JSE-listed cement and lime producer PPC has made further significant progress with its capital restructuring by reaching an agreement to sell its wholly-owned lime business to investor consortium Kgatelopele Lime for R515 million.
In terms of the agreement, the rights, benefits and advantages of PPC Lime transfer to Kgatelopele Lime on April 1, with the divestment expected to reach a close by the end of the year.
The transaction is still subject to a number of conditions precedent, including approval by the Department of Mineral Resources and Energy and the Competition Commission.
The divestment forms part of PPC’s ongoing capital restructuring, and the effective net proceeds of about R500 million will be used to degear PPC’s South African balance sheet.
The divestment is likely to have an impact on any decisions taken by PPC and its bankers about the planned equity raise of at least R750 million.
Shares in PPC rose 9.7% on Monday to close at R3.28.
In terms of the capital restructuring project, PPC’s South African lenders agreed to review the need for a group capital raise if the South African businesses continue to degear towards a sustainable debt metric of around two times earnings before interest, tax, depreciation and amortisation (Ebitda).
The planned equity raise was subject to the resolution of PPC’s $175 million senior debt exposure in the Democratic Republic of Congo (DRC) and was among the undertakings given by PPC to its South African lenders in August 2020.
However, plans by PPC to degear the group’s South African balance sheet were placed under review in March and the timing pushed out six months to end-September 2021 after PPC reported that it had resolved the group’s exposure to the senior debt in PPC Barnet in the DRC through a settlement agreement.
The restructuring of the DRC debt is scheduled to be completed by September 30, 2021.
PPC CEO Roland van Wijnen said on Monday the divestment by PPC of its lime assets, which it considers non-core to its business, is timely and plays a vital role in its capital restructuring strategy to reduce its South African debt.
Van Wijnen said this will support the South African business to reach a sustainable debt-to-Ebitda position, which the South African lenders view as being necessary to remove the need for the originally contemplated rights issue at group level.
“With the announcement of this divestment, we have completed another commitment in line with our communicated restructuring plan,” he said.
“Equally important, we consider Kgatelopele Lime to be well-placed to continue to develop and strengthen the position of the lime business in South Africa.”
Peregrine Capital executive chair David Fraser said PPC has achieved a decent price for its lime business and the transaction makes perfect sense because whatever PPC raises through disposals is money the group does not have to raise.
Read: PPC half-year earnings fall 40.6% (Dec 2020)
Fraser said the transaction should give PPC’s bankers further comfort and believes “the rights issue is now potentially off the table”.
“I really don’t think they have to raise anything off this number with the proviso that the current trading persists,” said Fraser.
“All indications are that the level of post-lockdown trading has sustained itself.”
Fraser said it appeared from Cashbuild’s latest trading update that good trading has continued through to March 2021.
“Cashbuild’s numbers still look good and, given that Cashbuild is close to 20% cement, I can only assume that cement volumes have continued to be relatively robust.
“Every month that good trading continues, PPC generates cash flows out of its core businesses in South Africa. You have almost got a combination of degearing from operational cash flows as well as now from the sale of actual assets,” he said.
Included among the investors in Kgatelopele Lime is JJJL Mining Proprietary Limited, which is 100% owned by former PPC CEO Johan Claassen and has an in-depth understanding of PPC Lime and its operations.
The other investors in Kgatelopele Lime are:
- IMR Resources South Africa, part of the private Swiss-based international minerals, resources mining and trading company IMR Group;
- Kolobe Nala Investment Lime, a 100% black-owned, mining-focused investment holding company that is indirectly owned by Billy Mawasha, who has held various executive positions at AngloGold Ashanti, Kumba Iron Ore and Rio Tinto; and
- HEX2M Energy Holdings, a 100% black youth owned mining-focused investment holding company wholly owned by Sizwe Mngomezulu, who together with Mawasha owns and manages chemical and minerals trading and beneficiation business NPL Mining Solutions.
After the conclusion of the divestment, PPC Lime is expected to be 39% black-owned, with it being 29% owned by strategic black economic empowerment investors, 5% owned by relevant PPC Lime employees and, in accordance with the requirements of the Mining Charter, 5% owned by host communities of PPC Lime in Lime Acres in the Northern Cape.
PPC Lime MD Con Schoombie said they are pleased to have secured a highly credible new owner that has the required mining, operational and financial strength, as well as BEE credentials, to successfully take the business forward based on an ownership structure that will satisfy the Mining Charter’s requirements.
Anirudh Misra, chair of IMR on behalf of Kgatelopele Lime, said they are excited to be part of the consortium acquiring this foundational asset from PPC.
“We understand its importance to the region, the country and its customers and will ensure it continues to be mined responsibly and for the benefit of all stakeholders.
“Commodities like this will continue to remain essential to ensuring global growth and the development of societies around the world,” he said.
“We are excited to have been afforded the opportunity to acquire a long established and efficient mining operation that will continue to provide this essential resource for years to come.”
Listen to Simon Brown’s MoneywebNOW podcast interview with PPC CEO Roland van Wijnen: