Victory for South African black empowerment.

Author:Ford, Neil
Position:Mining - Mergers and acquisitons
 
FREE EXCERPT

A complex merger deal has created South Africa's biggest mining company owned by blacks. This is a major breakthrough in challenging the domination of white-owned businesses in the country. NEIL FORD reports.

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The South African merger of African Rainbow Minerals, Anglovaal and Harmony has finally created a black empowerment enterprise (BEE) capable of challenging the country's established mining companies. The government's empowerment drive has thus far had little impact on breaking down the established regime in most sectors but the merger--which has created South Africa's biggest mining company owned by black South Africans--could mark a major breakthrough.

The merger was technically complicated, partly in order to comply with government targets on black ownership. Harmony has purchased a 42.2% stake in Anglovaal's gold division at a cost of R2.89bn, ($454m) while African Rainbow Minerals (ARM) has taken overall control of Anglovaal. ARM and Harmony, which is already the world's fifth biggest gold producer, will now come together in a single group led by Patrice Motsepe, the current head of ARM. Apart from gold, the new company has significant interests in nickel, platinum and ferrous metals.

Just as black individuals were held back from making the most of their talents in many parts of the apartheid economy, so companies owned by black South Africans found it almost impossible to make it big. The government has therefore set targets on the proportion of each sector to be controlled by mainly black owned companies.

The mining sector empowerment charter was drawn up in 2002 but the original targets caused panic in the markets and the share prices of the country's traditional mining giants tumbled. Revised targets were set and both South African and foreign mining companies operating within the country are now required to achieve a minimum of 15% non-white ownership within five years and 26% within 10 years.

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Given the time that it takes to develop a mine, the targets are most likely to be achieved through the purchase of stakes in existing firms by BEEs, or the formation of joint ventures between BEEs and other mining companies. In June this year, Gold Fields sold a 15% stake to another mining BEE, Mvelaphanda Resources, for R4.1bn ($625m) in order to comply with the five year ruling. The head of Mvelaphanda Resources, Tokyo Sexwale, now sits on the Gold Field's board as a non-executive director.

The 10 year...

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