Randgold & Exploration RANGY
March 20, 2006 - 9:11am EST by
2006 2007
Price: 1.63 EPS
Shares Out. (in M): 0 P/E
Market Cap (in $M): 120 P/FCF
Net Debt (in $M): 0 EBIT 0 0

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Hi, guys --

This isn't a value investment, or any other kind of "investment", for that matter -- it's just sheer raw gambling. I also imagine that it's impossible to buy in size; I don't know, because I haven't tried. But if you, like me, enjoy punting on stocks where you have to use the words, "South Africa", "gold", "male prostitutes", "Pink Sheets", "scion" (no, not Burry's fund), "corruption" and "murder" (no, not my fund) while trying to explain your positions to your partners, then do I have ever have a special situation for you! Because the story is so complex and speculative, I'm just going to lightly step over the highlights.


Randgold & Exploration is a holding company. It was controlled by Roger (the pere) and Brett (the scion) Kebble. Roger Kebble more or less saved gold mining in South Africa in the 90's. But why not hear the story from the (now seemingly defunct) web-site, www.brettkebble.co.za?

"In terms of their contribution to the South African mining industry, the Kebbles were the first to release mines from burdensome management contracts, initiating a period of profound transformation in the South African gold mining industry. Prior to 1992, international investors had viewed South African mines as having limited potential because of the practice of management contracts that were unwieldy and hierarchical and placed the emphasis on production, not profit. It is quite certain that for his role in ending the management contract practice Roger Kebble will forever be remembered a pivotal figure in the history of the South African gold mining industry. By taking the bold and unprecedented step of releasing Rand Mines from its burdensome management contract with Anglo American, Roger Kebble signalled the beginning of the end for old order mining houses and ushered in a new era of lean, independent mining companies."

I don't know about you guys, but I can just hear a plummy accent shining through the turgid prose!

Brett's contributions to SA were more diverse. He funded an annual art award, and a "number of special projects [...] ranging from agricultural rehabilitation [...] to biotechnology and enterprises relying on cutting-edge satellite technology."

He also seems to have exercised control of JCI (the family's main vehicle) and RANGY (henceforth, "the lootee") as his father nodded somewhere in the background. JCI was leveraged and involved in a lot of projects that, whatever their ultimate value might be, didn't throw off much cash. In addition to his business activities, Brett had a personal life. It's unclear what his tastes were or what they cost, but some speculate that they were outre and expensive and might have led to his untimely death in what may have been simply a botched car-jacking and then again may have been something more sinister.

At some point, the pressures of home and work caused Brett to step over the delicate line between "keeping the plates spinning" and "stealing". R&E's main asset was 18.4MM shares of Randgold Resources Limited, which would be worth about $300MM at current prices. Sometime in mid 2004, Brett started secretly selling them off. This was made extremely public towards the end of '04, when Mark Bristow, RRL's CEO, noted that while compiling their shareholder register, they could only find ~4MM shares held by R&E. The Kebbles bluffed and bullshitted for as long as they could, but were forced out of R&E this summer, and Brett was murdered shortly thereafter. Peter Gray of Investec was appointed CEO (a conflict of interest we'll get into in a bit), and the forensic auditors have been busy ever since.


RANGY's NAV _should_ be north of $6/share -- that's where it theoretically was in mid '04 based on their announced holdings at the beginning of the year, which I think was around 90%accurate, and the value of most of them have increased since then. A quick look at the stock price will tell you that nobody believes NAV is actually north of $6/share. What might it be?

One way to estimate NAV would be to follow the story for months and months, keeping track of each new revelation and trying to maintain some kind of idea of what assets are left. I've done this, but I refuse to share the results because, frankly, it's a waste of time.

Instead, let me present a simple model and some interesting recent news.

Here's the simple model: Let's start with $6/share NAV. Some of that was stolen, as in Moet, crack and whores stolen. Some of it was merely misappropriated to prop up Brett's other ventures, e.g., JCI. Let's assume a 10% recovery on the stolen assets, and 50% on the misappropriated. I don't see how, given the timeframe, Brett could have stolen more than $2/share. So this leaves us with:

$2 stolen * 0.1 = $0.20 +
$4 misappropriated * 0.5 = $2

, for an NAV of $2.20/share. OK, there's a bit of guesswork involved here.

Recent news is also supportive of NAV being above the current stock price:

1: In responding to a shareholder suit seeking liquidation of the company, management claimed that net assets were "more than R1bn".


At current exchange rates, 1B rand is about $2.15/share.

2: Barry Sergeant, crusading financial journalist, sure sounds as though he's got some inside sources:

"Randgold & Exploration [...] in turn, appears to boast an even higher NAV than JCI, at R1.5 billion, thanks to its holding in Western Areas, and the cool R1 billion due to it by JCI."


I'm sure I don't need to caution the club to not put undue reliance on journalistic speculation and management assertions.


1: R&E is supposed to file financials at the end of March.

2: Importantly, this seems to be a case of missing assets, not hidden liabilities. No creditors have popped up, and given that Kebble could just sell shares anytime he wanted to, he had no need to play around with liabilities side.

3: If Sergeant is right, R&E's main remaining asset is a R1B note from JCI and it's second big asset is a stake in Western Areas. In turn, JCI's biggest asset is Western Areas. So there's a lot riding on Western Areas, which is probably a good thing considering the interest that WA has been receiving lately.

4: Gray has huge conflicts of interest. He runs both R&E and JCI, and comes from Investec, which has a R400MM loan out to JCI. It would be foolish to think that he's acting in the best interests of R&E stockholders, but I don't expect an outright screwing because there's just too much attention.

5: There are probably other assets floating around in R&E, and there may be recoveries from estates and cronies and henchmen and auditors and other accomplices.


RANGY stands a decent chance of being higher in the next couple of weeks and probably isn't a zero. If your discipline allows you to get into short term speculative situations, it might be worth a look.


Financials are to be filed at the end of the month.
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