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.