Mvela's multi-billion rand payoff

Mvelaphanda Resources scores heavily, with conversion of its stake in Gold Fields to the parent company, and opens the door to recapitalisation of Northam's huge Booysendal plans.

JOHANNESBURG - 

Gold Fields, a global Tier I gold miner, and Mvelaphanda Resources, a leading black economic empowerment name in South Africa, on Tuesday announced a milestone agreement with the conversion of Mvela Resources's 15% stake in Gold Fields South Africa, dating from March 8 2004, into 7%, or 50m shares, in listed Gold Fields. On Monday Mvela Resources announced the refinancing of R2bn in mezzanine debt, attached to the transactions with Gold Fields. 

The timing of the deals and transactions has worked in Mvela's favour, given that the 7% stake in Gold Fields is currently worth R5.6bn ($566m). Mvela Resources also holds 63% of Northam, a Tier II platinum miner. Beyond the debt associated with the Gold Fields transactions, Mvela Resources also holds a R2.4bn debt item associated mainly with financing the acquisition of Booysendal (which sits in Northam) and allied items from Anglo Platinum in a BEE deal finalised during 2008. 

During its recent presentations on 2008's results, Mvela Resources, led by CEO Pine Pienaar, made it clear that far-reaching plans are being put in place to unlock value for Mvela Resources shareholders. The collapse in platinum group metal (PGM) prices, and pretty dismal prospects for the meantime, has naturally proved to be one of the core drivers. 

Booysendal is the real prize in the overall story; it offers an outstanding opportunity to gain surface access to PGMs at low capital and low operating cost, and massive resources of PGM ounces, to boot. On October 2 2008 Impala Platinum announced its intention to acquire Northam, but as PGM prices rapidly headed south Impala moved to a "cold feet" announcement of October 17 2008, finally terminating in a full exit on January 14 2009. While others have expressed an interest in Northam/Booysendal, such as Xstrata, Lonmin, Alisher Usmanov, and ENRC, the PGM sector is having a rough time of it. 

The strategic plans being hatched at Mvela Resources are keenly aimed at unlocking shareholder value, by attacking debt, collapsing the pyramid structure, and forging ahead with the development of Booysendal. Mvela Resources has long traded at a substantial discount to it underlying net asset value, probably penalized for its debt levels, and the perception of its heavy reliance on Northam dividends for cash flow. The discount has narrowed sharply since Mvela Resources made known its new plans to collapse the Mvela Resources structure. 

The timeframes for the strategic plans from Mvela Resources probably stretch into the medium term, and include the possibility of selling down its Gold Fields stake to reduce debt, and also contribute to the financing required by Booysendal, by participating in a likely recapitalisation rights issue by Northam. 

Northam is currently trading 70% below its price highs, raising questions over when such a rights issue would be appropriate. Collapsing the Mvela Resources pyramid structure would be achieved mainly by Mvela Resources unbundling the shares it holds in Northam, a number that could increase before any unbundling. 

Mvela Resources is 22% held by Tokyo Sexwale's Mvelaphanda Holdings, and 20% by Lazarus Zim; both have emerged as leaders of the country's BEE movement. 

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