Building Wealth: Learn from Patrice Motsepe's Start-Up Story
At the tender age of eight Patrice Motsepe encountered his first taste of business success. As a little boy resident in the sprawling township of Soweto, Motsepe would wake up early in the morning to help his businessman father sell traditional liquor to mine workers. These men usually thronged his father’s shop for a taste of liquor before heading off to their daily duties.
Even at such a tender age, Motsepe’s winning streak was evident. Whenever he was behind the counter, the small family business usually made more money. His father encouraged him to take over the business when he grew older, but young Motsepe nursed a more lofty aspiration – he wanted to be a lawyer.
Motsepe eventually went on to earn a Bachelor of Arts from the University of Swaziland and an LLB from Wits University. In 1988, shortly after acquiring his LLB, he took up an appointment at one of South Africa’s most reputable law firms- Bowman Gilfillan, which was predominantly run and managed by white lawyers. At the firm, Motsepe thrived. He was intelligent, had a knack for deal-making, and was recklessly ambitious. It was not long before his bosses took a special liking to him.
In 1991, under the American Bar Association program, he was sent as a visiting attorney to the McGuire Woods law firm in Richmond, Virginia, U.S.A. While as a visiting attorney in the U.S., Motsepe came into contact with a few mining corporations and was enthralled by the mining business. He developed an interest in the business, and he read extensively on the subject, collecting every single book he could lay his hand upon.
When he returned to South Africa at the end of the program, his career blossomed. By 1994, Thirty-two-year-old Motsepe was appointed the first black partner at the law firm. To many people, he was living the dream. He had a great job, a decent car, and a comfy home. He seemed to have it all. But Motsepe was not content.
As a partner at Bowman Gilifan, Motsepe specialized in Mining and Business Law and became even more fascinated with the business at the time. South Africa was, and still is a mineral-rich country and the mining industry was largely unexploited by black entrepreneurs at the time. He wanted to be a player in the industry- a part of the business, but he only needed an opportunity.
A few months after he had been made a partner at Bowman Gilfillan, Motsepe started out a small contract mining company called Future Mining, which basically provided various mining services to Vaal Reefs gold mine, currently a subsidiary of AngloGold. Since he was unable to secure a business loan to launch his company, he conducted his business from a little briefcase for the first eight months of operations.
Basically, his startup firm handled low-level contract manual jobs such as sweeping the mines. Motsepe’s tiny workforce usually used brooms to glean gold dust from the rock surface after industrial mining crews had done their work. It was not exactly what he wanted to do, but at least, he had his foot in the door. He was a part of the mining business, and working with the miners allowed him to study the business firsthand.
Motsepe kept on studying the mining business, religiously. He discovered that the most successful mines were not necessarily the large ones, but rather the small and lean ones- the forgotten and neglected ones. As his small contracting business grew, Motsepe meticulously saved his profits with a bigger picture in mind. By 1997 the price of gold was dropping rapidly, while the rand was strengthening. The larger mining companies like AngloGold were looking to sell off their older, low-producing mine shafts to concentrate their energies on the larger and more profitable ones.
This was the opportunity Motsepe had been waiting for, and he delved into action. He promptly founded African Rainbow Minerals (ARM) and immediately set out to acquire marginal shafts owned by AngloGold, which were located at Vaal Reefs and the Free State. It was an audacious move on Motsepe’s part.
The price tag for the assets was put at $8.2 million, and of course, Motsepe did not have the money. Whenever he went to the banks to share his plans with them, they scoffed at him. He was doing the unreasonable: no black South African had ever owned a mining operation before, and it was apparent that Anglo had abandoned the shafts because they were unprofitable.
The banks thought it was ridiculous that Motsepe believed he could make money on shafts that Anglo had failed to profit from. Needless to say, none of them gave him any money.
But help came in the person of Bobby Godsell, who at the time was the Chief Executive of Anglo’s gold and uranium division. Godsell was aware that Motsepe was looking to make a foray into the business.
He was familiar with the fact that the young, black upstart entrepreneur provided contract mining services to some of Anglo’s mine shafts, and he was impressed by Motsepe’s doggedness and resolution. Godsell wanted Motsepe to acquire the shafts, so he decided to help him.
Consequently, Godsell handed over the shafts to Motsepe after the two had decided on a favorable payment plan. Motsepe agreed to pay the $8.2 million over a few years and remit a percentage of future profits to Anglo.
Motsepe took over the shafts, but it was not easy. The first few months were frightening as gold prices plunged. But he persevered and embarked on some rather radical management initiatives, adopting a low-cost, lean, mean management approach to running his mines.
Consequently, Godsell handed over the shafts to Motsepe after the two had decided on a favorable payment plan. Motsepe agreed to pay the $8.2 million over a few years and remit a percentage of future profits to Anglo.
Motsepe took over the shafts, but it was not easy. The first few months were frightening as gold prices plunged. But he persevered and embarked on some rather radical management initiatives, adopting a low-cost, lean, mean management approach to running his mines.
For starters, he downsized the management staff by half and gave jobs to only 5000 out of 7500 employees at the Orkney mine, which was the most profitable. Rather than taking up a befitting office in one of the plush suburbs of Johannesburg, Motsepe opted to work from a building in Orkney so that he could keep watch over his staff.
Within three years of taking over the mine, Motsepe was able to pay back the $8.2 million price for the shafts. He shocked critics, skeptics, and pundits because, within twelve months, the shafts had become profitable.
But Motsepe still scouted for virgin opportunities and sealed deals in quick succession. In 2000 he made his foray into platinum by embarking on a 50-50 joint venture with Anglo Platinum, the world’s largest producer.
But Motsepe still scouted for virgin opportunities and sealed deals in quick succession. In 2000 he made his foray into platinum by embarking on a 50-50 joint venture with Anglo Platinum, the world’s largest producer.
Together they acquired and developed a mine called Modikwa, the largest platinum-producing mine in South Africa. Early in 2002, he teamed up with Harmony, a South African gold producer, in acquiring several shafts from Anglo. These shafts collectively produced a total of 1 million troy ounces of platinum a year.
Later that year Motsepe listed his company, African Rainbow Minerals (ARM) on the Johannesburg Stock Exchange, becoming one of the first black entrepreneurs in the country to own a controlling stake in a publicly listed company.
Since then, ARM has diversified, forging strategic partnerships with several other old mining companies and adding a wide swath of minerals: precious metals (platinum and its cousins), nickel, chrome, iron, manganese, and coal to its portfolio. From a low-level mining services business, Motsepe has built one of Africa’s largest mining companies. In 2010 ARM had revenues of about $2 billion and the company currently employs over 9,500 people.
As a result of his 40 percent stake in ARM, Motsepe is now one of Africa’s wealthiest men, with a net worth estimated at close to $3 billion. Apart from his controlling stake in ARM, he also owns a 5.5 percent stake in Sanlam, a publicly traded financial services company outside Cape Town.
But despite his success, Motsepe leads a modest lifestyle- at least by billionaire standards. He does not exude any of the trappings of wealth. He owns no plane or yacht and only owns one home in the affluent Johannesburg suburb of Bryanston. He also owns South Africa’s Mamelodi Sundowns football club. But that is his only indulgence.
Motsepe is an avowed philanthropist and remains committed to giving back. When he acquired the Modikwa platinum mine from Anglo, Motsepe gave a 17 percent stake in the mine to two non-profit organizations representing the surrounding rural communities. Along with his wife, Dr Precious Makgosi Moloi, an African fashion icon, he has supported several South African charities promoting education and health causes.
