DAY ONE

The Worm Turns in Swamptown

28 October 1996

A twisted start

All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.

– ARTHUR SCHOPENHAUER

I first bumped heads with Brett Kebble during and after his first really big heist, which dates, formally, to 28 October 1996. This is when Randgold, listed in Johannesburg, announced details of the acquisition of BHP Minerals Mali, from the then-BHP, a big Australian resources house. BHP would later merge with Billiton to form the world's biggest diversified resources group, BHP Billiton.

I had taken a sabbatical of kinds into the world of investment banking and its first cousins, stockbroking and corporate finance. Back then, the Johannesburg Stock Exchange and just about every stockbroker could be found at 11 Diagonal Street, in a modern, glass-fronted high-rise. In honour of the JSE's original location, one of the restaurants in the new building was named Between the Chains. But it was to the Red Room, adjacent to The Floor, that dealers flocked at the close of business, to lubricate vocal cords parched by the open outcry system.

Down on The Floor, fortunes were made and lost, until technology ended these good old days. It was a stressed environment, like so many other markets, and a good number of dealers came to the Red Room long before the sun started to sink from its midday peak.

This market was especially endowed: Johannesburg has always been, at its core, a mining town with the morals of a fetid swamp. In 1895, just nine years after gold had been struck on what would become the world's biggest gold fields, Johannesburg boasted more than 100 bordellos, each paired, so to speak, with a bookmaker, and each paired, so to speak again, with a saloon. Men would drink to inspire their next move and when that failed, they would drown their sorrows, fornicating on their way to take the next big bet at the bookies. It was, after all, the world's biggest gold rush.

Today Johannesburg is a sprawling city, the world's largest that does not have a major river siding or a seaside position. It is a huge bordello of a city, pretty soulless, running on crass materialism.

For someone with the gifts and ambitions of Brett Kebble, Johannesburg was a place of great beauty. He would take on its top business brains, and leave a mark forever.

In the early 1990s, I went to work as an investment analyst for Ed Hern, Rudolph Incorporated, a stockbroking outfit. All market activity in South Africa was exploding after the 1994 elections, when resources companies in particular were keen to show off their previously hidden offshore assets. Within a few years, I had worked in both of the Americas, Australia, Western Europe, the United Kingdom and various parts of Africa north of the Limpopo River.

The 1990s had kicked off with solid interest in exploration stocks and there was little doubt in my mind that West Africa needed thorough scrutiny. I spent a good amount of time in the backwaters and badlands of Ghana, Mali, Burkina Faso and Côte d'Ivoire. When Ed Hern, Rudolph was sold to the Board of Executors (BoE)–NatWest Markets joint venture in 1995, I was among the last to applaud, but following the democratic elections in 1994, the global brokers were moving into South Africa and buying everything in sight. The new joint venture, known as BoE NatWest, operated BoE Securities, a South African stockbroker, which inherited Ed Hern, Rudolph's offshore partner at the time, NatWest Markets, which had, in turn, a strong resources country partner in County NatWest, Australia.

At that time, I strung together a deal involving a portfolio of contiguous gold assets in Ghana, later known as the Ahafo project. Ownership of neighbouring properties within the project was fragmented, involving mainly Gencor (from South Africa), Normandy (Australia) and La Source (the commercial arm of BRGM, based in Paris, France). My self-appointed task was to consolidate the properties into Eldorado, Gencor's Canada-based gold exploration partner, back then anyway. It was a tough nut to crack. I called on the offices of County NatWest's Martin Pile in Perth and also BoE Securities' London office, which, for all its style (including a four- or five-hour working day), seemed a little lost.

In early 1997, the package of Ghana gold properties was fairly valued at around US$200 million. Brian Gilbertson, then CEO of Gencor, liked what he heard and saw at my final presentation and, in his usually efficient manner, gave the transaction an immediate thumbs-up. A subsequent sharp correction in the gold price had a significant impact on the outcome of the deal.

Back on the main trail, it was on 28 October 1996 that Randgold detailed its plans to acquire BHP Minerals Mali, and vend it into Randgold Resources, a newly established 100 per cent subsidiary of Randgold. According to the chairman of both Randgold and Randgold Resources, Peter Flack, as quoted in the media, Randgold Resources had purchased BHP Minerals Mali for US$82 million 'settled in cash and through the issue of Randgold Resources shares'. Randgold implemented further transactions and activities to further fund the development of Randgold Resources and its exploration activities, focused across West Africa.

In one of the moves, Randgold raised funds via its wholly-owned subsidiary, Randgold Finance (British Virgin Islands), which issued a US$48 million convertible bond that was listed on the Luxembourg Stock Exchange.

Randgold Resources had now issued a grand total of 12 550 000 shares, of which Randgold held 76 per cent, at a total cost of US$38.92 million. The reality seemed to be that, in little over a year, the 'value' of unlisted Randgold Resources had increased from US$5 million to US$320 million – according to the valuations 'divulged' by the directors of Randgold. Yet all that Randgold and Randgold Resources had done was buy a loss-making debt-riddled gold mine. (To be fair, however, there were also a number of essentially unknown, undeveloped assets within BHP Minerals Mali.)

Randgold's 1996 annual review, at page 11, stated that 'the market value' of Randgold's stake in Randgold Resources post the BHP Minerals Mali transaction – which was still unlisted – was US$244 million. On page 10 of the same document, Flack had the heart to explain that the value of Randgold Resources, including BHP Minerals Mali, had been calculated at US$25.50 per share, 'being...