Anglo; Rio exit Palobora Mining

Global mining giants Rio Tinto and Anglo American have agreed to dispose their majority stake (74.5%) in South Africa’s copper mining operation, Palabora Mining Company, to a consortium made of Chinese investors and the Industrial Development Corporation (IDC).

The deal value around the R4bn mark; comes to fit into a broader theme that may be setting the future tone of South Africa’s industrial landscape. It is a theme which sees yesteryear industrial and mining giants from the West drop their investments in South Africa and being replaced by the new money from the emerging eastern economic giants, China and India, and local state backed investments.

A week ago, the IDC concluded a multibillion rands deal where it is leading a consortium of local black economic empowerment (BEE) investors to take over the position of Anglo American in metals manufacturing operation Scaw.

There have been many other deals where the commodities hungry eastern giants are teaming up with local investors to take over mining assets. This is an African wide movement which is celebrated from a point of view of remaking the traditional distribution of the world’s economic power but the jury is still out as to whether it will translate into better prospects for local communities and workers.

On the Palabora situation, Rio Tinto and Anglo American indicated their intention to exit the asset more than a year ago. They stated that Palabora does not fit into their strategic plans. Rio Tinto held 57.7% of Palabora while Anglo American had 16.8%.

In an announcement issued yesterday, Palobara said the deal values the entire operation at R5.31bn and includes R2.25 billion in cash on Palabora’s balance sheet (as at 30 June 2012). The strike price was set at R110 per Palobora share and will see this price being offered to minority shareholders because the move triggers a mandatory buyout of minorities

The buyers of Palabora are made of a consortium featuring the following names and share.

• Hebei (35%), a leading international steel producer wholly-owned by the Chinese Government;

• General Nice Development 25%), a privately-owned Chinese trading company;

• Tewoo Group 20%), a major diversified group wholly-owned by the Chinese Government

• IDC (20%), a development finance institution wholly-owned by the South African Government.

The deal is still subject to a number of conditions. These include:

• Customary regulatory approvals in South Africa and China

• Rio Tinto and Anglo American have the ability to receive a superior proposal for their shares in Palabora for a period of 90 days;

• the Consortium must extend an offer to all remaining shareholders in Palabora upon the sale of Rio Tinto’s and Anglo American’s interests becoming unconditional, at ZAR 110 per share, subject to customary adjustments upon closing.

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