[miningmx.com] – AFRICAN Rainbow Minerals (ARM) is to buy R650m worth of shares owned in the company by its empowerment partner which it will use to refinance the entity.
The refinancing was deemed necessary as the value of shares owned by the ARM Broad-Based Economic Empowerment Trust (ARM BBEE) in ARM – roughly 10% of the entire company – was not enough to cover the original loan taken out with Nedbank in 2005, the group said in an announcement.
ARM had twice provided guarantees to ARM BBEE last year of up to R850m as the empowerment company risked failing covenants with Nedbank. This was owing to the decline in ARM’s share price which hit a five-year low of R36/share in January before recovering two-thirds in the last month.
Following the share repurchase, ARM BBEE will be able to pay down R650m on its R1.88bn debt with the balance refinanced through a non-recourse R300m senior secured loan from Nedbank, a Harmony sub-ordinated unsecured loan of R200m, and an ARM sub-ordinated unsecured loan of approximately R800m.
ARM will use cash to buy back the shares from ARM BBEE, equal to about 5% of the company, including proceeds from the sale of ARM’s Dwarsrivier chrome operation. ARM had cash in hand of R1.4bn as of end-June 2015, a R200m decline. Net debt increased slightly to R1.6bn compared to R1.4bn as of June 30 in 2014.
“Whilst the bank loan is fully covered by the value of the ARM Shares and neither ARM nor Harmony has suffered any loss, the value of the shares held by the ARM BBEE Trust remains well below the loan covenant,” said ARM in its announcement.
“Given the size of the bank loan, the roll up of the interest less dividends received is likely to result in the bank loan balance continuing to increase and thus continue to put pressure on the ARM BBEE Trust’s financial position going forward,” it said.
ARM said it remained more than 50% empowered despite buying back 5% of the company from ARM BBEE.
It added that the restructuring of BBEE’s finances was also necessary as it sought to minimise its legal and financial exposure should the ‘once-empowered, always-empowered’ principle in the mining charter were not upheld by the High Court.
