Rio Tinto, Anglo American sell Palabora to China–SA consortium

JOHANNESBURG (miningweekly.com) – Mining majors Rio Tinto and Anglo American announced on Tuesday that they would sell a 74.5% shareholding in the Palabora Mining Company to a consortium of South African and Chinese entities in a deal valuing the JSE-listed copper and magnetite producer at R5.31-billion.

South Africa’s State-owned Industrial Development Corporation (IDC), which had a mandate to support South Africa’s beneficiation aspirations, and Chinese government-owned steel producer Hebei Iron & Steel Group would lead the consortium, which offered R110 a share for the combined 74.5% stake held by the two miners.

Rio Tinto, which announced in September last year that it planned to divest of Palabora, would sell its 57.7% stake in Palabora Mining for $373-million, while Anglo American had placed a $103-million price tag on its 16.8% stake.

“Palabora is a good business, but is no longer a natural fit within Rio’s portfolio. Selling our stake reflects Rio’s policy of continually reviewing our portfolio to generate best value for shareholders,” said Rio CFO Guy Elliott.

Rio Tinto said the operation offered “limited opportunity to expand copper mining”, while Anglo American believed the copper company’s flagship operation was no longer of sufficient scale to fit its investment criteria.

After the transaction, the IDC would hold a 20% stake in Palabora with Hebei to take a 35% interest. A privately owned Chinese trading company would also take up a 25% interest in the company, while diversified group Tewoo would buy a further 20%.

The China-Africa Development Fund, an investment fund under the China Development Bank, which focuses on investing in Africa, was also a potential investor and would constitute 5% of the consortium should it obtain internal approvals by the end of January 2013.

STRATEGIC INTENT

IDC CEO Geoffrey Qhena said the transaction was also supportive of the development finance institution’s steel industry initiative, possibly reflecting the long-held view that the 240-million-ton magnetite resource could be further beneficiated in the interests of South Africa’s iron and steel sector.

The IDC was central to ongoing processes designed to establish new domestic steel production capacity, which government hoped would contribute to a reduction in domestic steel prices.

The consortium said in a statement that the transaction reflected the attractiveness of the South African mining sector and was a sign of confidence in the investment potential of the country, and Africa as a whole.

The transaction also reflected China’s support for the development of a strong business relationship with South Africa, and the continued commitment to grow the Chinese steel industry, the consortium said.

“Hebei is pleased to enter into this partnership alongside the IDC, and is of the view that South Africa offers significant long-term investment opportunities for Hebei and the IDC,” Hebei chairperson Wang Yifang commented.

The transaction was subject to regulatory approvals from both China and South Africa, as well as from the South African Reserve Bank. It was expected that the approvals would be obtained in the next four to six months.

The news sent the shares of Palabora up nearly 12% to R105 a share just after 15:00 in Johannesburg.