Empowerment’s grand failure

[miningmx.com] — I FIND myself hostile to Mvela Resources’ plans to sell to Impala Platinum, but it’s not an easy position to defend. After all, this is capitalism and I’m all for the system.

This is the proposed deal in which Impala is to bid R21bn in shares for Mvela Resources and Northam Platinum, with Mvela unbundling Northam Platinum first.

One of the reasons offered for the deal is Mvela Resources is having difficulty funding Booysendal on its own in these difficult cash-strapped times. Banks won’t lend to each other, credit’s hard to find etc and so forth.

But the reason I’m disaffected is that I thought with Northam in tow, Mvela Resources was finally forging a bright independent future for itself. In the context of the tight ownership structure in SA’s platinum market, this is a good thing, right?

As originally conceived, Mvela was the self-styled pioneer of the SA empowerment drive. It was the first to list, the first to really do a meaty deal – purchase of 15% of Gold Fields – the first to set out a strategy whereby it would use its empowerment status to create a new powerhouse etc etc.

Even after completing the much-belated purchase of the Booysendal project, the talk was all big picture stuff.

Here’s Lazarus Zim, Mvela’s chairman, effusing about the company’s high-profile purchase of Northam Platinum in September last year:

“This is a landmark transaction in the platinum sector. [It will] result in the creation of the fourth largest, independent and black-controlled South African PGM producer, controlling the precious metals pipeline from mine to market.’

One wonders how Anglo American views Impala’s proposed deal. Slightly agog perhaps? Let’s not forget CEO Cynthia Carroll’s enthusiasm for the sale of Booysendal and a stake in Northam to Zim’s Mvela Resources. Here she is, sharing the podium with Zim a year ago in Johannesburg:

“[It] will fundamentally transform the South African platinum industry through the creation of two major independent HDSA managed and controlled PGM producers.’

Over and above this, I’m surprised at the equanimity with which the SA government accepts all of this? It has said that as long as Anglo Platinum and Gold Fields get their empowerment credits, the deal should proceed. That’s so out of character.

And what about the fairness of removing Northam’s smelting capacity which could be construed as uncompetitive behaviour? Perhaps we’ll hear more.

For SA and the minerals and energy department, there’s trouble in the prospect of Mvela disappearing because it’s at a time when Government is to weigh up the efficacy of its mining charter, now approaching it’s critical fifth year in which a self-appraising review is being sought. In this regard, I think the disappearance of Mvela is poignant.

For Impala Platinum and its CEO, David Brown, this is a great, keel-over, thigh-slapping feast of a deal. It’s not every day you get to scoop up a once-prized jewel in the Anglo Platinum crown, and make it your own.

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How he must relish this moment while, in spectacular contrast, the furrow of Anglo American’s collective brow deepens.

Finally, what of Mvela Resources management?

Impala’s offer was unsolicited, it said. And I guess it must act in the interests of shareholders, although let’s not forget 51% of the voting power sits with two people, Lazarus Zim (Afripalm Resources) and Tokyo Sexwale (Mvela Holdings).

Perhaps this is partly about Mvela management’s failure to deliver? Otherwise, why not sit out the credit crisis? Sure, the platinum price has shed $1,200/oz in seven months, and the market has become (better?) balanced, but it’s still a robust one.

Meanwhile, China remains the fundamental underpin for what remains a very attractive resources industry longer term; one from which we may have to absent Mvela Resources because it’s chosen to adopt a very short-term horizon.