Implats lifts veil on “in principle’ Zim deal

[] – IMPALA Platinum (Implats) has provided details of an
“in principle’ agreement to sell 51% in listed subsidiary Zimplats to Zimbabwe’s
National Indigenisation and Economic Empowerment Board (NIEBB), including a
provision that Implats be compensated for an earlier deal with Government, which
was valued at $153m in 2006.

The sale of shares in Zimplats, currently 87%-owned by Implats, is in terms of
Zimbabwean government legislation that foreign companies cede control of local
assets to the NIEBB, the entity tasked with indigenisation, rather than the country’s
mines ministry.

Implats has in the past parried calls for the sale of 51% in Zimplats, as it had in
2006 earned credits for selling 36% of some 140.8 million ounces of platinum-bearing
properties in Zimbabwe. It wanted recognition of this deal.

David Brown, CEO of Implats, said in a conference call that the $153m consideration
for the sale of these minerals at the time remains an appropriate valuation today. “I
think it is very fair,’ said Brown, who added that the preference for the payment
would be cash.

Crucially, only after this transaction was completed could proposals for the sale of
51% in Zimplats be triggered, he said.

In terms of the proposal, 10% in Zimplats would be sold on a vendor-financed basis
to a community-based fund, which would repay the consideration through dividends. A
similar financing structure for an additional 10% in Zimplats would be used to create
an employee share ownership programme (Esop) for Zimplats employees.

The final element of the proposal is for Implats to sell 31% in Zimplats to the NIEBB
in return for a cash consideration calculated at “an appropriate value’. Equally
important in Implats’ proposal to the NIEBB – which was accepted earlier this week –
was that the 31% stake would be “dilutive and contributory’. This means the new
shareholder could be diluted if it were unable to follow its rights in the event of a
capital call for various mine expansions.

Brown suggested that a phase three development of Zimplats’ asset, which includes
processing facilities, could cost $1bn. It was possible that the stage three expansion
could be taken to Implats’ board in the 2013 financial year, although this would turn
on how quickly currently indigenisation discussions were completed.

Said Brown: “We just have to go with the flow on how long this will take. There will
be vigorous discussion [over value]’. A technical committee would be formed to
negotiate the “appropriate value’ at which the 31% stake in Zimplats would be sold,
but it’s thought valuations used in Implats’ November submission on indigenisation
might be suitable. He declined to detail these submissions.

Brown said vendor-financing would not be provided to the Zimbabwean government,
and that the deal would ensrhine a principle of “once empowered, always empowered’.
This would protect Implats against further pressure to sell more shares in Zimplats in
the event the stake owned by the Zimbabwean government was diluted.

Brown also said management control of the Zimplats mine would remain with the
existing team.

The clarity provided by Implats paints the company in a stronger position than first
realised. Commenting on Implats’ earlier, somewhat vanilla announcements, Brown
said: “The announcement was vague but we wanted to go with something that was
not offensive to both sides [Zimbabwean government]’.


Cash generated by Zimplats while the indigenisation negotiations were underway
would be pumped into Zimplats’ phase two expansion programme. Dividends would be
directed to Implats until the indigenisation deal was complete.

There were other complexities, however. One is a Zimbabwe government proposal
that royalties payable by Implats double to 10% a year from the current 5%. Implats
is already engaged in litigation with the Zimbabwean government, which claims
Implats has not paid previous royalties. Brown, however, said the Zimbabwean
government might take a different view of royalties when its communities and
Zimplats employees were shareholders. “They would also get screwed,’ Brown said.

Similarly, a high ground-rental proposal by the Zimbabwean government – effectively
a rental fee for surface-property rights – might be reviewed. In terms of this duty, the
Zimbabwean government has proposed levying $48.5m on Zimplats for its 48,500
hectare property from the current level of $45,000.