Picture: THINKSTOCK
Picture: THINKSTOCK

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ON THE eve of a court battle between the Chamber of Mines and the government to clarify the Mining Charter’s empowerment demands, African Rainbow Minerals (ARM) has called on its shareholders to support a plan to protect its black economic empowerment (BEE) status.

The ARM broad-based economic empowerment (BBEE) trust, which holds 13.13% of the diversified mining house, has needed repeated guarantees from ARM and Harmony Gold to support a loan from Nedbank to buy 28.6-million ARM shares from Harmony in 2005.

ARM is protecting its balance sheet in a difficult global commodity market and seeking protection from possible ramifications of a court case brought by the Chamber of Mines seeking a declaratory order on the concept of once-empowered, always-empowered, which it argues is the correct interpretation of the Mining Charter.

The department argues that declines in empowerment ownership below the target of 26% by the end of 2014 must be topped up and black ownership maintained at that level.

"The current court process to determine the legal status of the ‘once empowered, always empowered’ principle also makes it necessary that ARM minimises its legal and financial exposure should this principle not be upheld by the court," the company said in a circular to its shareholders on Friday.

It is planning a shareholder meeting on April 13 to change its empowerment structure.

The chamber’s case will be heard on Tuesday and its members are relying on past deals — worth an estimated R205bn since 2000 — to count towards their empowerment credits.

On Monday, however, lawyer Hulme Scholes and the firm he works for, Malan Scholes, are going to court for an urgent application to have the chamber’s case consolidated with their bid to have the Mining Charter declared unconstitutional and void.

The ARM trust’s debt to Nedbank will swell to R1.95bn next month from R1.88bn at the end of last year. On January 18, when ARM’s share price hit a R34.81 low, the value of the trust’s stake fell to R996m. At Friday’s closing price of R100.36, the stake was worth R2.87bn — well in excess of the debt, but below the loan covenant.

"Given the size of the Nedbank loan, the roll-up of the interest less dividends received is likely to result in the bank loan balance continuing to increase and thus continue to put pressure on the ARM BBEE trust’s financial position going forward," ARM said.

The company said the funding structure was "untenable". Its board had opted not to provide further guarantees, but a restructure of the scheme.

ARM wants to protect its BEE ownership above 50%. Its executive chairman Patrice Motsepe and his family own a 40.26% stake — worth R8.8bn on Friday — a marked recovery from the R3bn valuation in January.

The change will entail a newly formed and wholly owned ARM subsidiary called Subco buying 12.72-million ARM shares held in the trust for R651m.

This would be paid for with ARM’s cash holdings and proceeds from the sale of its 50% stake in the Dwarsrivier Mine.

The trust will use this cash to repay part of the Nedbank loan and unwind the existing structure. Nedbank will then extend a R300m loan to the trust, secured by the ARM shares held in the trust — 7.3% of ARM.

ARM would provide an R800m loan to the trust, falling due in 2019, but which could be extended by another three years. Harmony provided a R200m loan to the trust due in 2022.

ARM is an empowerment shareholder in Harmony, with a 14% stake. ARM needs 75% of voting shareholders to approve the scheme and has so far received support from three key shareholders owning 75% of the shares, including the Motsepe family holdings, Allan Gray and Kagiso Asset Management.