Wednesday, October 21, 2020

Anglo’s Rustenburg Operation will blow up good

Anglo American announced the completion of the sale of the Rustenburg Operations by its wholly owned subsidiary Rustenburg Platinum Mines to Sibanye Rustenburg Platinum Mines and that Sibanye has now taken over ownership of.

The Rustenburg Operations, according to Anglo American, comprise the Bathopele, Siphumelele (including Khomanani) and Thembelani (including Khuseleka) mining operations, two concentrating plants, an on-site chrome recovery plant, the Western Limb Tailings Retreatment Plant, associated surface infrastructure and related assets and liabilities on a going concern basis, including normalised levels of working capital.

The comment made by Chris Griffith, CEO of Anglo American Platinum, is in tandem with the strategy earlier shared by De Beers CEO Bruce Cleaver of re-aligning the Group’s assets so as to remain with those that give a higher return.

“This is a major step in the repositioning of Anglo American Platinum’s portfolio. The sale of the Rustenburg Operations allows us to focus on our most competitive assets, consisting of largely open-pit and more mechanised operations which will result in higher margin production, a smaller and more highly skilled workforce, safer operations and a less complex organisation. As a result, our core operations stand to benefit from dedicated management attention and technical expertise, as well as our disciplined capital allocation model,” said Griffith.  

Regarding deferred proceeds, it is expected that Sibanye will pay minimum deferred proceeds of R3.0 billion (in nominal terms), as set out in the announcement September 9, 2015, to be earned through a 35-percent share of the distributable free cash flows generated by the Rustenburg Operations on an annual basis for a period of six full years commencing from January 1, 2017. To the extent that there is an outstanding minimum deferred proceeds balance at the end of the six-year period, Sibanye is given the option to extend the payment period for up to two years (31 December 31, 2024), or until the minimum deferred payment has been paid in full (whichever is earlier).

Sibanye has the option to settle the outstanding balance in cash or listed Sibanye Gold Limited ordinary shares at the end of the six or eight-year period.

In terms of adjustments it is commented that after the closing of the Transaction on November 1, 2016, if the distributable free cash flow generated by the Rustenburg Operations is negative in 2016, 2017 or 2018, there will be a downward adjustment to the Upfront Proceeds received up to R267 million per annum, or a lesser amount required to reduce any negative distributable free cash flow to zero.

According to the statement in 2016, the maximum amount payable is R44.5 million, prorated 1 November 1, 2016 as the closing date of the Transaction. In 2017 and 2018, the maximum payable amount is R267 million per annum, plus any difference between the amounts actually paid and the maximum payable amount in the previous periods. In total the maximum adjustment to the purchase consideration is R578.5 million (in nominal terms), if the distributable free cash flow generated by the

Anglo American Platinum has mentioned that it entered into a sale and toll treatment of concentrate agreement with Sibanye. Sibanye will in that case sell all concentrate produced by the Rustenburg Operations to Anglo American Platinum until December 31, 2018 based on pre-agreed commercial terms.

Thereafter, for a period of up to eight years (and no less than two years) starting January 1, 2019, Sibanye will enter into a toll treatment arrangement where Anglo American Platinum will undertake the smelting and refining activities in respect of the Rustenburg Operations on pre-agree commercial terms. This charge payable by Sibanye under the toll treatment arrangement will reflect smelting and refining costs as well as economic return on the proportional share of the current capital base that Anglo American Platinum has invested in its processing assets.

On the issue of financial effects of the Transaction the statement details that on November 1, 2016 the net assets of the Rustenburg Operations will be derecognised from Anglo American Platinum’s balance sheet.

After taking into account the estimated value of the upfront proceeds, deferred disposal proceeds, adjustment to purchase consideration and transaction costs, an accounting loss on disposal of the Rustenburg Operations of an estimated R1.5 billion will be recognised (conditional on final financials for October), which will impact basic earnings in the year ended 31 December 2016.

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