There is significant benefit for Australian mining houses to dual-list on the JSE, especially if the companies list with assets in South Africa and increase their value proposition, says JSE senior GM for marketing and business develop- ment Noah Greenhill. This is despite the perceived impediments to conducting business in South Africa, such as the stipulations of the Mineral and Petroleum Resources Development Act (MPRDA).
The MPRDA states that if an Australian company applies for a mining licence in South Africa, the company must sell 26,1% of its shares to a black economic- empowerment (BEE) consortium. If not, the South African exchange controls preclude a corporate entity from owning shares in this foreign entity.
“If the Australian company does not dual-list in South Africa over the perceived impediments in the MPRDA, it would have to set up a subsidiary in South Africa, and the subsidiary would own the assets. The Australian company would own 74% of the business and the BEE consortium would own the balance. But there is less value in doing this. If the com- pany is dual-listed, then all shareholders benefit, with little in the way of exchange control impediments,” explains Greenhill.
He adds that another benefit for an Australian company to dual- list is that, if it acquires more assets and is not dual-listed, shares cannot be used as currency.
Further, Australian investors would buy shares in the dual-listed entity, as capital raised in South Africa increases liquidity for the company. South African investors can also participate in the dual-listed entity and would benefit from an increase in the share price.
“Also, about 40% of the JSE’s daily trade is comprised of foreign companies, specifically from European countries. If Australian companies list on the JSE with good value propositions, they will attract European investment at a lower cost than having another listing on a European exchange,” Greenhill says.
He notes that dual listings encourage the foreign company to participate and be involved in South Africa. This means that the Australian company can add its insight and capital to meaningful transformational and community projects. For instance, the dual listing of Australian miner Firestone Energy on the JSE and its joint venture with coal-miner Sekoko Coal have enabled poverty alleviation initiatives in Limpopo province.
The challenges presented to the Australian entities hoping to invest in South Africa in a meaningful way are outweighed by the significant opportunities gained. Greenhill comments that South Africa is endowed with minerals and is resource wealthy, so the MPRDA, its associated BEE stipulations and the need to dual- list are not impeding factors.
Further, countries all over the world have legislation governing the right to mine. Chinese entities, for instance, require a 51% stake in any business transaction in China.
“Apartheid and its associated legacies have meant that businesses are under some obligation to assist in uplifting all affected parties. The key issue, however, is that companies must conduct strategic and meaningful BEE business deals,” he says.
Meanwhile, South Africa is seen as a good place to invest, despite the current downturn. Greenhill concludes that Australian companies see increased opportunities to invest in South Africa, and that these opportunities are to be found across the industry spectrum.