Exxaro to tackle investor scepticism as key BEE vote looms

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EXXARO Resources will tackle investor questions on Thursday (November 9) regarding its proposed black economic empowerment (BEE) transaction which is scheduled to go before a shareholder vote on November 20. The deal has attracted a degree of criticism, however.

Since it was announced about 12 months ago, Exxaro’s has unwound its old BEE structure which it now intends to replace with a new one. This has required Exxaro to buy-back the shares held in Main Street 333 (MS333), which is the vehicle through which Exxaro CEO, Mxolisi Mgojo, and the firm’s former CEO, Sipho Nkosi, own their shares, among others.

In terms of the BEE proposal, MS333 then reinvests a portion of its shares in Exxaro, along with another participant, the Industrial Development Corporation (IDC). MS333 also buys additional discounted shares in Exxaro.

The criticism is that after reinvesting a small portion of their shares, the members of MS333 can re-acquire shares at a 40.1% discount to the reference price. It’s calculated that minority shareholders will consequently suffer dilution of 7.8%.

Then there are questions about why the BEE transaction has to happen now given the significant uncertainty regarding the future obligations of mining companies to BEE both in terms of a declaratory order being sought by the Chamber of Mines from the High Court (November 9 – 10), and an application to review the redrafted Mining Charter, also scheduled for the High Court (December 13 – 14).

Exxaro is also selling its stake in Tronox in parallel to the BEE deal which means members of MS333 will benefit from a cash payout at a significant discount to that paid by minority shareholders. On October 3, Exxaro announced the first phase of a 16 million share public offering of its Tronox shares realising about $345m or R4.7bn at the time. It’s estimated the total value of its Tronox stake will be worth R11bn of which some 75% could be paid out in a special dividend to shareholders, according to some estimates.

Other market sources have been critical of Exxaro’s BEE structure in that the new BEE partners are able to start realising their shares from about seven years when the life of mine of certain assets, such as the Grootegeluk thermal coal mine in Limpopo province is more than 30 years.

3 COMMENTS

  1. My understanding is that BEE shareholders are reinvesting most of its wealth – certainly not a “small portion of their shares” as your article reflects. Close to R5bn of equity is being reinvested by BEE shareholders which has probably never happened in a BEE deal before. I’m an Exxaro shareholder and for me 7% dilution is a small cost to pay for certainty that BEE is sorted and that the operations aren’t unsettled by Eskom, government or others. Sort of like a 10 year insurance policy with a total cost of 7%

  2. It’s in the circular – page 16 – MS333 shareholders are reinvesting 28m exxaro shares – That’s for R3.2bn and the IDC is reinvesting 12m exxaro shares – R1.4bn
    Also check annex 7 (page 67) – Nkosi and Mgojo are reinvesting 3.3m and 2.3m Exxaro shares eac. That’s close to R500m and R350m at current prices. I appreciate they are being facilitated with some free shares but I believe the cost is fair (a mere 7% dilution) and really like the idea of the executive team of a company in which i’m invested has this significant economic alignment

    I am purely looking at the economics and commercial benefit where it seems as though Mr. Goldspeculator has a bit of an emotional bias. I hope he doesn’t invest actively (especially in difficult to understand commodity companies) as emotionally driven action is sure to lose him money. I suppose it is in his name “speculator”. Goes to show: a little bit of information is a dangerous thing.

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