Thomas White Global Investing
Emerging Leaders

Emerging Leaders

October 2011

Patrice Motsepe, Founder and Executive Chairman, African Rainbow Minerals Ltd., South Africa

“The legislation came way after we did our deals.”

— Patrice Motsepe, on the Black Economic Empowerment (BEE) policy.

In the 1960s, around the time it sent Nelson Mandela to prison, the apartheid government of South Africa expelled one of its critics to Hammanskraal, a rural area so poor that any motivation for dissent would be stifled. But never one to fret, the schoolteacher critic was determined to give his family the best he could in the disadvantaged town. So he opened a grocery and when the shop started doing well, plowed back the profits into a beer hall near a mine. In time, the beer hall became so popular among thirsty miners on the way back from their shifts that he had to get his six-year-old son to help him behind the counter. Here, sitting amid the raucous chatter of miners, little Patrice Motsepe learned some of his most important lessons in business — be in the right place at the right time and reinvest profits as much as possible.

Clearly, Motsepe has used these lessons well. Today, he is famous not just as one of South Africa’s most iconic corporate leaders but also as the entrepreneur who created a giant diversified mining group from a low-end mining services business. African Rainbow Minerals Ltd. (ARM), of which Motsepe is founder and executive chairman, has a market capitalization of $4.75 billion and is considered South Africa’s first black-owned mining firm. Besides interests in a large portfolio of minerals such as platinum, nickel, iron, and coal, ARM owns a significant stake in Harmony Gold Mining Company, one of Africa’s largest gold producers. Motsepe, with a personal net worth of around $3 billion and a 42% stake in ARM, is the third richest person and the richest black person in South Africa, as of September 2011. The businessman is also the current interim chairman of the newly formed Black Business Council and a former (also founding) president of the country’s strongest business advocacy group, Business Unity SA or BUSA. With this, Motsepe wields enormous clout in not only the mining industry but also the broader South African economy.

Perhaps the most potent source of Motsepe’s status in South African society today is his ownership of the Mamelodi Sundowns F.C., a premier league soccer club. Along with this, his glamorous wife, a former medical doctor and fashion impresario, and his own image as a handsome, charismatic person with a law degree and knowledge of six languages, Motsepe is something of a celebrity in South Africa.

Still, the Motsepe back story is, as they say, what makes a legend most.

South Africa may boast of many black corporate leaders today, but back in the days when Motsepe was about to begin school, this status was not even a pipe dream for the repressed black community. Among blacks in Apartheid South Africa, the only thing that separated those who fulfilled their small aspirations from those who languished on the margins for ever was access to political connections or the rare ability to inconspicuously navigate through the maze of institutionalized racial discrimination. Motsepe and his family were a case in point.

Only in South Africa could you have a change in government without civil war. If there wasn’t the depth of love and caring among our people, this would not have happened.

— Patrice Motsepe on the end of apartheid in South Africa.

The Motsepes were registered as “African” in government records, which meant little Patrice could go to only a Bantu school. Under apartheid, there were separate schools for the country’s four population groups — Africans or blacks, coloreds or those of mixed race, Indians, and Whites. The Bantu schools for blacks were deliberately kept below par, so that black children would grow up to be nothing but “hewers of wood and drawers of water” for a white-run economy and society. Determined not to send his children to such a school, Motsepe senior pulled some strings and managed to get Patrice and his six siblings admitted to a colored-designated school, which was slightly better but bad nonetheless. Again, it was the Motsepe family’s ability to exploit connections that helped Patrice Motsepe earn a law degree from a whites-only designated university.

Motsepe became a partner in the law firm Bowman Gilfillan in 1994, the same year apartheid ended in South Africa and Mandela won the elections to become the country’s first black president. The fledgling attorney was doing well then, specializing in mining and business law. But those were heady days in the country, and there were opportunities for the taking. Many of the anti-apartheid economic sanctions imposed on South Africa by the international community were being lifted. Most importantly, the new government had begun talking about promoting black empowerment and entrepreneurship to better a community that formed 45% of South Africa’s population but had remained oppressed economically and socially for the 46 apartheid years between 1948 and 1994.

It was clear to Motsepe that he was indeed in the right place at the right time. So, he quit the law firm and started a mining services venture to make the most of his knowledge of the industry. His firm provided contract workers for gold mining firm Anglo American to glean gold dust from inside mine shafts. It was a low-margin business and Motsepe practically lived out of a suitcase to save on office and overhead costs. But he got an invaluable opportunity to experiment with all the methods and processes that would one day become the key to his success. For instance, he implemented a system of worker remuneration that involved a lower base salary but a solid profit-sharing bonus. The system increased productivity and kept his labor force happy.

Eventually, in 1997, he got the long-awaited chance to strengthen his foothold in the mining industry. Gold prices were in a downtrend and many mining firms were looking to sell their least-productive mines. Motsepe set up another company, Armgold, and then, using his networking skills and the government’s black empowerment policy to arrange for finance on favorable terms, he began buying those mines. Fortunately, in no time, the mines became profitable, thanks to Motsepe’s trusted lean-operating methods.

But this was just the beginning of his success story. As government policies that promoted black entrepreneurship expanded in scope progressively in the early years of the 21st Century, Motsepe diversified into all kinds of South Africa’s rich mineral reserves. In fact, the policies, which were made more broad-based and formalized as a set of Black Economic Empowerment (BEE) laws in 2003, likely expedited his mine acquisitions and helped him transform an essentially gold mining firm into a diversified mining group. In 2004, Motsepe renamed his company ARM after a complex set of mergers. And thus, around 2005, when global commodities demand was beginning to rocket, he was ready and waiting to ride the boom.

Since then, ARM has touched new highs, except during intermittent periods of a slowdown in the global economy. Similarly, South Africa has steadily grown on the strength of its burgeoning middle class and an increasingly affluent black population. At the moment, though, both the company and the country are poised on the threshold of the next phase in their growth stories. While South Africa is knocking on the doors of the exclusive BRIC club, Motsepe has positioned ARM for expansion across sub-Saharan Africa. Undeterred by the weak sentiment across the globe now, he is going ahead with his plan to build a copper mine in Zambia through ARM’s partnership with Brazilian mining group Vale.

Perhaps such self-belief comes naturally to Motsepe. Even as a youngster standing on his toes to peer over the counter at his father’s beer hall, he stoutly rejected the senior Motsepe’s suggestion that he take over the profitable shop when older. Obviously, his father believed that running a small money-making establishment was as good as it could get for a black boy in South Africa. But the younger Motsepe’s eyes were set on the much bigger ambition of becoming a lawyer. Then too, just as he does now, Patrice Motsepe knew not to be content with small successes.





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