Scaw in­ter­est

Finweek English Edition - - COMPANIES & INVESTMENTS - David Mckay

trial items.

The as­set comes to the IDC from An­glo Amer­i­can, which sold its 74% con­trol­ling stake in Scaw Met­als as part of its com­mit­ment to rid­ding it­self of non­core as­sets. Thrown into the bargain are Scaw Met­als’ em­pow­er­ment part­ners, in­clud­ing Shan­duka Group. It and two other black-owned com­pa­nies com­prise the in­vest­ment con­sor­tium hold­ing 21%, with the bal­ance of the shares to be held in an em­ployee share-own­er­ship pro­gramme, or Esop.

That must vir­tu­ally, and some­what neatly, com­plete An­glo’s di­vest­ment pro­gramme, which the de­part­ing CEO, Cyn­thia Car­roll, was ap­pointed to man­age. For Malinga, the pur­chase was a de­fen­sive tac­tic. The IDC didn’t want Scaw be­ing hived off to an in­ter­na­tional bid­der which may have as­set-stripped the com­pany, he says.

“It’s a Level 4 ben­e­fi­ci­a­tor, and it takes 500 000 tons a year of metal and turns it into a f inal prod­uct,” says Malinga. About 90% of earn­ings is from its min­ing prod­ucts and, as a re­sult, doesn’t have the vul­ner­a­bil­ity to cy­cles that seems to af­fect Amsa so fre­quently.

Still, if this isn’t Government’s po­si­tion­ing on a devel­op­ment pric­ing pol­icy, then what’s its strat­egy in re­spect of the IDC’s other fer­rous met­als in­vest­ments, which in­clude a 7.9% stake in Amsa, and a more con­tentious 50% plus one share stake in Con­sol­i­dated Wire In­dus­tries; con­tentious be­cause CWI and Scaw con­trol the SA wire mar­ket?

The IDC is also a 10% share­holder in Kala­hari Re­sources, which has built a man­ganese mine in the North­ern Cape, a sin­ter plant, and has am­bi­tions to con­struct a big ticket man­ganese smelter at Coega in the East­ern Cape. Man­ganese, in­ci­den­tally, is an im­por­tant steel feed prod­uct.

Malinga says the at­trac­tion is inf lu­ence in the em­ploy­ment and re­turns of ben­e­fi­ci­ated prod­ucts. “We don’t just want to pro­duce man­ganese but to pro- duce a down­stream prod­uct from it,” says Malinga of the in­vest­ment in Kala­hari Re­sources.

Malinga says the smelter is no slam dunk, how­ever, partly be­cause elec­tric­ity costs could make it un­vi­able. “We have done a prefea­si­bil­ity on a smelter, but we’re wait­ing for a bank­able doc­u­ment,” he says. “We need to fin­ish this and for it to be in­di­cated as vi­able, or not. If not, can we use tech­nol­ogy that is more en­ergy ef­fi­cient,” he says.

Kala­hari Re­sources has be­come em­broiled in a dis­pute with ArcelorMit­tal [in Lux­em­bourg, not the SA unit] in which the former was ac­cused of cor­po­rate gov­er­nance abuses. ArcelorMit­tal was a joint ven­ture part­ner in Kala­gadi Man­ganese with Kala­hari Re­sources un­til Daphne Mashile-Nkosi, CEO of Kala­hari Re­sources, of­fered to buy the steel­maker’s stake in the busi­ness.

Quite how Kala­hari Re­sources, which has al­ready com­mit­ted tens of mil­lions of rand in cap­i­tal to build­ing the man­ganese mine and sin­ter plant, is to pay for the stake and fol­low its rights in fu­ture cap­i­tal calls, is not yet known. One mar­ket source says Mashile-Nkosi has no op­tion but to turn to the IDC which will fur­ther en­trench its ex­po­sure to fer­rous met­als.

Malinga says the IDC has not yet re­ceived an of­fer from Kala­hari Re­sources. “We have had a meet­ing,” he says. “We have pre-emp­tive rights over changes in con­trol, but we have not de­cided whether to ex­er­cise those rights,” he says.

Lest we for­get, Government has had its eyes on an­other steel feed com­pany, Kumba Iron Ore, as per the Gov­ern­ment­backed study, the State In­ter­ven­tion in Min­ing (Sims). It has rec­om­mended the IDC, in ad­di­tion to pos­si­bly be­com­ing the host to all of Government’s min­ing in­vest­ments, to some­how take a larger stake in Kumba Iron Ore in which An­glo has close to an 80% stake.

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