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Kermas ups exposure to South Africa
Michael Coulson
Posted: Mon, 02 Jun 2008

[miningmx.com] -- METMAR'S announcement that it is selling its indirect 11.8% stake in the Mogale Alloys business for R390.3m not only turns a handsome profit for itself, it represents another major investment in South Africa by the powerful but little-known Kermas group.

In 2005, Kermas bought Samancor from Anglo American and BHP Billiton for $469m. It was then described as the second-biggest producer of ferrochrome in the world, with ambitions to become number one. It produces and trades ferrochrome and chrome chemicals in Russia, Germany and Turkey as well as South Africa.

Mogale produces chrome metal alloys, charge chrome and silico manganese, so will fit well with Samancor.

At the time of the Samancor sale, the competition authorities found that Kermas was 82% owned by Danica Zagmester, but it is effectively a vehicle for Danko Konchar, like Zagmester a London-based Croatian. While it's usually described as a UK company, Kermas is actually registered in that well-known offshore financial centre, the British Virgin islands.

Kermas was also named last November as Petmin's partner in the Veremo iron ore and pig iron venture, in Mpumalanga, publication of whose competent person's report (the first step in determining the project's viability) is scheduled for this month some time.

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The tag on Metmar's 11.8% of Mogale values the whole at R3.3bn. It's been a great investment for Metmar, as the original cost was R50.8m. Metmar says it will incur capital gains tax of R47.5m on the sale, leaving it with a net inflow of R342.8m.

This will boost Metmar's tangible NAV from 100c to 233c, while for what it's worth pro forma figures show that, had the deal been effective from the start of the 2008 financial year, investing the proceeds of the sale would have boosted HEPS from the reported 37.2c to 42.8c.

Broadly speaking, R230m of the proceeds will be received on the completion of the deal, and the balance in two annual instalments on finalisation of Mogale's audited results for the 2008 and 2009 financial years.

Late last year, the share price was 530c. It spiked at 800c early today, before falling back to 650c, 50c up on last night.

Realisation of the investment in Mogale will give it much greater fire power to develop both its trading activities and the provision of finance for new mining ventures. Even though the share price is 40% up on a year ago and, discounting today's spike, in effect at an all-time high, it could still offer good potential.