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Anglo Platinum facing BEE crisis Posted: Thu, 10 Aug 2006 [miningmx.com] -- FEARS that Anglo Platinum may dilute shareholders’ value in yet-to-be completed empowerment deals would appear to be supported by comments by Sandile Nogxina, director-general of the minerals and energy department (DME). Nogxina says Anglo Platinum must spread the wealth in its larger units, such as the Amandelbult section. “We don’t want to encourage a situation where empowerment exists in a mine that has a short life of mine, or is less profitable,” he says. Nogxina adds, however, empowerment can’t be viewed in abstract. Anglo Platinum is currently in discussions with the DME. The Amandelbult section contributed R2.3bn to operating profit in the 2005 financial year, according to Anglo Platinum’s annual report. The next largest profit driver was the Rustenburg section with a contribution of R2.1bn. By comparison, two business units where Anglo Platinum has an empowerment partner, the 162,000 oz/year Modikwa joint venture, and the 485,000 oz/year (refined platinum) Bafokeng-Rasimone (BRPM) mine, contributed R129m and R224m in operating profit in 2005 respectively. The Modikwa operation, shared with African Rainbow Minerals (ARM), and BRPM are still in development, however. In both Modikwa and BRPM, Anglo Platinum’s empowerment partners own a 50% stake. However, neither the Amandelbult nor the Rustenburg section has empowerment, and it’s supposed that Anglo Platinum may base its application for new-order mining licence conversions, which need to be completed in 2009, on its aggregate empowerment holdings. This could be a mistake, analysts warn. “As we have stated many times in the past, we do see something of a specific risk at Angloplat in this context, on the basis that the group’s three ‘BIG’ profit generators (Rustenburg, Amandelbult and PPRust) have no HDSA (Historically Disadvantaged South African) ownership,” said Steve Shepherd, an analyst for JP Morgan in a report dated 31 July. Mark Smith, an analyst for RBC Capital Markets, said Anglo Platinum had not yet won its licence conversions. “Even after a three-day conference with the DME in early July, it appears both parties have yet to agree on allocation of unit-based empowerment credits,” said Smith. “There still remains a risk that the DME may look to the more profitable Western limb operators to gain the charter requirements,” he said. Anglo Platinum is not commenting on its empowerment negotiations, suffice to say it’s been in contact with the DME. It’s yet more reticent on Nogxina’s observation in a Miningmx article (23 June) that Anglo Platinum would fall foul of the DME if it continued to exclude empowerment partners from participating in the marketing, smelting and refining aspects of its business. Trevor Raymond, a spokesman for Anglo Platinum, provided some background comments that the smelting and refining business was, in any event, lower margin than mining ore and producing concentrate. Nonetheless, André Wilkens, CEO of ARM, says year-long discussions have been in progress with Anglo Platinum concerning its business relationship at Modikwa. The situation at Modikwa is that though the mine is jointly shared, Anglo Platinum makes a profit by virtue of fees paid to it for smelting and refining, so-called transfer pricing. Wilkens won’t speak at length on the matter – it’s clearly sensitive – but hampering negotiations is the volatility in the prices of platinum group metals, he says. It’s standard business practice for metal industry smelters and refiners to command a premium for their services. This is partly related to the R5bn to R6bn capital expense required to build a smelter, as well as installing and managing its specialised technology. So one has sympathy for Anglo Platinum, particularly as it’s probably unlikely ARM would have been able to finance its part of any smelter construction. (It struggled to raise its half of the R1.35bn in finance for its part in the Modikwa mine.) But the DME has seen examples where established companies with marketing deals have structured means to share the benefits of participating in the downstream business. Transfer pricing was recently tackled by De Beers in an agreement with Mvelaphanda Resources (Mvela Resources). A similar process occurs in the two companies’ Ndowana Exploration, a joint venture aimed at discovering diamonds in the Limpopo and Mpumalanga provinces with De Beers holding 67%.Free news alerts: click here to subscribe
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