JOHANNESBURG (miningweekly.com) – African Rainbow Minerals (ARM) plans to restructure the shareholding of its broad-based economic empowerment (BBEE) trust, as the financial covenants of a loan remain under pressure.

ARM was required to increase its guarantees from R700-million to R850-million to support the financial covenants of the 2005 Nedbank loan that allowed the trust to acquire 28.6-million ARM shares from Harmony Gold, which had also provided R150-million in guarantees to the bank.

The financial covenants of the Nedbank loan came under pressure owing to the decrease in ARM’s share price on the back of weakened commodity prices and the overall negative sentiment towards the mining sector.

“ARM has taken a decision not to provide any further guarantees to the ARM BBEE trust, but rather to restructure the shareholding of the trust in ARM and related funding of the trust to provide a more sustainable solution,” the company explained in an update to shareholders on Monday.

The company’s share price had since recovered to R68 a share, from a low of R34.81 in mid-January; however, the value of the shares held by the ARM BBEE trust remained well below the loan covenant, ARM noted.

The current funding structure was unstable amid market volatility and presented a financial and black economic-empowerment (BEE) status risk to ARM.

“Given the size of the bank loan, the roll up of the interest less dividends received is likely to result in the bank loan balance continuing to increase and thus continue to put pressure on the ARM BBEE trust's financial position going forward,” ARM pointed out.

A specific repurchase and loan refinancing of the ARM BBEE trust was deemed the “best possible” move, delivering a more permanent and sustainable solution, while retaining ARM's BEE shareholding above 50% and limiting stress to ARM’s financial position.

A wholly-owned subsidiary would acquire 12.7-million ARM shares, or 5.8%, held by the ARM BBEE trust, at R51.19 a share – the 30-day volume weighted average price on February 10.

A portion of the ARM BBEE trust bank debt would be refinanced through a combination of the proceeds from the specific repurchase, a nonrecourse R300-million senior secured loan from Nedbank, a subordinated unsecured loan of R200-million from Harmony and a subordinated unsecured loan of R800-million from ARM.

ARM BBEE trust also planned to use the repurchase to pay R651-million of the estimated R1.95-billion outstanding on the loan.

The specific repurchase would be funded by cash sourced from, besides others, the proceeds of the R450-million sale of ARM’s 50% effective interest in the Dwarsrivier chrome mine, in Mpumalanga, to Assore.

The deal remained subject to conditions precedent and shareholder approval.