Mvela Resources, Northam, Implats announcement. Pine Pienaar – CEO, Mvelaphanda Resources

Impala is to acquire Mvela Resources and take out Northam as well. Clyde Rossouw comments.

ALEC HOGG: In the studio today is Pine Pienaar, the beneficiary of a R25bn deal - Mvela Resources deciding to do the transaction today with Impala. It has been an open secret since the cautionary was issued on 12 September, but you guys have come to terms pretty quickly.

PINE PIENAAR: Yes, Alec, this was an unsolicited approach by Impala. We did also receive other unsolicited approaches, and it was our duty as the management and board to evaluate it. And at the end of the day the Impala offer is quite compelling - not only in value, but in terms of other transformation issues that we need to be sensitive about.

ALEC HOGG: People at Anglo American, though, must be a little bit irritated. Just to sketch a little bit of the history - Anglo American sold to Mvela, or Mvela's subsidiary, Northam, some fabulous platinum assets at a 30% discount, with the intention of it being a BEE transaction. That asset called Booysendal is now going to be going into Impala at, clearly, a  very good price. Have you had any calls from Anglo to say, "Hey, this isn't what we intended"?

PINE PIENAAR: Alec, yes, we did engage with Anglo Platinum. Obviously there has to be, as expected, quite a lot of emotions, but if we contextualise this in terms of empowerment going forward, first of all with convergence credits at Anglo Platinum received in terms of this transaction, I think, in this current global market that you just discussed with Clem Sunter and so forth, the sustainability of black empowerment is at risk in the mining industry - I think quite significantly. With this transaction we ensure sustainability, we also ensure that there is still significant and meaningful black participation approximating 20% in Impala post the transaction implementation. So it's a risk diversification to ensure empowerment is sustainable in South Africa.

ALEC HOGG: And that Booysendal deposit - how much would it cost to bring that to account?

PINE PIENAAR: In total approximately R7.4bn if you optimise it in terms of its striking. Obviously in this market the cost of capital or borrowing is going up with where the markets are, so I think this also ensures job creation in South Africa.

ALEC HOGG: And you as Mvela would have struggled in this environment to raise, say, R7.5bn to bring a new mine on stream?

PINE PIENAAR: I wouldn't say we would struggle, but obviously Northam is a good cash-generative asset. We would have had to go and borrow some money over the asset itself, and in combination with the cash flow out of Northam maybe have to go to the market with equity-raising, which you don't want to do in this market, obviously. So it would be a challenge. If this transaction is not approved by shareholders obviously we go ahead as we speak with the planned development of Booysendal.

ALEC HOGG: Your chairman, Lazarus Zim, is going to everybody getting R50m out of this deal for cancelling what looks like a rather strange agreement, one that he would have to bring new mining options to Mvela. How does that R50m value stack up?

PINE PIENAAR: That value was determined based on - obviously he's locked in to 2014 in the current arrangement with Mvelaphanda Resources, and he was compelled to bring any mining opportunity that is befalling Afripalm, his company, to Mvela Resources. And based on a formula there would be new shares issued to him for the excess above DCF [discounted cash flow] at a certain cost to company, and that benefit he has foregone now into the future. For that consideration.

ALEC HOGG: Pine, isn't it a bit strange to you? Here's a guy who was managing director of Anglo American SA, he brought a juicy asset from Anglo American SA into Mvela. Mvela's now sold it on to Anglo's biggest competitor in the platinum field, and he gets a R50m payout.

PINE PIENAAR: I think we must see the R50m in the context of headline earnings, giving up a right that is contractually due to him, and was approved by Mvelaphanda Resources when the transaction was concluded 12 moths ago with Afripalm, and approved by the shareholders, and is in consideration of that right foregone.

ALEC HOGG: Clyde Rossouw is with Investec Asset Management. Well, Clyde, it's a fabulous deal if you are looking for a South African platinum champion.

CLYDE ROSSOUW: Ja, good evening Alec. I do think there are a lot of interesting angles on this transaction. Clearly I think Impala gains access to growth, or another opportunity for growth. Most of their reserves were previously sitting in Zimbabwe, so this gives them access to a very interesting project in the form of Booysendal. Impala clearly has the cash. They are still running with an ungeared balance sheet, so the transaction makes sense from that point of view. Impala also inherits the black empowerment status of having taken on the Mvela shareholders. So there's clearly a win-win situation there. The one question I suppose one should ask is what happens to the rest of the assets? Obviously under Mvela clearly the 15% stake in Gold Fields South Africa will have to be liquidated, and the market will unbundle the shareholders in the market in an environment which is not so rosy.

ALEC HOGG: A very good point, Clyde, because the share price of Gold Fields took a real tumble today, down 11%. What happens to it, Pine?

PINE PIENAAR: Obviously the transaction is structured in such a way that all the assets of Mvelaphanda Resources are part of the disposal to Impala. If you recall, Mvelaphanda Resources have always maintained that at the end of the day it is our strategic intent to become operational, to take out the...

ALEC HOGG: Are you going to sell the Gold Fields stake?

PINE PIENAAR: At the end of the day that would have been, because we would have also used the net proceeds on that for the development of Booysendal. So it will be up to Impala to decide, but Impala have indicated that it's non-core assets in their portfolio.

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