MVELAPHANDA Resources (Mvela Resources) surprised us again last week, announcing it may not unbundle its shares after all.
Rather, its interest has now been piqued by a potential acquisition, the details of which are secret and have therefore had a few of us playing guessing games.
I don't think Mvela Resources was particularly looking for a deal, so I believe the potential acqusition is a function of these financially straitened times ie a company in need of funds. But what or whom?
The elbow-nudging is that the target is unlisted, or at least a business unit of a very large company. This would explain why the company Mvela Resources is considering buying was not required to issue a cautionary to its shareholders.
Secondly, I'm informed that the acquisition helps remove the pyramid structure which now seems to be the only real reason Mvela Resources was to delist from the JSE in the first place.
Mvela Resources owns 62% of another listed company, Northam Platinum, a fact that sees it fall foul of a key JSE diktat: that shares in another unlisted firm account for no more than 50% of the holders' market capitalisation, or a quarter of its earnings.
This acquisition, however, will greatly lessen Mvela's reliance on Northam for earnings and market value.
It's also unlikely the acquisition is less than R1.5bn, or Mvela wouldn't be required to take the deal to shareholders.
That's in terms of another JSE regulation that states any acquisition less than 25% does not require shareholder support.
This one does and will be put to shareholders, pending a due diligence under way, in about eight weeks, I'm told.
And then there's the all-important black economic empowerment (BEE). With a new cabinet in place, and a review of South Africa's BEE in mining imminent, you simply can't mess with state-backed business imperatives.
When all's said and done, Mvela is 51% black-controlled. This deal wouldn't dilute that shareholding, so the acquisition itself must have considerable empowerment.
Local acquisition?
I'm also informed Mvela Resources won't require exchange control relaxation, so the acquisition is in South Africa. And the word is that it's not platinum either.
Mvela officials are, in fact, excited by the fact that the deal - if it comes off - will be 100% owned and "make us like ARM" (African Rainbow Minerals), which I construe to mean diversified.
If I'm being led correctly, Mvela is looking at an unlisted, South African, empowered company in a commodity it doesn't already own (platinum, gold and diamonds) with a market value of between R1.5bn to, say, R3.5bn tops.
Viewed through this lens, a number of potential acquisitions fall away. Metorex, for instance, which is trading at a market cap of R1.63bn. And Aquarius Platinum.
When I first heard of Mvela's deal, I also initially thought it might be a reverse takeover by the R14bn Aquarius Platinum.
Its devilishly crafty CEO, Stuart Murray, has been devilishly quiet recently, always a sign of trouble brewing. (Yet sources insist it's not platinum. Still, I wonder.)
There are points of clarity, however, on some of Mvela's strategy. It will resume the sale of its Gold Fields stake, now consisting of 39 million shares.
Mvela has thus far sold 11 million Gold Fields shares but stopped the exercise when the gold stock dipped below R100/share. Also, the financing of Northam Platinum's Booysendal project will continue.
Personally, I hope Mvela Resources pulls this acquisition off. I was disappointed to hear last year what I regard the pioneer of empowerment in South Africa disappearing into the ether, either via the now failed takeover by Impala Platinum or the latter strategy of unbundling.
But I also have sympathy with its shareholders. Mvela Resources was forced to issue an update of its cautionary last week explaining why, when an acquisition cropped up, it wouldn't necessarily interfere with other aspects of its strategy.
Mvela Resources has chopped and changed direction lately after years of fruitlessly chasing one strategy where it wanted to be the BEE firm of choice. It doesn't make for great confidence in the leadership that there's been so much vacillation on tactics.
The best antidote to market scepticism, however, would be a decisive, easy-to-understand, value-adding transaction. We wait in hope.
- Fin24.com