Mantengu: Small cap, big drama

There’s widespread scepticism in the market over Mantengu Mining’s claims that its share price is being manipulated. First raised in February 2024, the allegations have now escalated into a criminal complaint filed with the Hawks.

Mantengu is a relatively new player, having begun operations only in 2022 after a reverse listing. Focused mainly on chrome ore mining, the junior miner has a modest market cap of about R170m. For most small caps of this size, trading tends to be thin and bid-offer spreads can often be laughably wide.

Curiously, Mantengu stands out as the most actively traded stock in its small-cap universe — an unusual trait that lends some credence to its claims of irregular trading activity.

Over the past year, more than 50% of Mantengu’s issued shares have changed hands — a steep increase from the previous year, when only 7% were traded. Yet no change-of-control notices were issued, despite JSE rules requiring disclosure for every 5% incremental shift in holdings by significant shareholders. For context, the second most actively traded small cap in this analysis, Stefanutti Stocks, saw 23% of its issued shares traded while Purple Group, a favourite among retail investors, managed only 9%.

Adding to the intrigue, there are indications that Mantengu is being shorted — a strategy where investors profit from a falling share price by borrowing and selling shares, hoping to buy them back cheaper later. While legal short selling involves borrowing shares before selling them, naked short selling (which is prohibited) skips the borrowing step entirely. Shorting in itself is not illegal, but its appearance in microcaps is highly unusual due to their illiquidity and limited institutional coverage.

Of course, the main point of being listed on the JSE is to raise capital. In Mantengu’s case, it has secured a R500m equity financing facility linked to its share price. As a small cap still in the early stages of its growth story, the company is also pursuing several acquisitions where its market capitalisation directly affects regulatory thresholds under JSE rules, which can be onerous depending on the deal size. These factors expose strategic vulnerabilities that a ruthless hedge fund could seek to exploit.

A well-timed shorting strategy could both restrict Mantengu’s ability to raise funds and block its expansion plans, while the investor profits from a declining share price that becomes a self-fulfilling outcome. Legally, unless such short selling is paired with misconduct such as spreading false information or engaging in prohibited trades, there’s little Mantengu can do, other than prove the sceptics wrong by executing and delivering results.

 Mantengu trades at a discount to NAV, suggesting considerable upside if management can unlock the full value of its asset base

Mantengu CEO Mike Miller, however, believes it’s not hedge funds at all, but a co-ordinated syndicate involving disgruntled former executives and rivals eyeing the company’s assets and acquisition pipeline. According to Miller, this group wants to derail Mantengu’s acquisition of key assets for its own benefit, and possibly even push the company into liquidation to pick up its assets at fire-sale prices.

Miller traces the origin of these suspicions to June 2023, when the CEO of Mantengu’s Langpan mine was allegedly approached by Mahlatsi Movundlela, a former Mantengu CEO who departed under contentious circumstances. Movundlela is said to have disclosed the syndicate’s plan to sabotage Mantengu’s proposed acquisition of Sibanye-Stillwater’s Blue Ridge mine — a platinum and chrome operation with valuable infrastructure, mining rights, an assessed tax loss of R3.2bn, and a stockpile of 1Mt of platinum group metals and chrome.

After this alleged revelation, Mantengu began monitoring its share trading activity for evidence of manipulation. But as a listed entity, it faced inherent limitations: it could only view weekly share register movements and basic daily trade data, while the more granular trade-level detail is retained by the JSE and not readily accessible. With only partial data, Mantengu flagged what it saw as abnormal trading and requested the JSE to investigate.

This is where the story takes a turn. With so much on the line, Mantengu pushed for swift answers — but in its view, the JSE responded with apathy, a lack of urgency and at times outright hostility. In one e-mail that’s included in Mantengu’s criminal complaint, a JSE market surveillance manager dismissed two flagged trades, and instead pointed out a third trade — where the price rose, not fell — as “very suspicious”.

Around the same time, the JSE began investigating Mantengu for not issuing a cautionary announcement regarding the price manipulation claims and the Blue Ridge talks in June 2023. Mantengu’s corporate advisers hadn’t thought cautionaries were required, but the JSE disagreed. Mantengu alleges the JSE then blocked it from issuing a Sens announcement in February 2024 to address the manipulation concerns, despite another junior miner, Copper 360, doing so without issue.

Still, not all of Mantengu’s claims hold up equally well. In its complaint filed with the Hawks, one annexure attempts to show that many small-volume trades made no economic sense due to broker fees — but fails to consider EasyEquities, where fees can be just a few cents and even tiny trades are rational. The unusually high trading volumes, consistent with what to expect if co-ordinated trading pools were operating on both sides of the transactions, as Mantengu alleges, offer more compelling circumstantial evidence, though still falling short of definitive proof. Note that many of these kinds of transactions wouldn’t appear in weekly share register updates, as they involve quick in-and-out trades — essentially just churn.

Mantengu also points to what it calls “blocking offers”: large sell orders posted during the closing auction, several multiples bigger than normal bids, which could suppress upward price movement and weigh on sentiment by creating an illusion of heavy selling pressure. According to the company, a legitimate seller looking to maximise returns would split these into smaller blocks, which is why the JSE allows the use of iceberg orders — large trades broken into visible and hidden portions to avoid affecting prices too drastically.

Perhaps the boldest of Mantengu’s claims is that the JSE itself may be complicit in these irregularities, either via a corrupt internal faction or through a cover-up aimed at shielding the exchange from liability. The primary evidence for this accusation, however, is circumstantial at best: an unco-operative tone from the JSE, delays and an alleged family connection between a JSE executive and someone linked to the supposed syndicate. The company further alleges that its sponsor, Merchantec Capital — a South African corporate finance firm that advises JSE-listed entities — told Mantengu it had not received any share manipulation queries from the JSE since 2019, whereas it used to get several each year before that.

The JSE has dismissed the claims as “false and without any merit”, adding that there are no direct facts or supporting documents relating to the alleged unlawful conduct by the JSE, its executives and employees. The bourse also stresses that allegations and statements made by Mantengu do not form the basis for an investigation by the authorities or could ever result in criminal charges being made against any JSE executives. “Even a cursory examination of the relevant facts will clearly indicate that the contents of the ‘criminal complaint’ — insofar as it relates to the JSE — are vexatious and without any merit.”

At the weekend the JSE, through its lawyers Webber Wentzel, served a cease and desist order on Mantengu. Webber Wentzel held that the allegations against the JSE were premised on “false conjecture and speculation, followed by strained inferences of conspiracy”. Webber Wentzel also challenged Mantengu: “We invite you to provide any direct facts (not conjecture or speculation — direct primary facts) which you have that prove the allegations that you have made against our clients.”

For clarity, the JSE’s market regulation division reviews trading in listed shares and flags anything suspicious to the Financial Sector Conduct Authority (FSCA), South Africa’s capital markets regulator. The FSCA is then responsible for formally investigating possible market manipulation and other prohibited practices.

On May 9, the FSCA released a statement saying that its investigation into suspected trading irregularities in Mantengu shares, which began in February 2024, has been completed. The inquiry covered all relevant trades and included sworn statements from witnesses, including a former CFO identified by Mantengu as a key actor. The FSCA will now assess the findings and announce the outcome in due course. Notably, the statement did not clarify whether the surge in overall trading volumes over the past 12 months was part of the probe.

For investors, this drama comes at a critical juncture. Management is dealing not only with these allegations but also with the commissioning of new processing facilities and the impending Blue Ridge acquisition, expected to close in June 2025. Despite the distractions, Mantengu’s recent trading update showed a major surge in earnings per share. This appears to stem from smart acquisitions that generated bargain purchase gains — an accounting term that refers to buying assets for less than their fair value, typically in distressed deals. However, the company still reported a headline loss per share, a reminder that core operations are not yet profitable and that production levels remain in the ramp-up phase.

Despite all the noise, Mantengu trades at a discount to NAV, suggesting considerable upside if management can unlock the full value of its asset base. Whether or not short sellers are targeting the company, the path to success lies in operational performance. But for that to happen, management must be allowed to focus — something that’s proving increasingly difficult in this environment.