Many merger and acquisition negotiations never see the light of day; it is often a long process of information seeking, acquiring expert advice, haggling about the value of the target and eventually reaching a decision either to walk away or proceed. That should be the tricky part and the making public of the financial terms of a transaction should be seen as a formality. The regulatory structures in place should aid the smooth and quick process of the transaction. But in South Africa this is not the reality, particularly in the mining industry.
Over the past 18 months, eight announced mining deals undertaken by JSE-listed companies have failed. The reasons vary from the fallout of commodity prices to the inability of parties to secure the necessary funding. But the one reason that leaps out of newspaper pages is the lack of mineral policy certainty, administrative delays and regulatory logjams at the Department of Mineral Resources (DMR).
In an interview on radio earlier this year Economic Development Minister Ibrahim Patel said the local mining sector was ‘in trouble’ as it struggled to recover from 23 000 job losses since April. So the announcement this week that a second mining deal had hit the wall due to delays at the DMR questions government’s commitment to assisting in resolving industry problems.
Eastern Platinum (Eastplats) is the second miner to have a Chinese deal collapse with blame placed on regulatory delays. In November last year the Canadian-headquartered company had reached an agreement with China-based Hebei Zhongbo Platinum (HZP) to sell all of its SA platinum group assets for $225 million (R3.2 billion). The deal was expected to take between three to six months to close.
Shareholder approval was granted in February this year and HZP and Eastplats lodged break fees of $11.25 million in April. When it became clear that the deal would not receive approval for the sale before the August 7 deadline, the final date was purportedly pushed back to year-end. But this is not as HZP’s major shareholder, Beijing Hehe Fengye Investment saw it, cancelling the deal for failing to meet the deadline.
DA Shadow Minister James Lorimer said this week, “Poor regulation and inefficiencies at the DMR have rendered yet another job creating mining deal stillborn”. The recent agreement between government, business and labour was to sell off rather than close unprofitable shafts in a bid to save jobs in the face of mass retrenchments. “..the private sector, even foreign investors, are coming to the party …Government, however, continues to be an obstacle to, rather than a facilitator of, investment and job creating initiatives in the sector”.
Aquarius Platinum announced in January 2014 that it planned to sell its Blue Ridge and Sheba’s Ridge mines to a consortium headed by China National Arts & Crafts Corporation for $37 million. However, the deal stumbled on delays in securing approvals from the DMR. The sale was extended nine times following delays in the granting of regulatory approval.
Another deal involving the Chinese at risk is Baosteel’s investment in the Aquila Steel South Africa manganese mining project in the Northern Cape. Baosteel is to take the government to court after it failed to honour an undertaking to internally resolve a dispute over a prospecting right which was awarded to Pan African Mineral Development Company (shareholders of which include the governments of SA, Zambia and Zimbabwe) over Aquila Steel’s Gravenhage prospect.
The surprise appointment in September, of relatively unknown (except for his controversial links with the Gupta family) Mosebenzi Zwane as new Mineral Resources Minister was described by some in the industry as inexplicable. The removal of Ngoako Ramathlodi just weeks before the mining Phakisa, a conference aimed at fixing problems in the sector further frustrated industry players.
There are already deep doubts about investing in SA’s mining sector; negative history relating to the minister will only serve to further discourage investors. The DMR needs to act swiftly to simplify the regulatory regime and to improve the efficiency in the management of license applications. The department is costing the country many billions of dollars and many tens of thousands of new jobs.