Building materials and mining group Afrimat says it is pulling out of a deal it entered to buy the Gravenhage manganese mining right after all conditions were not met to finalise the deal.
The dispute revolves around a water use licence granted by the department of water & sanitation which “deviates materially” from the application submitted to them by the sellers, Afrimat said in a Sens announcement on Monday. As a result, the agreement “shall not be of any force or effect”.
According to the deal all conditions had to be met by August 20, which was not the case. However, the sellers of the right, Australia’s Aquila Steel and Rakana Consolidated Mines are disputing this, prompting a disagreement over whether the condition was met. If the dispute remains unresolved, it may be referred to arbitration.
Afrimat announced its planned acquisition of Gravenhage in May 2021, for $45m (about R650m at the time). Gravenhage is one of the last independently owned, undeveloped manganese deposits in SA, which accounts for 80% of the world’s manganese reserves.
The mine is a long-life, near-development manganese resource situated in the northern part of the Kalahari Manganese field about 120km from Afrimat’s existing Demaneng iron ore mine. Studies show an extensive life of mine in excess of two decades.
Aquila, which is 85% held by Chinese state-owned Baosteel, fought the department of minerals & energy for more than a decade to secure the mining right over the Gravenhage deposit, a battle that went all the way to the Constitutional Court.
The dispute began in 2005 between Aquila and Pan African Mineral Development Company, a private group owned by the governments of Zambia, Zimbabwe and SA. The department’s handling of the overlapping rights it granted both parties was described by Constitutional Court judge Edwin Cameron in 2019 as “delinquent” and “botched”.
Manganese is used in, among other things, steelmaking, and Afrimat’s interest in the right was part of a strategy of diversifying its interests from just bulk commodities, and general interest in high-quality assets.
The potential failure of the transaction also comes after Afrimat raised R680m through a bookbuild in July, intending to use the proceeds in part for Gravenhage, which would have needed an estimated R1.5bn in capital expenditure.
Small Talk Daily’s Anthony Clark said Afrimat was now likely to use that cash to fund its new rare-earth and phosphate interests in Limpopo, or expand production of anthracite at Nkomati in Mpumalanga, given surging prices for the fossil fuel.
“It’s disappointing that the manganese transaction didn't come off,” he said. “But it shows you that Afrimat, as excellent capital allocators, simply will not undertake a project for a project’s sake, it has to meet all its criteria, or it will walk away,” said Clark.
By the JSE’s close Afrimat’s share price had fallen the most in a week, down 3.64% to R50.30, giving it a market value of R7.361bn.
The share price is down just more than 10% so far this year.
Update: August 22 2022
This article has been updated with detail confirming that according to Afrimat it is pulling out of the Gravenhage deal, as well as industry comment.
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