Sacco wins in Assmang delisting

[] — THE proposal to make Assmang a 50/50 subsidiary of Assore and African Rainbow Minerals (ARM), and then delist it, will bring to an end decades of irritation caused by the previous agreement between Assore and the former Avmin – now ARM – over the running of Assmang.

One of the fastest, guaranteed, wind-ups in South African mining journalism was for a financial reporter to refer to Assmang as a subsidiary of Avmin in an article on the company.

Assmang, of course, was a subsidiary of Avmin – and is now a subsidiary of ARM -because Avmin held 50,3% of the stock. Assore only holds 46%.

But you were guaranteed an immediate, pained phone call from Sacco or one of his henchmen to the effect that Assmang was not a subsidiary of Avmin despite the equity position. According to Sacco that was because it jointly managed Assmang with Avmin through a partnership agreement.

Well, sort of. Assore did the marketing of Assmang’s production. Avmin ran the mines but Sacco claimed input into the decision-making on the mining side.

One thing was certain. There was no love lost between Sacco and former Avmin CEO Rick Menell. The schism between the two became abundantly clear in the disagreements they had over whether Assmang should team up with Kumba over the development of their respective iron ore reserves in the Northern Cape.

Menell wanted to combine the operations. Sacco did not. Sacco won.

It’s surely no co-incidence the new arrangement has been negotiated over the past year with Andre Wilkens as CEO at ARM. Particularly as it seems discussions on changing the management arrangement started some six years ago.

So Assore is now bidding for the shares in Assmang not already owned by ARM and is offering R2,600 a share which is a 28,6% premium on the 30 day, volume-weighted average Assmang share price of R2,022.

Wilkens says ARM will sell down its holding to 50% so that Assmang will be owned equally with Assore and will then be delisted from the JSE.

What’s in it for ARM is a modified joint control agreement which has been negotiated with Assore and will be implemented once the scheme becomes unconditional.

According to Wilkens, Assore will retain the rights to market Assmang’s output but decisions on marketing will be now be made in Assmang’s operations committee. That means ARM at least gets to make some input to the decision making process on the marketing side.

There’s also some more money in it for ARM in terms of fee income for its line management responsibilities at Assmang as well as the implementation of new capital projects.

Assmang executive director Jan Steenkamp points out that ARM’s fee income had dropped sharply in relation to the fee income that Assore was earning in commissions from selling Assmang’s products. Not only had the group’s sales volumes risen but prices of commodities, in particular iron ore, had gone through the roof.

While there was never the intention that the two flows of fee income should be equal the new arrangement will improve ARM’s relative position.

Wilkens says the deal will create a better partnership with more flexibility which will be positive for both sides. “This is the best way forward and we will be working hard to build on the relationship.’

Sacco could not be reached for comment last night but, somehow, I suspect I will be getting a phone call this morning.