November 14, 2003

Black mining giant heralds new era

South Africa's biggest black-controlled resources firm was born yesterday, Nov 13, when Harmony Gold Mining, African Rainbow Minerals & Exploration Investments (ARMI) and Anglovaal Mining (Avmin) surprised the market by announcing a R11.5 billion deal. The new unlisted holding company, housing a "family" of three mid-tier mining enterprises, will employ 62 000 people, making it the country's biggest employer after the government.

The proposal involves four "indivisible transactions", which will result in ARMI, which is owned by various Motsepe family trusts, owning 63.2 percent of Avmin. Avmin is to ask its shareholders to waive their right to a mandatory offer from ARMI. Avmin is to be renamed ARM. It will be headed by black mining entrepreneur Patrice Motsepe. Motsepe said the agreement created the "first black economic empowerment mining house to compete on an equal footing" with the resource majors. But he warned against making too much of empowerment. "It is the market that will drive the future of this company and not empowerment," he said.

The all-share mining stake shuffle will see ARMI diversify out of gold and platinum mining by adding a ferrous metal component. Motsepe had previously said he intended to focus on ARMplatinum after agreeing to merge ARMgold, the first empowerment firm to join the JSE Securities Exchange's gold index, with Harmony just two months ago. As part of the deal Avmin acquired ARMI's 41.5 percent stake in Modikwa, an unincorporated joint venture between Anglo Platinum and the ARM Mining Consortium. This has been bundled with Avmin's 55 percent stake in the Two Rivers platinum project - shared with Impala Platinum and empowerment company Tiso Capital - and Harmony's Kalplats.

The opportunity of spinning off the platinum assets, housed under a division called Newplats, was highlighted by Rick Menell, the chairman of Avmin. Menell will be the non-executive deputy chairman of Harmony and Avmin on finalisation of the transaction, which is due in February. Menell said Motsepe "has paid a premium for Avmin", illustrating that Avmin had transformed to comply with the mining charter's stipulated 26 percent black ownership without any value leakage. ARMI paid R4.5 billion - about R600 million above the market price - for Avmin. The transactions leave Avmin with an exposure to gold through its 22.2 percent holding in Harmony.

But the new company may initially be cash strapped. Its cash flow will consist of Harmony dividends, at least until the platinum and iron ore divisions pay regular dividends. This means the company is again on the prowl for a good cash flow acquisition. (BUSINESS REPORT ONLINE, Johannesburg)


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