[miningmx.com] — EXXARO Resources (Exxaro) is to spin off and list its heavy mineral sands business separately through a merger with US company Tronox, which is its JV partner in the Tiwest operation in Australia.
The move is likely to boost the valuation of Exxaro’s mineral sands assets and could result in further beneficiation of the group’s SA production feedstock by moving downstream to the production of pigment through the construction of a high-tech chloride treatment plant here.
Mineral sands are processed into various forms of titanium feedstocks and the main use for these is in the form of titanium dioxide pigment in the manufacture of paints, plastics and paper.
Exxaro GM sands and base metals division Trevor Arran commented the driving motivation behind the deal was to set up the group’s mineral sands business as an integrated mining to processing to pigment business.
According to Exxaro finance director Wim de Klerk, the group will hold a 38% stake in the merged operation – to be called New Tronox – and the implied value of that stake is R10.7bn.
In addition, Exxaro has the right to “flip up’ at a later date the direct 26% stakes it must retain in its Northern Cape and Kwa-Zulu Natal (KZN) mining operations in terms of the empowerment requirements of the current South African mining legislation.
Implied value of those stakes is another R1.6bn putting a total value of R12.3bn on Exxaro’s mineral sands assets.
Arran commented, “until our latest set of interim results came out analysts gave us very little value for the mineral sands assets, in fact last year some gave us zero value for them.
“That has obviously changed but I think the market is still allocating to us only a fraction of the true value of our mineral sands assets at this stage. This deal makes the business more visible to the investor.’
Conditions in the titanium sands business turned around dramatically in the second half of 2010 after years of underperformance.
As a result Exxaro decided to keep its KZN smelters running by going ahead with the new Fairbreeze mine after previously announcing it would would close them down when the existing Hillendale mine reached the end of its economic life.
The other striking feature of the deal as announced on the JSE’s stock exchange news service on Monday is the proposed share structure in terms of which Exxaro will be issued a different class of shares.
Exxaro will receive Class B shares while Tronox will hold Class A shares in respect of its 61.5% stake and these are to be listed on the New York Stock Exchange (NYSE).
According to Arran the reason for the dual share structure was to entrench Exxaro’s rights and protect its assets.
“We will be the biggest single shareholder in New Tronox and we want to be in a position where we could take over the company at some point in time,’ he said.
The Class B shares will have separate board representation rights and minority protections. Exxaro will have the right to appoint three out of nine directors to the New Tronox board.
Exxaro will also have pre-emptive rights to subscribe for shares in certain instances to avoid dilution of its ownership for as long as its holding in Tronox is at least 7.5%.
New Tronox’s constitution will include restrictions on the ability of any person or group to acquire an ownership interest greater than 20% without approval by the New Tronox board or a 75% vote by unaffiliated shareholders.
Exxaro is exempt from this rule in respect of any Class A or Class B shares it acquires as permitted under a shareholders agreement with Tronox.