[miningmx.com] — CHRISTMAS In the Northern Cape will arrive during November this year when Kumba Iron Ore’s Envision broad-based employee share participation scheme is set to pay out up to R500,000 to each of its 5,000 employees.
The scheme was set up in 2006 when Kumba Iron Ore (Kumba) was unbundled from the then Kumba Resources. It was one of a number of black economic empowerment (BEE) measures linked to the transaction.
These included the transfer of 20% of the Sishen Iron Ore Company (SIOC) to Exxaro Resources; 3% to the SIOC Community Development Trust and 3% to Envision – also known as the SIOC share participation scheme.
All these parties are entitled to their share of the dividends declared by SIOC.
The global iron ore boom since then and its impact on Kumba’s dividend stream and share price has resulted in the creation of what Kumba CEO Chris Griffith has described as “South Africa’s most successful BEE transaction’.
Envision was set up as an “incentive and retention initiative to employees who are permanently employed by SIOC in South Africa and who do not participate in the other share schemes of the group”.
The scheme was intended to promote BEE through increasing the participation in the equity of SIOC by historically disadvantaged South Africans.
The acquisition of the 3% stake in SIOC by Envision was funded by SIOC itself. Envision holds SIOC shares for the benefit of the employees who in turn have been allocated units notionally linked to the underlying SIOC shares.
To date, the employees have received R33,800 each in dividends while some R773m has been utilised to repay the original funding.
The scheme has a stated term of five years and it matures in November when “a capital distribution will be made to employee beneficiaries”.
The current value of the scheme shares is around R2.3bn after accounting for the scheme’s funding.
Depending on what happens to the Kumba share price between now and November, that means each employee stands to receive a payment of up to R500,000.
They can take that amount either in Kumba shares or in cash.
According to Kumba a second term for the Envision scheme which will start on expiry of the first term is being contemplated “on the same basis as the first term”.
Griffith pointed out at the group’s recent presentation of interim results for the six months to end-June that a total of R11bn had been returned to SIOC’s empowerment partners since Kumba listed in November 2006.
The SIOC Community Development Trust used the dividends received to pay for its 3% stake in SIOC in full by the third quarter of 2010 which was six years earlier than originally anticipated.
That equity stake was valued at R5.1bn at the end of December at a Kumba share price of R425 (currently R446) since when the Trust has been able to apply all future dividend cash flows to community development projects.
That meant it had R284m available to spend from Kumba’s interim dividend payout of R21.70 a share in respect of the six months to end-June.
