BDO Business Restructuring has successfully concluded the business rescue of chrome and alloys specialist Afarak Mogale through the negotiation and signing of a share subscription agreement for the acquisition of the shares and business of Mogale by ferrochrome producer Bright Minerals for R300-million.
Based in Krugersdorp, South Africa, Mogale comprises of, besides others, four furnaces capable of producing up to 550 000 t/y of primarily ferrochrome.
The four furnaces are licensed to produce four key products - silico-manganese, plasma ferrochrome, charge ferrochrome and stainless steel alloy.
Since May 2019, only one furnace, the more efficient DC furnace, has been operating amid declining ferrochrome prices and the inability of Mogale to run the other two submerged arc furnaces economically.
Financially distressed, with cash flow shortages, the board of Mogale placed it into business recue in May 2020, under the joint control of Dawie van der Merwe and Hans Klopper – business rescue practitioners (BRPs) and directors of business restructuring at BDO.
After being placed into business rescue, the BRPs were forced to place all operations into care and maintenance in late July 2020, owing to external logistical challenges, further cash shortages and the impact of Covid-19 on the workforce.
All 127 employees were consequently offered voluntary severance packages, with a recall period of six months. All of these employee claims were settled in full by the BRPs.
A business rescue plan that was adopted by creditors on September 16, 2020, outlined three possible restructuring options for Mogale, including a restructuring of the existing shareholding, a sale of the shares and or assets of Mogale, or a restructured repayment process to creditors.
“I noted in the rescue plan that options one and three were an unlikely outcome given the severe constraint of cash and the termination of further post-commencement funding.
"By August 2020, after consultation with the major creditors, we started a process to find an interested external party to either lease or acquire the assets of the company, to maximise the ultimate value for the creditors.
"The process took some time considering the significant capital investment that potential suitors were required to commit in order for Mogale to return to successful operation. We identified Bright Minerals with the blessing of the secured creditor Absa to negotiate the independent fair value price of R300-million for the business. We were very pleased with this result as a forced sale may only have recovered some R94-million according to an independent assessment,” Van der Merwe says.
All conditions precedent, including the approval of the competition authorities, have been concluded and the sale was executed on July 30.
South Africa-based Bright Minerals’ strategy is to return the four Mogale furnaces to full operation.
Full production will require a staff complement of about 300 people, and would bring additional ferrochrome capacity online in South Africa.