Lonmin, IFC provide $150m in push to realise big 'San Francisco' ambition

23rd March 2007 By: Martin Creamer - Creamer Media Editor

Canadian Chris Thompson's stint as Gold Fields CEO left South Africa a legacy of "golden" roses - long-stemmed, big-headed export-quality flowers, grown with the help of water from the mines he once managed, and aimed at sustaining the local economy of the Carletonville area when the gold mines close in 50 years.

Now American Brad Mills has arrived on the South African scene with a vision of realising a far greater sustainable-development dream, this time using "today's gold" - lucrative platinum.

The Lonmin CEO confesses to having the almighty vision of leaving a "San Francisco"-type legacy around his rich, long-life, lowest-cost platinum mines when the close in 50 years, similar to that left in the US 100 years ago by the great Californian gold rush.

In order to give practical effect to his seemingly grandiose vision, the fast-moving, innovative and impressive Mills has ingeniously enlisted the full support of World Bank's International Finance Corporation (IFC), which is as keen as mustard to help him realise his black economic empowerment (BEE) strategies and his staunch social-upliftment ambitions.

The world's third-largest platinum miner and the globally-active IFC last week made $100-million immediately available to Lonmin's BEE platinum partners in a "unique" facilitation that also puts a potential $50-million into the development of the 350 000 people around Lonmin's platinum mines.

The $100-milion is specifically for BEE partnership in economic projects and the first $15-million from the IFC's purchase of $50-million worth of Lonmin shares will go directly into community development.

Mills says the important purpose of the deal is to have capital readily available for the BEE enterprises that partner Lonmin in its many new platinum projects.

These asset-based BEE transactions will be over-and-above the BEE equity that Lonmin has already with the empowered South African company Incwala.

The $100-million, says Mills, will allow projects to move forward free of the usual "tortuous" process of BEE capital raising and in the wings will be an enthusiastic IFC setting out to build long-term economic relationships with an initial 20 BEE enterprises.

"We are very excited about this," IFC's elated Zimbabwe-born, but formerly Washington-based Merunisha Ahmid tells Mining Weekly.

The transaction is the IFC's biggest ever in Sub-Saharan Africa in the oil, gas and mining area and the first that has been approached in "this integrated value-adding manner".

IFC mining director Rachad Kaldany says that it is the "non-financial portion" that holds the potential to make this IFC's best-ever transaction, in which "far more than just money" is on offer.

Mills's vision is to create "thriving comfortably-middle-class communities", whose well-educated children will have "good well-paying jobs" and who will have a future that "outlives" Lonmin's long-life mines in the North West and Limpopo provinces.

Mills says that when the mines finally run out of ore and close in 50 years, Lonmin wants the community to have "fond nostalgic memories" of those mines, but "no real adverse impact" from their closure.

"The example in my head is always San Francisco," he says - a thriving city built out of the Californian gold rush of 100 years ago and which today has beautiful institutions of higher learning and tremendous economic development.

Mills says he has a vision of "what mining should be developing in South Africa".

"It's a big vision, which is where I'm at," he says.

He says that it is Lonmin's intention to use 100% of the IFC facility for BEE partner facilitation at its upcoming projects at Pandora, Limpopo Phase Two, Akanani and elsewhere.

Should the $100-million be used up, Kaldany says there is no reason why the loan cannot be topped up.

"It's not capped, and we'll consider more financing if and when needed," he says.

Already under way is a $5,9-million joint technical assistance programme, supplementing Lonmin's own community-development programme that began last year, Lonmin platinum operations president Alistair Ross tells Mining Weekly.

Former single-sex hostels are being converted into family units and 5 000 houses will be built in the next five years, 600 of them this year, at a cost of R700-million, Ross says.

Forty percent of the value of that building work, from material and services supply to construction and ongoing maintenance, will be awarded to local communities, says Ross.

The important maintenance aspect of the programme represents the sustainability of the development programme.

Ahmid says that the advisory team's eight-month scoping study began with intensive consultation with " the people on the ground".

"We are now hoping to deliver on their expectations," she says, adding that a "very advanced" community consultation programme is being implemented.

In reference to the first tranche of IFC's take-up of $50-million worth of Lonmin equity at a 5% discount, Mills says that that $15-million will add more community-development projects to an already-long Lonmin list, agreed last year with the South African government.

Ross adds that the communities should see training programmes for suppliers "very soon" as well as the creation of additional jobs.

Mills says "substantial changes" to the Lonmin culture continue to be made in the areas of safety, operational excellence and innovation.

"We are committed to completely modernising our new deep-level shafts," he reiterates, the new-generation mines being mechanised and the people around the mines becoming healthier.

"We have embarked on a systematic programme of engagement with these communities, local and regional government and the unions to ensure a sustainable outcome," he says, the IFC simultaneously building on Lonmin's core commitment to long-term sustainability.

The Lonmin-IFC partnership has three parts:

* a $100-million stand-by IFC debt facility, which Lonmin can use to facilitate BEE participation in its projects in South Africa, this "unique" financing providing ready funding to BEE partners as the company continues to empower its South African properties;

* IFC exercising its $50-million investment in Lonmin in tranches of $10-million over two years and receiving shares at a discount of 5% to the then prevailing market price; and

* Lonmin being allowed to use IFC's "considerable" resources and skills to enhance its existing programmes in the area of BEE supplier development, gender mainstreaming, HIV-Aids prevention and community development, supported by a $5,9-million technical assistance and advisory services programme.

"This partnership with the IFC is ground breaking and provides considerable development both for BEE and community development," says Mills.

Kaldany notes that Lonmin had been making strides in "changing the way the mining business works".

He says that the Lonmin-IFC signing marks an important milestone in the "changing" mining industry-community relationship in South Africa.

He says that Lonmin's Western Platinum mine and its related programmes are an important factor in the daily lives of the greater Lonmin near-mine community, which numbers 350 000 people.

Mills says that much work has been done to identify community projects ranging from electrification to sewage treatment and water supply. He says that a long list of needs has been prioritised with the ten different communities involved, each offering differing agendas.

Kaldany says that the Lonmin-IFC transaction opens up business opportunities and helps communities to lead healthier lives.

He says that the IFC goal is to demonstrate the effects of sustainable development across Africa and globally.

"What we offer is therefore ‘money-plus'," he says.

IFC will provide advisory services in four important areas and draw on its global expertise to contribute stronger developmental impact for Lonmin's mining operations.

Firstly, IFC will help to provide expertise in business practices to local BEE firms to enable them to become suppliers and providers of services to the mines and other firms. "We expect that our programmes will increase BEE and SME revenues by $5-million and help to create 20 new BEE entrants.

"It is hoped that 5 000 jobs will be created by supporting suppliers, for instance in the conversion of hostels to housing, and in the transport of ore," Kaldany says.

Secondly, IFC would support Lonmin's HIV-Aids programmes by drawing on its experience elsewhere, against specific agreed targets. Within two years it was aiming to ensure that 40% of employees had been tested.

Thirdly, IFC will contribute to Lonmin's effort to integrate women into its workforce to ensure broader, more equitable participation. Within two years, a common goal is to increase the sustainable jobs being held by women from 4% to 10%.

Fourthly, IFC will provide training, capacity-building, planning and project assistance to local government authorities to make optimum use of the revenue share that they rightfully receive from the mining operations.

"Our experience has shown time and again across the world that no commercial operation can be successful if it ignores the welfare of its workers and neighbours," Kaldany says.

On why Lonmin did not seek finance from commercial banks, Mills says that IFC financing is different in that it is long term, a ten-year facility with a grace period of up to seven years, and readily available to remove the stress from BEE partner participation. Mills refused to divulge details of the terms when pressed, however.

On whether the IFC offering to Lonmin is also available to other platinum-mining companies, Kaldany says that IFC has spoken to other role players and is open to replicating the Lonmin model with other companies.

He emphasises, however that IFC appreciates Lonmin's own progress and feels it can learn from Lonmin, which in turn can also benefit from IFC's experience in other countries. "There is a very good fit, but we are open to working with others," he says.

Also in the North West provincial cluster is the world's largest platinum company, Anglo Platinum, the world's second-largest platinum company, Impala Platinum, and the world's biggest chrome miner, Xstrata plc. Ahmid would like to see all roleplayers eventually contributing in unison to enterprise development and community upliftment.

The recent innovative and high-profile initiatives London- and Johannesburg-listed Lonmin has put it at the forefront of platinum-company involvement with local communities, and IFC has become a staunch supporter of sustainable private-sector companies helping people to escape poverty.

IFC has committed more than $56-billion in funding for private-sector investments and has mobilised an additional $25-billion in syndications for 3 531 companies in 140 developing countries.

In the 12 months to September 2006, Lonmin produced more than a million ounces of platinum in concentrate and sold 950 000 ounces of platinum metal.

It is the first platinum major to convert its old-order South African mining rights into new-order mining rights at its Marikana operations. "We are building a company with double-digit annual production growth and we expect to achieve much of this growth through the development of our operations and projects in South Africa," says Mills.

As the smallest of the three platinum majors, Lonmin has ironically won public praise from South Africa's demanding Department of Minerals and Energy, Mills having spent a night in the company's mine hostels before putting out tenders for their conversion to family accommodation. He chose a shebeen as the venue for reaching agreement with labour and brought in Archbishop Desmond Tutu to help with social upliftment.

Lonmin has invested heavily in near-mine education facilities and told miners the mining model is changing to mechanisation, which will ultimately mean fewer better-educated workers earning far more pay.

Last month Lonmin took ownership of the prized Akanani platinum prospect relinquished by Anglo Platinum.