Mvela dispute goes to arbitration

Brendan Ryan | Tue, 09 Mar 2010 09:22

[miningmx.com] -- THE unbundling of Mvelaphanda Resources (Mvela) has been delayed until at least the second half of calendar 2010 because of the company’s dispute with the Khumama consortium over the terms of the Booysendal transaction.

According to the Mvela interim results for the six months to end-December released on Tuesday the arbitration hearing over the dispute has been set for the first two weeks in May with a resolution anticipated “before the end of the current financial year.”

The statement added, “While Mvela Resources welcomes the fact that the arbitration can now proceed, the unbundling process cannot, unfortunately, be concluded until a ruling has been given. “

That has implications for Mvela’s listing on the JSE because the company is a pyramid structure which the JSE will not allow to continue to be listed.

The unbundling strategy was embarked on to return Mvela’s assets to its shareholders and delist the company after Mvela failed to pull off an acquisition last year which would have changed it from a pyramid to an operating company.

According to Mvela the JSE has granted “dispensation from the pyramid company rules until the end of June 2010.”

Mvela investor relations executive James Wellsted commented, “the JSE has been very understanding about the situation and has granted previous extensions. We will continue to keep them fully informed. They are clearly not going to tell us to take as long as we like but they have been very accommodating so far.”

The Khumama dispute surfaced in August 2008 and relates to a deal struck in February 2004 when Mvela bought Khumama’s right to a 50% stake in a JV with Anglo Platinum to mine the Booysendal deposit for R80m cash and R233m in Mvela shares.

The issue apparently concerns an outstanding payment which the Khumama consortium believes is due by Mvela but which is rejected by Mvela.

The dispute with Khumama seems likely to stall any possible merger and acquisition (M&A) activity by Mvela over subsidiary Northam Platinum – which owns Booysendal - until the arbitration hearing results are known.

Speculation at the beginning of the year was that Kazakh resource group Eurasian Natural Resources Corporation (ENRC) was in negotiations to take over Mvela but it seems that has gone quiet.

Wellsted commented, “we continue to talk to people but there’s nothing to announce. I don’t know what could happen regarding M&A activity in the future but clearly interest in platinum is building up again if you look at the deals done over Lesego Platinum and Absolute Holdings.”

Northam is Mvela’s major asset contributing R50.5 to Mvela’s net asset value (NAV) of R58.13 a share at the end of December. Mvela’s second largest asset is its stake in Gold Fields which accounted for R14.7 a share of Mvela’s NAV at that date.

Mvela sold a further 6.2m Gold Fields shares during the six months to end-December bringing the total sold so far to 16,3m shares and reducing its holding to 33.7m from the original 50m stake.

The money raised was used to pay down Mvela’s short-term bridging loan which stood at R239.6m at end-December.

According to Mvela, “Gold Fields share price rose only 5% to R97.98 a share during the reporting period and despite a brief spike to around R116 in December 2009 provided few trading opportunities.”

Disposal of the Gold Fields shares resulted in a R71m “fair value loss” in the accounts because the selling price was below the R118.9/share accounting value attributed to the Gold Fields shares when Mvela received them on March 17, 2009.

“This, despite the average selling price being significantly higher than the R82.78 cost price per share when the transaction was entered into in March 2004,” the Mvela statement noted.

Mvela pointed out that, “financially, the Mvela resources group remains robust with the R3.3bn fair value of its Gold Fields shares at year end (at R97.98/share) exceeding its liabilities by approximately R1bn.

“Mvela will continue in its attempts to simplify the corporate structure and unlock value for its shareholders in an as efficient and timeous manner as is possible”.