[miningmx.com] – THE restructuring of DRDGold’s black economic empowerment (BEE) transaction, announced on March 18, may look like a fairly innocuous bit of housekeeping, but it could underpin the resiliance of South Africa’s mining charter.
Firstly, DRDGold’s empowerment partners, Khumo Gold (formerly Khumo Bathong and run by Paseka Ncholo) and the DRDSA Empowerment Trust, are swapping a combined 26% in the underlying asset of Ergo Mining for a combined 10%.
For the transaction to receive ministerial support it will mean the Department of Mineral Resources (DMR) has recognised the proportional value of swapping the legislated 26% target set in the mining charter for a shareholding that is below the letter of the law in the charter.
Secondly, the transaction allows for DRDGold’s empowerment partners to sell their shares in the company after three years. In this respect, DRDGold is anticipating the Department of Trade and Industry (DTI) code will supersede the DMR’s mining charter.
That’s because the DTI’s BBBEE [black broad-based economic empowerment) code allows for black-owned companies to liquidate their investments and provides the company with commensurate credits.
In practical terms, it means the DTI’s code will allow DRDGold 13 years in empowerment credits as that will be the amount of time the company has been empowered having first vendor-financed Khumo Gold in 2004. Khumo Gold will be able to sell its shares in DRDGold in 2017, if the restructuring is approved by the DMR.
In both cases, DRDGold is betting on the positive discretion of the mines minister. Interestingly, Niel Pretorius, CEO of DRDGold, doesn’t think the empowerment restructuring tests the legislation.
In his view, DRDGold has honoured the spirit of the law and that this will be allowed to overrule the letter of the law as contained in the mining charter.
“I think if you can do deals in good faith this is taken into consideration; and the law allows for the minister to exercise her discretion.”
It’s likely there will be a new minister after South Africa’s national elections scheduled for May 7, but Pretorius thinks the departmental staff will show consistency. It would help if the director-general were unchanged, he says.
Shareholders have to approve the empowerment transaction first. Uppermost in their thinking will be that Khumo Gold and DRDGoldSA Empowerment Trust pay fair value for the DRDGold shares, which is in the proposal.
Khumo Gold will swap a 20% stake in Ergo Mining Operations for DRDGold shares – 35 million in total – for R4.40/share which is the prevailing price of DRDGold stock at the time of writing. It’s the same swap ratio for the empowerment trust.
Says Pretorius: “The original transaction was vendor-financed which was repaid with dividends (R80m in dividends over a nine-year period)’.
The implication is that shareholders can’t pay twice especially as the intention is to follow economic empowerment to its logical conclusion which is not to see fulfilment of the mining charter targets for their own sake, but for value to be crystallised.
