JOHANNESBURG (miningweekly.com) – Platinum mining company Northam on Wednesday concluded a fully funded ten-year R6.6-billion black economic-empowerment (BEE) equity transaction underpinned by a R4.6-billion capital raising, which has the potential to position the JSE-listed company as a fully integrated, fully empowered South African mine-to-market platinum group metals (PGMs) producer at a time of asset disposal in the previously tightly held platinum mining environment.

The innovative transaction, on which new CEO Paul Dunne has been working intensively since taking over the reins of the company from the retiring Glyn Lewis in March, locks in higher-than-required historically disadvantaged South African (HDSA) ownership for at least a decade and provides Northam with a net cash injection of R4-billion to fund its growth plans.

The HDSA will benefit from an immediate R400-million economic benefit and then wait for ten years to receive the final preference share payout.

In between, they will benefit in the same way as normal dividend-receiving ordinary shareholders.

The main shareholder backing is in the form of a public-private partnership of the State-owned Public Investment Corporation (PIC) and the private sector Coronation Asset Management.

“The transaction effectively catapults Northam into the ‘1st division’,” said Dunne in outlining the dual, inter-related transaction that secures a 35.4% HDSA interest in Northam and unencumbered cash to grow the company beyond its existing asset base made up of the developing Booysendal underground mine on the eastern limb of the Bushveld Complex and the long-standing and deep Zondereinde mine on the extremity of the western limb.

“Importantly, all stakeholders will share in the benefits,” Dunne added.

A key feature of this BEE transaction with a difference is the pushing of HDSA ownership beyond the statutory 26% to an effective 35.4%.

Accompanying it is also the unusual feature of an injection of the R4-billion to fund growth.

Northam’s anchor PIC and Coronation shareholders, in supporting the deal, have implicitly recognised the company’s growth potential within a platinum sector that is seeing disposal of deep operations not that dissimilar to Northam’s Zondereinde, which is South Africa’s deepest PGMs mine. 

Northam said that the conclusion of the BEE deal removed the uncertainty that inhibited future fund raising and positioned it well as a potential HDSA partner for further transactions that could deliver growth and value to a broad range of stakeholders.

As a transaction that exceeded the Mining Charter’s minimum equity requirements and gave immediate economic value transfer to broad-based HDSA participants, it had Department of Mineral Resources support.

All Northam shareholders will have the right to participate in the transaction funding on a pro rata basis and all the funding for the transaction has been fully secured by the PIC and Coronation.

Further upside is expected off Northam’s own balance sheet to which meaningful empowerment participation had been added.

Following the unbundling by Tokyo Sexwale’s Mvelaphanda Resources of its Northam shares in 2011, the black-controlled Afripalm and Mvelaphanda Holdings (Mvela) became Northam’s major direct BEE shareholders with 26%.

But as a result of a collapse of the Northam share price, both Afripalm and Mvela found themselves in breach of covenants under their respective BEE financing arrangements and consequently both disposed of a significant portion of their Northam shares, which eroded the company’s BEE shareholding below statutory levels.

That shareholding is now lifted higher than ever with the latest value-accretive deal, which takes place within acceptable risk parameters and which allows shareholders, employees and the community to be part of the ownership structure.

To consummate the deal, Northam will issue 112 195 122 new ordinary shares to a special vehicle representing all the HDSA parties and representing 22% at R41 a share, totalling R4.6-billion.

The subscription price represents a premium of 9.3% to the 30-day volume weighted average price of a Northam share as at October 20.

The HDSA participants will acquire an additional 47 710 331 existing ordinary shares from the PIC, also at R41 a share, totalling R1 956 123 571.

The PIC, which had previously acquired these shares with the intention of furthering the objectives of BEE at Northam, has elected to use this transaction to achieve its original aim.

As a result of these transactions, HDSA shareholders will hold a 31.4% collective interest in Northam’s issued share capital. Combined with the existing HDSA profit share of 4% by way of the Toro Trust, the total HDSA benefits in Northam will rise to 35.4%, providing long-term headroom.

Northam will facilitate the issuing of 159 905 453 new HDSA listed preference shares with an aggregate value of R6.6-billion by the HDSA shareholders to finance the subscription for and acquisition of Northam shares.

Eligible Northam shareholders will be able to subscribe for BEE preference shares at an issue price of R41 a share.

HDSA participants will realise immediate economic benefit of R400-million in order to ensure immediate economic participation by the HDSA shareholders and the ten-year lock-in.

Transaction completion is expected in first or second quarter 2015, when Northam will receive an unencumbered R4-billion.

The special vehicle BEE company - the Zambesi Platinum Consortium - will involve employees with 3% ownership through an employee share ownership plan (Esop) trust, in addition to the existing Toro Trust, which remains in place. The mechanics of the Esop trust will be put in place in the coming months, in consultation with organised labour, which includes both the National Union of Mineworkers and the Association of Mineworkers and Construction Union.

A Zondereinde Community Trust will be set up for the benefit of communities in the vicinity of the Zondereinde mine, near Thabazimbi, and a Booysendal Community Trust will be set up for the benefit of communities in the vicinity of the Booysendal mine, located near Mashishing.

The trusts will hold a 5% interest in Northam and engagement with the various communities will be undertaken in the coming months to establish ways of ensuring maximum and broad-based benefit.

The Atisa Consortium, led by Northam chairperson Lazarus Zim, the company’s previous empowerment partner through Afripalm, will hold 4%.

The Mpilo Resources Consortium, led by former Nafcoc CEO and Sakhumnotho Group head Sipho Mseleku, will hold 9.4%.

The Malundi Consortium, led by Mosomo Investment Holdings CEO Brian Mosehla, will hold 4%.

The Khumalela Women’s Consortium, led by acting PetroSA chariperson Brenda Madumise, will hold 6%.