Great Western Minerals Group Ltd. (“GWMG”; TSXV: GWG | OTCQX: GWMGF) announced that a former Project Director, Vincent Mora, was arrested as part of a criminal investigation into allegations of fraud and money laundering. GWMG cannot disclose more details due to the legal implications of the case; however, it should be stressed that the police investigation did not take the Company by surprise, given that the initial complaint against Mr. Mora, a South African citizen, came from GWMG itself. Months before the police were ever involved; Mr. Mora (first hired in April 2011) had been dismissed from GWMG over suspicions “about invoicing, purchasing and contracting activities”. Investors should be relieved that the investigation has in no way affected the activities at the Company’s Steenkampskraal project in South Africa or that the Company itself is under review. The criminal charges, it should be stressed, affect Mr. Mora alone and they were initiated in response to a formal complaint filed by GWMG itself. GWMG has been making some changes in its leadership ranks.
Last month, a new CEO and an independent Board member were appointed. On January 9, Marc LeVier was appointed to the position of President and Chief Executive Officer. Mr. LeVier, who has accumulated forty years of mining experience, joined the Board of GWMG in late 2012 was closely involved in completing the Preliminary Economic Assessment (“PEA”) of the Company’s Steenkampskraal project in South Africa. Mr. LeVier’s appointment comes as Great Western shifts from exploration toward manufacturing stage of rare earth permanent magnet alloys of all types and chemistries and rare earth metals and his experience will be critical as GWMG re-tools operations from exploration to production. Mr. LeVier, a metallurgical engineer, has years of experience in developing technologies for hydrometallurgical, chemical and engineering design processes. Great Western also appointed Lenard Boggio and Ron Hochstein (CEO of Denison Mines) to its board of directors as part of its shift to a new phase.
The Steenkampskraal project fits within Great Western’s reputation as one of the most vertically integrated companies in the rare earths sector. The Company has ventures in politically stable environments covering exploration (six projects in North America and one in South Africa), mining and processing. Great Western has also cultivated important relationships in China such that in 2010, the Company established a joint venture agreement with Ganzhou Qiandong Rare Earth Group. The exploration side is complemented by two specialty alloy manufacturers supplying the aerospace, battery and magnet sectors. The Steenkampskraal resource will also provide raw material to the development of the Company’s processing units. Great Western is one of the few truly integrated companies in the REE field outside of China and its new South African project enhances this aspect.
The Mora case, (‘Moragate’?) has come during a delicate phase for the South African mining industry. The episode, however, serves as a reminder that while some sectors of the South African extractive sector (in no way affecting GWMG directly) have been experiencing increased risks of labor action; the government and the ruling ANC party remain highly committed to mining. Some analysts have even suggested that labor tensions and clashes in the mining industry have an ethnic basis. Such suggestions can be dismissed by the fact that the police officers trying to maintain control share their ethnicity with the striking miners. Many of the workers, moreover, are immigrants from neighboring countries including Zimbabwe, Malawi or Mozambique; this feature would preclude ethnic or tribal rivalry as the root of the violence. In fact the problem should be sought within the enmity between various unions representing the workers.
The new and very aggressive Association of Mineworkers and Construction (AMCU) has developed a fundamental disagreement with the old guard and ANC tied a National Union of Mineworkers (NUM). NUM is rooted in the ANC and, much as the ANC itself, it has adopted a rather ‘establishment’ outlook, willing to accept moderate salary increases and even participating in the management of some mines while the uncompromising AMCU has refused cooperation and resorted to violence – using rocks against members at a NUM rally last years. The demands of the AMCU would be considered excessive even in the heydays of union activity in the 1930’s with demands trumping those of workers in the OECD countries. In the longer term it is unlikely that the AMCU will manage to earn support.
The mining strikes were manipulated by the former President of the ANC Youth League, Julius Malema, who has been accused of fanning sectarian tensions and proposing mining and agricultural nationalization policies that many have feared would lead South Africa along the same disastrous course as Zimbabwe, where youth unemployment stands at 90%. It happens that Malema’s political influence has been all but wiped out and while, new leaders are rising to take his place, some more radical, they lack Malema’s organization, influence and popular appeal. Certainly, Malema will not have a chance to run for the leadership of the ANC. The elections in 2014, in fact, will feature a battle between the less radical members of the ANC and the more business friendly Democratic Alliance (DA) party, which can rely on a growing number of supporters among Whites and Blacks.
Malema’s exit means there is little credible risk that South Africa will soon resort to nationalizing mines or farms. The ANC leadership has no appetite for nationalization, having rejected its viability outright, expelling its biggest proponent, the aforementioned Malema. Despite some of the headlines, interest and investment in South Africa’s mining is strong and judging by the success of the Investing in African Mining Indaba Conference (Feb 2-Feb 7, 2013), mining will play an ever bigger role in South Africa’s economy. The organizers noted that participation – from China, India, North America and Europe – had grown from 3,500 delegates in 2009 to 7,800 this year, reflecting the growing rather than diminishing number of mining projects in the RSA.
This was a very good article, thanks for this important news
Seems like this Mr Bruno got bored with Great Western halfway through the article….
Seems like Mr. Palazzo – is that Enrico Palazzo, the famous opera singer from the first Naked Gun movie? – has overstated his perceptory abilities. The point of the article was to dispel any risks about South African mining that may have been raised by the announcement of Vincent Mora’s arrest. There have been many reports about the mining strikes in South Africa and related risks; the article was intended to address those while easing GWMG investors’ concerns over the Mora news, especially given the attention it has attracted and the fact that GWMG is legally bound to disclose as little as possible on the issue given the ongoing investigation.
What puts my mind at ease about investing in South Africa is that someone with a history of success (Robert Friedland) has recently invested serious money in South Africa.
Great article, Bruno. Thanks.
I awoke to an email from GW about this and was looking forward to PEW’s take on the matter. Thanks Mr. Bruno. Great article.
Mr. Bruno, Enrico is a distant cousin (bravo!). My very humble opinion is that the risks relating specifically to South African politics are secondary to the company specific risks in this instance. Mr. Moura is a sideshow, and I found your efforts to link his arrest and labor unrest confusing.. Great Western has not, to my knowledge, proven that that their enterprise is viable, and I am vested in the outcome of this tortured venture. My point was that your article took a very abrupt turn from Great Western to South African politics. I meant no offense and acknowledge that my “perceptory abilities” are fairly limited.
my sincere apologies, and kindest regards….Tutto
Mr. Bruno, why ease anyone’s concerns about the fraud at Great Western? I think there is reason for concern. The article is mixed messages and an attempt to make a case we do not have the information to support yet. GWG is a long way from mining anything at Steen. The current mine is hardly modernized. There is no separator or concentrator and the Chinese partner is nowhere to be found.
I think the story should focus on the information we have and should be less distracted by mining politics and less committed to carrying GWG’s water as a sponsor of the blog.
So Paul “Chihawk” Hampel, the moral of your story is that all rare earth companies are terrible, except for your beloved Lynas, nevermind that its CEO tried to steal Crown Forge from the Lynas shareholders, and only gave it back when he got caught with his hand in the cookie jar – so why would you trust anything he says?
Bob,
I agree Nick Curtis did tryt to steal Crown and I was very vocal about it during the process. I do like Lynas as an investment but I agree with much of the critique of Curtis. So no, that is not the moral of my story.
I am not really trying to tell a story. If I were telling a story I would express concern that this blog is compromising objectivity. Prior GWG management were the darlings of this blog. Now, there are questions without answers. I think the article is rushing to a defense that is not established yet. It may well turn out that Mora is the only bad guy and all is well. But drawing that conclusion without the facts and not mentioning in the article that GWG is a sponsor of this blog is sloppy journalism IMO. Most readers here are investors and they deserve the disclosure and IMO they deserve greater objectivity. Protection for the concerns of sponsors should NOT be the priority of the journalists on this blog.
Paul,
A couple of inches to our right is a scrolling banner of advertisers which includes GW and pretty much every other RE company of any significance, with the notable exception of Molymess.
Don’t think there is any attempt to conceal or misconstrue anything here (rather a dollop of positive spin) and that’s exactly the point of difference between NC’s Crown and GW’s alleged corruption, and of course Molymess’s ongoing SEC investigation.
Nick Curtis’s Crown grab was undoubtedly greedy & arrogant but it was done formally, with the support of the Board of the time, and in the full view of SH’s, and consequently grass root action put a stop to it. The basic decision, to unlock some value in Crown was possibly the right one at the time but Lynas SH’s should have been offered fair equity in the deal. Mind you, the ongoing cost in terms of 3 months distraction at the very beginning of the Malaysian protest post Fukishima will never be quantified.
GW’s alleged corruption & Molymess’s SEC investigation raise a whole different set of questions in my mind.
Tim,
“GW’s alleged corruption” Where do you get that? Mora got arrested for fraud. Great Western management discovered it and alerted the Police. Hardly corruption at the whole company. Curtis tried to pull a fast one on his own company and Moly has run afoul of the SEC. GW discovered that an employee was scamming; fired the employee and is pursuing legal action. Out of the three, I would still pick GW as the honest one of the bunch.
From their PR: “Because irregularities were found during the Company’s review, GWMG filed a complaint and cooperated with the South African police to investigate the possibility of criminal activity. As a result of this investigation, police have arrested Vincent Mora on suspicion of fraud and money laundering.”
Jake,
I stated “alleged” simply because an arrest is not a conviction. If proved, fraud is very much corruption within an organisation and generally more than one individual is required to pull it off, for any period of time. Mgt. appear to have taken some responsibility but why has this information been withheld from the market for a considerable period? At best Mgt. were negligent in allowing the situation to develop under their noses. Gives little confidence that there is not more going on behind the scenes, even if there is not.
I can definitely see Paul’s point in that the article spent 1 para reporting events and the next 6 effectively on promo. She’ll be right mate.
Tim,
The point is good journalism suggests the issue should be disclosed in the article. No one reads a banner and journalism should not rely on one. Curtis is not the issue. I agree with the critique. Stipulated. My issue is the GWG info is nothing more than a cut and paste from prior GWG announcements (no original work there) followed by a political comment on South African mining that seems mostly off topic at this stage IMO. But why aid the continued GWG denial out there when we do not have facts to support the view?
Chihawk- What facts don’t suppor the case? They fired the guy. They worked with the police and got the guy arrested. I would assume now that lawyers are involved, that is all they are going to say. I think you are just looking through your angry I-hate-everything-about Great -Western glasses trying to find the negative as usual. I swear they could simultaneously find the cure for cancer and world peace and you would find fault with that. Your bias is well-documented.
Jake,
There are a lot of questions and this release ignores most. I realize it is an on going investigation so there are limits to what can be said. But to suggest this release covers all and closes the story is foolish. Look at the release itself:
-The Company has paid ERES approximately C$10.62 million to date out of an invoiced amount totaling approximately C$13.32 million (exclusive of VAT).
What was the contract dollar value on the original agreement with ERES?
So how much does the company think they lost approximately?
Financial Statements as at September 30, 2012
Total Assets $152,222,370 CA
Non‐current assets $78,782,914 ( $64 million of thast is non-producing Mineral properties and Goodwill)
Cash and cash equivalents was $54,603,419.
Total liabilities minus shareholders’ equity $87,898,178
Total liabilities and shareholders’ equity $152,222,370
In other words, this amount is very significant to a company of this size.
When was the fraud noticed?
Never mind our differences let’s look at what GWMG has said in previous announcements…..
June 9, 2011
Great Western Minerals Group Ltd. (“GWMG” or the “Company”, TSX:V — GWG) announces it has selected East Rand Engineering Services (“ERESSA”) to carry out the shaft refurbishment project at the Company’s Steenkampskraal Rare Earth project in South Africa. The project is scheduled to begin within two weeks and be completed by mid-November, 2011.
August 30, 2011
GWMG President and Chief Executive Officer Jim Engdahl said, “We are very pleased with the progress being made on the refurbishment project and with the work of East Rand Engineering Services. Under the direction of Steenkampskraal Project Director Vincent Mora, we remain right on track to complete this component of the Steenkampskraal project prior to the end of 2011, as scheduled.”
February 22, 2012 Presentation, Slide 13
-Site preparation work continues in advanced stages.
November 26, 2012
Rareco has terminated its contract with East Rand Engineering Services for these services due to a commercial disagreement.
November 21, 2012
Great Western Minerals Group Ltd. (“GWMG” or the “Company”, TSX:V – GWG) today announced the resignations of three long-standing Company directors, Gary Billingsley, Jim Engdahl and Bill McKnight.
That’s the timeline and exerpts from GWG’s announcements. And you feel it is clear?
-a few persons should not reflect upon the rest of our team.
What? A few? How many and who?
How does the issue effect shareholder value? Is the TSX involved?
How in the world can you read this and feel you know the story?
Even the release itself admits they have little to say. I think if we had the facts to answer these questions we could make a case. But right now we don’t have those facts. If that uncertanty does not give you concern you don’t do much research.
It is and should be well documented that I do not like GWMG as an investment. So what?
Riddle me this then: why does Great Western keep out performing Lynas if it so bad? Hmm? 2 years running… and I bet there is a 3rd coming.
I am not saying that there are not questions to be answered because there are. 2012 was not a great year for Great Western. But you always (and I mean always) paint the worst possible picture for GW. Always. A few? Where did you get few? One. Vincent Mora. You try to lump Gary and Jim’s departure (even though Jim’s was announced 6 months prior) to fraud. You have accused them of fraud on another board prior. With no proof. Just your conjecture. Perhaps they left to make way for independent directors so they can list on another exchange. Personally, I am glad that they left so Great Western can get to the next level.
Either way, your comments on the company are skewed to the negative. (and conversely Lynas to the positive) that it is pretty much of a joke.
Nonetheless, the fact remains that Great Western outperforms Lynas. And I guess that fact makes you pretty bitter.
Jake,
I get a few from GWMG President and Chief Executive Officer Mr. Marc LeVier. He states in the fifth paragraph of the press release “… the actions of a few persons should not reflect upon the rest of our team.”
http://www.gwmg.ca/html/news/media-releases/index.cfm?ReportID=203477
Yes, I do admit I am consistently negative on GWG. I have followed miners for years and I believe GWG will fail. I do not trust them and have not since I sold in 2011. When you invest in Juniors and research, it is natural to develop strong opinions about them. GWG is all sale and no substance IMO. They have a cult like following of poorly researched lemmings that I pity (on Stockhouse and Yahoo). What you see as hate, I call a desire to expose the truth. Time will tell like always.
As for Lynas I admit my losses and being wrong so far. I am still in and believe in the company overall. All junior miners turn money into dirt unless they become producers when they finally turn dirt into money. I remain hopeful that Lynas is close to making that turn. I have been early and thus wrong, but remain confident in the investment.
But the issue for me is content. I am giving content from the financials, presentations and the quotes from press releases. In other words, I am giving you content regardless of my opinion. You are contouring with emotion inconsistent with your own CEO’s statement.
BTW, GWG was at $0.38 for the Financial Statements at September 30, 2012 stated above. It is now in a much worse situation. Previously, Total assets equaled Total liabilities and shareholders’ equity. The current Canadian price is $0.23 off $0.15. So when we adjust Shareholder equity for the current share price and recognize over half of the assets are Non-current assets and mostly in Mineral properties (Greenfield mines (one-third) and Steen that is a ways away) the mess grows. Bond holder liability has already surpassed the current assets. Those are bad metrics Jake. Add in the junk status terms GWG got for the $80 million in Convertibles and there is reason to worry. Stockhouse never talks about GWG’s financials, but after 35 years of not having a profitable year and Engdahl saying it won’t happen till Steen supplies feedstock you have to be watching this carefully. It is a big part of the investment.
Then I take it you think Lynas will out perform GW this year after not doing so 2 years in a row? That your investment is rock-solid in Lynas? Give me a break. How’s that production hill going for you?
Neither have been stellar investments for 2012 (REE in general) but if you are going to be in the space, GW still is the outperformer. You can argue the inuendo but you cannot argue that fact.
We’ll see how GW does wiht SKK and we’ll see how Lynas does in Malaysia. The market – the ultimate performance indicator– seems to think GW is the better choice for two years running.
Thanks Jake,
Save that response as a macro and use it when you hasve no content to offer.
yeah it is a real crime to talk about performance when invested in the stock market.
Jake,
GWG achieved your claim by a fraction last year, rising over ten percent on the last day due to an update release that one could argue was misleading in light of the current events.
Currently this year GWG lags well behind. If you want to track it this year that is fine. But my whole point is the point is in the past and historical prices to the forum. Should I rant about January and February of 2013?
http://finance.yahoo.com/news/great-western-minerals-group-launches-130000686.html
Sure lets track away if you don’t mind losing three in a row. I don’t care. So far GW is the better investment and that is all I care about. I can’t help it if you cannot see anything good about the company. Keep spewing the hate…. 3 times a loser?
Very balanced assessment, Alessandro. Balance is so important in assessing these stocks.
- Clearly;… battle-lines being drawn here; with some good points being made by both the “believers” and “non-believers”.
- In the bigger picture however; and in light of the apparent global urgencies facing this planet that we all must learn to share; …and that we all own a share in;…I find it incumbent upon the politicians, and the financiers of the world alike; to get past the rhetoric, and get on board the future!
- Case in point; …according to forecasters and pundits; there is ample room for both the “Lynas” and “Great Western” ventures of this world to both survive and indeed thrive! …for our need of their products will indeed in the near future, be Great! I remain bewildered therefore; by the “Western-Worlds” apparent impotency, when it comes time to delivering the necessary political and financial capital required to get these companies; so vital to our future; over the HUMP !
u4eah
Mr. Hampel (chihawk), everytime GW hits a milestone (although delayed) it has proved you wrong. Look for this trend to continue.
kman,
I agree LCM creating commercial product with the new furnace a year after their first pour is a milestone and an accomplishment (overdue and late on the promise or not). In the larger picture, I do not see this as proving anyone right or wrong. GWG had a good day and seems to deserve it’s day. My view of caution and doubt remains. Anyone in this stock should realize there is still a long road ahead.
I am waiting to see what is at the end of this rocky road.
As far as GW I am still concerned about Nationalism in SA.
Diversifying REE investments and looking for an
aggregate ROI has been a disaster so far.
Holding till 2015… Ucore,Molycorp,Lynas,Great Western.
We will see what happens in a couple of years.