Stephen Roelofse, Sanlam Investment Managers
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Anglo Pt in R420m BEE deal
David McKay & Allan Seccombe
Posted: Wed, 08 Nov 2006

[miningmx.com] -- ANGLO Platinum is in negotiations to sell a 15% stake in the Union section of its Rustenburg Platinum Mines for R420m in cash to a community, the Bakgatla, which holds mineral rights in the area.

"We believe we are over 15% empowered and we believe this transaction should contribute between two and three percent to our BEE credits and towards reaching the 26% target," said Anglo Platinum spokesman Trevor Raymond.

Measuring the exact contribution to black economic empowerment (BEE) is more difficult when it is done at a project level as all of the company's transactions so far have been, he said. Mining companies are obliged to have 26% black economic empowerment at an equity level by 2014.
add 2% to 3% to our BEE credits
As part of the transaction, Anglo Platinum will cede interests in prospecting rights to Magazynskraal and Rooderand of which the latter will be used as security for a R45m loan by the group to the Bakgatla to repay land debt and fund community projects.

Exploration at Rooderand is more advanced than Magazynskraal and has 13 million oz of inferred resources. The Bakgatla can farm in to earn a bigger stake than the 26% Anglo Platinum ceded to the community at Magazynskraal because it is an early-stage project.

In addition to the cash payment, the Bakgatla will also vend in its existing royalty agreement which Anglo Platinum has been paying since 1982. The community has convened its members for a November 25 meeting to consider and ratify the terms of the transaction, Anglo Platinum said.

Analysts interviewed by Miningmx believed plans to sell part of Union would be followed by a number of other empowerment deals involving Anglo Platinum's larger assets. "This deal is quite small. There still need to be a lot more work. It's just the beginning," said Stephen Roelofse, who helps manage the mining funds at Sanlam Investment Managers.

Anglo Platinum has been criticised by the South African government's minerals and energy department (DME) for failing to empower its more profitable assets. It has joint ventures with empowerment companies on the Bafokeng-Rasimone and Modikwa mines, but neither of the ventures would be considered highly profitable.

The Union section, however, contributed operating profits of R694m in the 2005 financial year, about 10% of the group's operating profit in that year.
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"This is part of a plan we have submitted to the DME on how we propose getting to 26% empowerment," Raymond said. "This transaction does provide adequate details to give clarity on how we are moving towards that."

It should not presumed that similar transactions are envisaged for Anglo Platinum's two biggest mines, the Rustenburg Section and the Amandelbult Section, he said.

Mark Smith, an analyst at RBC Capital Markets, said more deals were likely, however. "The writing is on the wall for further transactions which might put pressure on Anglo Platinum's share price," he said.

Anglo Platinum's rivals, Impala Platinum and Lonmin, had done empowerment deals at the corporate level encompassing all their assets. Anglo Platinum, however, had only done empowerment at the operations level and not on the more profitable western limb of the bushveld, said Smith.

Smith calculated value leakage of about $11m in the sale of Union representing the difference between his net asset value calculation and the R465m paid by Bakgatla (including the R45m loan). But in the case of Anglo Platinum's larger assets, Amandelbult and Rustenburg mines, a 15% stake in each would be equal to about $1bn.

"It's unlikely empowerment firms would be able to stump up that amount so you can see Anglo Platinum doing some off-balance sheet funding which will put pressure on the balance sheet," Smith said.

Anglo Platinum was reluctant to put a figure on the royalty paid to the community because the deal was still in the throes of negotiation, said Raymond. Anglo Platinum paid R161m in royalties to a number of communities in 2005. The community is likely to have engaged financial institutions to raise the R420m, but banks would most likely want to see firmer agreements in place before making loans available.

The Bakgata community consists of about 350,000 people, and comprises about 47% of Anglo Platinum's Union mine labour force. As such, the proposed transaction represents broad-based empowerment which the South African government is keen to promote.