African Rainbow Minerals (ARM) and Xstrata announced on Tuesday that agreement has been reached to establish a major black-controlled coal-mining company in a transaction valued at R2,4-billion.
They said the new company, ARM Coal, will have significant operating assets and growth projects in South Africa and substantial participation in the export and domestic thermal coal markets.
In terms of the agreement, ARM will pay R400-million and Xstrata R384-million to subscribe for 51% and 49%, respectively, of the issued share capital of ARM Coal.
ARM Coal will hold a 20% equity-based participation interest in the existing coal operations of Xstrata South Africa (XSA) and a 51% interest in an unincorporated joint venture to be established, in respect of the Goedgevonden project. This will provide ARM Coal with an effective interest in XSA’s coal business of approximately 29%.
To enhance ARM’s participation in the South African coal industry, XSA has agreed to grant ARM an option to acquire a direct equity-based participation interest in XSA’s coal business of 10%, which may result in historically disadvantaged South African (HDSA) control of 36% of XSA’s coal business.
ARM and Xstrata intend to strengthen their business relationship further through the pursuit of opportunities in a range of other commodities in Africa.
ARM is a niche-diversified South African mining company of which 42,9% is owned by African Rainbow Minerals and Exploration Investments. Negotiations with numerous broad-based empowerment beneficiaries are being finalised, which will result in 56,9% of ARM being controlled by HDSAs.
ARM owns ferrous metals, nickel and platinum operations and a significant interest in gold through its holding in Harmony Gold. Furthermore, ARM holds an African exploration portfolio (copper, cobalt and gold) through Teal Exploration and Mining Incorporated — a company it controls and which is listed on the Toronto Stock Exchange.
Xstrata, a major global diversified mining group that is listed on the London and Swiss stock exchanges, is one of the world’s largest producers of export thermal coal and a significant producer coking coal.
The parties said the formation of ARM Coal will result in the creation of a significant coal participant in South Africa with a balanced exposure to export and domestic sales, a majority interest in the Goedgevonden project and access to capital to pursue future growth opportunities.
“The transaction enables ARM to further diversify its asset portfolio with the addition of quality coal assets and to establish a strategic relationship with an international mining house and leading coal producer,” ARM said. — I-Net Bridge