Business Day
*Boost for SA steel as IDC leads offer for Palabora* *Monde Maoto, Business Day, Johannesburg, 12 December 2012*THE Industrial Development Corporation (IDC) is leading a consortium of South African and Chinese companies in a R5.3bn bid for a 74.5% stake in Palabora Mining --- adding another link to the government's plans to develop a steel value chain.
Palabora, the country's biggest copper miner, generates the bulk of its earnings from exporting magnetite --- a gradient of iron ore that is a key ingredient for Chinese steel mills. It also produces vermiculite, used by the aluminium smelting industry as insulation.
The 74.5% stake is held by diversified resource miners Anglo American and Rio Tinto.
Anglo stands to generate R893m from the sale of its 16.8% interest in Palabora, the company said on Tuesday.
London-based Rio Tinto will generate about R4.4bn from its 57.7% shareholding.
The deal comes barely a month after another IDC-led consortium --- which included Shanduka Resources, a subsidiary of the Shanduka Group owned by Cyril Ramaphosa --- concluded a deal to acquire a majority stake in steel producer Scaw Steel and Metals for R3.4bn, also from Anglo.
It also comes a week after the Cabinet endorsed the findings of a report by an interdepartmental task team on the iron-ore and steel value chain, which was mandated to devise measures to bring down the high price of steel.
Rio Tinto and Anglo American unveiled plans to divest from Palabora in September last year.
The board of Palabora announced on Tuesday it was informed that the mining giants had reached a "binding agreement" with the IDC consortium to sell their combined interests at R110 a share, valuing the company at R5.3bn.
China's largest steel producer, the Hebei Iron & Steel Group, is participating in the consortium and it is expected to acquire a 35% shareholding in Palabora.
Other participants in the deal include the Tewoo Group, which is acquiring a 20% stake in Palabora, and General Nice Development, which will hold 25%.
The IDC will acquire 20%."The acquisition of Palabora is important as it secures and facilitates backward integration of sizable magnetite ore material for a number of IDC steel initiatives, including the Masorini Iron and Steel project and the IMBS scrap substitute project under construction in Phalaborwa," IDC spokesman Mandla Mpangase said on Tuesday.
The agency did not respond to questions on which South African companies were involved in the consortium.
Shares in Palabora rallied more than 10% on the JSE on Tuesday to close at R103 a share --- the highest since July 16.
Stephen Arthur, a mining analyst at Sanlam Investment Managers, said on Tuesday the deal represented a premium on Palabora's R4.9bn market capitalisation.
"Obviously there's capital allocated for the Lift project. Despite that, the price is slightly more than what the market was expecting," he said. Lift 2 is an expansion project that aims to extend the mine's life to 2030.
In the third quarter of this year, Rio Tinto's investment committee and Palabora's board of directors reviewed the prefeasibility work that had been completed on the project and endorsed the continuation of underground development activities and studies.
Palabora said in a statement on Tuesday the sale was subject to regulatory approvals in South Africa and China, and that these were expected to be concluded within four to six months.
The consortium was required to extend an offer to all of the remaining shareholders in Palabora once the deal became unconditional, Palabora said.
Copper is the primary product mined by Palabora at its Limpopo operations, while magnetite is a "joint product", due to its significant contribution towards the company's revenue and profits.
Profits from magnetite are generated through two streams --- mining from the copper-bearing ore and historic stockpiles accumulated from open-cast mining over many years.
Last year, Palabora sold 23.1-million tons of magnetite, which accounted for 80% of the company's operating profits.
Most of the magnetite is shipped to Asian markets through the port of Maputo, in neighbouring Mozambique, with China as the primary destination.
China, the world's biggest consumer of base metals, is purchasing several mining companies in Africa as it seeks resources to feed its expanding construction and car-making industries.
"South Africa offers significant long-term investment opportunities," Hebei Iron chairman Wang Yifang said in a statement on Tuesday.
The South African Department of Trade and Industry announced last week that negotiations between the IDC and global steel industry players were advanced and a state-of-the-art steel production facility would be built in South Africa.
With Bloomberg*From: http://www.bdlive.co.za/business/mining/2012/12/12/boost-for-sa-steel-as-idc-leads-offer-for-palabora*
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