Petmin unveils R350m Somkhele BEE deal

[miningmx.com] – PETMIN has sold a 20% stake in its cash cow asset, the Somkhele anthracite mine, in a black economic empowerment (BEE) deal worth R350m in which the stake will be paid for in dividends.

The company is already empowered at the corporate level – Petmin shares – but the asset level transaction will help the company continue to comply with the BEE law in the event those shares are liquidated by its empowerment partners.

A special purpose vehicle (SPV) will be created which will issue preference shares in return for R270m from Nedbank whilst Petmin will pay R80m for the balance of the 20% which will be held in Tendele Coal Mining, the Petmin subsidiary that owns Somkhele. Petmin is capitalised on the Johannesburg Stock Exchange at R801m.

The SPV shares will be allocated 80% to a community trust representing the local Mpukunyoni community, while another 20% will be channelled to the Tendele Economic Benefits Sharing (EBS) Scheme for employees as well as employees of firms in which Tendele has a stake.

Dividends from Tendele will be used to repay the R350m preference shares plus interest. Petmin effectively guarantees the redemption of the Nedbank funding as it will subscribe for additional preference shares in the SPV in the event of a potential default in payments to Nedbank.

Somkhele, which is situated in KwaZulu-Natal province, produced 1.2 million tonnes of anthracite and 350,000 tonnes of energy coal from rewashed discard.

The Community Trust and the EBS may appoint one director each to the board of Tendele which Petmin said would give the community and the employees an opportunity to contribute to the strategic direction of the company.

“This is long-term sustainable empowerment which is broad-based, enabling the Mpukunyoni community and Tendele employees to own part of the mine, to participate at board level, and to share in financial rewards,” said Jan du Preez, CEO of Petmin.

Once all the preference shares have been redeemed, the 20% equity in Tendele will be distributed as a dividend in specie to the community trust and the EBS, which will then own shares direct in Tendele.

At that time, the EBS will also have an option to acquire an additional 4% of Tendele at fair value in cash, said Petmin.

The transaction received the support of unions including the National Union of Mineworkers and the Association of Mineworkers & Construction Union whose treasurer, Jimmy Gama described the deal as “innovative”.
The BEE deal was in terms of the Mineral & Petroleum Resources Development Act (MPRDA), legislation promulgated in 2004 with the aim of transferring economic wealth in South Africa’s mining sector to previously disadvantaged South Africans.

The ownership aspect of the MPRDA, contained in the mining charter, calls for the transfer of 26% of units of production in a company, or shares in a listed company.

The High Court in South Africa is due to hear a joint request by the Chamber of Mines and the Department of Mineral Resources for a ruling on the principle of ‘once-empowered, always-empowered’ as set down in the mining charter.

The South African mining industry argues that all empowerment deals should be recognised in an audit of the charter regardless of whether the partners have divested or not.