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'We’re not fat cats' - Mvela Posted: Mon, 04 Jul 2005 [miningmx.com] -- A PROBLEM facing Mvelaphanda Resources (Mvela) is the perception it has had more than its fair share of empowerment deals. For example, it discloses that it was prevented from bidding for a piece of iron ore producer Kumba Resources. Mvela CEO Pine Pienaar says that perceptions of that nature tend to swing like a pendulum. Says Pienaar: “At the time of the Incwala Resources deal (when Impala Platinum sold its stake in Lonmin to a broad-based consortium) the view was that the level of empowerment was too distributed to be meaningful. Now the view is that empowerment is not broad-based enough.” The situation has become so heated that even a division of South Africa’s largest bank, Absa, stepped into the debate. Francois Laurens, business development director of the bank’s merchant arm, Absa Coporate & Merchant Bank, says that two of SA’s dominant black businessmen – including Tokyo Sexwale and Patrice Motsepe – are being penalised as if they were new fangled (black) oligarchs. Motsepe and Sexwale serve on Absa’s main board. “There are better transactions when clear leadership is in place,” says Fradreck Shoko, vice-president at JP Morgan Chase. Though there’s a role for broad-based empowerment, investors want to see transactions performing, Shoko says. Broadly speaking, the only requirement on management is that it should be competent. “Control of companies by black or white is a bit off the point,” says Peter North, executive director at Questco. “The politics has become confused with the economics. The question is: Who has the track record to manage these companies? All banks want is to get their money back. It’s the money that matters.” Says Pienaar: “We’re not oligarchs, because that suggests our transactions weren’t done at arm’s length in a capital system by a willing seller.” However, given that Mvela has a market capitalisation of about R2,3bn there isn’t an oversupply of major deals for which the company can complete. Mvela’s not in the running for a stake in De Beers. Other blue chip acquisitions also seem destined for others. For example, Impala Platinum is likely to transact the balance of its empowerment transactions with Royal Bafokeng Resources, its long-standing business partner. Therefore, Mvela is turning its attention to smaller empowerment firms in the hope it can consolidate the industry. The intention is to vacuum up the interests of small empowerment firms, particularly entities operating as part of consortiums. The swap of assets between the Khumama Consortium and Northam Platinum, Mvela’s 22,5% owned platinum vehicle, is indicative of what Pienaar wants to do again and again. In that deal, Mvela exchanged shares for the consortium’s stake in the 124m oz Booysendal platinum project. The project was then on-sold by Mvela to Northam for R90m in cash and Northam shares. Critics have been uneasy regarding the valuations involved, but for Mvela it’s a great deal. It helps it rebuild its empowerment credentials to 29% after they were diluted raising money to finance its stake in Gold Fields’ SA assets. Mvela also injects cash into the balance sheet and simultaneously increases its stake in Northam to 34%. Of course, Mvela is capitalising on a weaknesses in the system of empowerment. Small holdings held by thinly capitalised empowerment companies are of no use to anyone, says Pienaar. “In our consolidation plans we can offer up front cash, so the empowerment company monetises its opportunity. Empowerment can’t be so thinly spread that there’s no economic benefit to individuals.” Sandile Nogxina, director-general at SA Minerals & Energy Department, says the creation of a few dominant businessmen is the inevitable outcome of capitalism. “When we called for broad-based empowerment, we didn’t mean individuals could not set themselves up in business. That’s the nature of capitalism.” Nogxina also believes that consolidation in the industry is a necessary force. “Empowerment must not be so broad as to make it unmanageable. I wouldn’t mind seeing more consolidation.” It’s difficult to see a small empowerment company resisting an approach from Mvela, particularly if it’s been carrying debt. And if the small firm has bought a stake in a project it’s likely it would want to avoid raising further finance. As the first major empowerment company to gain critical mass and list, Mvela suffers the problem of experiencing first any changes in headwind in the evolution of empowerment. It’s actions also set down precedents of how things might go. For example, there’s talk of buying interests in companies for trading purposes. “We may make acquisitions that aren’t core in the long term,” says Pienaar. “But we can realise value by trading them.”Mvelaphanda Resources versus African Rainbow Minerals
* Source: RBC Capital Markets.
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