Exxaro says BEE deal is ‘appropriate’ amid Mining Charter uncertainty

Cape Town – Exxaro [JSE:EXX] believes its new black economic empowerment (BEE) restructure will be “appropriate” amid increased uncertainty over the new Mining Charter.

Mining firms lost over R50bn in market value within a day following the announcement of the Mining Charter, which was gazetted without any input from the Chamber of Mines, which represents 90% of South Africa’s mining firms.

• BLOOMBERG: Banks balk at risk of funding Mining Charter deals

The Mining Charter – announced this month by Mineral Resources Minister Mosebenzi Zwane - will force mining firms to restructure their ownership to ensure they have 30% black ownership within 12 months. It will also require a 51% black shareholding in all new prospecting licences.

“The recent release of the reviewed broad-based black economic empowerment charter for the South African mining and minerals industry has created increased uncertainty for South African mining companies,” Exxaro said in a statement on Monday.  

“However, as Exxaro has been pursuing the replacement BEE transaction for more than 18 months, it firmly believes the implementation of the replacement BEE transaction to be appropriate as it will further contribute to transformation in the South African mining industry in a responsible manner.”

"Exxaro will, through the Chamber (of Mines), continue to engage with the DMR (Department of Mineral Resources) to address industry and market concerns on the new Mining Charter," Exxaro finance director Riaan Koppeschaar said in a separate statement on Monday.

The Chamber of Mines is set to challenge the new rules in court.

The mining company, which is transforming itself from a black-owned company to a black-empowered one, was updating shareholders on the restructure process.

When Exxaro was formed 10 years ago, Main Street 333 (MS333) was created and introduced as the controlling (50.19%) black economic empowerment shareholder of Exxaro.

Main Street 333 shareholders were only able to dispose of their shares on November 28 2016 after agreeing to unwind the BEE structure, with Exxaro repurchasing shares worth R3.524bn.

On Sunday, Exxaro, MS333 and the Industrial Development Corporation (IDC) agreed to two special purpose vehicles to hold ordinary shares in Exxaro and agreed to:

 - a framework agreement setting out the framework within which the MS333 unwind and the consequential implementation of the replacement BEE transaction will take place

 - a relationship agreement detailing the terms and restrictions of the replacement BEE transaction over the transaction term.

 -  the state-owned IDC will have a 11.4% stake (worth R1bn) in the new BEE structure. The replacement BEE transaction will be worth R8.7bn.

“The reinvestment of Exxaro shares by MS333 shareholders, including the IDC, required to effect the replacement BEE transaction will be enabled by the MS333 unwind,” Exxaro said.

It is anticipated that the second repurchase and the replacement BEE transaction will be concluded in the fourth quarter of 2017, it said.

SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inbox