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Exxaro not in 'forced marriage' Posted: Mon, 27 Nov 2006 [miningmx.com] -- THE JSE hasn’t had a great record with coal listings following the suspension of Yomhlaba (actually on AltX) and New Century Carbon, which delisted several years ago. Wescoal, another AltX firm, is reportedly struggling to get its proposed acquisition of Anker away. So the interest in Exxaro will be high. Exxaro is the renamed Kumba Resources – sans its iron ore assets – and follows a mammoth restructuring presided over by Anglo American. Anglo executive director Philip Baum said 155 agreements were signed before completion. Integral to the restructuring was the separate listing of Kumba’s iron ore assets – which enjoyed a lively debut last week as Kumba Iron Ore – and to which Exxaro has 20% exposure. In addition, coal, base metals and heavy mineral assets were injected into Exxaro, which also has a 53% empowerment component. “It’ll be interesting to see where it [Exxaro] trades. Anything below R50/share is a buying opportunity,” said Matt Brenzel, a fund manager at African Harvest. The stock was last trading 4% higher at R55.21/share. Coal is the main growth driver for Exxaro. Plans have already been articulated that output could grow to as much as 70 million tons/year in six years, which easily dwarfs the South African output of Anglo or BHP Billiton. There’s future business and further growth to be had with contracts to supply Eskom with coal. Exxaro’s debt could top R3.5bn next year when the entire weight of the two-year transaction takes its toll. However, Baum says that the cash generation potential is significant. In any event, the debt will have to be tackled by tipping earnings into dividends, which will make Exxaro an attractive dividend yield play. Inevitably, there are some questions. One is why Anglo settled on Eyesizwe Holdings as one of its main empowerment partners when others, such as Royal Bafokeng Resources (RBR), were in the mix. The suggestion in the market is that RBR would have turned down an option to buy Anglo’s Namakwa Sands and Black Mountain assets, referred to by some as “broken furniture”. Said Baum: “I’m bound by confidentiality agreements not to disclose who the final empowerment candidates were. But I can tell you there were no forced marriages here.” Baum says Anglo received offers to buy Namakwa Sands should Exxaro choose not to accept the R2bn (plus capex) option to buy the asset. “The asset wasn’t for sale except in that transaction.” Commenting on the selection process, Baum said: “We weren’t criticised by any of the empowerment candidates throughout the whole process.” Some 109 groupings applied to become empowerment partners in Exxaro for Anglo to sift through from August to November 2004. Baum hasn’t said much either about a potential book build by Anglo of Exxaro shares – around 10 million. However, Brenzel confirmed that inquiries by Anglo for potential buyers are being made. “We said we’d be interested at between R40 and R50/share. We haven’t heard since, so maybe Anglo pulled the plug,” he said. “Absolutely no comment. I’ll tell you in a few months,” said Baum. The idea would be to introduce some liquidity into Exxaro, which is tightly held by empowerment partners. Concerning ownership, the circular to Kumba shareholders makes interesting reading. That’s because the largest shareholder in the controlling empowerment holding company is Eyesizwe Mining (36.9%), which is, in turn, controlled by the five individuals who comprise Eyesizwe Holdings, that Exxaro’s CEO-in-waiting, Sipho Nkosi, founded in 1999.Free news alerts: click here to subscribe
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