AFRICAN Rainbow Minerals (ARM), in which mining entrepreneur Patrice Motsepe is the biggest shareholder, is putting a R1.9bn bail-out in place to preserve its broad-based black economic empowerment (B-BBEE) status as volatile markets have rocked its share price.

Over the course of last year ARM’s share price fell from about R119 to R40, although it has since recovered to above R70. Other mining companies that introduced black share ownership in the past decade through a loan secured by shares are likely to be facing a similar dilemma because of the weakness in commodities and share prices.

Mr Motsepe holds 40.3% of ARM, well above the 26% black ownership required by the Mining Charter. But ARM said the broad-based trust was an integral part of its empowerment obligations.

ARM’s B-BBEE trust, which holds 28.6-million shares or 13.2% of the group, was founded in 2005 with a loan from Nedbank. In the first half of last year it extended R700m of guarantees to the trust to support the financial covenants in the Nedbank loan and increased its guarantees to R850m in the second half.

Harmony Gold added R150m in guarantees. ARM is Harmony’s primary empowerment partner. By the end of December the trust owed R1.88bn, which is expected to rise to R1.95bn by April. It holds shares worth R2bn, still below the bank’s covenants.

ARM and Harmony will put a more sustainable structure in place, they said. With the permission of ARM’s shareholders, it will repurchase 12.7-million of the trust’s ARM shares at R51.19 each, at a cost of R650m, and will use this to repay part of the debt.

The remaining R1.3bn will be refinanced with loans of R800m from ARM, R300m from Nedbank and R200m from Harmony. The B-BBEE trust will then hold 15.9-million ARM shares, or 7%.

"We think restructuring the trust is in all shareholders’ best interest as it ensures the continued BEE status of ARM," said Abdul Davids, head of research at Kagiso Asset Management, a 5.8% shareholder in ARM.

"Due to the mechanics of the scheme it is value-enhancing for ARM shareholders as the share buy-back is occurring at a discount to the book value of ARM shares."