Mining engineering company DRA Global has made a splash on the Australian Securities Exchange — for all the wrong reasons.
In fact, there was more crash than splash as the firm’s share price sank to a fresh low of A$2 a share last week, representing about half the debut price — equal to R1bn — of a modest A$12m IPO a year ago. The company is listed on the JSE too — and its (illiquid) stock is now at less than R30, from last year’s debut high of R50.50.
The Australian press has been feasting on the spectacle of South Africans making a complete muck of an internationalisation strategy that expanded DRA’s global business but appears to have been undermined from the get-go. So what happened for a starry-eyed SA company to have lost R1bn in market capitalisation so quickly?
While DRA is for most an illiquid JSE oddity, its woes have affected investors as notable as the Oppenheimers
The short version is that in February, about six months after listing in Sydney and Joburg, three of DRA’s senior managers, and a fourth former employee with shares in the company, secretly plotted a takeover, returning board control to SA, aptly titled “Project Boomerang”. They proposed the removal of CEO Andrew Naude and group chair Peter Mansell, to be replaced with their own appointments.
The notice was subsequently withdrawn after DRA’s board reached agreement with the rebels behind closed doors, but a month later head of corporate affairs Haydn von Maltitz reported the circumstances to Australia’s Takeovers Panel.
According to him, the rebel managers — Alistair Hodgkinson, Darren Naylor and James Smith — had been working in concert with former executive Brian Dowding. The four controlled about 11% of DRA’s stock, but spoke for as much as 42% of total shares. Von Maltitz’s contention is that their co-operation breached Australia’s Corporations Act because it hadn’t been disclosed and prejudiced nonassociated shareholders.
The panel agreed. Last week, it slapped DRA with a costs order of A$76,000 before goods and services tax related to Von Maltitz’s application, half for DRA’s account and — somewhat painfully, one guesses — half for the rebel managers, one of whom, Smith, is now the interim CEO.
It’s rare for the Takeovers Panel to award costs in this way, and particularly unwelcome for DRA as in May it detracted from its otherwise impressive maiden results, issued just two months before, with a profit warning it said related to an impairment, the underrecovery of a contract and losses on residual fixed-price construction work. Notably, no mention was made of the role of the internal turmoil.
Hodgkinson, presenting at the Junior Indaba conference in Joburg last week, declined to comment when approached by the FM. He promised more disclosure in time, but a DRA spokesperson said in a statement largely drawn from chair Mansell’s comments at DRA’s AGM in May that the company “underestimated the impact on leadership and culture of the listing — exacerbated by the stresses of Covid”.
The rapid introduction of new systems and processes, coupled with our physical separation, caused divisions to emerge and placed a strain on leadership at many levels
— Paul Ryan
“The rapid introduction of new systems and processes, coupled with our physical separation, caused divisions to emerge and placed a strain on leadership at many levels,” said DRA. “With the benefit of hindsight, there is little doubt that our change management could have been done better.”
Regarding the substance of the regulator’s findings, Mansell — who survived the management coup — denied the directors had been reckless. He said they’d taken legal advice throughout the affair. He also disagreed with the panel that they should have disclosed the matter to shareholders, a large proportion of whom comprise former and current employees. About 10% of DRA’s free float is institutional.
In addition to Naude and Mansell, five members of DRA’s global leadership team were targeted for removal as part of Project Boomerang. Speaking to the FM on condition of anonymity, a senior DRA manager says the concerns of dissident management turned not on global expansion but on company structure and the less prominent role of SA leadership as DRA globalised. “The aim was to take DRA to the next level so it could compete with the major companies in its sector such as Fluor or WorleyParsons,” he says. “But instead, the guys were suddenly saying they preferred to revert to operating as decentralised, regional businesses.”
Instead of defending the company’s strategy, however, the board covered up the nature of the quarrels.
So where to from here? Says DRA: “The strategic expansion of our business conceived several years ago for risk diversification through profitable global growth is still relevant.” DRA intends to consolidate its Asia Pacific business earmarked for growth. Focus, too, falls on improving the advisory business and in helping build projects compliant with environmental, social and governance principles.
The upshot of the affair, though, is that DRA, founded in SA 1984, has achieved the complete reverse of what the listing intended. Brought to market at a time in the commodity cycle when mining firms can’t build projects quickly enough, DRA is instead casting around for a permanent CEO and CFO — another vacancy created in the imbroglio.
“There is a question of credibility. How do you expect to attract a quality CEO and CFO in these circumstances?” asks the DRA manager. There’s also a question mark over whether DRA remains listed. “The current board is not equipped to objectively take things forward from here,” he says. “All shareholders were prejudiced and minorities have been thrown under a bus.”
While DRA is for most an illiquid JSE oddity, its woes have affected investors as notable as the Oppenheimers. In a prelude to its public troubles, DRA’s proposed listing was frustrated by the Oppenheimer family in 2020. The family’s Stockdale Street investment partners sought an exit before listing, on the basis that there were no guarantees of an orderly liquidation of its 35% stake once the IPO was completed. The family, which had bought into DRA in 2016, had, as part of their exit strategy, kept upside appreciation rights in the company. At below A$3.10, these are now firmly out of the money.
Was it all a telling harbinger? Not quite, but for a company that advises mining firms on project execution, DRA’s board has demonstrated a troubling lack of due diligence on its own behalf. In fact, at just half its original listed value, it’s not hard to see DRA as a takeover target for a predator willing to clean house in the process.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.