Shanduka seizes control of Incwala

David McKay | Mon, 10 May 2010 09:32

[miningmx.com] -- SHANDUKA Resources, the mining arm of former politician Cyril Ramaphosa's Shanduka Group, has seized control of Lonmin's distressed empowerment initiative, Incwala Resources, in a cash and debt deal worth R2.8bn.

Shanduka Resources, primarily invested in coal, will inject R300m in cash for its Incwala stake and a further R2.5bn in a five-year vendor loan finance package from Lonmin, the world's third-largest platinum producer.

Lonmin will place nearly 10 million shares, which represent about five percent of its current issued share capital, with institutional investors towards the Ł206m funding package. The balance of the funding will come from its cash reserves.

Lonmin said a total of 9.064 million shares were placed by Citigroup Global Markets U.K. Equity and J.P. Morgan Securities Ltd at a price of 1765 pence each, raising about Ł160m.

"The objective of securing a new BEE partner via a robust funding structure is critical to the future of Lonmin," the LSE-listed platinum producer said. "Following an extensive process in this regard, it has become clear that this objective can only be achieved with significant funding from Lonmin."

Shanduka Resources will own a 50.03% stake in Incwala once the transaction is completed and the funds are enough to bail out small empowerment partners in the group who are thought to be in financial distress.

"The terms and structure of the financing will provide for a sustainable framework to mitigate the effect of volatilities in the platinum group metal (PGM) market," Shanduka Resources said in a statement on Monday.

The remainder of Incwala will be held by the Industrial Development Corp. and Lonmin, which will each continue to own 23.56%. Other historically disadvantaged South Africans (HDSAs) will continue to own approximately 2.85% of the firm.

Ramaphosa, who will also become a non-executive director of Lonmin, said his group had been monitoring affairs at Incwala Resources for some time.

"The board and executive team of Shanduka have been monitoring Incwala and its investment in Lonmin’s operating subsidiaries for a number of years and we are delighted to be able to invest in the company through this transaction," Ramaphosa said.

Shanduka's investment had also drawn the support of the South African government's mineral resources department (DMR) which has been critical lately of empowerment in the country's mining sector.

"The financial model adopted to support this transaction is laudable, marking a fundamental shift from typically cumbersome debt traps set for emerging BEE companies partnering with established mining companies, as evidenced by the instant dissipation of such BEE companies in the recent financial crisis," said mines minister Susan Shabangu.

Incwala, which was established in 2004, holds an 18% interest in Lonmin’s principal operating subsidiaries, Western Platinum and Eastern Platinum, and a 26% stake in the Akanani platinum project.

Shanduka will be acquiring shares from several of the original HDSA shareholder groups at fair value

Incwala was launched as a major victory for empowerment in the platinum sector but it has struggled to become more than a passive investor owing to significant debt owed to Lonmin and a lack of solid leadership.

"Shanduka will be acquiring shares from several of the original HDSA shareholder groups at fair value. This is particularly significant given that the majority of the HDSA shares have been financially distressed," it said.

Ramaphosa said that he would bring leadership to Incwala and "meaningful" cooperation between Lonmin and Shanduka on platinum projects.

Said Rowan Smith, managing director of Shanduka:"We are also excited that the project pipeline with Lonmin will foster a long term partnership which will enable Shanduka to become a significant player in the South African PGM market, and we look forward to working closely with Lonmin’s team in this regard".