[miningmx] -- YOU'D HAVE TO be blind not to recognise what’s going on at
This is a 10-year-old holding company in which some 20 separate investments have
been made over the years. But in the last year alone, the company has taken the
scalpel to its portfolio in an effort to transform itself into an operating company with
control over cash flow and strategic decision-making. If this is not a company
preparing for an initial public offering, then I don’t know.
The company has acted. Firstly it has quit its 25% stake in the engineering and
project management company DRA/Minopex. Gone too is its 11.8% stake in Assore,
the iron ore and manganese investment company, for R2.7bn. It has also vended in
its 30% stake in Kangra Coal to Shanduka Coal, which has helped finance taking
control of that company from Glencore International. A feasibility review into
acquiring control of Lonmin’s Limpopo Division is also, at the time of writing,
But Shanduka Group has also been acted upon when Chinese sovereign wealth fund,
China Investment Corporation (CIC), bought a one-quarter stake in the company in
December. The shares were purchased from Old Mutual and Investec. This, in its
turn, could lead to further acquisitions for Shanduka Group, says its CEO, Phuti
Mahanyele who, at 41 years old, holds the reins of a potentially powerful and highly
charged mining resources company.
Mahanyele confirms the bias is towards resources, although Shanduka Group does
have exposure to the fast moving consumer goods (FMCG) market, with a recently
acquired 100% stake in McDonalds SA and control of Coca-Cola in South Africa.
However, with a shareholder like CIC, support for new investments is bound to be
predominantly in energy and mining. “Resources will continue to be a big part of our
business, but given the volatility in the industry, we still need more critical mass,”
A listing of Shanduka Group will be sooner rather than later; think three years
rather than five or seven years, as stated previously. The question is whether
Shanduka will list as a diversified play, in FMCG and resources, or focus on the
latter. “We’ve still to work that one out,” says Mahanyele. FMCG and resources don’t
really fit together, and it will confuse investors about the type of rating you apply to
such a chimera.
For now, a major factor shaping Shanduka Group’s future will inevitably be its
relationship with Glencore International, the Swiss commodities trading and mining
company which is in the throes of merging with Xstrata. Assuming that merger is
finally approved – and at the time of writing it increasingly looks so – opportunities
will be thrown Shanduka Group’s way as Glencore restructures its enlarged
Mahanyele simply declines to comment on potential synergies with Glencore, but
the worst-kept secret in South Africa’s coal mining business is that
Shanduka Group founder and shareholder Cyril Ramaphosa, the former unionist and
politician, will fuse his stake in Optimum Coal Holdings, which he helped buy with
Glencore, with Shanduka Coal’s holdings. Already, Shanduka Coal produces some 7
million tonnes per year (Mtpa) of coal from its Graspan, Middelburg, Townlands and
Springlake collieries, and has capacity to increase that to 9Mtpa.
Mahanyele has said in the past that the Ramaphosa/Glencore joint bid for Optimum
Coal is unrelated to Shanduka Coal, but in all seriousness – how can it not be? The
lines between Glencore’s coal business and those of Shanduka Coal are porous and
the relationship fluid, especially as Glencore markets all of Shanduka Coal’s exports.
In addition, Glencore’s recent 43.66% stake in Umcebo Mining is to form part of
Shanduka Coal. Adding Optimum Coal Holdings to Shanduka Coal would create a
20Mtpa to 25Mtpa
coal producer – enough to catapult it into a mid-tier coal producer
behind the giants Anglo Coal, BHP Billiton Energy Coal South Africa and Exxaro
Also in the realms of speculation, there’s potential for Shanduka Group to add to its
energy suite by investing in sub-Saharan Africa’s upstream oil and gas industries
where activity has been robust, especially in the Mozambican gas sector. “One of the
questions we’re tackling now is whether we invest in the early upstream energy
sector or buy producing assets, which is less risky, but more expensive,” says
Mahanyele. Mahanyele previously ran Shanduka Group’s energy division, so she has
a particular interest in seeing it develop.
Shanduka has some exposure to the renewable energy sector and has been
shortlisted as an independent power producer (IPP) in Government’s public tender
scheme, but there’s also the enormous activity underway in Mozambique. The
country’s Rovuma gas district has attracted investment from a number of
multinationals, most notably a $1.9bn bid from Thai company PTT for UK exploration
junior, Cove Energy, trumping an earlier offer from Royal Dutch Shell. Small
explorers in Kenya and Tanzania such as Ophir Energy, Aminex and Africa Oil are
also expected to attract the consolidating efforts of majors such as Norway’s Statoil,
the UK’s BG Group and ExxonMobil.
Owing to the fact that building energy projects, often in remote regions of the world,
leads to questions of transportation, Mahanyele says infrastructure development
remains an important part of Shanduka Group’s, and CIC’s, ambitions. “One of the
first things we did when we learnt of CIC’s interest in Shanduka was to have a
discussion on strategic alignment. And we are aligned.
“Apart from the network of skills CIC provides, it more importantly provides us with
a network of cheaper funding, especially for
infrastructure build. This was very
important. CIC is willing to invest in infrastructure and that capital is often difficult
to raise, especially for things like building a rail connecting gas sources to a port,”
On the issue of funding sources, incidentally, Mahanyele says that from a portfolio
structuring perspective, Shanduka Group’s shares in MTN (0.45%) as well as a 0.9%
in Standard Bank and 7.5% in Alexander Forbes provide “optionality” for the
company. “About 45% of our total portfolio is in listed companies and we like the
optionality of this. We can continue to hold the financial assets and then make
decisions about them as investments,” she says.
In all the activity regarding Shanduka Group’s portfolio, one area that demands
particular scrutiny is its stake in Scaw Metals SA of 5% – before Anglo American’s
R3.4bn divestment of a 74% shareholding. The buyout was led by Government’s
Industrial Development Corporation
(IDC), which has long been linked with plans to
establish a state-owned steel manufacturer that would compete with ArcelorMittal
SA. All Mahanyele will say is that steel remains “a strategic industry”.
Along with coal, platinum is the other main strategic resource in which Shanduka
Group has an interest. The prospect of paying R1.1bn for a controlling stake in the
Lonmin Limpopo province assets is looking good, Mahanyele says. “We are close to
making a decision and we’re hoping it will be positive,” she says. “We are keen on
the sector. Market conditions won’t weigh on our decision.” And, on the horizon, is
the enormous transformative impact of the Glencore/Xstrata merger – for both
Shanduka Group’s coal and platinum ambitions.