Palabora enters into 26 Percent Equity Transaction Agreements for its Broad Based Black Economic Empowerment transaction with BEE Partners



On 10 June 2010 Palabora Copper (Pty) Limited (“PMC”) entered into its Broad Based Black Economic Empowerment (BBBEE) transaction agreement with its new partners. PMC will dispose of the bulk of its business operations and assets to Palabora Copper (Proprietary) Limited (“PC”), a newly incorporated PMC subsidiary in which the BEE Partners will hold 26 percent and PMC 74 percent of the issued share capital of PC.

Following an extensive key-stakeholder engagement process undertaken by PMC since 2007, the company has involved the five communities of the Ba-Phalaborwa area in the Transaction through the creation of the Leolo Community Trust (“Community Trust”). The Community Trust will be for the benefit of the said communities, being the Makhushane, Selwane, Maseke, Mashishimale and Majeje tribes. The Community Trust will own 10 percent of the shares in Palabora Copper.

All of Palabora Copper’s approximately 2 200 permanent employees, approximately 75 percent of whom are Historically Disadvantaged South Africans (“HDSAs”), nine percent are women and 42 percent are HDSAs in senior management, will participate in the Palabora Copper Employee Trust (“Employee Trust”). All of Palabora Copper's employees will participate in the Employee Trust on an equal basis regardless of race, gender or seniority. The Employee Trust will own 10 percent of the shares in Palabora Copper.

A consortium led by the Company's former chairman, Mr George Negota (“the Consortium”) was also created. Mr. Negota was a director of PMC from 1998 to 2009 (and served as chairman of the PMC board of directors from 2007 to 2009). The Consortium also includes other key business persons, and will acquire its shares in Palabora Copper through a special purpose vehicle created for such purpose, being Palabora BEE Investment Company (Proprietary) Limited ("BEECo"). The Consortium will acquire six percent of the shares in Palabora Copper on a similar basis as the Community Trust and the Employee Trust. It is envisaged that the key business individuals included in the Consortium will spearhead business development and job creation in the Ba-Phalaborwa area.

The consideration for the aforementioned sale will be calculated with reference to the 60-day volume weighted average trading price of PMC's shares on the JSE Limited on the date on which the conditions to the Transaction are fulfilled or waived, less any cash retained by PMC (adjusted for Secondary Tax on Companies . The acquisition by Palabora Copper will be vendor financed by the advance of an interest-bearing convertible loan from PMC to Palabora Copper.

As the purchase price for PMC's business will be fully funded through such vendor financing on loan account, Palabora Copper will have a nominal net asset value. The BEE partners and PMC will then subscribe for shares in Palabora Copper at nominal value, as a result of which the BEE partners will hold 26% and PMC 74% of the issued share capital of Palabora Copper.

PMC, listed on the JSE Limited. Situated in the Ba-Phalaborwa area of Limpopo, Palabora operates a large block cave copper mine and a smelter complex. Palabora has a planned mine life for the copper business of 7 years, with plans for further expansion. When including the magnetite and vermiculite businesses, the combined life of mine is more than 30 years. In 2009, the mine continued to produce 32,000 tonnes per day and produced one third of the world’s vermiculite. The mine is one of the most productive single shaft mines in the world and provides South Africa with 70 percent of its copper requirements and has achieved significant technical success with the underground expansion now operating at 6 percent above design capacity.

BEE Procurement

Since 1998 Palabora Mining Company has been actively promoting working relationships with SMME and Black Economic Empowerment companies providing local contractors and services. In addition, through the workings of the Palabora Foundation, a Business Linkage Centre (BLC) initiative has been supported.

The purpose of the Business Linkage and Advice Centre was to empower the Small, Medium and Micro Enterprises/Black Economic Empowerment (SMME/BEE) sector with relevant training, mentoring and counselling opportunities to provide capacity so they may compete when providing the three local sponsoring companies with goods and services. The definition of the Black Economic Empowerment business was that 35% of the shares had to be controlled by the "black partner" and that the partner needed to actively participate in the business, take part in management decisions and share in the profits and losses. The three companies set aside sections of their procurement spend wherein only BEE companies could tender for work, contracts and services. It is important to note that Palabora is progressive in the South African context and is a forerunner in this initiative that started before there was any government minerals legislation promulgated. In 2004, there are 258 BEE businesses of which 215 are in the Phalaborwa region.

In 1998 there were no BEE companies when the Business Linkage Centre database started and when the Business Linkage Centre closed in 2004, there were 258 BEE businesses of which 215 were in the Phalaborwa region. Since 1998, there has been an ever increasing drive by Palabora to increase the number of local BEEs in the supply chain and the procurement spend with BEE companies, has ranged between 28% and 38% of total spend in market segments allocated for BEE companies. Indeed, Palabora has made a significant contribution to the local economy, as the support of local BEE companies has assisted them to grow and to compete against outside suppliers.

The most significant impact was the upward trend of procurement spend with BEE companies from ZAR 13 million in 1998 to ZAR 209 million out of ZAR 598 million in 2004. Palabora is currently ahead of its 2005 Broad Based Black Economic Empowerment (BBBEE) procurement target. As at the end of October 2005, Palabora's BBBEE spend amounted to ZAR 188 million out of ZAR 500 million, some 38% of total spend.
PALABORA COPPER (PTY) LIMITED
Phalaborwa, Limpopo , South Africa
T: +27 (0)15 780 2911
PO Box 65, 1 Copper Road, 1389
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