A US-based company with mining rights in Tanzania has lodged a $195m claim against Patrice Motsepe’s African Rainbow Minerals (ARM) and African Rainbow Capital (ARC), accusing them of breaching a confidentiality agreement regarding a proposed joint venture to develop a graphite mine in the east of the country.
Pula Graphite Partners, owned by former US ambassador to Tanzania Charles Stith, alleges that ARM and ARC violated a non-competition agreement and gained access to confidential, market-sensitive information during discussions about the project in Tanzania’s Ruangwa district.
The South African companies later partnered with Australia’s Evolution Energy Minerals to develop a nearby graphite resource at Chilalo, Pula says.
Motsepe is the founder and executive chair of ARM through Ubuntu-Botho Investments and is the majority shareholder in ARC.
According to an affidavit filed in the commercial court in Dar es Salaam by Stith’s daughter Mary, who is president of the Pula Group, the company started talks with ARM executives in 2019 to explore a possible joint venture.
The parties entered into a formal confidentiality agreement which included non-disclosure, non-competition and standstill clauses.
Pula Graphite contends that ARM undertook to “not use the confidential information for any competitive or commercial purpose or in any matter detrimental to the interest of [Pula].”
In September 2021 the company learnt that a joint venture, Arch Emerging Market Partners, which included ARC as one of the three partners had bought “a substantial amount” of shares in Evolution Energy to help develop the Chilalo project.
Mary Stith said she came across a prospectus the following month outlining Evolution Energy’s plans for an imminent initial public offering on the Australian Securities Exchange in which the company was seeking to raise $22m for Chilalo.
She said Arch bought the shares at the insistence of and on behalf of ARM and Motsepe. Pula considered that to be in bad faith, saying ARM and Motsepe had launched negotiations with Evolution Energy well after signing the non-disclosure and non-competition agreement.
“All these facts and circumstances demonstrate that within a year of signing the agreement, the respondents had already breached the agreement by entering into negotiations that were competitive and detrimental to the applicants’ interests,” she argued.
Responding on behalf of Motsepe, ARC and Arch, ARM on Friday acknowledged having considered investing in the Pula graphite project, but said it believed there was no merit in Pula’s case.
Pula issued summonses against ARM, ARC, Arch and Dr Patrice Motsepe, alleging breach of the confidentiality agreement ... [all] deny any breach of the confidentiality agreement and also deny that there is any merit to the allegations and claims brought by Pula
— African Rainbow Minerals
ARM confirmed it had signed a confidentiality agreement with Pula Group, but said it and its partner companies subsequently decided not to invest in the project and communicated this to Pula.
“Pula issued summonses against ARM, ARC, Arch and Dr Patrice Motsepe, alleging breach of the confidentiality agreement ... [all] deny any breach of the confidentiality agreement and also deny that there is any merit to the allegations and claims brought by Pula,” ARM said.
“The matter is currently before the High Court of the United Republic of Tanzania, Commercial Division. As such, ARM is not able to comment further.”
In an interview with Business Times, Charles Stith said his company had arrived at the figure of $195m for its claim after asking an independent expert to assess the value of the Ruangwa project.
“We had a third party look at what our company would have been worth had the investment by Arch been over against Evolution.” he said.“If they had made the same investment in us that they did in our competitor, we would have been able to further develop our project. The difference between what the project was when we started negotiations and what we would have been is somewhere around $195m.”
Stith said that with interest, the final claim could be for more than $200m.
He said ARM had access to valuable Pula data during their discussions. “They got our quarterly newsletter, which is an update on our project, on the market relative to graphite, and on political and economic issues in Tanzania; just the sort of stuff that investors want to see.”
Stith said the Evolution and Pula projects had been at the same level, but when ARM invested in the Australian company it obtained a competitive edge.
“By them making the investment in Evolution, it put Evolution in a much better position competitively than us. So that is the problem, that is the injury, that is why we took the action we did. It is the same action any company would have done to protect their interests,” he said.
The two projects were also geographically close to each other. “The road that you take to access our project forks; to the right is ours, to the left is Evolution,” Stith said.
“If you have access to all of my information about the ore body, you gave no indication in any of our conversations or correspondence that you were already looking at that area before we brought you to our project,” he said.
“Then you invest in a project that is the same orebody, but it is a project that is owned by someone else, that is what non-compete means. If they had invested in a graphite project in Guinea, for example, you would not have heard from us other than, ‘Well, congratulations, welcome to the space’. There is graphite in Madagascar and Mozambique and it would not have been an issue.”
The mineral has a variety of uses, including in lithium-ion batteries.
Stith said neither Arch nor ARM had sent legal representatives to the first hearing of the case in December last year.“We found that strange. The last thing you read on the summons is that failure to appear subjects you to default and appropriate penalties,” he said.
Stith said he tried to talk to Motsepe to seek an out-of-court settlement.“On a couple of occasions, I held out to Patrice the opportunity to try and resolve this matter outside the court of law. He did not take the opportunity.”
The case is due to resume in court on Monday.
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