Gaps in Sasol review

[miningmx.com] -- IT'S no coincidence that over the last three years, the Competition Commission has gunned for what a colleague reminded me recently were once called 'national champions'. These were the state-owned parastatals Iscor (now ArcelorMittal SA), Clover Industries, Nestle SA, Dairybelle (which established their anti-competitive positions during a period in which the Milk Board set milk prices in South Africa), and Sasol.

It's clear these companies' current dominant positions have a common root in the Apartheid government's financial support of them. Consequently, the redress, while economically healthy, has touch of political expedience.

Last week, Sasol's fertiliser business, held in Sasol Chemical Industries, agreed to the Competition Commission's R188m penalty for cartel behaviour in the production of nitrogenous fertiliser. And there may be more to come although analysts reckon Sasol has weathered the worst of its anti-competitive fines. Or has it?

One wonders, for instance, whether Sasol has included its shareholding in Richards Bay Coal Terminal (RBCT) as a potential anti-competitive practice. This question may light a fire under RBCT itself, and whether its practice of restricting its use of export facilities to its shareholders constitutes an abuse of market dominance.

Like Iscor and the Milk Board, RBCT has its roots in state support in the form of the Coal Act which set export volumes and coal export prices. That was until 1986, the year of the Coal Act's repeal. RBCT Limited was then formed in the stead of legislation.

RBCT didn't set prices, but it certainly set out to control export coal volumes. That's because the use of its loaders and what-have-you is restricted to qualifying shareholders which are, be definition, those able to afford the heavy capital required of an coal export facility, such as Anglo American and BHP Billiton, and Sasol Mining.

RBCT currently exports about 76 million tonnes/year of coal but has recently expanded to a capacity of 91 million tonnes. Winning 'entitlement', as it is termed, is not easily done. It's not as if I could approach RBCT and bid a higher price for use of the terminal. No indeed. Applications to export coal is referred to the shareholders and often - always? - turned down as Petra Mining, a Johannesburg and London listed junior mining firm, recently discovered when it applied to export anthracite.

In its defence of the coal terminal's shareholders, there was an effort to extend the use of RBCT such that empowered coal exporters could share in the extra entitlement created when RBCT expanded to a 91 million tonnes/year capacity. But an unintended consequence of this is that it further complicates the cartel extending it from the old firm to black-owned firms whilst excluding others that might want to export coal.

Sadly, Sasol couldn't provide details on whether it would include its use of RBCT into its anti-competitive review.

Says Jacqui O'Sullivan, Iscor's spokesperson: "On Monday [May 4], we did announce that we foresee the review running for a bit longer than originally planned with probable completion only in the second half of this year. Each business is being scrutinised and as the reviews are still underway, we cannot comment on specifics …".

Thembinkosi Bonakele, deputy commissioner to the Competition Commission, however, said he wasn't aware Sasol considered its mining division part of such a review. "They [Sasol] haven't mentioned it to us," he said. Intriguingly, he added: "What would trigger our interest is if there was evidence the refused smaller competitors use of that facility. Then we'd be interested to look at it," he said.

Maybe the commission should speak to Petra Mining.

Randgold Resources

I noticed in a recent announcement regarding Randgold Resources' annual general meeting that all six of its ordinary resolutions were passed, although there did seem to be some difficulty with one of them.

Roughly 27% of the total vote - 18 million votes - did not vote in favour of adoption of Randgold Resources' remuneration report this year, whereas the other resolutions were roundly supported.

According to a Randgold spokesperson, there were some quibbles among shareholders who sometimes rely on the advice of the ISS (Institutional Shareholder Services). The ISS believes Randgold directors ought to see their share options vest in the standard five years rather than the three years adopted by the Randgold board.

According to the spokesperson, Mark Bristow, Randgold Resources CEO, reckons that given the low cost and thinly spread nature of the executive - an effort to save shareholders extra overheads - that he and his directors deserve to recognise compensation earlier.

Bristow has track-record on his side.

Randgold Resources was trading at about $20/share in 2006 and was last quoted at $52.95/share - all achieved on the back of organic growth rather than the dubious heroics of merger and acquisitions. It's a popular among journalists to seize upon the remuneration report because, let's face it, pouring over what others' earn is information never out of vogue. But perhaps some directors deserve their pay.