Richards Bay Minerals signs R4,5bn black empowerment deal

JOHANNESBURG (miningweekly.com) - Richards Bay Minerals (RBM), a 50:50 joint venture (JV) between BHP Billiton and Rio Tinto, on Thursday announced the final signing of agreements for its 26% broad-based black economic-empowerment (BBBEE) deal, worth some R4,5-billion.

The deal represented one of KwaZulu-Natal’s largest transactions to date.

RBM would now be fully empowered in accordance with the South African Mining Charter, ahead of the required empowerment date in 2014.

RBM said it would now submit its mining rights conversion application to the Department of Minerals and Energy (DME).

“These agreements finalise years of work on partner selection, community engagement, negotiation and finalisation of legal agreements with all stakeholders,” RBM said.

RBM said the funding arrangements for the deal were being finalised by RBM’s existing shareholders and the BBBEE consortium.

RESTRUCTURE AGREEMENTS
At the same time as entering into the empowerment transaction documentation, Rio Tinto and BHP Billiton entered into agreements to restructure the JV, while maintaining their respective interests in RBM.

The miners agreed that Rio Tinto would give BHP Billiton a put option over BHP Billiton's 37% stake in the restructured RBM, calculated on a fair market of RBM at the time of exercise.

Rio Tinto said that BHP Billiton’s interest in RBM was currently valued at about R9-billion.

This meant that Rio Tinto had first option to buy the 37% stake in RBM from BHP Billiton, should it wish to sell in the future, explained Rio Tinto spokesperson Jean Chawapiwa-Pama.

In addition, at the same time as the restructuring of RBM, BHP Billiton and Rio Tinto have agreed to settle arbitration proceedings between them concerning the JV.

As part of this process, Rio Tinto has agreed to pay $19-million to BHP Billiton out of the future sales commissions paid to Rio Tinto as sales agent for RBM.

“The previous shareholder disagreements have been resolved, and ironed out. Going forward its going to be a good deal for everyone,” said Chawapiwa-Pama.

BBBEE TRANSACTION DETAILS
RBM’s current shareholders would facilitate the funding of the equity acquisitions by the incoming BBBEE shareholders. The four host communities would not be required to contribute upfront equity for their stake in RBM.

An extensive BBBEE partner selection process was conducted in 2007 and seven lead investor companies were selected.

These were: the Imbewu Consortium (3% stake in RBM); Matasis Investment Holdings (3%); Gade Investments (2,02%); Sambulo Investments (2,02%); South African Woman Alliance (1,44%); Ungoye Investments (0,86%); Bingelela Investments Consortium (0,85%).

Host Communities, made up of the Sokhulu, Dube, Mbonambi, and Mkhwanazi communities also received a significant 10,8% stake in the company, while an employee share participation scheme (ESPS) received a 2% stake in RBM.

The interests of the communities and lead investors would be held through a special purpose company (BEE Holdco) created specifically to hold their interest in RBM. BEE Holdco is chaired by JB Magwaza, chairperson of the Imbewu Consortium. The lead investors would hold a 55% interest in BEE Holdco with 45% held by the communities.

“A significant feature of this transaction is its focus on community development. A community development trust for each community, through which the communities will hold shares in RBM, is to be established.  A Public Benefit Trust (PBO) will also be set up by each community for the purpose of facilitating development projects in each area,” RBM said in a statement. 

RBM has undertaken to make once off endowments of R17,5-million to each participating community’s PBO trust on completion of the transaction.  Trickle dividends and Corporate Social Investment (CSI) of R3-million a year would reportedly also flow to each community.  This was in addition to RBM’s existing CSI programs.

The Sokhulu and Dube communities have signed the transaction agreements, and iscussions with the Mbonambi and Mkhwanazi communities were ongoing, with a view of incorporating them formally into the transaction.  “In the interim, the shareholding earmarked for these communities have been reserved and warehoused in a special trust,” said RBM.

The transaction will become effective upon the fulfilment of the remaining outstanding conditions precedent, which includes finalisation of the funding agreements, and approval by the South African Competition Authorities. This was expected to be in April 2009.

All RBM’s 1750 permanent employees would participate in the ESPS equally - regardless of race or seniority. A special class of shares would be created for issue to the ESPS and these shares would be entitled to a priority dividend distribution. The dividends would be distributed equally to all qualifying employees.

“RBM will continue to be a major contributor to the KZN economy. RBM paid nearly R760-million in tax during 2007 and spent R3,1-billion with suppliers, many of whom were small black owned enterprises. In 2008, R1,2-billion was spent procuring from BEE ventures and R81-million was spent with businesses from the four communities. RBM has been a key generator of employment in KZN and will continue to do so over coming decades,” said RBM MD Cameron McRae.

RBM involves the mines and processes titanium-bearing ores to produce titanium dioxide feed stocks, associated minerals and various co-products and by-products.