Dual-listed Lonmin has entered into a conditional sale and purchase agreement to acquire Mvelaphanda Resources’ 7.5% equity interest in the Pandora Joint Venture.This will be carried out by Lonmin through a cash payment of R45.565 million.
Mvelaphanda is a wholly-owned subsidiary of Northam Platinum.
In addition to the cash payment, Lonmin will refund the value of any cash calls paid by Mvelaphanda to the Pandora JV during the period from 1 January 2017 and completion of the transaction.
Lonmin’s current expectation is that the aggregate cash calls payable to Mvelaphanda will be between approximately R6 million and R8 million depending on the timing for completion of the transaction, subject to a maximum cap.
As announced on 11 November 2016, Lonmin has also agreed to acquire Anglo American Platinum’s 42.5% equity interest in the Pandora JV and is currently in the process of obtaining regulatory approvals for this acquisition which it anticipates to complete during 2017.
Completion of the two transactions will result in Lonmin increasing its ownership in the Pandora JV to 100%.
Rationale for the transaction
The acquisition of Mvelaphanda’s 7.5% stake in the Pandora JV allows Lonmin to consolidate its position in this relatively shallow and high-grade mineral resource, providing an attractive option for development by EPL in both the short- and longer term.
The Pandora JV area, which is contiguous with the company’s existing EPL operations, relies on Lonmin’s mining and processing infrastructure and is already operated by EPL. The Pandora JV contributed 32 509 platinum oz to Lonmin in the 2016 financial year.
Lonmin will be able to access a portion of the Pandora mining right from our adjacent Saffy shaft. This access will allow us to defer R1.6 billion of capital expenditure at the Saffy shaft over the period from 2018 – 2020 while maintaining full production at that shaft, as well as a further R1 billion of capital expenditure deferral thereafter.
In the longer term, Lonmin will also have the option to optimally develop this shallow, high-grade resource as and when supported by market conditions.
Consideration payable to Mvelaphanda
In consideration for the sale of its 7.5% equity interest in the Pandora JV to Lonmin, Mvelaphanda will receive a cash payment of R45.56 million on completion of the transaction.
In addition, the value of any cash calls Mvelaphanda has had to contribute to the Pandora JV in the period between 1 January 2017 and completion of the transaction will be reimbursed to Mvelaphanda.
Description of the business of the Pandora JV
The Pandora JV mines PGMs from the UG2 and Merensky reefs underlying the Pandora JV mining area. 100% of the ore produced by the Pandora JV is sold to Lonmin for processing and refining. The gross assets of the Pandora JV were R1.1 billion as at 30 September 2016.
Pandora JV made an operating loss of R109 million in financial year 2016, of which 50% was reflected in Lonmin’s 2016 accounts. Lonmin received a contribution of R117 million in FY2016 from the ore purchase agreement, which offset the JV loss.
Conditions precedent and effective date
The transaction remains subject to certain conditions precedent including all necessary consents being obtained from the Department of Mineral Resources of South Africa, including Section 11 approval for the transfer of the mining rights.
The transaction is also subject to approval by Lonmin’s lending banks.
Completion of the transaction is expected to occur during 2017 following the fulfilment of all conditions precedent.
“We are pleased to announce the acquisition of Mvelaphanda’s stake in the Pandora JV. Together with the acquisition of AAP's 42.5%, this will result in Lonmin ultimately owning 100% of the Pandora JV,” comments Lonmin’s CEO, Ben Magara.
“This is an excellent strategic fit for Lonmin, which increases our exposure to a valuable asset with long-term development potential and allows us to maintain production levels at Saffy while significantly reducing our capital expenditure requirements at this operation over the short- and medium-term,” he concludes.
Feature image credit: Lonmin
(Lonmin CEO Ben Magara)