Niall Carroll, CEO Royal Bafokeng Holdings
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» Diamonds made the Bafokeng
» Bafokeng claims major value coup
» Bafokeng might list platinum project
» Bafokeng passed on Anglo offer
» RBR had Pt mine cost reduced R500m

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SA's platinum nation
Sikonathi Mantshantsha
Posted: Thu, 29 Mar 2007

[miningmx.com] -- EMPOWERMENT efforts have come under the critical cosh of late, with growing perceptions of opportunism and self-enrichment for the influential and the already affluent. It's very difficult to argue convincingly that economic wealth is trickling down to the masses with empowerment deals - even those with broad-based attachments conspire to concentrate wealth in the hands of a fortunate few.

And those deals that can claim success in empowering shareholders have sadly been short-lived, with executives - who no doubt made good money - seemingly unwilling or unable to ensure sustainability in the black empowerment effort.

The crumbling credentials at flagship empowerment listings such as South African industrial firms New Africa Investments Ltd (NAIL) and Real Africa Holdings (RAH) attest to a number of flaws in the process of transferring wealth to South Africa's disadvantaged masses.

Think back to successful Afrikaner empowerment after 1948, which gave rise to great corporate structures such as Rembrandt (which currently survives in the form of Remgro, Richemont and VenFin), Sanlam (and Sankorp), Federale Volksbeleggings and Genbel. Those large conglomerates - which could mobilise the Afrikaner nation's savings - accumulated an array of assets that ultimately proved an excellent store of value and econo-mic upliftment over subsequent decades.

South Africa - while currently boasting a number of successful mid-sized empowerment initiatives, such as Mvelaphanda Group - doesn't have a conglomerate that can claim to carry the hopes and dreams of an emerging nation.

Clearly, corporate South Africa and the millions of new investors who can claim an empowerment badge need an inspirational story; one in which an investment collective is seen as not only successfully driving economic change through ownership but also doing so on a basis that's not only rewarding to participants but also sustainable.

But is such an inspirational success story perhaps not unfolding before our very eyes in North West province, featuring Royal Bafokeng Holdings (RBH) - owned by the Royal Bafokeng Nation through its Development Trust? Could RBH be the catalyst and inspiration for genuine community-based empowerment endeavours in the years ahead?

It's difficult not to draw parallels with Remgro, easily South Africa's most successful collective investment effort. Like Remgro, RBH is largely founded on a "family shareholder base": it holds cash-generating investments anchored by a core asset (this time, platinum instead of tobacco) and it can claim early successes in building wealth for participants.

Created after a merger between Royal Bafokeng Resources and Royal Bafokeng Finance, RBH is an investment-holding vehicle for the Bafokeng community. The companies respectively looked after the mining and financial services investments of the community.

"The merger came about with the aim of taking opportunities presented by the changing mining legislation," said Mpueleng Pooe, public affairs executive at RBH. The changing legislation allows mining firms to convert royalty payments for land on which they mine into shares and they can then apply for new-order mining permits.

RBH's major asset is the land on which Impala Platinum (Implats) mines platinum in the Rustenburg valley. Heavily reliant on mining royalties until recently, RBH converted royalty payments due to it by Implats from July 2007 to shares - making RBH the largest single shareholder with a 13.4% stake in Implats, currently valued in excess of R17bn.

The present value of the royalty payments over the next 30 years was estimated at R12bn in September 2006 at the time the deal was signed but had soared to R16bn by March this year, when the deal was completed.

RBH CEO, Niall Carroll, said the deal came about as both parties felt that a closer and less potentially conflict-laden, tenant/landlord relationship was better. "We had a landlord/tenant relationship that would at times be tense. We had to put a value to the stream of rent income over the 36-year lease and converted that into shares in Implats," said Carroll. "It was in the best interests of everyone concerned."

But what is Royal Bafokeng Holdings?

Chaired by Kgosi (SeTswana for "King") Leruo Molotlegi, over the past decade the RBH has built a small empire estimated at more than R25bn. Simultaneously, the RBH has channelled most of its profits purely for the economic upliftment of the 300,000-strong Bafokeng communities - "the family".

In excess of R2bn has been ploughed into the Royal Bafokeng Administration to provide basic infrastructure at Phokeng, near Rustenburg. It's also made further investments to ensure a sustainable stream of dividends to the Bafokeng nation.

Carroll said RBH has conducted around 25 deals over the past 18 months after looking at about 200 possible transactions. He said the company's strategy is to buy into good, well-managed companies and intervene at board level.

Said Carroll: "We like boring but good companies. We add value at management level - we're an active investor." He said RBH is only driven by the desire to make money for the nation. "We're very aware of the fact that we need to create opportunities for the Bafokeng."
We're not sure if there's a logic to listing
Then what is RBH's investment strategy? Does it impose quotas on how many Bafokeng get employed by companies in which it invests? "There are a couple of things when we buy into a company: what can we afford? The stake must be meaningful enough to make an impact," said Carroll. "We invest in anything that makes money. We can't impose an ideology that's not in the interests of business. We're there to make money for the 300,000 Bafokeng, not to impose rules on businesses."

Carroll said RBH doesn't want to destroy value by imposing quotas. "The best interest of the business is what's most important to us. We're very sensitive to value creation. We're happy to take control, but don't need to."

Asked if listing the company could be on the horizon, Carroll replied that they have considered it, but it was concluded there was no compelling reason to list. Not in the near future. "We're not sure if there's a logic to listing at the moment."

RBH doesn't have the recurring problem of many of the "usual suspects" - cash to pursue deals. Most of its investments are cash-generative, a position attested to by Carroll himself. "We've been lucky, in the sense that we don't have to worry about funding and we don't worry about interest rates. We have relatively stable financial resources."

Carroll said RBH's R25bn asset base is ungeared and hence doesn't service any debt. Dividend income is always available for investments.

Due to its 85% exposure to mining, the company has started to diversify away from that industry. "There's life after mining," said Pooe. "Our mandate is to manage and grow resources on behalf of the Bafokeng. The best way to ensure that is to diversify outside mining."

RBH holds small, strategic stakes in major companies, such as its 20% (R344m) share in Astrapak, 32% (R885m) in Merafe Resources and 10% (R207m) in SA Eagle. It also holds a controlling 55% of the formerly listed MB Technologies and 100% of Fraser Alexander.

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Asked how much cash is currently available and whether any major announcement was due soon, Carroll said: "We've got a satisfactory level of financial resources to pursue deals."

He said major transactions should be seen over the next 12 months. "We'd like to do a big deal in non-mining activities, particularly for risk management purposes." Carroll wouldn't be drawn on the type of deal. "We don't have to do anything but we will when something (we like) comes up."

Asked if he had anything in mind, Carroll said RBH spends time looking for the right thing at the right price. "We look at risks we take. We have to understand the risks and product we're buying, but we have to be opportunistic to a certain extent. When the timing is right, we'll strike."

Pooe added that RBH doesn't stop looking for opportunities. "We won't pass by if something comes at the right price."

The past two years have obviously been busy for Carroll and his team. But where does the money go?

Social infrastructure gets roughly half of RBH's dividend income, which Carroll estimates at between R750m and R1bn/year. He says around R400m/year is spent on social infrastructure delivery programmes under the Bafokeng"s Vision 2020 (a plan to ensure the Bafokeng become economically self-sustained by 2020) and that amount would "be probably ramped up over the next few years" .