[miningmx.com] – ANALYSTS expressed concern at plans by Northam
Platinum to revisit its black economic empowerment (BEE) structure after its
partners, Mvelaphanda Holdings (Mvela Holdings) and Afripalm Resources
(Afripalm), were forced to sell a portion of their Northam shares.
Moreover, Mvela Holdings and Afripalm will also benefit from the restructured
transaction – a development that, if approved by Northam shareholders at an
extraordinary general meeting (EGM), would be a tacit acknowledgement that BEE
shareholders are allowed to shoulder less risk than other shareholders, especially at
a time when the platinum sector is hurting.
Northam said in a trading statement on Friday afternoon (August 2) that its BEE
holding had shrunk to as low as 16% from 26%.
“Northam’s BEE shareholders have been required to dispose of a significant portion
of their Northam shareholdings in order to address current breaches of covenants
contained in the BEE financing agreements,’ Northam said in a statement that also
outlined the prospect of a decline in year-end earnings, and that it would raise R2bn
in third-party debt for its R4bn Booysendal expansion.
Northam said the mineral resources department (DMR) told Northam to “urgently
restore’ its BEE shareholding to a minimum of 26%, the target set for all mining
companies operating in South Africa. The target should be met by 2014, DMR has
said in the past.
In its response, Northam said it would create BEE trusts in order to top up the
overall shares held by BEE partners in Northam. It is proposed that the trusts are
handed “A’ shares, a class of stock that would be funded from Northam’s free cash
flow, but excluded from dividend payments.
In terms of Northam’s initial BEE structure, Mvelaphanda Holdings had a 11.5%
stake followed by Afripalm, (10.6%) and Toro Employee Empowerment Fund (4%).
“The DMR’s requirement that Northam “urgently restores its BEE shareholding to a
minimum of 26%’ is illogical and unfounded in our opinion, seemingly ignoring the
nature of the original BEE transaction which empowered both Afripalm and Mvela,
and the fact that approximately four years have passed since the original
empowerment deal,’ said Justin Froneman, an analyst for SBG Securities in a note
this morning.
Apart from the fact that the structure would create a potential overhang in Northam
Platinum shares, the company also runs the risk of riling other shareholders because
Lazarus Zim – who is also the non-executive chairman of Northam – would face no
consequences of having to sell his company’s shares.
“Northam proposes to proceed with the creation of one or more BEE trusts, the
beneficiaries of which are expected to include Northam’s existing BEE
shareholders [my emphasis], a broad-based women’s group and other BEE
entities,’ Northam said.
Said a South African fund manager: “Were this to be the case, that Afripalm or
Mvela Holdings benefited, it would be highly ethically and morally wrong’.
A Northam company insider, under conditions of anonymity, commented to
Miningmx: “I think the whole thing stinks, but we were instructed to do this.
It means the BEE shareholders are not taking any risks; not the same risks as other
people do’.
He added that “the proof of the pudding’ would be when shareholders in Northam
sat down to vote on the restructuring. “If they don’t like the deal, they should vote
that way,’ he said.
Northam said the restructuring of the BEE structure was subject to approval of
Northam’s shareholders at an extraordinary general meeting (EGM), but did not give
a date for the EGM.
“Shareholders are further advised that the BEE transaction is still in its initial stages
and a further announcement will be made by the company when the terms and
conditions of the BEE transaction have been finalised,’ it said.
BOOYSENDAL FUNDING
On a more positive note, Northam said last week that it would tie up the balance of
funding for its R4bn Booysendal project after it set in motion plans for a R2bn
domestic medium-term note (DMTN). Northam has to date funded R2.3bn of the
project mostly from internally generated cash.
“The company expects to announce the outcome of its DMTN programme’s first
placement during August 2012,’ it said in its trading update.
Full-year share earnings, ended June, would come in at between 70c and 85c/share
compared to 90c/share in the previous financial year, Northam said. Shares in
Northam Platinum were down 0.35% at R25.91/share on the JSE today.
