UIF embroiled in R800m funding scandal

The embattled Unemployment Insurance Fund (UIF) has been caught up in a funding scandal after approving a bailout of more than R800m for a mining company despite internal misgivings about whether it was deserved.

Labour & employment minister Nomakhosazana Meth this week confirmed that her office has put the brakes on the deal, which would have seen the UIF assist Siyanda-Bakgatla Platinum Mine (SBM) with R736m over 12 months to save about 5,200 jobs at its Union Mine in Limpopo. In terms of the original agreement, the UIF was meant to provide R807m to save 5,702 jobs, but this amount was revised after the mining company cut the number of its employees to 5,200.

Meth also said she had directed that an investigation be undertaken by the UIF board into how the decision was made when the fund's own internal report found that SBM was not in distress.

“Acting in the best interest of workers, and as the custodian of the workers' funds, due to the serious nature of these allegations, minister Meth is committed to ensuring accountability and that good governance is upheld at all material times,” her spokesperson, Thobeka Magcai, said.

“The necessary action will be determined by the outcome of the internal investigation and review of the matter.”

The comany said on Friday that halting the payments after making the first instalment of R60m in February had placed it at great risk given the consistent decline it was in.

The Sunday Times understands that part of the reason for the government's intervention is that Siyanda Resources, SBM’s majority shareholder, is in discussions to buy mining conglomerate Anglo American’s platinum business, Amplats.

Last month, Anglo American’s shareholders approved the demerger of Amplats from its other businesses, and from the end of May it will be a stand-alone business known as Valtera Platinum.

Two insiders with direct knowledge of the negotiations confirmed the discussions, with one saying it was part of the reasons SBM’s funding application was approved.

The Sunday Times understands that Meth’s disquiet comes from the fact that the UIF — a state-owned fund whose mandate is to provide short-term financial relief to workers who become unemployed or unable to work — started paying the monthly instalments after issues were formally raised internally.

The application had been made through the Temporary Employee Relief Scheme (Ters), a scheme introduced during the Covid pandemic lockdown in March 2020, in which employers could claim a subsidy of up to 75% of staff costs in a bid to save jobs while the economy was shut down.

It was continued post-Covid as part of the UIF’s efforts to save jobs, and is now administered through the Commission for Conciliation, Mediation and Arbitration (CCMA). Since its inception, the UIF has made 14.2-million payments totalling R63bn to employees from 786,972 applications received from employers across all sectors of the economy.

Companies that apply are subjected to an adjudication process that includes analysis to determine whether the applicant business is truly in distress and, once approved, the company works with Productivity SA to put together a turnaround plan.

The internal concern stems from a belief that SBM is not truly in distress, a notion that has been dismissed by the company’s management. Part of what is fuelling the belief inside the UIF, which took eight months to assess the application, is that since the 2021 financial year the company has paid out a purported R2.7bn in dividends to shareholders.

Whistleblowers also raised the fact that their analysis of the company’s financial health showed it did not have any liquidity problems and was not insolvent, as its debt to equity ratio was 1:6 last February, according to unaudited financials. The analysis did however note that profits at the mine had declined steeply from its glory days of 2021.

“Based on the February 2023 audited AFS [annual financial statements], the current ratio of SBM is calculated to be 3:07, which is three times more than the norm,” an internal UIF memo seen by the Sunday Times said.

“This indicates that SBM is not experiencing liquidity issues based on audited AFS. Continuous losses may erode the company’s equity base. Based on the draft AFS of February 2024 the company made a loss for the first time. In the audited February 2023 AFS SBM made a profit which increased by 50% from February 2022.

“This indicates that the company is not making continuous losses but had one year of losses based on draft unaudited AFS.”

The memo contained draft financial statements for the financial year that ended in 2024, and it assumed a profit and a dividend. But the company said this week that, in reality, it has sustained significant year on year losses.

“The Ters programme is directed towards job protection and preservation and has been a welcome support to an industry facing significant and extended headwinds,” the company told the Sunday Times.

“As a company, management has been aggressive in driving austerity programmes while funding the business through group facilities; however without the Ters support, existing jobs would be at risk, as seen across the platinum sector where retrenchments and closures are already taking place.

“Both employee unions, NUM and Amcu, have formally supported our application and expressed concern over delays in the disbursement of further tranches. We believe the Ters intervention is a necessary and commendable measure to protect jobs, and we appreciate the government’s commitment through this programme and the assistance from Productivity SA.

“Since acquiring the business, dividends were only declared during the financial years ending February 2020 to February 2023. The payment of dividends was against the backdrop of strong production and market performance. A total of 14,5% of operational profit generated for the periods February 2020 to February 2023 was returned to shareholders in the form of dividends, with 38% of the recipients being communities and employees.”

SBM, originally bought from Anglo American in 2018, is owned by majority shareholder Siyanda Resources and Bakgatla-Ba-Kgafela Investment Holdings, which represents the Bakgatla Ba Kgafela community in the North West province. Bakgatla-Ba-Kgafela Investment Holdings represents the interests of the Bakgatla community.

“We are not aware of any UIF internal review into our application, as no such concerns were ever formally communicated to us,” the company said.

The decline in the platinum sector has seen many major mining companies, including Sibanye-Stillwater, Amplats and Impala Platinum shed jobs by the tens of thousands, while some junior miners of a similar size to SBM have had to mothball operations.

Last September, Northam Platinum CEO Paul Dunne was quoted as saying the decline was irreversible.

Robbie Proctor, investment analyst at Anchor Capital, said that with a very uncertain demand backdrop, a junior mine like SBM “that does not have its own smelting and refining operations, is at a disadvantage relative to the majors”.

“Supporting high cost production through subsidising wages or other mining costs undermines the natural market balancing mechanism — price. The longer government continues to support mines that are loss-making at current prices, the longer prices will remain subdued. In fact, by supporting high cost supply in the very near-term, it can potentially result in even more job losses across the sector as a whole,” Proctor said.

“Platinum group metals [PGMs] remain dependent on catalysed global vehicle production, particularly for palladium and rhodium. The US also has the highest PGM loadings per vehicle on average, making the country particularly important. While PGMs were excluded from tariffs, the tariff charged on imported vehicles will be a key determinant of PGM demand this year.

“The uncertainty around the final tariff rate and the second order effects of higher prices on vehicle demand make it very difficult to form a decisive view on the trajectory of PGM prices over the next year. However, the current average platinum group metals basket [platinum, palladium, rhodium, ruthenium, iridium and gold] price is already at levels where close to 10% of the global industry are unable to cover sustaining capital expenditure to maintain production levels.”