Nkosi defends Exxaro BEE discount: “We have no guarantees”

Sipho Nkosi

SIPHO Nkosi, the former CEO of Exxaro Resources, has defended the group’s proposed new black economic empowerment (BEE) transaction of which he is a beneficiary through Main Street 333 (MS333).

Nkosi, who is now retired, asked not to be quoted on behalf Exxaro. “I am speaking as a member of MS333 and as a shareholder,” he said in an interview. Nkosi founded Eyesizwe in 2000 which vended coal assets into Kumba Resources. Kumba Resources was then unbundled creating Exxaro Resources. Nkosi was CEO of Exxaro for seven years as well as president of the Chamber of Mines.

“We have no guarantees that our shares will keep their value,” he said in response to criticism that members of MS333, as well as the Industrial Development Corporation (IDC), were receiving a healthy discount in order to re-empower Exxaro. “My intention is to ensure that this company is empowered, but I have no protection as others have got,” he said. The empowerment partners are locked up in the new BEE structure for ten years.

The market has been critical of the deal in which Exxaro intends to replace its previous 50%+ empowerment structure with a new structure in which it will be 30% black empowered. The concern is that after having sold a portion of their shares, the members of MS333 stand to re-acquire a stake in the business at a 40.1% discount.

The exact amount of dilution, however, is a question of interpretation, said bankers at Rand Merchant Bank which has advised on the empowerment for the last three years. Owing to the fact that the empowerment partners, IDC included, are putting in about R4.7bn of their own unencumbered funds, means the dilution falls to about 22%, they said.

The issue of new shares in Exxaro also dilutes existing shareholders to the tune of 7.8%, but Nkosi said this was a cost experienced by all shareholders. “I am also a shareholder in the company so I also have dilution,” he said. “There is no BEE in town where black shareholders are putting in their own money in this kind of quantum,” he said.

Other criticism regarding the proposed transaction is that there’s no provision for broad-based empowerment at the community level. Another concern is related to governance in that Nkosi and Exxaro’s CEO, Mxolisi Mgojo, who is also a member of MS333, own about 3% of Exxaro, but have control over a voting block worth 30% of all shares.

Nkosi said that the original community structures through which Exxaro was first empowered remained in place, but he acknowledged that community empowerment was a debate within the company that had not yet been resolved. “Communities are fluid and it’s not clear their lives are enriched by owning shares,” he said.

“As for my voting shares, I don’t know what that [criticism] means. I vote as a block, not as myself, just as Coronation Asset Management votes as a block of shares,” he said.

Generally speaking, it’s expected Exxaro will garner enough votes to ratify the BEE next week, but the firm’s CFO, Riaan Koppeschaar acknowledged the company had not sought irrevocable support for the proposal. The company requires 75% of all those who vote to approve the deal, excluding the empowerment partners.


  1. This is as a BEE canard.
    Mr Nkosi is really being economic with the truth. The facts, contained in a circular :
    1. MS333 cannot vote its interests contrary to Exxaro corporate (management)’s interest, which are NOT necessarily the same. For example, should Exxarro decide to do a rights issue , MS333 , as NewBEECo, will need to go along.
    2. Should the Exxarro shares increase by >50%, Exxarro will buy them from NewBEECo at predetermined price, which inevitably is < R174/s . Why this odd arrangement? Simply because the current BEE shares will be owned by Exxaro, apart from the IDC's 12,3M shares and 21,5M Bookbuild shares. Exxaro Owns 73.2M shares of the 107M shares of NewBEECo. Thats 68% effective ownership of 30% , thus 20,5% of Exxaro Issued Stock. So the independent shareholders need not worry much. Exxaro will mascarade as a 30% BEE company whilst its actually 9,5% IDC owned and 90,5% white-owned.
    3. The true cost of the charade is R280M /yr to be shared by all and sundry rent-seekers going by names such as Based Ba Kopane ( Translated :Women in Unity) , Malibogwe Women Development, Eyabantu Trust , SA Women in Mining Investment, Women in Mining Association. I assure the readers that no matter how long the list of BEE groups, the beneficiaries will be a handful of elites like Mr Nkosi, Mgojo etc < 10 persons! All the other names are just shelf organisations!

    So from an ethical perspectives, the institutional investors have a justified reason to object to this deal and demand proper above board BEE , with clear exits & costs to Exxaro. Furhermore, the lock-up of 10 yrs, that Mr Nkosi is fond of, is rather destined to ensure that the R280M/yr keeps flowing to him & his associates.

    From a share price impact, I just don't understand why there is angst about it. My analysis points to the fact that the debt/shares for Exxaro was neither here no there as the shares were Exxaro treasury's anyway. Furthermore, there will be 20,5% of issued shares , for which the dividends will flow back to the corporate. So maybe a share buy back by another name? There is NO cash-leakage as aforementioned, given that the sale of R2489M worth of 21,5M shares TO OTHERS, via a book-build carried out under the guise of MS333 structure, MAY BE OFFENSIVE TO THE 70% shareholders. But the 70% shareholders must appreciate that should this bookbuild have been issued to them, then the cover of the BEE fronting scheme would have been blown.

  2. Mr Goldspeculator – your insights are very very useful, are you a research analyst or have a blog / columns as I’d ben keen to read more of your views.

    • Dear Alex,

      I am Mrs/Mr/Miss….Just confused !

      I share my thoughts to enlighten my fellow readers, and importantly obtain their views. Keep reading miningmx.com for more of RSA favourite Armchair Mining Critic!

      Best Regards

  3. Dear Alex,

    I believe Mr. Goldspeculator should be defined as a “conspiracy theorist” and he should probably keep his ill-informed critisim to those around his armchair

    • There is no “Conspiracy Theory” being advocated in my analysis. The information is in Exxaro’s own circular & regulatory filings. Furnish your information to prove that i am “ill-informed”.

      Franktly, If i was one of the “BEE Elites” beneficiaries, I will be supportive of the deal.

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