Xstrata, Rainbow make empowerment deal on coal

Swiss mining house Xstrata (XSRAF-O, XTA-L) and South African resource company African Rainbow Minerals (AGM-L, ARI-J) have reached an agreement that will bring Xstrata’s South African coal assets into compliance with Black Economic Empowerment legislation.

Under the agreement African Rainbow will contribute R400 million and Xstrata R384 million to a new company, ARM Coal, which will hold a 20% interest in Xstrata’s subsidiary company Xstrata South Africa — which holds the company’s South African coal operations — and a 51% interest in the Goedgevonden coal project, 130 km east of Johannesburg, currently held by Xstrata.

Including the Goedgevonden stake, ARM Coal would hold an effective 29% interest in the coal operations, meeting the final ownership requirement in empowerment legislation that a 26% shareholding in mining companies be controlled by historically disadvantaged groups.

Xstrata is financing the R400-million buy-in on the producing operations and a R785-million funding requirement for African Rainbow’s share of Goedgevonden. Xstrata will also advance the project funding for development of Goedgevonden. All those loans will be repaid out of cash flow, with dividends from cash flow going to the project shareholders.