Afrimat stuck in tribunal’s cement boots

Reading through Afrimat’s terse Sens announcement updating shareholders on its bid to acquire Lafarge from Holcim, all is not as it first seems.

Eyebrows are being raised at the Competition Tribunal’s footdragging after a few dissenting voices objected to the deal — including Nchakha Moloi, former mineral resources & energy deputy director-general turned ambitious business person, and Stuart Burns, a small readymix concrete player in the Western Cape.

Under deal-making CEO Andries van Heerden, Afrimat has earned a reputation for eying value-accretive deals and executing ruthlessly to implement them.

It started with diversification into industrial minerals with the acquisition of Glen Douglas dolomite quarry in 2011, followed by its first foray into the clinker market with the acquisition of SA Block Group in 2012. Afrimat acquired a controlling stake in listed industrial minerals producer Infrasors the next year, after which it took a few years to bed these down.

The acquisition strategy entered its second phase in 2016 with the acquisition of Cape Lime, offering further diversification for Afrimat’s industrial minerals division, which supplies the steel industry with metallurgical dolomite and the construction industry with aggregate products.

A busy year for Afrimat was 2017 with the acquisition of 100% of Bethlehem quarry, further diversification into iron ore with the acquisition of 100% of the Demaneng iron ore mine and the introduction of African Rainbow Capital (ARC) as a strategic shareholder.

A few years passed before a foray into coal with acquisition of 27.27% of Unicorn Capital Partners and buyout of remaining minorities in Infrasors the next year. A year after Covid-19, Afrimat acquired all of Nkomati Anthracite out of business rescue, and the remaining shareholding in Unicorn Capital.

That’s about as an impressive a list of successful M&As as you are likely to see in the mining sector. Van Heerden is a shrewd capital allocator and has walked away from deals in which the initial value hadn’t stacked up on further due diligence, or in which regulatory delays affected the modelling. An example was Gravenhage, in which a wateruse licence problem sterilised a potentially great project.

EXTRACT RENTS

Given this track record, Afrimat’s Sens announcement made me prick up my ears. Acquiring Lafarge, one of SA’s top cement producers for an effective R1bn appeared to be another Van Heerden masterstroke.

Yet what should have been a straightforward regulatory process after the Competition Commission recommended that the Competition Tribunal approve the deal after extracting various difficult-to-swallow concessions from Afrimat, is starting to look suspiciously like another opportunistic hatchet job to extract rents.

Despite the commission’s recommendation, the tribunal decided to hold a preliminary public hearing in December. Three interested parties eventually joined the matter. Moloi is one of the BEE partners of Lafarge through his vehicle Motjoli Resources, which was not part of the Afrimat transaction to acquire Holcim’s shares in Lafarge. Indeed, Afrimat is acquiring the shares of Holcim in Europe.

A wandering albatross tells me that Moloi is trying to intervene because he claims he’ll be strong-armed out of his stake, even though it is impossible.

Afrimat entered into a share purchase agreement with a Holcim Group subsidiary in Europe, Caricement, to acquire 100% of the issued share capital of Lafarge SA from Caricement, and thus all of Lafarge SA’s subsidiaries. This structure doesn’t prejudice Lafarge’s existing BEE partners in SA.

Then there is the Ba Barolong Boo Tau Rapulana community in Rustenburg, who seem to have had a rocky relationship with Lafarge, and a tiny ready-mix player, Lenvalco Readymix, founded and run by Burns, which has operations serving the Overberg in the Western Cape. It is unclear why Burns is intervening, but speculation is that it’s an attempt to squeeze Afrimat, as Lenvalco buys raw materials from Lafarge. He has acquired the services of law firm Nortons, which has built a reputation on successfully opposing merger transactions in SA.

Nortons has kicked a few technical and procedural stones into the transaction mix, muddying the approval process, and about 800 employees at Lafarge are now in danger due to the tribunal’s delays in dealing with the matter.

Lafarge, the country’s thirdlargest cement producer, is in limbo. I understand that Holcim has already redeployed its leadership team from Lafarge to other roles in the Holcim Group. The Swiss multinational has been eager to move on since unveiling its desire to exit SA near end-2019, and the mutterings from inside are of bewilderment at the regulatory delays given the comparatively small size of the transaction.

It is not a great look for a country ostensibly trying to sell itself as a welcoming home for investors. While legitimate concerns must be heard, the tribunal risks becoming a quockerwodger in the hands of vexatious litigants unless it deals with applications expeditiously.