Anglo holds choice iron cuts after Kumba carve-up
October 16, 2005
By Nicky Smith
Johannesburg - Anglo American's much-anticipated restructuring of its Kumba Resources holdings this week has created the country's largest empowerment company and secured an attractive iron ore future for Anglo.
Anglo's rationale for the R9.2 billion deal was to secure as much of Kumba's iron ore assets as was decently possible while complying with mining legislation and a promise it made.
Anglo had been under pressure to comply with an undertaking it gave to the government in 2003 that it would not hog the country's iron ore assets and would dilute its holding in Kumba from 67 percent to below 50 percent.
Simply put, the deal splits Kumba into two new companies.
The first is Kumba Iron Ore (KIO), which will have a 74 percent stake in Kumba's iron ore assets and is valued at R14 billion. It will, in time, be listed on the JSE. Anglo's direct stake in KIO will be about 66.2 percent.
The other new company, Newco, holds the balance of Kumba's assets, which are comprised of heavy minerals, base metals and coal, as well as a direct 20 percent stake in the iron ore assets. Unlisted Eyesizwe Coal has been injected into Newco and is expected to play the lead role from a management point of view.
Added to this Newco has the option of buying Namakwa Sands and a 26 percent stake in the undeveloped Gamsberg zinc project from Anglo.
Newco, which will have a value of R16 billion, also has new empowerment shareholders which will hold a direct 58 percent stake.
Shareholders in Kumba will get a one-for-one share split in both companies, entitling Anglo to a 66 percent interest in Newco. However, to introduce these new black shareholders onto the share register Anglo has diluted its stake down to 17 percent.
Northern Cape communities and an employee share ownership plan will each get a direct 3 percent stake in the iron ore assets, while the Industrial Development Corporation will hold 14 percent of KIO.
Through its direct holding in KIO and its stake in Newco, Anglo will control the iron ore assets with an effective interest of just over 52 percent.
But should Newco need to raise capital, Anglo's stake may be diluted to below 50 percent.
Lazarus Zim, Anglo American South Africa's chief executive, avoided giving definite answers on the company's commitment to diluting its stake.
He would only commit to saying the company would continue its dialogue with the government.
KIO will be the cornerstone of Anglo's iron ore ambitions. Iron ore prices have enjoyed two consecutive years of record increases. Because it has been underexposed to the metal, Anglo has been punished by the market, underperforming its global peers.
Efforts to make it give up any more than it already has will be met with resistance.
There were mixed reactions to the transaction. Some criticised the deal because Anglo had kept the lion's share of the attractive iron ore assets, while leaving the newly created empowerment company with only a direct 20 percent exposure to the local iron ore operations.
However, analysts noted, there were still significant growth opportunities for the local operations, which are all in the massive ore fields in the Northern Cape, and Newco would participate directly in this expansion.
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