the MTN Futhi offer had been extended by a week to October 28.

This particular investor has spent an inordinate amount of time over the past month at various Nedbank branches becoming increasingly desperate in his bid to fill out all the necessary forms.

Evidently, the guys at MTN SA are extremely keen to avoid doing what their Nigerian colleagues did — falling foul of the local regulators by not ensuring all customers completed the necessary paperwork. Given the hammering MTN got, it’s difficult to criticise the South African executives for being overly cautious about form-filling. Difficult but not impossible.
 
The determination to err on the side of caution has created a massive burden for investors who will either be switching from the unwinding Zakhele scheme or will be first-time investors in Futhi. That burden has been made even heavier by the links in the chain evidently not being adequately prepared for the complex challenge.

It’s a shoddy way for MTN to treat its target market. The scheme is aimed at retail investors, a large number of whom may not be able to make sense of dense technical documents. MTN could have been more considerate without straying outside the regulations.
Adding to investors’ woes is MTN’s persistently weak share price. On Monday, it was at about R110, which is 17% down from when the circulars were compiled for shareholders.
DiamondCorp has run a number of risks in bringing a new kimberlite mine into production in the Free State, and has now run into financial trouble so severe the company is under threat of going under.
Building a new mine is an extremely tough and expensive undertaking, with many attendant risks that push out the timelines and blow out the budget.

 

 

DiamondCorp, which experienced a crippling fall in its share price last week, compounded those risks by building a new mine below old workings abandoned decades ago. While the risks were high, the rewards promised to be great.
Kimberlites with enough economically exploitable diamonds are exceptionally rare geological formations, so the bet was always on management pushing to get the mine into production. If they didn’t do it, someone else would.
Another risk was DiamondCorp being a company with just one asset, giving it no alternative sources of income other than debt and equity to tap into if and when things became a little tight at its new Lace mine near Kroonstad. This really was a strategy that has come to haunt the cash-strapped company, which is just months away from bringing its mine into commercial production.
It needs £500,000 as a matter of urgency to pay creditors and help push it over the finishing line, which is so tantalisingly close. Shareholders are unlikely to let this project fail, but it could well cost executives their jobs after so many years of pushing the mine this far.
The steep fall in DiamondCorp’s share price of about 60% last week frightened off one potential funder, pushing the company onto the back foot. It is now heavily reliant on shareholders to step in and save the company.
Neels Blom edits Company Comment (blomn@bdlive.co.za)