As the JSE's all share index has claimed record highs almost weekly since the beginning of the year, shares in mining company Gold Fields have halved in value on the back of a struggling gold price and heightened labour tensions.
But besides these factors, which affect the gold industry as a whole, Gold Fields, Africa's second-biggest miner, is also trying to fight off the US Securities Exchange Commission's (SEC) investigation into alleged corruption and bribery activity related to a black economic empowerment (BEE) deal concluded three years ago.
Last week the SEC, which regulates companies listed on the US stock exchanges, confirmed that it was investigating whether Gold Fields was in contravention of the US Foreign Corrupt Practices Act (FCPA) after the company awarded R2,1bn worth of shares and cash payments to senior leaders of the ANC, as well as members of parliament and people linked to President Jacob Zuma, as part of a BEE deal announced in 2010.
The act authorises the prosecution of entities and individuals suspected of making payments to "foreign government officials to assist in obtaining or retaining business", says the US department of justice on its website.
The law, passed by Congress in 1977, has jurisdiction over companies based anywhere in the world that do business in the US - including having a listing or raising funds.
Sibanye Gold's empowerment deal
Gold Fields has American depositary receipts listed on the NYSE Euronext, which falls under the regulatory authority of the SEC, and consequently the anti-bribery provisions of the FCPA.
Gold Fields unbundled most of its SA assets into Sibanye Gold earlier this year in a move meant to hedge the company from the risks associated with operating some of the world's deepest, most dangerous and labour intensive gold mines.
The only SA operation to survive was South Deep, a mechanised mine with about 66% of the group's minerals in reserve. Gold Fields' other operations are in Ghana and Latin America.
It is alleged that the company awarded shares to people connected to the SA government to secure mining rights in SA.
Gold Fields announced the BEE deal early in 2010, and in August that year received its new-order mining rights for its South Deep assets.
Members of the BEE consortium were awarded free shares and an upfront "dividend" of about R73m as part of the deal. The BEE deal was a prerequisite of the SA government for the granting of new-order mining rights to South Deep mine, which is about 45km south-west of Johannesburg.
Politicians getting benefits
The company recently admitted that ANC chairman Baleka Mbete holds a stake worth R25m in the Invictus Gold consortium, which owns 9% of Gold Fields' largest asset, South Deep.
Mbete served as SA's deputy president for a year until May 2009 and as speaker of parliament from 2004 to 2008.
At least two other members of parliament at the time of the deal - or their proxy representatives - were named as beneficiaries of the R2,1bn deal, as was Jerome Brauns, a lawyer who had represented Zuma in court. The son of Mendi Msimang, the ANC's former treasurer-general; Dudu Myeni, the executive chairman of the Jacob Zuma Foundation; and deputy president Kgalema Motlanthe's life partner are also listed as beneficiaries.
In addition, Gold Fields hired Gayton McKenzie and Kenny Kunene, who had been convicted of robbery and fraud respectively, to organise the transaction, paying them millions in shareholder funds for doing so.
The SEC has fined large international companies billions of dollars for corrupt behaviour. German-based Siemens has been fined in the past and it now has drug makers Novartis and GlaxoSmithKline in its spotlight for alleged corrupt practices in China, where they are accused of hiring relatives of influential politicians to improve their chances of doing business in that country. Retailer Walmart is also being investigated for its business practices in Mexico.
Pressure placed on Gold Fields says Holland
Earlier this year senior executives at Gold Fields seemed to acknowledge that they might have engaged in activity that would not pass FCPA scrutiny, or even SA's own Prevention and Combating of Corrupt Activities Act.
Former Gold Fields chairman Mamphela Ramphele told Business Day in March that government had "shoved the list of some" Invictus shareholders down Gold Fields' throat "with an ultimatum that if the preferred individuals were not taken on board, it would be denied a mining licence".
Chief executive Nick Holland, who declined to be interviewed by Financial Mail, has also said the company was under pressure to include certain people in the deal.
Holland told Business Day there were certain people at the department who had decided they had a lot of power and authority and were going to wield it. "We got into a position where we were delayed [being granted the mining right]." Gold Fields had to go along with the demands to continue being in business.
Though the spotlight has fallen squarely on the company's management team, questions remain about what role the board of directors played in landing Gold Fields in such a predicament.
Questions remain unanswered
Did the independent board members, whose job it is to oversee management, ask the right questions and sufficiently scrutinise the deal? Whose interests were they looking out for when they recommended that investors approve the transaction? Did they exercise the due care and diligence vested on them by the Companies Act when they approved the transaction? And why did they agree to hide the names of most of the beneficiaries of the deal from the public, including the company's own investors?
The Companies Act clearly states that the board must place the interests of the company above anything else, including that of management.
But the deal's inclusion of parliamentary policy makers and senior politicians, including those linked to the presidency, had the potential to severely undermine the country's BEE policy and carried moral and legal risks for the company - something the board of directors should have flagged and scrutinised.
The company's chairman, Cheryl Carolus, sent the FM a statement through public relations company Brunswick, saying that the board, when examining the BEE deal, received information from a range of sources and advice from a number of legal and other advisers who collectively influenced its decisions.
"The board has acted deliberately and appropriately and in full compliance with the law," says Carolus.
The paradox is that she, like Ramphele, made a name for herself as a freedom fighter and political activist who championed clean governance and transparency.
The FM sent Gold Fields a list of questions inquiring whether individuals with well-publicised histories of fraud, robbery and corruption were deemed to be best qualified to handle billions of rand in investors' money. The FM also asked the company to name the government officials who allegedly forced it to choose certain beneficiaries for the deal and to state the benefit or contribution those individuals brought to the company.
Also, why did Gold Fields deem it necessary to pay out R73m in cash to these beneficiaries in 2010 when they had never contributed financially to the company in any way?
The only response was the press release from Brunswick and the fact that neither the board nor management was prepared to speak to the FM
The SEC probe raises further uncomfortable questions on whether the board was complicit in the alleged corrupt activities for which the company is now being investigated.
Some investors are willing to give the company the benefit of the doubt. "It is important to remember that the SEC accusations against Gold Fields are accusations at this stage; there is no proof yet," says David Couldridge, a senior investment analyst at Element Investment Managers
Regarding Holland's claims of having been pressured by government into accepting politically connected people into the deal, Couldridge says shareholders are never privy to the goings-on behind the scenes, where negotiations for licences happen. "You don't know what pressure is being put on management. As a miner, if you have no mining rights, you have no business," he says.
The department of mineral resources has consistently denied any wrongdoing by its officials. "The department participated and co-operated fully during the investigation by Gold Fields' independent attorneys, and articulated the role of the department, as well as the administrative processes that were followed to convert Gold Fields' old-order mining rights in respect of its South Deep mine," says spokesman Ayanda Shezi
Making no attempt to answer the FM's questions sent to the department, Shezi said "all the questions" being asked by the media were put to the department during the investigation by a US law firm hired by Gold Fields to probe the deal.
"Nothing untoward has been found [by the appointed law firm] in relation to the department's role, or any of its officials, in the conversion process," says Shezi.
Last year, however, Holland named individuals in the department, including former deputy director-general Jacinto Rocha, as those who had unfairly pressured him into what now seems illegal activity. Rocha told Business Times this week that the department "never dictated to them on the nature of the deal and who to include".
Couldridge says that the legal and moral challenges facing Gold Fields will "now hopefully, at the end of it all, encourage a move towards a more sustainable form of BEE, where people who really need the empowerment benefit".