In what is being hailed as a groundbreaking black economic empowerment (BEE) to BEE deal, South Africa’s Mvela Group is to sell its 22,9% stake in Mvela Resources to unlisted resources empowerment company Incwala Resources for R763-million — or R20 per share.
Independently, other black shareholders — including Mvelaphanda Holdings — own a further 7% of Mvela Resources. Collectively, black shareholders will own 30% of Mvela Resources following the implementation of the proposed deal.
Incwala and Mvela Holdings have agreed to work together towards the development of Mvela Resources to create value for all stakeholders.
Mvela Holdings, the controlling shareholder of Mvela Group, has agreed to transfer its rights under a management agreement in respect of Mvela Resources to Incwala. This will result in Incwala being responsible for the day-to-day management of Mvela Resources, subject to the direction and control of the Mvela Resources board.
The transactions are subject to the fulfilment or waiver of certain conditions precedent.
It is the intention that upon completion of the transaction, representatives from Incwala will replace the representatives from Mvela Group on the Mvela Resources board. Incwala fully supports the management of Mvela Resources, it said.
Incwala’s primary investment is an 18% equity interest in Eastern Platinum and Western Platinum (Lonplats) — the platinum mining and refining subsidiaries of Lonmin plc. Incwala’s combined 52,8% empowerment shareholding represents more than 50 000 black South Africans, including women’s empowerment groupings, employees and community groups.
Incwala CEO Arne Frandsen said it is a significant transaction, not only for Incwala but also for South Africa as a whole.
“It is the largest ‘BEE-to-BEE’ transaction ever done in the mining sector and a firm step towards achieving our vision of becoming the national flagship for black economic empowerment. Without stretching our balance sheet, this transaction further solidifies our position as a significant BEE force, with exposure to high-quality assets such as Gold Fields, Lonplats, Northam and Trans Hex,” said Frandsen.
He added it is also an opportunity for Incwala to diversify into other commodities.
The transaction will be “100% settled by cash and debt” and after that Incwala will still have conservative gearing to support its underlying investments, he said. Post the transaction, Incwala’s gearing will be low and well within the industry average and its net asset value will be well in excess of $1-billion.
He added that the company has the financial resources to help Mvela Resources CEO Pine Pienaar and his team develop the company to “do exciting things” in the South and Southern African mining space.
The arbitrage opportunities that currently exist between Mvela Group and Mvela Resources, both of which are listed on the JSE, will no longer exist.
He said the deal is “the first step in a number of things that we are going to do together”.
“As a long-term shareholder committed to the resource sector, Incwala will bring strategic guidance, access to new sources of funding and new investment opportunities. The Mvela Resources board and management look forward to working with Incwala to create value for all stakeholders,” Pienaar commented.
He said the benefits of the transaction for Mvela Resources are many and he embraced the transaction from the point of view that it replaces a diversified industrial group company with a resources-focused one that understands the cyclical nature of resources.
It also enhances the broad base of Mvela Resources significantly to 50 000 historically disadvantaged individuals.
He added that from a net-asset-value point of view it is n attractive transaction and from an earnings point of view for black shareholders, it will be accretive immediately.
Looking ahead, Frandsen said there are currently no plans to seek an initial public offering, adding that the company already has access to capital and access to debt and equity in the private arena.
Pienaar and Frandsen added that Mvela Resources will be looking both within South Africa and in Africa for opportunities and it intends to capitalise on opportunities presented by the New Partnership for Africa’s Development.
“Africa is definitely a hunting ground,” Frandsen said, but added that South Africa is blessed with mineral resources and the company will also be looking for opportunities close to home.
“This is a significant new transaction, which has been done on commercial terms. In my book, it is taking the defensiveness out of empowerment,” he said. He added that he hopes to take this message to investors in the United Kingdom and United States.
Pienaar said the regulatory approvals, including that of the Competition Commission, are not expected before the end of March next year.
The share price of Mvela Resources rose 4,35% or one rand to R24 following the announcement, matching its high last reached on December 13, which was also its strongest since May 2004.
Mvela Group was up five cents rand at R8,15, having traded as high as R8,25. — I-Net Bridge