Samancor UK listing indicts excon

[] — SAMANCOR is a name that will conjure up and rekindle many happy memories for those that have been investing on the JSE for many years. It is a company that can truly claim to have created a great many wealthy South Africans that bought the share and held onto them through the economic cycles over the decades.

Samancor was established in 1926 and listed on the JSE a year later in 1927 as SA Manganese Ltd and merged with Amcor in 1975 giving rise to the present name (an abbreviation of SA Manganese Amcor).

A little historical anecdote reveals that SA Manganese was formed to mine manganese ore in the Northern Cape and Amcor was established in 1937 to exploit mineral deposits for the steel industry and to process those minerals into ferroalloys.

Samancor was listed on the JSE for 71 years until 1998 when the minority shareholders were bought out in a scheme of arrangement involving a cash payment of R45/share by the then majority shareholders, Billiton and Anglo American, resulting in the de-listing of the company in December 1998.

From the ashes of delisting…

At that time Samancor consisted of chrome and manganese operations, stainless steel investments, and an exclusive distribution agreement with an offshore marketing structure held wholly and directly by BHP Billiton and Anglo American.

A new chapter in the Samancor history began towards the end of 2004 when bids were invited for the purchase of Samancor Chrome. The successful bidder wading in at $469m was the Kermas Group, which officially took over the operations from the effective date of the sale, June 1 2005.

Now, little more than a year later, Samancor Chrome appears set to soar like a phoenix from the ashes of delisting and the obscurity ensured from its status as an unlisted public company.

Having jumped over all the regulatory approval hurdles, the new owner, the British based, Kermas Group recently announced that it was considering the possibility of re-listing the company within the next three years as it seeks to raise capital towards doubling ferrochrome production capacity to around 2.4 million tons a year by 2015.

Not pure South African anymore

Samancor Chrome is no longer a purely South African company, its South African chrome and manganese assets – situated mainly in the Northern Cape – are complemented by assets in Australia’s Northern Territory and Tasmania.

The listing is envisaged for the usual reason, to raise capital and then create a secondary market for trading the instrument.

It is too early to speculate how much Kermas intends to raise through the listing of Samancor Chrome, but talks are already being held with financial advisers about the potential transaction, that could involve as much as $1.5bn.

Samancor Chrome vies with Xstrata for the title of the world’s biggest ferrochrome producer and South Africa is the source of three-fifths of the world’s ferrochrome. Samancor has chrome-ore reserves of 650 million tons, ostensibly the world’s largest.

Capital raising

It seems that the company will have its primary listing on the London Stock Exchange and a secondary listing on the JSE.

This is an indictment of the continuation of exchange control measures in South Africa that have to be one of the major reasons that the JSE is unable to compete in capital raising exercises for mining ventures with cities such as London and Toronto.

Kermas projects a very positive demand picture for ferrochrome, driven by ongoing demand for stainless steel, its major customer. The expansion plans are further good news for South Africa’s non-gold mining industry, which continues to benefit from the world’s seemingly insatiable appetite for industrially relevant mining products.

Kermas SA, through its Samancor Chrome subsidiary, has 12 chromite mines in the country that mine 3.2 million tons of chrome ore and have smelting capacity to produce 1 million tons of ferrochrome a year.

Second plant in Mpuma

In order to achieve the conversion of its South African mining rights to comply with empowerment legislation Samancor Chrome entered into a BEE with the Batho Barena empowerment consortium, which is headed by former trade and industry director-general Alistair Ruiters, that bought a 28% stake in Kermas SA.

The planned $1.5bn expansion is made up of $1.3bn for new mines and smelting operations, $100m to increase capacity at existing operations and $100m for a chrome chemical project. The $1.3bn greenfields expansion would take place in three phases and would add 3,000 direct smelter and mining jobs.

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Kermas SA is planning to build a second ferrochrome furnace at Middelburg in Mpumalanga within the next two years at a cost of between $60m and $70m. It is hoped that environmental approval from the government would be received by the end of September for the second furnace.

Investors will rejoice in the opportunity to invest directly in chrome again, who knows the listing may well take place on the 10th anniversary of the delisting. It is second prize that we will only have a secondary listing, but this is preferable to no listing at all!