28 Apr 2009 07:00
28 April 2009
International Ferro Metals Limited
("IFL" or the "Company")
International Ferro Metals BEE Transaction
International Ferro Metals Limited (LSE: IFL), the integrated ferrochrome producer, announces that, in line with the principles embodied in the Broad Based Codes of Good Practice on Black Economic Empowerment ("BEE"), it intends to implement a transaction to increase BEE participation within the IFL Group. IFL lodged its proposal for the BEE transaction with the South African Department of Minerals and Energy (the "DME") on 24 April 2009 as the final element of its previously submitted application to convert its existing old order mining rights to new order mining rights under the South African Minerals and Petroleum Resources Development Act (the "MPRDA").
The proposed BEE transaction anticipates an internal restructuring (the "Internal Restructuring") and the subsequent sale of the business and assets of International Ferro Metals SA (Proprietary) Limited ("IFMSA") to a new IFL subsidiary and the issue of shares to BEE parties by that subsidiary (the "BEE Transaction") (referred to together as the "Proposed Transactions"), which IFL intends to implement in order to increase BEE participation to the required 26 per cent.
As described in the prospectus published by IFL on 28 August 2007 upon its move from AIM to the Official List ("the Prospectus"), in order to satisfy the requirements of the South African Mining Charter ("the Charter") introduced in 2002, IFL is required to increase the BEE shareholding in IFMSA, the Company's operating subsidiary, to 26 per cent. The Group's existing BEE partner currently holds an interest in IFMSA of 1.25 per cent. The Company intends to meet this requirement by means of the Proposed Transactions.
1. Legislative background
As was described in the Prospectus, as a South African mining company IFMSA is subject to the requirements of the South African government's BEE policies, as regulated by the DME and in particular the MPRDA and the Charter. The Charter sets out how mining companies should comply with the empowerment objectives of the MPRDA, obliging them to introduce black ownership when applying for new order mining rights or converting current old order mining rights. Mining companies that hold old order mining rights have to convert those rights to new order mining rights (which can be issued for up to 30 years) to continue mining in South Africa. The principal requirement of the Charter is black ownership of 15 per cent by 2009 and 26 per cent by 2014. The DME has however strongly cautioned parties against mere formal compliance with the minimum requirements of the Charter, emphasising rather compliance with the spirit of the Charter by achieving the full 26 per cent BEE ownership of mining companies (or mineral rights, as applicable) as soon as possible. This will be a key factor in the conversion of old order mining rights to new order mining rights. IFL therefore considers it prudent to implement the full 26 per cent participation through the Proposed Transactions shortly after the DME converts the old order mining rights, which is expected to occur in 2010.
BEE policies, as they stood at that time, were described in IFL's AIM admission document, released in September 2005 and in the subsequent Prospectus. In order to comply with such BEE requirements at the time of the AIM listing, IFL entered into an umbrella agreement with its existing BEE partner, Global Eagle ("GE"), which currently owns 1.25 per cent of IFMSA. Since then, the way in which BEE policies are to be implemented has developed significantly, particularly with the introduction of the South African Department of Trade and Industry's Codes of Good Practice, which now require broad-based BEE. GE alone therefore no longer meets the requirements for BEE ownership and its participation in IFMSA on the basis originally envisaged falls short of the Charter's requirements. It is now necessary for BEE ownership to be allocated amongst the surrounding communities, the staff and entrepreneurs (such as GE).
2. Structure of the Proposed Transactions
The process through which the BEE shareholding will be increased to 26 per cent is to be achieved in two stages, the Internal Restructuring and the BEE Transaction.
(a) The Internal Restructuring
IFL is proposing a structure in which a new wholly owned South African holding company ("Holdco") and subsidiary company thereof ("Newco") are introduced into the Group. Holdco will acquire IFL's 98.75 percent interest in IFMSA at fair value with consideration for the purchase to be fully settled in cash. Holdco will then incorporate a wholly-owned subsidiary company Newco which is intended to be the BEE vehicle for the group's empowerment.
(b) The BEE Transaction
All the operating assets of the IFMSA business will be sold into Newco at fair value, with consideration for the purchase intended to be fully funded by the issue of both debentures, to be listed on the Bond Exchange of South Africa, and of preference shares issued to Holdco. The issue of these instruments means that Newco will have a nil net asset value following the completion of the sale of business. This enables Newco to issue 26 percent of its equity to the new BEE ownership groups described above for a nominal amount in order to meet the requirements for compliance with BEE policies.
The cash consideration that IFMSA receives for the sale of its business to Newco will be utilised to repay its intergroup loans and the balance will be declared as a dividend to Holdco and GE. Holdco will in turn utilise the dividend received from IFMSA to subscribe for the preference share issued by Newco and will use the balance to pay for the acquisition of the 98.75 per cent of IFMSA's shares from IFL.
IFL will invest the proceeds for the sale of its IFMSA shares in a preference share investment to deliver a return to IFL equivalent to the new debentures to be issued by Newco. The preference share investment will also serve as security for the Newco debenture issue.
(c) Economic effect of the BEE Transaction
The result of the Proposed Transactions will be such that the Group will realise the fair value of the assets sold to Newco. Any value accrued before the valuation date of the Proposed Transactions will therefore be realised by the Group up front. The profits of Newco following the Proposed Transactions will be subject to a deduction for the interest payable on the debenture and to the payment of the preference dividends before Newco makes ordinary dividend distributions.
Newco will however, in order to transfer tangible value to the BEE shareholders following the BEE Transaction, pay modest ordinary dividends as and when distributable profits are available.
(d) Advantages
The key advantages of this structure are that:
3. Timetable
IFL finalised its conversion application with the DME on 24 April 2009. The Minister of Minerals and Energy recently stated that all applications would be processed within one year from 30 April 2009. The Proposed Transactions would become effective approximately two months after the date on which DME approval is provided and the grant of new order mining rights is obtained. The fair value for the consideration of the internal sale of assets will be determined during the period between the conversion application and DME approval.
Whether the proposed BEE Transaction will be classified as a Class 1 transaction, which will require shareholder approval under the UK Listing Rules, will be determined around the time of DME approval.
International Ferro Metals will be hosting an analyst conference call to discuss the BEE Transaction, details of which are below.
Date: 28 April 2009
Time: 2:30pm (UK time)
Dial-in: +44 (0) 1452 542 400
Passcode: 96685263
Slides for the conference call will be available on IFL's website. An audio recording of the presentation and Q&A will be available shortly after the call on IFL's website www.ifml.com. A dial-in replay facility will also be available for 48 hours on:
Dial-in: 0800 953 1533
Passcode: 96685263#
- ENDS -
For further information please visit www.ifml.com or contact:
International Ferro Metals Limited
David Kovarsky, Chief Executive Officer +27 82 650 1192
Brunswick Group
Patrick Handley / Carole Cable +44 (0) 20 7404 5959
Numis Securities Limited
John Harrison / James Black / Stuart Skinner +44 (0) 20 7260 1000
About International Ferro Metals:
International Ferro Metals produces ferrochrome, the essential ingredient in stainless steel, from its integrated chromite mine and ferrochrome processing operations in South Africa. International Ferro Metals is listed on the London Stock Exchange under the symbol IFL.