Anglo to sell 9.7% in Exxaro, will drive funds into debt reduction

ANGLO American is to sell its entire 9.7% direct stake in Exxaro Resources by means of an accelerated book-build to institutional investors, the UK-listed group announced today.

The share sale, equal to 35 million shares in Exxaro Resources, will be alongside the unwinding of Main Street 333’s (MS333) 51% stake in Exxaro Resources.

MS333 was Exxaro’s black economic empowerment (BEE) vehicle. The structure is being unwound because a 10-year lock-in agreement, signed in order to comply with the first mining charter, expired on November 28.

The balance of the shares MS333 holds in Exxaro Resources will, presumably, be reinvested in Exxaro in terms of a replacement BEE structure proposed by the company that will take Exxaro’s BEE holding to 30%.

The Industrial Development Corporation (IDC), the government-owned bank, is also selling shares in Exxaro following the unwinding of MS333, but it is also reinvesting some of them.

Anglo, however, is selling its entire portion in Exxaro which, at the Exxaro’s current market capitalisation, has a gross value of R3.36bn ($240m). The UK group also has a small portion of MS333 which it is not selling immediately, but could put into the market at a later date.

Anglo intends to use the proceeds to lower debt. It is seeking to reduce its net debt, which stood at $11.7bn at June 30, to below $10bn by the end of 2016.

The improvement in commodity prices is likely to see Anglo comfortably reach this target without selling many more assets. It recently called a halt to the $2bn sale of Australian coal mines.

The sale also, in a small way, lessens is exposure to South African mining. Exxaro operates coal mines in Mpumalanga and Limpopo provinces and has investments in Tronox, a mineral sands company and Kumba Iron Ore, controlled by Anglo.

All in all – adding the shares MS333 and Anglo are selling – some 52 million shares, equal to 14.7% of Exxaro, will be distributed into the market.

Citigroup Global Market Ltd is acting as sole bookrunner on the placing, said Anglo which added that “… the timing of the closing of the book, the pricing of the shares, and the making of allocations will be at the discretion of Anglo American and Citi”.

“The final price will be agreed by Anglo American and Citi at the close of the bookbuild process, and the results of the placing will be announced as soon as practicable thereafter,” it added.

In terms of Exxaro’s BEE restructuring, announced on November 22, Exxaro will pay R3.04bn to buy some of the shares owned by MS333.

This will enable MS333 shareholders to settle their bank debts – including a R486m loan to Exxaro itself – and then provide them with options to either reinvest in Exxaro’s new BEE structure, or take cash.

The tenure of the new BEE structure is for seven years with the transaction due to be completed no later than April 30. “High level terms” with shareholders in MS333 have been agreed but completion turns on transaction details.