Riddle of the sands
Issue #150, 1st April 2012
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| Indian Ocean coast in Mozambique's Zambezia Province, where Pathfinder Minerals claims concessions |
They told how a Mozambique general – a decorated war hero and president of the South Africa-Mozambique Friendship Association – has set up a company with the same name as theirs and hijacked their mining licences, potentially worth many billions. He had, until recently, been Pathfinder’s local business partner.
Trew and Simons, on a brief visit to South Africa, had wished to set up a meeting to brief Noseweek. In the event, it was only several days later – when they had returned to the UK – that our reporter managed to catch up with them by telephone for what he thought would be a lengthy interview. It was certainly lengthy, but not quite an interview: “Can I assume that Nick is not being quoted?” asks Simons, who hails from M:Communications, the strategic consulting arm of global financial and stakeholder communications firm King Worldwide. “It was made clear to your editor that this was for background and was off the record and that we could discuss any specific quotes afterwards.”
Noseweek is therefore unable to pass on any of their startling allegations about how shabbily they have been treated by the 74-year-old Major-General Jacinto Veloso and his partner, who they describe as a “supposed” Maputo lawyer named Diogo Cavaco. Veloso is Mozambique’s former Minister of State Security, former chief of the country’s intelligence services and adviser to the President of the Mozambique Republic, Armando Guebuza. Cavaco has a master’s degree in law, a post-graduate degree in stock exchange law and a post-graduate degree in electronic media in society, all from the Classic University of Lisbon.
Trew and Simons, on a brief visit to South Africa, had wished to set up a meeting to brief Noseweek. In the event, it was only several days later – when they had returned to the UK – that our reporter managed to catch up with them by telephone for what he thought would be a lengthy interview. It was certainly lengthy, but not quite an interview: “Can I assume that Nick is not being quoted?” asks Simons, who hails from M:Communications, the strategic consulting arm of global financial and stakeholder communications firm King Worldwide. “It was made clear to your editor that this was for background and was off the record and that we could discuss any specific quotes afterwards.”
Noseweek is therefore unable to pass on any of their startling allegations about how shabbily they have been treated by the 74-year-old Major-General Jacinto Veloso and his partner, who they describe as a “supposed” Maputo lawyer named Diogo Cavaco. Veloso is Mozambique’s former Minister of State Security, former chief of the country’s intelligence services and adviser to the President of the Mozambique Republic, Armando Guebuza. Cavaco has a master’s degree in law, a post-graduate degree in stock exchange law and a post-graduate degree in electronic media in society, all from the Classic University of Lisbon.
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| The concession map |
In the end, the only “specific quote” to emanate from Trew was a reminder about Mozambique’s “huge dependence on foreign direct investment” to build necessary infrastructure – and how vital it is that “the international mining and investment communities should have absolute confidence that their property and licence rights in Mozambique are secure”.
It emerges that Noseweek was just one of several local media outlets targeted by Nick Trew and Ben Simons for a series of off-the-record “background briefings” during their late-February trip to South Africa. The Sunday Times rolled up; ditto Mineweb. The latter duly reported Trew’s concern about companies invested in Mozambique losing confidence, and the deterrent effect on any future investment etc etc. As for the ownership row currently raging over the mining licences, the writer was content to rake up an old Pathfinder Plc announcement from November last year saying that its mining licences had apparently been reissued to a company called Pathfinder Moçambique, controlled by Veloso and his associates.
Pathfinder Minerals Plc: the image that springs to mind is a traditional London mining house, with scores of employees and shareholders. In fact this plc occupies modest space in an office block in the suburban town of Watford, north-east of London. A shelf plc called Pathfinder Properties (until it changed its name to Pathfinder Minerals in December 2009), the reborn entity acquired Nick Trew’s IM Minerals Ltd in a reverse takeover as part of its admission to the London Stock Exchange’s Alternative Investment Market (AIM) on 30 December 2010.
It emerges that Noseweek was just one of several local media outlets targeted by Nick Trew and Ben Simons for a series of off-the-record “background briefings” during their late-February trip to South Africa. The Sunday Times rolled up; ditto Mineweb. The latter duly reported Trew’s concern about companies invested in Mozambique losing confidence, and the deterrent effect on any future investment etc etc. As for the ownership row currently raging over the mining licences, the writer was content to rake up an old Pathfinder Plc announcement from November last year saying that its mining licences had apparently been reissued to a company called Pathfinder Moçambique, controlled by Veloso and his associates.
Pathfinder Minerals Plc: the image that springs to mind is a traditional London mining house, with scores of employees and shareholders. In fact this plc occupies modest space in an office block in the suburban town of Watford, north-east of London. A shelf plc called Pathfinder Properties (until it changed its name to Pathfinder Minerals in December 2009), the reborn entity acquired Nick Trew’s IM Minerals Ltd in a reverse takeover as part of its admission to the London Stock Exchange’s Alternative Investment Market (AIM) on 30 December 2010.
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| Major-General Jacinto Veloso |
The AIM, launched in 1995, is the London exchange’s market for smaller companies with little liquidity seeking access to growth capital. Much like similar markets established elsewhere, it has had a mixed reception in the City, London’s financial district, having harboured not a few dodgy companies along with its successes.
Chairman of Pathfinder Minerals Plc – with 14% of the stock – is John McKeon, a 53-year-old Irishman and exploration entrepreneur who was previously a senior executive and broker at Harvard Securities, a “boiler room” company closed down by the UK’s Financial Services Authority, (FSA) and whose chief executive was jailed for fraud. McKeon’s background is colourful: in 2003 he secured a £19m investment from a Libyan sovereign wealth fund set up by Muammar Gaddafi. His failures include fibre-optic networks, a UK radio station, and newspapers in China. At one stage he spent several skid-row years sleeping in cardboard boxes in a north London warehouse.
Another shareholder – and a director at the time the company was readmitted to the AIM – is Tim Baldwin, 47, whose WRT Investments profited after he allegedly telephoned the chief executive of Irish mining exploration company Minmet Plc late in July 2003 and received information about the positive performance that month of Minmet’s principal asset, a gold mine in Sweden. When this positive information was notified to the market some days later, Minmet’s share price doubled. The FSA sought to impose a £25 000 penalty on Baldwin for market abuse, but his defence that no such telephone conversation had taken place was successful.
The drab Watford office block housing Pathfinder Plc is also home to a couple of Tim Baldwin’s less successful AIM-listed companies, Ram Active Media (70% share value slump in the past year) and TXO – formerly Texas Oil and Gas – share slump 37.5%). But maybe that’s all in the nature of the venture capital market: win some, lose a lot.Pathfinder’s chief executive Nick Trew, 56, co-founded a project management business called International Mercantile Group, which he ran for 13 years with Gordon Dickie, 64, until recently a fellow Pathfinder director.
Now, as massive legal battles brew in Mozambique and London, let’s try and work out who’s allegedly stolen what from whom.
In 2004 Veloso’s company JV Consultores Inter-nacionais acquired a 25-year mining concession licence, number 760C, known as the Naburi licence. Situated on the Indian Ocean coast some 1 100km north of Maputo, its available reserves of heavy minerals are estimated to be worth billions of rands (see box).
To develop the project, Veloso and attorney Diogo Cavaco transferred the licence to a company called Companhia Mineira de Naburi (CMdN), whose 400 000 bearer (“no-name”) shares they owned jointly.
Looking for a business partner with the relevant expertise and access to capital, they turned to Nick Trew and Gordon Dickie’s International Mercantile Group (IMG), with whom they signed a memorandum of agreement to develop the project. On 10 February 2006 IMG signed an agreement to purchase 80% of the shares of CMdN, at $100 000 for the option and a purchase tab of $10m.
The agreement stipulated that CMdN’s option shares would be lodged in London with IMG’s City of London solicitors, Penningtons. If IMG wished to exercise the option, they would pay CMdN the $10m.
Although this $10m has never been paid, Nick Trew and co claim that the agreement represents a sale, and that ownership of the Naburi licence therefore resides in IMG. Trew has suggested in a witness statement that the lodging of bearer share certificates with Penningtons represents a transfer of shares. (In theory at least, mere possession of a “bearer” share establishes ownership.) Veloso and Cavaco maintain there was to be no transfer of ownership until the purchase consideration of $10m had been paid.
It took two years for IMG to come up with the $100 000 option money.
Chairman of Pathfinder Minerals Plc – with 14% of the stock – is John McKeon, a 53-year-old Irishman and exploration entrepreneur who was previously a senior executive and broker at Harvard Securities, a “boiler room” company closed down by the UK’s Financial Services Authority, (FSA) and whose chief executive was jailed for fraud. McKeon’s background is colourful: in 2003 he secured a £19m investment from a Libyan sovereign wealth fund set up by Muammar Gaddafi. His failures include fibre-optic networks, a UK radio station, and newspapers in China. At one stage he spent several skid-row years sleeping in cardboard boxes in a north London warehouse.
Another shareholder – and a director at the time the company was readmitted to the AIM – is Tim Baldwin, 47, whose WRT Investments profited after he allegedly telephoned the chief executive of Irish mining exploration company Minmet Plc late in July 2003 and received information about the positive performance that month of Minmet’s principal asset, a gold mine in Sweden. When this positive information was notified to the market some days later, Minmet’s share price doubled. The FSA sought to impose a £25 000 penalty on Baldwin for market abuse, but his defence that no such telephone conversation had taken place was successful.
The drab Watford office block housing Pathfinder Plc is also home to a couple of Tim Baldwin’s less successful AIM-listed companies, Ram Active Media (70% share value slump in the past year) and TXO – formerly Texas Oil and Gas – share slump 37.5%). But maybe that’s all in the nature of the venture capital market: win some, lose a lot.Pathfinder’s chief executive Nick Trew, 56, co-founded a project management business called International Mercantile Group, which he ran for 13 years with Gordon Dickie, 64, until recently a fellow Pathfinder director.
Now, as massive legal battles brew in Mozambique and London, let’s try and work out who’s allegedly stolen what from whom.
In 2004 Veloso’s company JV Consultores Inter-nacionais acquired a 25-year mining concession licence, number 760C, known as the Naburi licence. Situated on the Indian Ocean coast some 1 100km north of Maputo, its available reserves of heavy minerals are estimated to be worth billions of rands (see box).
To develop the project, Veloso and attorney Diogo Cavaco transferred the licence to a company called Companhia Mineira de Naburi (CMdN), whose 400 000 bearer (“no-name”) shares they owned jointly.
Looking for a business partner with the relevant expertise and access to capital, they turned to Nick Trew and Gordon Dickie’s International Mercantile Group (IMG), with whom they signed a memorandum of agreement to develop the project. On 10 February 2006 IMG signed an agreement to purchase 80% of the shares of CMdN, at $100 000 for the option and a purchase tab of $10m.
The agreement stipulated that CMdN’s option shares would be lodged in London with IMG’s City of London solicitors, Penningtons. If IMG wished to exercise the option, they would pay CMdN the $10m.
Although this $10m has never been paid, Nick Trew and co claim that the agreement represents a sale, and that ownership of the Naburi licence therefore resides in IMG. Trew has suggested in a witness statement that the lodging of bearer share certificates with Penningtons represents a transfer of shares. (In theory at least, mere possession of a “bearer” share establishes ownership.) Veloso and Cavaco maintain there was to be no transfer of ownership until the purchase consideration of $10m had been paid.
It took two years for IMG to come up with the $100 000 option money.
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| Pathfinder Minerals' Chairman, John McKeon (extreme left), with locals in Zambezia Province on a visit to the concessions |
In his witness statement to London’s high court, Cavaco says that “despite my misplaced trust in the genuineness of Mr Trew and Mr Dickie and those connected with IMG, and my patience regarding the progress of the project, no major development happened over the years and there was no serious attempt by IMG to develop the mining project…Over six years later, IMG has failed to meet any of the terms of the MoU (Memorandum of Understanding).
“It became apparent to me that the reason for failure by IMG to exercise the option and move the project forward was that it had no money.”
In May 2008, when Cavaco was “under a lot of pressure to ensure that the project got under way,” Gordon Dickie asked him to authorise IMG to take possession of the bearer share certificates that had been lodged with Penningtons. Dickie explained that IM Minerals needed to demonstrate to potential investors that it already owned the shares.
“I found myself in a difficult position,” writes Cavaco. “It had been two years since we signed the share- option agreement and nothing much happened despite all the promises made. Although I was concerned about the inability of IMG to come up with the necessary finance up to that point, I still thought they were acting in good faith. I therefore reluctantly agreed to allow them to have access to the share certificates on the condition that those would be returned promptly.”
At the same time Cavaco and Veloso were urged to hold a general meeting of CMdN and draw up minutes recording declarations that they had sold 75% of the company’s shares to IMG. “I was led to believe that all this was done because of the need to satisfy investors that IMG had control over CMdN and the mining concessions,” writes Cavaco. “I understood from Mr Trew and Mr Dickie that it was simply required to facilitate the negotiations regarding fund-raising with potential investors for the project. They knew the declaration was not correct and was pure window-dressing.
“I was informed by lawyers in Mozambique that any decision purporting to transfer of shares held by myself and Major-General Veloso could not be made in a general meeting anyway, and was therefore not valid.”
From these statements it seems that both sides colluded in a plot to bamboozle potential investors.
At the beginning of 2009 the project expanded to cover a neighbouring site – the combined area covers 32 000 hectares and extends along 50km of coastline – when CMdN acquired exploration licence 4623C, the “Moebase” licence, from BHP Billiton. The price tag was $10m, of which $500 000 was to be paid upfront and the balance, on milestones reached in construction and in production. The $9.5m balance remains unpaid.
By mid-2009, dissatisfied with IMG over the continued lack of progress at Naburi, Veloso and Cavaco decided to reduce the CMdN shares on offer in the option agreement from 80% to 70%. “Again, at this time IMG had not exercised the option and in consequence did not own any shares,” says Cavaco. Later that year 75% of the CMdN shares (which Veloso and Cavaco maintain IMG did not truly own) were transferred to Tim Baldwin and John McKeon’s IM Minerals (IMM), shifting the personal liability to pay the reduced purchase price of $9.9m under the option from Gordon Dickie and Nick Trew to IMM.
By the end of 2010 there had been a reverse takeover of Pathfinder by IMM, dumping the $9.9m debt on to the new plc’s shareholders.
Before trading in Pathfinder’s shares started in February 2011, Veloso and Cavaco admit they agreed to a further deception: the issue of a nominative share – a share certificate naming IMM as the owner of 99.9% of CMdN’s share capital. In other words, further “evidence” that the plc owned the mining licences. However, Cavaco states they knew this nominative certificate was invalid, since only bearer shares were allowed to be issued under CMdN’s articles. “We issued the share certificate knowing it was invalid because at the time we feared that IMM might not honour the terms of the option agreement, but nevertheless hoped that this issue would facilitate the raising of finance and might lead to payment for our bearer shares, supposedly still held by Penningtons.
“Another fact that influenced me,” continues Cavaco, “was that Mr Trew and Mr Dickie assured me that they would exercise the option and pay the amount and that the Pathfinder Minerals Plc prospectus would reflect that payment.
“On the 18 July 2011, no doubt thanks in no small part to the apparent ownership by IMM of 99.9% of the CMdN shares, Pathfinder announced that a number of institutional investors, including JP Morgan Asset Management and Genesis Asset Management, had agreed to buy shares worth £11m in Pathfinder, at 5p per share. These subscribers obtained 21.7% of the enlarged share capital of Pathfinder.”
Veloso was appointed to the board of the new plc. However, he soon discovered that the new issue had diluted his Pathfinder shareholding from 15% to 12%. Veloso was not a happy chappie and resigned just three months later, on 21 October. When he finally confirmed his resignation on 11 November, Veloso informed them that his UK lawyers had advised that the directors of Pathfinder, IM Minerals and IMG may have committed civil and criminal acts including deceit, negligent misstatements, misrepresentations, breach of contract and offences under the Bribery Act of 2011. Pathfinder requested the London Stock Exchange to suspend its shares the same day.
It now transpires that on 27 September, a month before his resignation, Veloso and Cavaco quietly established a new company in Maputo, confusingly called Pathfinder Moçambique. And shortly after Veloso announced that both the Naburi and Moebase licences had reverted to his JV Consultores and that a new amalgamated licence had been issued by the Mozambique minerals ministry to Pathfinder Moçambique.
A month before Veloso resigned, and flush with its newly-acquired £11m, Pathfinder Minerals Plc had appointed Joburg-based Jacobs Matasis, the empowered subsidiary of Jacobs Engineering Group, to produce a feasibility study of the mining site. (The study – now on hold – has been part-funded by South African taxpayers through a $700 000 – R5.2m – grant from the DTI.)
In October, before Veloso’s resignation was announced to the market, Nick Trew emailed Veloso hoping to persuade him to reconsider. Trew regretted the dilution of Veloso’s Pathfinder shares and said that he, McKeon, Baldwin and Dickie proposed transferring some of their own shares to JV Consultores to put Veloso back to his original 15%. Trew added that plans were in place to raise full funding to develop the mining project, with forward sales of product to identified Chinese buyers. “At the point of raising these funds Pathfinder will pay JV Consultores $6m in full as your part of the contractually agreed original $10m (less the $100 000 already paid) for the sale of 75% of CMdN,” wrote Trew.
He also threatened Veloso: “If anything untoward happens to the CMdN licences, the institutional backers led by JP Morgan will sue the directors, including yourself. Diogo [Cavaco] will undoubtedly be prosecuted for insider trading.”
In December Pathfinder Minerals Plc was granted an interim injunction in London ordering Major-General Veloso not to interfere in the shares of CMdN. And now, powerful London financier Tim Horlick is campaigning with Veloso and Cavaco to have the injunction set aside. Horlick, a chartered accountant who was formerly a partner with Salomon Brothers Europe and chief operating officer of European Investment Banking, claims that Veloso and Cavaco (“who I believe to be decent and honourable businessmen”) are the innocent victims of a complex series of frauds committed by the directors and former directors of Pathfinder Minerals and IMM.
Horlick and his cousin invested £200 000 for IMM shares – later exchanged for Pathfinder stock. In his witness statement made in February Tim Horlick claims: “To this day Mr Trew and Mr Dickie have only paid $20 000 between them for the 17.4% they own of Pathfinder shares, despite agreeing seven years ago to pay $10m for 80% of the shares upon exercise of the option to purchase.”
It was only in April last year, when Horlick visited Mozambique on holiday, that Diogo Cavaco “dropped a bombshell” and told Horlick that he and Veloso were due to receive $9.9m from IMM for their shares in CMdN.
The directors’ transfer of the obligations of IMG to IMM – and hence to Pathfinder Minerals Plc – was, believes Horlick, illegal. They had also purported to transfer CMdN shares which they did not own and had never paid for, to IMM. They had issued a misleading and fraudulent prospectus.
Horlick recalls how, as he dug into the “dense document of 142 pages” of the Pathfinder Minerals prospectus, he was surprised to find no mention in the letter to shareholders of the potential $10m liability to Veloso and Cavaco, or the obligation to pay BHP Billiton $10m for Moebase.
These disclosures only appear in a note on page 107, with the statement: “Neither of these additional payments is provided for in these accounts because they are conditional on future events. The directors consider that these events are so uncertain and unpredictable that it would be inappropriate to account for them as liabilities of the Company at this stage.”
Comments Horlick in his statement: “In my 17 years as an accountant and investment banker, during which time I have worked on the flotation of many companies on the London stock market, I have never seen such a misleading document. It was now becoming clear to me why this prospectus was not on the website of Pathfinder. It appeared that an entirely fraudulent prospectus had been issued to the public market.”
He describes the transfer to the shareholders of IMM – and in due course Pathfinder – of IMG’s obligation to pay $9.9m to JV Consultores and Diogo Cavaco as a crude attempt to legitimise things, with the sinister overtone that the transfers got Nick Trew and Gordon Dickie off the hook for having to shell out $9.9m that their IMG had contractually agreed to pay.
In September Horlick and his solicitors briefed leading London criminal counsel Peter Doyle QC to review all relevant documents. And Horlick now concludes that:
“It became apparent to me that the reason for failure by IMG to exercise the option and move the project forward was that it had no money.”
In May 2008, when Cavaco was “under a lot of pressure to ensure that the project got under way,” Gordon Dickie asked him to authorise IMG to take possession of the bearer share certificates that had been lodged with Penningtons. Dickie explained that IM Minerals needed to demonstrate to potential investors that it already owned the shares.
“I found myself in a difficult position,” writes Cavaco. “It had been two years since we signed the share- option agreement and nothing much happened despite all the promises made. Although I was concerned about the inability of IMG to come up with the necessary finance up to that point, I still thought they were acting in good faith. I therefore reluctantly agreed to allow them to have access to the share certificates on the condition that those would be returned promptly.”
At the same time Cavaco and Veloso were urged to hold a general meeting of CMdN and draw up minutes recording declarations that they had sold 75% of the company’s shares to IMG. “I was led to believe that all this was done because of the need to satisfy investors that IMG had control over CMdN and the mining concessions,” writes Cavaco. “I understood from Mr Trew and Mr Dickie that it was simply required to facilitate the negotiations regarding fund-raising with potential investors for the project. They knew the declaration was not correct and was pure window-dressing.
“I was informed by lawyers in Mozambique that any decision purporting to transfer of shares held by myself and Major-General Veloso could not be made in a general meeting anyway, and was therefore not valid.”
From these statements it seems that both sides colluded in a plot to bamboozle potential investors.
At the beginning of 2009 the project expanded to cover a neighbouring site – the combined area covers 32 000 hectares and extends along 50km of coastline – when CMdN acquired exploration licence 4623C, the “Moebase” licence, from BHP Billiton. The price tag was $10m, of which $500 000 was to be paid upfront and the balance, on milestones reached in construction and in production. The $9.5m balance remains unpaid.
By mid-2009, dissatisfied with IMG over the continued lack of progress at Naburi, Veloso and Cavaco decided to reduce the CMdN shares on offer in the option agreement from 80% to 70%. “Again, at this time IMG had not exercised the option and in consequence did not own any shares,” says Cavaco. Later that year 75% of the CMdN shares (which Veloso and Cavaco maintain IMG did not truly own) were transferred to Tim Baldwin and John McKeon’s IM Minerals (IMM), shifting the personal liability to pay the reduced purchase price of $9.9m under the option from Gordon Dickie and Nick Trew to IMM.
By the end of 2010 there had been a reverse takeover of Pathfinder by IMM, dumping the $9.9m debt on to the new plc’s shareholders.
Before trading in Pathfinder’s shares started in February 2011, Veloso and Cavaco admit they agreed to a further deception: the issue of a nominative share – a share certificate naming IMM as the owner of 99.9% of CMdN’s share capital. In other words, further “evidence” that the plc owned the mining licences. However, Cavaco states they knew this nominative certificate was invalid, since only bearer shares were allowed to be issued under CMdN’s articles. “We issued the share certificate knowing it was invalid because at the time we feared that IMM might not honour the terms of the option agreement, but nevertheless hoped that this issue would facilitate the raising of finance and might lead to payment for our bearer shares, supposedly still held by Penningtons.
“Another fact that influenced me,” continues Cavaco, “was that Mr Trew and Mr Dickie assured me that they would exercise the option and pay the amount and that the Pathfinder Minerals Plc prospectus would reflect that payment.
“On the 18 July 2011, no doubt thanks in no small part to the apparent ownership by IMM of 99.9% of the CMdN shares, Pathfinder announced that a number of institutional investors, including JP Morgan Asset Management and Genesis Asset Management, had agreed to buy shares worth £11m in Pathfinder, at 5p per share. These subscribers obtained 21.7% of the enlarged share capital of Pathfinder.”
Veloso was appointed to the board of the new plc. However, he soon discovered that the new issue had diluted his Pathfinder shareholding from 15% to 12%. Veloso was not a happy chappie and resigned just three months later, on 21 October. When he finally confirmed his resignation on 11 November, Veloso informed them that his UK lawyers had advised that the directors of Pathfinder, IM Minerals and IMG may have committed civil and criminal acts including deceit, negligent misstatements, misrepresentations, breach of contract and offences under the Bribery Act of 2011. Pathfinder requested the London Stock Exchange to suspend its shares the same day.
It now transpires that on 27 September, a month before his resignation, Veloso and Cavaco quietly established a new company in Maputo, confusingly called Pathfinder Moçambique. And shortly after Veloso announced that both the Naburi and Moebase licences had reverted to his JV Consultores and that a new amalgamated licence had been issued by the Mozambique minerals ministry to Pathfinder Moçambique.
A month before Veloso resigned, and flush with its newly-acquired £11m, Pathfinder Minerals Plc had appointed Joburg-based Jacobs Matasis, the empowered subsidiary of Jacobs Engineering Group, to produce a feasibility study of the mining site. (The study – now on hold – has been part-funded by South African taxpayers through a $700 000 – R5.2m – grant from the DTI.)
In October, before Veloso’s resignation was announced to the market, Nick Trew emailed Veloso hoping to persuade him to reconsider. Trew regretted the dilution of Veloso’s Pathfinder shares and said that he, McKeon, Baldwin and Dickie proposed transferring some of their own shares to JV Consultores to put Veloso back to his original 15%. Trew added that plans were in place to raise full funding to develop the mining project, with forward sales of product to identified Chinese buyers. “At the point of raising these funds Pathfinder will pay JV Consultores $6m in full as your part of the contractually agreed original $10m (less the $100 000 already paid) for the sale of 75% of CMdN,” wrote Trew.
He also threatened Veloso: “If anything untoward happens to the CMdN licences, the institutional backers led by JP Morgan will sue the directors, including yourself. Diogo [Cavaco] will undoubtedly be prosecuted for insider trading.”
In December Pathfinder Minerals Plc was granted an interim injunction in London ordering Major-General Veloso not to interfere in the shares of CMdN. And now, powerful London financier Tim Horlick is campaigning with Veloso and Cavaco to have the injunction set aside. Horlick, a chartered accountant who was formerly a partner with Salomon Brothers Europe and chief operating officer of European Investment Banking, claims that Veloso and Cavaco (“who I believe to be decent and honourable businessmen”) are the innocent victims of a complex series of frauds committed by the directors and former directors of Pathfinder Minerals and IMM.
Horlick and his cousin invested £200 000 for IMM shares – later exchanged for Pathfinder stock. In his witness statement made in February Tim Horlick claims: “To this day Mr Trew and Mr Dickie have only paid $20 000 between them for the 17.4% they own of Pathfinder shares, despite agreeing seven years ago to pay $10m for 80% of the shares upon exercise of the option to purchase.”
It was only in April last year, when Horlick visited Mozambique on holiday, that Diogo Cavaco “dropped a bombshell” and told Horlick that he and Veloso were due to receive $9.9m from IMM for their shares in CMdN.
The directors’ transfer of the obligations of IMG to IMM – and hence to Pathfinder Minerals Plc – was, believes Horlick, illegal. They had also purported to transfer CMdN shares which they did not own and had never paid for, to IMM. They had issued a misleading and fraudulent prospectus.
Horlick recalls how, as he dug into the “dense document of 142 pages” of the Pathfinder Minerals prospectus, he was surprised to find no mention in the letter to shareholders of the potential $10m liability to Veloso and Cavaco, or the obligation to pay BHP Billiton $10m for Moebase.
These disclosures only appear in a note on page 107, with the statement: “Neither of these additional payments is provided for in these accounts because they are conditional on future events. The directors consider that these events are so uncertain and unpredictable that it would be inappropriate to account for them as liabilities of the Company at this stage.”
Comments Horlick in his statement: “In my 17 years as an accountant and investment banker, during which time I have worked on the flotation of many companies on the London stock market, I have never seen such a misleading document. It was now becoming clear to me why this prospectus was not on the website of Pathfinder. It appeared that an entirely fraudulent prospectus had been issued to the public market.”
He describes the transfer to the shareholders of IMM – and in due course Pathfinder – of IMG’s obligation to pay $9.9m to JV Consultores and Diogo Cavaco as a crude attempt to legitimise things, with the sinister overtone that the transfers got Nick Trew and Gordon Dickie off the hook for having to shell out $9.9m that their IMG had contractually agreed to pay.
In September Horlick and his solicitors briefed leading London criminal counsel Peter Doyle QC to review all relevant documents. And Horlick now concludes that:
- Pathfinder Minerals’ prospectus contained misstatements giving a wholly false impression to the market;
- The behaviour of the directors of Pathfinder amounted to a conspiracy to defraud investors;
- A criminal offence under the Bribery Act of 2010 had “almost certainly” been committed.
In November Horlick’s solicitors filed letters of complaint to the AIM Regulation Team of the London Stock Exchange and the City of London Police. The latter passed the matter to the Serious Fraud Office – who have since declined to investigate.
There has been diplomatic lobbying by both sides. Major-General Veloso’s London solicitors have complained to Foreign Secretary William Hague about the “partisan” interference by Britain’s High Commissioner in Mozambique, Shaun Cleary, who has taken the part of Pathfinder Minerals.
Demonstrating clearly the position of the Mozambique government, the high commissioner in London, Carlos dos Santos, hosted a dinner at the private members’ club Boodles, attended by institutional investors who were now talking to Veloso’s breakaway Pathfinder Moçambique. They included heavyweights from Investec Bank, Schroders Plc, Kleinwort Benson and Salomon Brothers.
Attorney Diogo Cavaco is confident that he and Major-General Veloso can handle the future of the mining project themselves. “We have a lot of proposals with real and good investors,” he tells Noseweek.
“The principal London investors are working with us and they know very well what these guys [at Pathfinder Minerals] are trying. These guys are not investors, they are just trying to make money through our position.
“We’re planning to raise $7m to $10m to finalise the feasibility study by the end of the year. To get into production we’ll need between $600m and $700m.”
From the other side of the arena: In a letter dated 2 March, Pathfinder Minerals’ chief executive Nick Trew told shareholders: “Major-General Veloso, while still a board member of Pathfinder, set up a company called Pathfinder Moçambique SA together with Diogo Cavaco on 27 September 2011.
“That company then applied for a licence over the same areas as those belonging to your company. We find it extraordinary that General Veloso should think this remotely compatible with his fiduciary duties as a director of a UK public company.
“All avenues, both in the UK and Mozambique, are being pursued to secure the company’s licences and resume project development. This includes continued efforts at the ministerial level to find a timely solution through political channels.”
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