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Amplats empowerment vehicle now has R2bn worth of shares

DAILY MAVERICK / 26 AUGUST 2020 - 16.31 / ED STODDARD

Amplats has structured a deal that should see platinum communities derive more benefit from the resource wealth that lies beneath.

An Anglo American Platinum community empowerment vehicle will be the proud owner of 1.4 million shares in the company worth R2-billion. There are restrictions on the sale of the shares, but dividends will now flow to the Lefa La Rona Trust (LLRT), which is clearly no bad thing.

The bottom line here is that the trust – an umbrella entity that acts on behalf of regional development trusts – will soon have more than 1.4 million unencumbered Amplats’ shares that were worth R2-billion on 27 July, the day the transaction was triggered. That is about 0.5% of Amplats’ shares. The LLRT must hold the shares until December 2021, when 40% will be distributed to the development trusts, which have the option to sell them after that. In the meantime, dividends will flow to the trust and Amplats is paying dividends these days.

“The remaining 60% of shares held by LLRT are subject to a 20-year lock-in period, to the end of December 2041,” Amplats said in a statement on Tuesday 25 August. That shareholding should still generate dividends, depending on the company’s performance for the next two decades, which will be spent on community and development projects.

That is the relatively straightforward part.

The 6.3 million shares were issued to the trust in 2011 with financing provided by Amplats – effectively a loan. Since that time, 60% of the dividends paid to the trust – and Amplats has had lean years and good years over that period – have been used to service the loan, with the remaining 40%, about R300-million, including a guaranteed minimum in the years when no dividend was declared, devoted to development initiatives.

Amplats will now buy back 4.9 million shares at par value, the balance of the loan, leaving the trust with the 1.4 million shares and no outstanding debt.

Such transactions are complex – no matter how they turn out, the accountants, lawyers and investment bankers win. But analysts say as empowerment deals go, this one is solid.

“Sometimes these things don’t work out because the share price falls. If you are an equity shareholder you take the ups and the downs. So this is a success story. And this would have cost Amplats’ shareholders the amount they are giving away, it is a cost of R2-billion.

“The communities had no money in the first place so they could not lose anything and were taking zero risk and in this case the communities have scored,” Paul Miller, director of mining consultancy Amaranth CX, told Business Maverick.

It remains to be seen how all of this works out. Amplats says the development trusts under the LLRT “are managed by trustees, including transparently selected community trustees, independent trustees and company selected trustees.

“The development trusts have been designed in consultation with locally-based working groups, and structures and governance are carefully customised to serve local community dynamics and development requirements.”

Such governance is key to the success of these initiatives. If such vehicles are not regarded as transparent and if community consultations are not wide-reaching, the people they are meant to benefit can lose trust in the trust.

For example, the Mapela Trust, which was set up to fund development projects in communities around Amplats’ Mogalakwena mine, the Anglo American unit’s main cash spinner, has in the past been a flashpoint of conflict. Similar initiatives by other mining companies have also provoked social unrest on the turbulent Platinum Belt.

In the case of Mapela, local communities felt the way cash was to be managed was not transparent and too much authority was given to the local chief to determine where money was invested, a state of affairs that triggered protests which occasionally forced the closure of the mine. Much of South Africa’s platinum deposits lie in the former homelands, where tribal authorities hold sway. A more transparent arrangement was agreed in early 2018 and most of the issues around the Mapela Trust appear to be resolved.

And now Amplats has structured a deal that should see platinum communities derive more benefit from the resource wealth that lies beneath.

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LINK : https://www.dailymaverick.co.za/article/2020-08-25-amplats-empowerment-vehicle-now-has-r2bn-worth-of-shares/

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