Draslovka Holdings A.S. and Another v Competition Commission of South Africa and Others (IM139Dec21) [2024] ZACT 31 (1 February 2024)

COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No.: IM139Dec21
In the matter between:
DRASLOVKA HOLDINGS A.S. First Applicant
SASOL SOUTH AFRICA LIMITED Second Applicant
and
THE COMPETITION COMMISSION OF SOUTH AFRICA Respondent
HARMONY GOLD MINING COMPANY LIMITED First Intervenor
SIBANYE STILLWATER LIMITED Second Intervenor
PAN AFRICAN RESOURCES PLC Third Intervenor
In rere
the intermediate merger between:
DRASLOVKA HOLDINGS A.S. Primary Acquiring Firm
And
THE SODIUM CYANIDE BUSINESS OF SASOL SOUTH
AFRICA LIMITED
Primary Target Firm
Panel: J Wilson (Presiding Member)
L Mncube (Tribunal Member)
AW Wessels (Tribunal Member)
Heard on: 24, 25, 26 April 2023;
4, 23, 25, 26 May 2023; and
20 July 2023
Last submission on: 02 October 2023
Order issued on: 11 Ocober 2023
Reasons issued on: 01 February 2024
REASONS FOR DECISION


2
INTRODUCTION
[1] On 11 October 2023, the Competition Tribunal (“Tribunal”) prohibited the intermediate
merger in terms of which Draslovka Holding a.s. (“Draslovka”), through Draslovka (South
Africa) Proprietary Limited (“Draslovka SA”), proposes to acquire the assets and
liabilities of the sodium cyanide (“NaCN”) business of Sasol South Africa Limited
(“Sasol”) as a going concern. The reasons for the Tribunal’s decision are set out below.
PROCEDURAL BACKGROUND
[2] On 2 September 2021, the merger parties notified the Competition Commission
(“Commission”) of the proposed merger. The Commission found that the proposed
transaction would likely result in an increase in the price of liquid NaCN to South African
customers, and concluded that the transaction was likely to result in a substantial
prevention or lessening of competition in the market for liquid NaCN in South Africa.
The Commission also concluded, for the same reasons, that the proposed merger would
have a negative effect on the South African gold mining sector given that liquid NaCN
is an important input in the gold mining production process in South Africa. The merger
parties tendered a set of remedies to address the Commission’s concerns but the
Commission concluded that the proposed conditions did not adequately do so, and
accordingly, on 26 November 2021, it prohibited the proposed merger.
[3] Following the Commission’s decision, the merger parties, on 10 December 2021, filed a
request for consideration of the merger with the Tribunal in terms of section 16(1)(a) of
the Competition Act, 89 of 1998 as amended (the “Act”), in which they requested an
unconditional approval of the merger.
[4] Three gold mining companies – Sibanye Stillwater Ltd (“SSW”), Harmony Gold Mining
Company Ltd (“Harmony”), and Pan African Resources PLC (“PAR”) – sought, and were
granted, leave to intervene in the Tribunal proceedings. Prior to the Tribunal hearing,
and after discussions with the merger parties, Harmony and PAR accepted revised term
sheets offered by Draslovka regarding the supply of liquid NaCN. SSW, however, did
not accept the term sheet that was offered by Draslovka, and persisted with its
intervention in the proceedings, calling factual and expert witnesses. The Tribunal also
requested representatives of Harmony and PAR to appear at the hearing to explain the
reasons for their revised stance on the proposed merger.
3
[5] The following factual witnesses gave evidence at the Tribunal hearing:
5.1. For the merger parties:
5.1.1. Mr Pavel Bruzek, the chief executive officer of Draslovka;
5.1.2. Mr David Mokomela, the Vice President of Sasol’s Base Chemicals Business;
and
5.1.3. Ms Nicole Wainer, the Corporate Transaction Lead for Mergers and
Acquisitions (“M&A”) at Sasol.
5.2. For the Commission, Mr Philip Hayward, a unit manager in the procurement division
of the South Deep Mine, which is owned by Gold Fields Ltd (“Gold Fields”).
5.3. For SSW:
5.3.1. Mr Mpho Mochekela, the Unit Manager: Commodities at SSW;
5.3.2. Mr Jaco Schoeman, an Operations Director at DRDGold Ltd (“DRD”), which is
majority-held by Sibanye Gold Ltd (“Sibanye Gold”), a subsidiary of SSW; and
5.3.3. Mr Ruan Vorster, the Vice President: Surface Operations at SSW.
5.4. For Harmony, Mr Elias Pobe, the Executive Head: Metallurgy South Africa at
Harmony.
5.5. For PAR, Mr Jonathan Irons, the Group Metallurgist and Tailing Executive at PAR.
[6] In addition, the following witnesses were called as economic experts:
6.1. For the merger parties: Mr Patrick Smith, a partner at RBB Economics;
6.2. For the Commission: Mr Yongama Njisane, a Principal Economist in the Economic
Research Bureau of the Commission; and
6.3. For SSW: Mr Greg Harman, a Managing Director at Berkeley Research Group (UK)
Ltd.
4
THE PROPOSED TRANSACTION
[7] The proposed transaction involves the acquisition by Draslovka, through Draslovka SA,
of the assets and liabilities of the NaCN business of Sasol as a going concern (the
“Target Business” or the “NaCN business”). The land on which the Target Business’s
assets are located would be leased to Draslovka SA in terms of a long-term lease
agreement.
[8] Draslovka would hold 75%, less one share, in Draslovka SA, and the remaining shares
would be held by Navuka Investment Holdings Pty Ltd (“Navuka”), Draslovka’s broad-
based Black Economic Empowerment (“B-BBEE”) partner, through Navuka’s subsidiary
Sirtan Pty Ltd (“Sirtan”). Pursuant to the proposed transaction, Draslovka would,
through Draslovka SA, exercise sole control over the Target Business.
[9] An important component of the proposed transaction for purposes of the merger
assessment is the conclusion of supply agreements between Draslovka SA and certain
entities within the Sasol group of companies (the “Sasol Group”) for the supply of key
inputs into the NaCN operations of the Target Business post-merger – in particular,
caustic soda, ammonia, natural gas and electricity. We discuss these supply
agreements in greater detail below.
THE MERGER PARTIES AND THEIR ACTIVITIES
[10] The primary acquiring firm, Draslovka SA, is a newly-created entity for purposes of the
proposed transaction, and does not currently conduct any activities. Draslovka, the
controlling shareholder of Draslovka SA, is a company incorporated in the Czech
Republic. Draslovka and its various subsidiaries (“the Draslovka Group”) are ultimately
jointly controlled by NP Finance s.r.o., a joint venture arrangement between two
Liechtenstein Anstalts, namely Nelson Anstalt and Petronia Anstalt.
[11] The Draslovka Group is primarily involved in the manufacture and distribution of
cyanide-based compounds internationally. Draslovka produces hydrogen cyanide
(“HCN”) and HCN-based derivatives, including liquid and solid NaCN.1 Draslovka sells
solid NaCN globally, with its biggest exposure in the Americas, Europe and Turkey.
Draslovka sells liquid NaCN in Europe from its manufacturing facilities in the Czech
1 We discuss below the differences between liquid NaCN and solid NaCN.
5
Republic. However, Draslovka currently has minimal sales of solid NaCN in Africa,
including South Africa. Draslovka does not sell any liquid NaCN in South Africa.
[12] The Target Business is a business unit within the chemicals division of Sasol, which is
in turn, controlled by Sasol Limited. Sasol Limited is not controlled by any firm. The
Target Business is the only manufacturer and supplier of liquid NaCN in South Africa,
which it sells exclusively to customers in the gold mining industry. NaCN solution is
generally used to leach gold from ore.
RATIONALE FOR THE TRANSACTION
Draslovka
[13] Draslovka submitted in its merger filing that the Target Business presents Draslovka
with a platform to accelerate its international diversification objectives, and to improve
its strategic position in the cyanide-based chemicals market globally. Draslovka
submitted further that the Target Business will enable it to bring its production capacities
closer to new and potential customers in South Africa.
[14] As regards its intentions for the Target Business, Draslovka stated that it intended to
introduce technological improvements to the Target Business and thereby ensure its
long-term sustainability. In addition, Draslovka indicated that it intended, subject to
approval processes and the carrying out of future financial assessments, to expand the
production capacity of Sasol’s existing NaCN plant.2
Sasol
[15] Sasol, for its part, submitted that the Target Business forms only a small part of Sasol´s
chemical business portfolio in South Africa, and that the proposed transaction is part of
Sasol´s asset disposal programme executed in line with its balance sheet, shareholder
value and strategic objectives, with the aim of divesting businesses not aligned to
Sasol’s future strategic growth objectives. Mr Mokomela elaborated in his evidence that
cyanide technology is not a speciality of Sasol; that Sasol has not invested in significant
research and development in this regard; and that it currently (at the time of the merger
hearing) has no plans or intentions to invest in the expansion of the Target Business to
meet the growing demand for NaCN in South Africa.3
2 Witness Statement of Mr Bruzek, Trial Bundle A at p80-81, paras 16-19.
3 Witness Statement of Mr Mokomela, Trial Bundle A at p162-163, paras 6-7 and p168, para 22..
6
THE RELEVANT MARKET
[16] NaCN is a chemical compound commonly used in the extraction of precious metals like
gold and silver. NaCN can be produced in solid or liquid form.
[17] In South Africa, NaCN is used almost entirely for the leaching of gold by gold mining
companies. It was common cause amongst all the parties that there are currently no
viable alternatives to NaCN for gold mining companies in South Africa.4
[18] In its solid form, NaCN is a white, water-soluble powder or crystalline briquette produced
through the evaporation of water from liquid NaCN in special solidification plants. As a
solid, NaCN is easily preserved, and easy to transport and store.
[19] Liquid NaCN, on the other hand, is a solution of concentrated solid NaCN and water.
Liquid NaCN is not easily transported and requires purpose-built isotanks that are
suitable for road or rail transport. The active ingredient in liquid NaCN also tends to
decay over time through hydrolysis. As a result, liquid NaCN is typically used by
customers located close to an NaCN production facility and relatively quickly.
[20] The Target Business is a manufacturer of liquid NaCN at two adjacent plants in
Sasolburg. For the sake of convenience, they are referred to below as Sasol’s “NaCN
plant”.
[21] The Commission considered whether solid and liquid NaCN are substitutable from a
demand perspective (i.e., from the perspective of gold mining customers in South
Africa), and found that they are not. The Commission determined that gold mining
customers in South Africa generally only use liquid NaCN in their gold-mining operations
and have limited, if any, infrastructure to dissolve solid NaCN for use in their operations.
Furthermore, the construction of a mixing plant to convert solid briquettes into liquid form
would require significant capital investment. Of the gold mining customers, only PAR
currently has a small dissolving facility. In addition, because no solid NaCN is produced
in South Africa, it would have to be imported, and the landed cost of briquetted cyanide
is considerably higher than the domestic price of liquid NaCN purchased from Sasol.
Solid NaCN is generally more expensive than liquid NaCN because its production
involves an additional processing step to evaporate water, crystallise the solution and
briquette the material.
4 As discussed further below, Draslovka has recently brought to market a new glycine leaching product called
GlyCat for the recovery of gold. Glycat is itself partly NaCN-based.
7
[22] There is also doubt regarding the ability of South African ports to handle imports of solid
NaCN with the level of safety now required by international standards. Mr Mokomela
testified that, while Sasol historically imported (and dissolved) limited quantities of solid
NaCN to supplement its liquid NaCN inventory when necessary (e.g., during plant
shutdowns), the rules of the International Cyanide Management Institute (“ICMI”) for the
safe importation of NaCN have changed, and the Durban port is currently unable to
guarantee adherence to these international safety standards. Sasol is therefore no
longer able to import solid NaCN and has accordingly mothballed its dissolving facility.5
[23] Based on its investigation, the Commission concluded that the relevant market in which
the Target Business operates is the market for the supply of liquid NaCN.
[24] As regards the geographic ambit of the relevant market, the Commission found that,
because of the hazardous and unstable nature of liquid NaCN and the associated
logistics costs, it is generally only transported by road or rail, within specific
circumstances and across relatively short distances. The Commission determined that
most of the purchasers of liquid NaCN from the Target Business are located within a
700km radius of its Sasolburg plant. The Commission accordingly assessed the supply
of liquid NaCN at a national level.
[25] The merger parties and the intervenors all agree that the relevant market is the market
for the supply of liquid NaCN in South Africa, and that the Target Business occupies a
monopoly position in this market.
[26] For the above reasons, we consider the relevant market to be the supply of liquid NaCN
in South Africa.
THE COMMISSION’S FINDINGS ON THE COMPETITION AND PUBLIC INTEREST
EFFECTS OF THE MERGER
[27] In its merger investigation, the Commission found that, while both Draslovka and the
Target Business are involved in the manufacture and supply of liquid NaCN, there is no
horizontal overlap between the parties because Draslovka does not supply liquid NaCN
in South Africa. Draslovka does not have any NaCN facilities in South Africa, and does
not supply any liquid NaCN to the South African market from its production facilities in
the Czech Republic.
5 Witness Statement of Mr Mokomela, Trial Bundle A at p164, para 16. See also Trial Bundle A, p531.
8
[28] Draslovka also does not sell any significant quantities of solid NaCN in South Africa.
The Target Business, for its part, does not manufacture solid NaCN, 6
and historically
only imported small quantities of solid NaCN when it was necessary to supplement its
local supply of liquid NaCN, for example during plant shutdowns.
[29] Having regard to this market structure, the Commission found that the proposed
transaction does not give rise to any material input foreclosure or customer foreclosure
concerns.
[30] However, during its investigation, the Commission received concerns from various gold
mining companies (including the three intervenors referred to above), and from the
Department of Trade, Industry and Competition (the “DTIC”), that the merged entity is
likely (i) to increase the price it charges domestic customers for liquid NaCN, potentially
up to import parity levels (reflected, in this case, by the costs associated with having to
import and dissolve solid NaCN for use in local gold mining companies’ operations),
and/or (ii) to reduce the supply of liquid NaCN to South African customers in favour of
exports. The concerned customers stated that either of these effects would have a
materially negative impact on their operations because they are dependent on the
supply of liquid NaCN for their gold mining operations in South Africa, and liquid NaCN
constitutes a material portion of their operational costs.
[31] As regards the local supply concern, the Commission found that exports of liquid NaCN
would not be feasible for the merged entity. The Commission also found that any
manufacture and export of solid NaCN by the merged entity was unlikely to be at the
expense of the supply of liquid NaCN to local customers.
[32] As regards the pricing concern, the Commission found that the Target Business has
historically priced NaCN significantly below import parity levels, partly because it has the
benefit of a cheap supply of key inputs (caustic soda in particular) as part of the
vertically-integrated Sasol Group. However, post-merger, the Target Business would
no longer receive this benefit because it would have to purchase these key inputs from
Sasol at market-related prices that are currently considerably higher than those incurred
by the Target Business for these inputs as a vertically-integrated firm. The arms-length
supply agreements between the Sasol Group and Draslovka SA for these inputs would
therefore result in increased input costs for the Target Business post-merger which
would necessitate price increases by the Target Business for NaCN. The Commission
6 Hearing Transcript dated 25 April 2023 at p344.
9
found that this was a merger-specific price increase and that it constituted a substantial
prevention or lessening of competition within the meaning of section 12A(1) of the Act.
[33] As regards the public interest, the Commission found that the proposed transaction
would not have any negative effect on employment, because the merger parties had
indicated that the merger would not result in any retrenchments. In addition, no
employees of the merger parties expressed any concerns regarding the proposed
transaction. However, the Commission found that the pricing effects of the proposed
merger would (for the reasons outlined above) have a substantial negative impact on
the South African gold mining industry, and that this amounted to a substantial negative
public interest effect in terms of section 12A(3)(a) of the Act.
[34] The Commission engaged with the merger parties on a remedy to address this pricing
concern, but concluded that the conditions offered by the merger parties did not
adequately do so.
[35] Based on the above findings, and the absence of remedies that it regarded as adequate
to address the likely price effects of the proposed merger, the Commission prohibited
the merger.
THE INTERVENORS’ CONCERNS
[36] In their intervention applications before the Tribunal, SSW, Harmony and PAR
elaborated on the price increase and local supply concerns they had expressed during
the Commission’s merger investigation.
[37] As indicated above, SSW persisted in its opposition to the proposed merger at the
Tribunal hearing, and its witnesses testified in support of the concerns it had raised.
However, Harmony and PAR accepted revised term sheets proposed by Draslovka in
the period preceding the Tribunal hearing, and therefore did not persist in their
opposition to the merger. The Tribunal nevertheless requested Harmony and PAR to
attend at the Tribunal hearing to explain the reasons for their revised stance on the
merger. The evidence provided by the intervenors’ witnesses is discussed in more detail
below.
1010
CENTRAL ISSUES
[38] Having regard to the merger assessment required by section 12A of the Act,7
the central
issues raised by the proposed merger are the following:
38.1. Whether the proposed merger is likely to give rise to an increase in the price of
liquid NaCN sold in South Africa;
38.2. Whether the proposed merger is likely to give rise to a reduced supply of liquid
NaCN for South African consumers;
38.3. Whether, on the basis of either or both of these factors, the merger is likely to
result in a substantial prevention or lessening of competition in the relevant market,
within the meaning of section 12A(1) of the Act;
38.4. If so, whether any such anti-competitive effects are outweighed by pro-competitive
benefits of the merger;
38.5. Whether the proposed merger can or cannot be justified on substantial public
interest grounds; and
38.6. Whether any negative competition or public interest effects of the proposed merger
are adequately addressed by the conditions proposed by the merger parties.
[39] We consider all these issues below.
THE PRICING CONCERN
Introduction
[40] There is no dispute that the basis upon which the merged entity would charge gold
mining customers for liquid NaCN post-merger would be different than the basis upon
which Sasol has historically priced liquid NaCN. It is further common cause that the
proposed merger would result in the “vertical de-integration” of the Target Business from
the Sasol Group. However, there is a significant dispute between the parties as to
whether this price increase was attributable to the merger and should therefore be
included in or excluded from the relevant counterfactual. This is because, after the
conclusion of the merger agreement in mid-2021 (and also after the Commission’s
7 See Imerys South Africa (Pty) Ltd and Another v Competition Commission (147/CAC/Oct16, IM013May15) [2017]
ZACAC 1 (2 March 2017), paras 36-42.
1111
prohibition of the proposed merger in November 2021 and the filing of the merger parties’
request for consideration in December 2021), the pricing methodology used by Sasol
for pricing liquid NaCN in South Africa changed significantly over the period 2022 to
January 2023.
[41] Because the changes in Sasol’s pricing methodology took place after the merger
agreement and after the Commission’s prohibition of the merger and the filing of the
merger parties’ request for consideration, the Commission contended that these
changes in Sasol’s pricing should be regarded as attributable to the merger, and should
accordingly be excluded from the relevant counterfactual for purposes of the
assessment of pricing effects.
[42] The merger parties, on the other hand, argue that the changes in the pricing approach
of the Target Business in 2022 and 2023 had nothing to do with the proposed merger,
and everything to do with the unprecedented increase in the international prices of
certain input costs in the production of NaCN as a result of Russia’s invasion of Ukraine
in early 2022.
[43] Sasol’s position at the Tribunal hearing was furthermore that, irrespective of the extent
to which the proposed merger might have contributed to the recent changes in its
approach to the pricing of NaCN, its current methodology is “here to stay”, with the result
that, even if the merger did not proceed, Sasol would continue to apply this new
methodology. Sasol therefore contends that, as a matter of commercial reality, the
prices charged by the merged entity for liquid NaCN post-merger would not be materially
different from those that Sasol would charge if the merger did not proceed. Sasol
accordingly argues that this is the “real world” counterfactual that should be applied in
considering the competition and public interest effects of the merger. The Commission
disagrees with this and contends that, if the merger does not proceed, it is more likely
that Sasol will revert to the pricing approach it followed prior to the proposed merger.
The Commission further argues that one of the reasons Sasol would do so is that it
would otherwise face a real risk that its pricing of NaCN would be found to be excessive
under the Act, especially given its monopoly position in the South African liquid NaCN
market, and the margins the NaCN business would be making based on its low cost
base as a vertically-integrated entity within the Sasol Group.
[44] The Commission argues further that, in addition to the price increase brought about by
Sasol’s alignment of its pricing mechanism with the pricing mechanism that Draslovka
has indicated it would apply post-merger, Draslovka would have a merger-specific ability
and incentive to increase the NaCN price even higher – up to, or perhaps even above,
1414
[52] Sasol Gas (Pty) Ltd (“Sasol Gas”), another entity in the Sasol Group, is the only supplier
of natural gas in South Africa, which it supplies both internally to businesses within the
Sasol Group (including the Target Business) and also to third party customers. We
understand that Sasol Gas charges the Target Business for natural gas on the same
basis that it charges third parties, in accordance with the maximum pricing regulations
issued by the National Energy Regulator of South Africa (“NERSA”).1616
[53] We note that an excessive pricing complaint against Sasol Gas has been referred to the
Tribunal based, inter alia, on Sasol Gas’s price/cost margin in respect of natural gas. 1717
However, the question whether the prices charged by Sasol Gas for natural gas are
excessive or not is not relevant to our analysis of the proposed merger. Rather, what is
relevant in the present proceedings is whether there would be any change in the price
that the Target Business charges customers for NaCN as a result of the proposed
merger. One of the relevant factors in this regard is whether the Target Business is
likely to pay higher prices for the inputs referred to above as a stand-alone firm post-
merger than it does as a vertically-integrated firm within the Sasol Group.
[54] In terms of Sasol’s historical pricing methodology, the quarterly adjustments generated
by the above pricing mechanism were then subjected to a so-called “cap-and-collar”
mechanism, the purpose and effect of which was to restrict the quarterly movement or
variations in the NaCN price charged to any customer to approximately 5% (i.e., even
where the prices reflected in the adjustment formula fluctuated more significantly). As a
consequence, the NaCN price changes did not necessarily fully track changes in the
underlying prices captured in the adjustment formula, at least in the short term.
[55] It does not appear that the above pricing methodology, and its application each quarter,
was typically shared with the customers themselves. The quarterly pricing letters
included in the record simply refer generally to changes in the prices of the various input
prices and specify a net percentage NaCN price change.
Changes to Sasol’s NaCN pricing mechanism
[56] The evidence indicates that, during the course of 2022 to January 2023, Sasol changed
its pricing mechanism – first to a transitional pricing mechanism in 2022 and then, with
effect from January 2023, to a stoichiometry-based pricing mechanism (i.e. a
mechanism directly based on the prices of the key variable inputs into the production of
1616 Hearing Transcript dated 26 April 2023 at p365-366; Expert Report of Mr Smith , Trial Bundle A at p801-802,
paras 188-191.
1717 Industrial Gas Users Association of Southern Africa v Sasol Gas (Pty) Ltd And Others (Case No: IR095Aug22),
dated 12 May 2023), and similar allegations of excessive pricing were made in the present Tribunal proceedings.
1515
NaCN weighted according to the volumes of each input consumed in the production of
one ton of NaCN).
[57] Critically, however, as discussed further below, the input price used for caustic soda in
the new formula reflects a full import parity price for caustic soda and not the (much
lower) cost currently incurred by NaCN business for caustic soda as a vertically-
integrated entity within the Sasol Group.
[58] Sasol argues that these changes were a response to unprecedented increases in the
prices of the key inputs used to make liquid NaCN as a result of Russia’s invasion of
Ukraine in early 2022. Mr Bruzek explained in this regard that, from early 2022, the
international prices of these inputs increased dramatically, and were extremely volatile,
as a result of the Russian invasion of Ukraine, the consequent energy crisis in Europe,
and congestion in international freight. As a result, most NaCN producers internationally
increased NaCN prices by 30-50% in 2022.18
18
[59] However, the Commission disputes this. It contends that, because Sasol currently self-
supplies caustic soda to its NaCN business at an internal input cost that is based on its
cost of production, its actual costs are unaffected by fluctuations in the international price
of caustic soda. Therefore, the Commission argues, Russia’s invasion of Ukraine in early
2022 did not have any impact on the Target Business’ actual input costs. Hence, absent
the merger, the NaCN business would not have had any incentive to change its NaCN
pricing methodology to recover the international cost of caustic soda in its NaCN price.
[60] The Commission’s position is therefore that, absent the merger, Sasol’s NaCN prices in
2022 and early 2023 would have risen only to the limited extent that international prices
affected pricing under Sasol’s historical pricing mechanism, and that Sasol would not
have changed the NaCN pricing mechanism itself to make it directly responsive to the
international prices of caustic soda. The Commission argues further that the changes
made by Sasol to its NaCN pricing mechanism in 2022 and January 2023 resulted in
significantly higher prices over that period than would have been charged under Sasol’s
historical pricing mechanism, and therefore do not represent the relevant counterfactual
for purposes of assessing the price effects of the proposed merger. SSW joined cause
with the Commission in this contention.
[61] We proceed to consider the relevant evidence on this issue below.
1818 Witness Statement of Mr Bruzek, Trial Bundle A at p84-85, paras 29-31.
1717
impacts. Several pricing mechanisms were reviewed and formulated to derive
a mechanism that returns the financial performance of the asset to
economically viable historical levels. Of the options reviewed a new
stoichiometry-based pricing mechanism was selected as the most suitable. The
new model safeguards the generation of the required gross margin per dry
metric ton (dmt). To ensure a more responsive approach, the pricing
mechanism would also change from quarterly to a monthly stochiometric based
model where the cap and collar mechanism are removed to ensure full
exposure to market changes.”
2424
(our emphasis)
[65] The “key expectations
of the new mechanism are then identified as:
“ To return the unit gross margin of the Sodium Cyanide Asset to
historical levels and ensure its economic viability.
 To formulate a new and transparent cost-price formula which reflects
Sasol’s input costs, while considering the reference of global sodium
cyanide trends.
 To arrive at a pricing formula that is simple, responsive, and robust even
during volatile periods.”
2525
(our emphasis)
[66] Mr Mokomela confirmed in his evidence that the purpose of the new pricing mechanism
was to “restore the business back to historical performance”.
”.2626
[67] As regards Sasol’s historical NaCN pricing mechanism, the memorandum states:
“Whilst this mechanism has served Sasol well in the past, recent, volatile
swings in the input pricing saw the mechanism responding poorly to macro
2424 Trial Bundle C2.7 at p6522.
2525 Trial Bundle C2.7 at p6522.
2626 Hearing Transcript dated 26 April 2023 at p443.
2424
NaCN with reference to the opportunity cost (and not the actual cost) of caustic soda –
which, in the “short” markets that exist for these products in South Africa, approximates
an import parity price – and there was accordingly nothing merger-specific about the
price rises in 2022 and January 2023. We consider the question of merger-specificity
and the relevant counterfactual further below.
Sasol’s future pricing of NaCN absent the merger
[86] Mr Mokomela stated that, if the proposed merger does not proceed, it will maintain the
new stoichiometric pricing mechanism it adopted in January 2023 because of the
benefits referred to above – in particular, that it will better reflect changes in the
international prices of feedstock inputs, and thus ensure that the NaCN business is able
to operate on a “commercially viable” basis.
5151
[87] The merger parties therefore contend that the appropriate counterfactual for purposes
of assessing whether the proposed merger would have any pricing effects is the prices
determined by the new, stoichiometry-based pricing mechanism and not the prices that
would have been determined by Sasol’s historical pricing mechanism. We return to this
contention further below.
The proposed pricing of NaCN by Draslovka
[88] In his witness statement, Mr Bruzek stated that Draslovka prices NaCN on a “cost plus”
basis, which allows Draslovka to recover the actual cost of key inputs and an appropriate
margin.52
52
[89] Mr Bruzek elaborated that Draslovka applies an ex-works “cost plus” pricing mechanism
comprised of three components, namely:
89.1. the unit price of each of the four key inputs (caustic soda, ammonia, natural gas
and electricity) multiplied by the relevant consumption factor to produce one ton of
NaCN;
89.2. other processing and cash fixed costs; and
5151 Witness Statement of Mr Mokomela, Trial Bundle A at p166-168, para 21; Hearing Transcript dated 26 April 2023
at p383-384.
5252 Witness Statement of Mr Bruzek, Trial Bundle A at p82, para 23.
2626
increased cost (and the other costs of the business), plus a full margin of its own, by
way of an increased downstream price.
[93] We highlight at this juncture the similarity between the nature of Draslovka’s “cost plus”
pricing mechanism, and the stoichiometry-based pricing mechanism that has been
implemented by Sasol with effect from January 2023. In particular, both mechanisms
are “cost plus” models in which the costs of all the inputs provided by Sasol to the NaCN
business reflect arms-length prices for those inputs – including, in the case of caustic
soda and ammonia, prices equivalent to a full import parity price.
[94] It appears to be common cause that, as a result of the similarities in these pricing
models, there is no longer a material difference between the NaCN prices charged by
Sasol, and the prices that, according to Mr Bruzek, Draslovka would charge post-
merger. This is illustrated in slide 54 of Mr Smith’s “hot tub” presentation to the
Tribunal.6060
The test for the relevant counterfactual
[95] Relying on the Tribunal’s decision in BB Investment 1
1 (which was endorsed by the
Competition Appeal Court (“CAC”) in Coca-Cola62
62), the merger parties argued that, in
order to determine whether or not the changes in Sasol’s NaCN pricing in 2022 and
January 2023 should be included in the relevant counterfactual for purposes of
assessing the pricing effects of the merger, it is necessary to “consider the incentives of
the new controller and whether the effect in question has a nexus with and aligns with
the incentives of the new controller
.6363
[96] In BB Investment, the Tribunal noted that the above approach must take into account
that “firms are dynamic institutions
” and that “
[n]ot every change that results post-merger
is necessarily attributable to the merger ”. There may, for instance, be changes in a
firm’s behaviour post-merger that would have happened in any event and which
therefore would not be regarded as merger-specific.64
64
6060 Exhibit 22 at slide 54.
6161 BB Investment Company (Pty) Ltd v Adcock Ingram Holdings (Pty Ltd [2014] 2 CPLR 451 (CT) at para 56.
6262 Competition Commission v Coca-Cola Beverages Africa (Pty) Ltd 2022 ZACAC4; (2022) 2 CPLR 22 (CAC), at
para 83.
6363 Merger parties’ Heads of Argument at p54, para 129.
6464 BB Investment, supra at para 57.

2727
[97] In Coca-Cola, the CAC endorsed the
BB Investment test as “ objective and sound
because the focus is on demonstrable outcomes [effects] rather than the subjective
attitude or intention of the merging parties.”.”6565
[98] Both of the above cases were concerned with the question whether post-merger
retrenchments should be regarded as merger-specific for purposes of the public interest
analysis under section 12A(3) of the Act. They were not concerned with the question at
issue in this merger, namely whether or not price increases implemented after the
agreement, but before the implementation, of the proposed merger should be included
in the relevant counterfactual for purposes of assessing the pricing effects of the merger.
In the present context, it may be more appropriate simply to apply standard
counterfactual analysis, namely to compare the likely market outcomes with, and absent,
the merger.66
66
[99] In the present case, however, nothing turns on this question because our conclusion
regarding the relevant counterfactual would be the same on either test.
[100] Only events that would have happened in the absence of the proposed merger under
review, and are not a consequence of it, can be incorporated into the counterfactual.
We consider below the relevant evidence regarding the likely pricing approach of the
NaCN business absent the merger. The central question in this regard is whether Sasol
would have made the changes it did to its pricing methodology in 2022 and January
2023 absent the proposed merger. As discussed above, those changes resulted in
Sasol’s current pricing mechanism being effectively the same (from January 2023) as
the pricing mechanism that Draslovka would apply post-merger. Therefore, if it is not
likely that Sasol would have made those changes absent the merger, they should not
be taken into account in assessing the pricing effects of the merger.
Were the changes in Sasol’s NaCN pricing mechanism in 2022 and January 2023
attributable to the merger?
Sasol’s pricing of caustic soda and NaCN prior to its engagements with Draslovka
[101] One of the central propositions advanced by Mr Smith on behalf of the merger parties
was that, even pre-merger, Sasol faces an opportunity cost to supply the NaCN business
with its key inputs (caustic soda, ammonia, natural gas and electricity), and that, in the
6565 Coca-Cola, supra, at para 83.
6666 Imerys South Africa (Pty) Ltd and another v Competition Commission (Case. No. IM013May15),
para 185; Life
Healthcare Group (Pty) Ltd v Joint Medical Holdings Ltd (74/LM/Sep11) [2012] ZACT 88 (24 October 2012), para
20.
2828
case of caustic soda and ammonia, that opportunity cost is represented by an import
parity price, because both of the caustic soda and ammonia markets are structurally
“short” in South Africa. On this basis, Mr Smith testified that the proposed merger would
not bring about any change in Sasol’s pricing of caustic soda (or ammonia).67
67
[102] Mr Smith also testified that downstream firms that face a binding capacity constraint
(such as that facing the Target Business) can no longer set profit-maximizing prices with
reference to the interaction between customers’ price-sensitivity and some measure of
marginal costs (or the wholesale prices of inputs). Mr Smith stated that, for this reason
too, the merger would not change the pricing incentives of the NaCN business.68
68
[103] In our view, however, these arguments do not take into account the relevant facts in this
case, in particular the manner in which caustic soda and NaCN have in fact historically
been priced by Sasol as a vertically-integrated entity. In particular, the evidence
discussed below indicates that, prior to its engagements with Draslovka in relation to the
proposed merger, Sasol did not in fact follow an opportunity cost approach in supplying
caustic soda to the Target Business, nor did the Target Business price NaCN having
regard to the opportunity cost of caustic soda.
[104] We have set out above the significant difference between the cost at which Sasol has
historically supplied (and continues to supply)69
69 caustic soda to the Target Business as
a vertically-integrated business, and the price at which Sasol sells caustic soda to third
parties. Ms Wainer explained that this is an internal transfer “cost” rather than a transfer
“price” because caustic soda is produced by the same legal entity that houses the NaCN
business, and accordingly there is no “sale” of caustic soda to the NaCN business. 7070
However, nothing turns on this distinction for our purposes. What is relevant is that the
NaCN business, as a vertically-integrated business within the Sasol Group, did not
historically (and does not currently) incur an actual cost for caustic soda that is
equivalent to the “opportunity cost”-based import parity price at which Sasol sells caustic
soda to third parties. It incurs a much lower internal cost.
[105] Furthermore, there is no evidence that, prior to its engagements with Draslovka in
relation to the proposed merger, Sasol sought to recover the “opportunity cost” of caustic
soda in its pricing of NaCN, or assessed the financial performance of the Target
Business on that basis. Ms Wainer expressed the view that, from her perspective, this
6767 Export Report of Mr Smith, Trial Bundle A at p797-799, paras 179-182 and p799-801, paras 183 – 187.
6868 Expert Report of Mr Smith, Trial Bundle A at p780-782, paras 126-127.
6969 Exhibit 19 at p5, Table 2.5. Hearing Transcript dated 26 April 2023 at p435.
7070 Hearing Transcript dated 26 April 2023 at p521.
3333
109.6. PWC also stated that:
“Cyanide’s pricing has historically been low due to favourable internal
transfer prices from Sasol’s vertically integrated business, and due to
‘political’ reasons. This is reflected in the lower margins in the pro
formas, as compared to those Sasol reported historically. ”
96 (our
emphasis)
109.7. PWC elaborated on this view in two bullet points. The first bullet point was that
“customers leverage Sasol’s internal transfer pricing in the negotiation process –
resulting in lower sales prices”.
”.9797 PWC expanded on this bullet point as follows:
“Sasol’s integrated business provides certain feedstock items to
Cyanide at a lower than market price. The customers are aware that
they are receiving a discount to the international import parity price, due
to Sasol being able to afford this based on the cost of feedstock being
lower.
It is important to consider the position of the standalone Cyanide
business in this context – which won’t have access to the feedstock
items at transfer prices. Customers are aware of the sale process and
that contracts will need to be revisited going forward. Customers may
be alert about price increases, which will need to be managed.” 9898
109.8. The second bullet point was that “ Sasol has historically been willing to accept
lower sales prices to customers in the gold sector when it has come under
pressure”.
”.9999 PWC expanded on this bullet point as follows:
“There is considerable political interest in the gold mining industry, as a result
of its importance to the South African economy and employment. Sasol has
also received scrutiny and legal challenges on the pricing of other products in
its portfolio in the past. The gold industry is volatile – with profits fluctuating
based on the USD gold price and the ZAR/USD exchange rate. Given the
9696 Trial Bundle C1 at p615.
9797 Trial Bundle C1 at p615.
9898 Trial Bundle C1 at p615.. See also Hearing Transcript dated 25 April 2023 at p316.
9999 Trial Bundle C1 at p615.
3434
above and reliance on cyanide as a key gold mining input, Sasol has been wary
of taking a hard line on pricing with the Cyanide customers, and has been
willing to reduce margin and absorb costs to support the industry and provide
assistance to its top customers, especially in challenging times. . . .
However, when the industry recovers, the realised cyanide price comes off a
low base and does not seem to increase accordingly.
Considering the margin benefits of Sasol’s integrated operations and Cyanide
being a relatively small part of the Sasol Group, this was not considered to be
an issue for Sasol, but will be for the standalone Cyanide business. ”
100 (our
emphasis)
[110] This understanding of Sasol’s previous pricing philosophy is also reflected in the Final
Binding Offer that Draslovka submitted to Sasol on 6 April 2021, 101 where Draslovka
stated the following:
“Draslovka recognises the role played by Sasol in the broader gold mining
ecosystem and the pricing support Sasol has provided to the gold mining
industry in the past. Whilst we have identified material risk for a new buyer to
freely negotiate prices in the long-term, we have not made any downward
adjustments to the Base EV [Enterprise Value] to account for this risk.”
102 (our
emphasis)
[111] That Draslovka anticipated the need to raise NaCN prices post-merger to account for
the fact that it would be paying higher prices for caustic soda as a third party customer
is also reflected in correspondence sent by Draslovka’s attorneys to the Commission on
29 October 2021, in which they stated the following regarding Draslovka’s future pricing
strategy:
“Draslovka’s anticipated input and production cost base for the target business
post-merger will differ from Sasol’s existing cost base. Draslovka will be
purchasing raw materials at the competitive market price which will be based
on internationally accepted price mechanisms that will take into consideration
international price indexes and will be expressed in USD. As such, Draslovka’s
100 Trial Bundle C1 at p615.
101 Trial Bundle C1 at p449.
102 Trial Bundle C1 at p452.
3535
future pricing strategy must of necessity (and reasonably) be informed by these
costs and Draslovka can therefore not be required to apply the Sasol pricing
formulas as these would not reflect the commercial reality in which Draslovka
will be operating and could lead into a situation where the facility would not be
able to sustainably operate the business.”
103 (our emphasis)
[112] Draslovka’s attorneys accordingly informed the Commission that:
“As the existing supply agreements draw to a close, it is Draslovka’s intention
to renegotiate the terms and conditions of its supply on an arms-length basis
having regard to its own input and production costs (and achieving suitable
returns).”
104
[113] In our view, all of this evidence indicates that, prior to its decision to sell the NaCN
business to Draslovka:
113.1. Sasol supplied caustic soda to the NaCN business at an internal transfer cost
because the business formed part of a vertically-integrated business;
113.2. Sasol did not seek to recover the opportunity cost of caustic soda in its pricing of
NaCN to customers;
113.3. As a result of the low cost it incurred for caustic soda, the NaCN business did not
have to, and did not, maximize the price at which it could sell NaCN. This decision
may also have been informed by the profits the Sasol Group was making
elsewhere in its overall operations; broader Sasol Group objectives and priorities;
a “political” commitment to supporting the South African gold mining industry;
and/or legal concerns, based on previous challenges to Sasol’s pricing as a
vertically-integrated entity, that, given its low cost base, the NaCN business might
be accused of excessive pricing if it sought to profit-maximize. 05
113.4. We note in the latter regard that, in the Sasol Chemical Industries case, the CAC
held that the feedstock price that should be used for the excessive pricing
103 Trial Bundle B at p790, para 7.2. See also Trial Bundle B at p792, paras 8.1.1 and 8.1.2, and p794, para 10.1.
104 Trial Bundle B at p795, para 13.3.
105 Mr Harman also raised this as a relevant consideration (Hearing Transcript dated 25 May 2023 at p1000-1002
and p1079-1080).
3636
calculation was the “actual cost
” at which Sasol Synfu
els sold such feedstock to
Sasol Chemical Industries.106
[114] However, whatever these reasons may have been for what Sasol refers to in its internal
documents as the NaCN business’s “defensive
pricing, the above documents suggest
that, prior to Sasol’s engagements with Draslovka, they afforded gold mining customers
a limited degree of countervailing power in their pricing negotiations with Sasol, and had
the effect that Sasol did not in fact price caustic soda, or NaCN, on a profit-maximising
basis as suggested by Mr Smith as a matter of general economic theory. Mr Schoeman
described Sasol’s change in attitude since 2022 as follows:
“[W]here it was previously a negotiation and almost a partnership and they
would understand where we’re coming from when we say to them we can’t take
this price increase because the gold price is at this level and it hasn’t moved.
None of that is – that seems to be – to have dissipated in the negotiation
phase.”
107
[115] The above documents suggest that Sasol did not even track the financial performance
of the NaCN business on an opportunity cost basis historically – the first time it prepared
pro forma stand-alone financial statements for the NaCN business which reflected third
party pricing of caustic soda (and of the other key inputs) was in 2020, when it was
considering the sale of the NaCN business, and wished to assess whether the business
would be commercially viable on a standalone basis. Updated versions of these pro
forma statements were then provided to Draslovka for purposes of conducting its due
diligence on the NaCN business.
[116] Ms Wainer confirmed that these pro forma financial statements, and the “third party”
input prices for the stand-alone business reflected in those statements, had been
prepared by the Sasol’s M&A team (not by the management of the NaCN business)
specifically for purposes of Project Silver. Ms Wainer elaborated that the key adjustment
related to the caustic soda price, which had been increased from an internal transfer
cost to a “ market price calculated by the M&A team, and which was subsequently
revised in negotiations between Sasol’s deal team and Draslovka.108
106 Sasol Chemical Industries Limited v Competition Commission (131/CAC/Jun14) [2015] ZACAC 4; 2015 (5) SA
471 (CAC) (17 June 2015), para 115.
107 Hearing Transcript dated 4 May 2023 at p609.
108 Hearing Transcript dated 26 April 2023 at p486-487, p557, and p563-564.
4040
12 months before the closing date and (ii) “he gross margin that our purchase price was
based on” (referred to as a “
gross margin underpin
”).
116
[133] Ms Wainer responded on 1 September 2022 suggesting that the parties “discuss these
and some other potential options”.
”.117
[134] The discussions between the parties led to a presentation prepared by Ms Wainer and
distributed to Steercom on 30 September 2022 under cover of an email in which
Steercom was requested to agree to an adjustment of the purchase price of the NaCN
business on the basis that “ Business performance has indirectly created difficulty for
Draslovka’s structure and funding , and that Draslovka was unlikely to agree to an
extension of the long-stop date for the transaction (31 December 2022) absent an
adjustment of the purchase price.118
[135] The presentation recorded that the “ EBIDTA of the stand-alone business has declined
in the last 12 months due to significantly escalating input costs . . . and cyanide pricing
formulas which were unable to pass on these escalations to customers rapidly
enough”.
”.119 The presentation also noted that “ pricing is under review by Sasol, and
FY23Q2 pricing has been increased . However, the presentation went on to explain that
Draslovka was nevertheless demanding a reduction in the purchase price of the Target
Business to compensate it for the effects of the declining pro forma performance of the
business on its funding arrangements, and unanticipated transaction costs. 120 Ms
Wainer therefore requested Steercom to approve a renegotiation of the terms of the
transaction on the basis of a reduction in the purchase price and a recovery mechanism
based on the future performance of the NaCN business.121
[136] Ms Wainer obtained this approval and proceeded to negotiate revised transaction terms
with Draslovka over the period October – December 2022.
116 Trial Bundle C2.8 at p6611-6613.
117 Trial Bundle C2.8 at p6611.
118 Trial Bundle C2.8 at p6957.
119 Trial Bundle C2.8 at p6960 and p6963.
120 Trial Bundle C2.8 at p6963.
121 Trial Bundle C2.8 at p6964.
4444
not “restore
” its performance to its historical
pro forma
levels.131 It is also clear from the
correspondence above that the Sasol deal team engaged with the management of the
Target Business during the period August to December 2022 regarding its pro forma
performance, and that the management committed to increase the price of NaCN to
restore the business’s historical pro forma performance.
[147] Having regard to all these facts, it is, in our view, implausible that the decision of the
NaCN business to change its pricing mechanism in 2022 and January 2023 was not
attributable to Project Silver, and, in particular, that its decision to introduce a pricing
mechanism based on IPP prices for key inputs (in particular, caustic soda) with effect
from January 2023 was not a function of:
147.1. the declining pro forma performance of the NaCN business as a carved-out
business pursuant to Project Silver;
147.2. Draslovka’s demands that Sasol address this decline in the pro forma
performance
of the carved-out NaCN business it had agreed to buy; and
147.3. the incentives created by the renegotiated purchase price for the NaCN business
for Sasol to increase the price charged for NaCN pending the transfer of the
business to Draslovka.
[148] This is also consistent with the reference to the target margin in the November 2022
memorandum as a “required return
”. The return was certainly not “
required
” in terms of
NaCN business’s historical pricing model, which (as the documents reflect and Mr
Mokomela acknowledged) did not include any “direct margin protection”’. 32
Even less
did the Target Business, as a vertically-integrated entity, historically “ require” a return
based on the pro forma
performance of the business. Rather, the notion that a return of
this nature was “ required
” strongly suggests that this return was a specific function of
Draslovka’s demands, or at least of Project Silver (which is expressly referenced in the
November 2022 memorandum, as noted above).
[149] As set out above, there is no evidence that, prior to Project Silver, Sasol ever priced
caustic soda to the NaCN business on an opportunity cost basis, or that the NaCN
business ever priced NaCN based on the opportunity cost of caustic soda.
[150] Even with the spike in the international prices of inputs during the course of 2022, it does
not appear to us to be likely that the NaCN business would have had an incentive to
131 Hearing Transcript dated 26 April 2023 at p418.
132 Trial Bundle C2.2 at p1443; Hearing Transcript dated 26 April 2023 at p462.

4646
[154] However, clause 16.3 of the sale agreement provides that Sasol must carry on the NaCN
business “ n the Usual and Ordinary Course to the standard of a Prudent Operator
”
where “ Usual and Ordinary Course
is defined as “
he manner in which [Sasol]
conducted the Cyanide Business in the 12 months prior to the Signature Date ”. Given
the evidence above that Sasol did not conduct the NaCN business on an opportunity
cost, or pro forma “carved-out”, basis prior to July 2021, it does not appear to us that
clause 16.3 obliged Sasol to do so after that date.
[155] This notwithstanding, even if Sasol’s price changes were motivated by a perceived
contractual obligation under clause 16.3 of the sale agreement to maintain the pro forma
value of the NaCN business, it appears to us that that would itself be a merger-specific
effect (in both senses referred to above) given that this obligation would not have been
in place absent the proposed merger, and also would be aligned with the interests of
Draslovka as the proposed purchaser.
[156] In our view, therefore, nothing much turns on the question whether the Sasol deal team
instructed the management of the NaCN business to change the pricing mechanism of
the business to increase the NaCN price; or whether Mr Mokomela understood that the
commercial imperative under the renegotiated sale agreement was to ensure that the
historical pro forma performance of the business was “restored” without expressly being
requested to do so; or whether the NaCN business understood this to be a contractual
obligation under the sale agreement; or whether Sasol of its own accord wished to
preserve the pro forma value of the NaCN business as a stand-alone business for
purposes of Project Silver. Whichever it was, it appears to us that the changes made
by the management of the Target Business to the NaCN pricing mechanism in 2022 and
2023 were likely a specific effect of the proposed merger because they were triggered
by Project Silver; they were aligned with the interests of Draslovka as the proposed
purchaser of the Target Business; and there is no evidence that Sasol would otherwise
have changed its historical pricing mechanism to a pricing model based on IPP prices
for key inputs (in particular, caustic soda).
[157] For all these reasons, we are satisfied that the change made by the NaCN business to
its NaCN pricing mechanism in 2022, and particularly its change to a pricing mechanism
based on IPP prices for key inputs in January 2023 (which effectively mirrored
Draslovka’s proposed post-merger pricing mechanism) would not likely have taken place
absent the merger (and that such changes were also merger-specific on the BB
Investment test), and should accordingly be disregarded in assessing the pricing effects
of the proposed merger.
4747
[158] The Commission argued that the changes made by the NaCN business to its pricing
mechanism in 2022 and 2023 were merger-specific for an additional reason, namely that
they represented a deliberate attempt by Sasol, after the prohibition of the proposed
merger by the Commission on 26 November 2021, to “game the system” by creating a
false counterfactual for purposes of the merger hearing before the Tribunal.
[159] We do not believe there is a sufficient evidential basis for this contention. Having regard
to the evidence referred to above, we believe that the most plausible explanation for the
changes Sasol made to its NaCN pricing methodology is the one set out above. This,
in our view, is a sufficient basis upon which to conclude that the changes Sasol made to
its pricing methodology were attributable to the proposed merger and should accordingly
be excluded from the relevant counterfactual in assessing the pricing effects of the
merger.
Sasol’s pricing approach if the merger does not proceed
[160] What do we make of Mr Mokomela’s position at the hearing that, even if the merger does
not proceed, Sasol does not intend to change the pricing mechanism it introduced in
January 2023?
[161] Mr Mokomela testified that it is necessary to keep this new mechanism in place because
Sasol’s NaCN business remains under “severe pressure
” as a result of the increase in
the “market prices” of feedstocks, which it is unable fully to pass onto consumers in
terms of Sasol’s historical pricing formula; and therefore that Sasol’s NaCN prices need
to increase at least in line with such market price increases in order for the business to
operate on a “commercially viable or sustainable basis
”.”.134
[162] However, as discussed above, this view of commercial viability is based on the notional
premise that the prices paid by the NaCN business for its inputs are not the actual costs
incurred by it as a vertically-integrated entity, but the market prices payable by third
parties for such inputs (and, in particular, an import parity price for caustic soda).
[163] If the merger does not proceed, the NaCN business would remain vertically-integrated
within the Sasol Group, and there is no suggestion that it would not continue to source
feedstock (in particular, caustic soda) at a low internal transfer cost rather than an
external market or import parity price. No cogent evidence was presented by Sasol to
explain why, notwithstanding the above, Sasol would, if the merger does not proceed,
134 Witness Statement of Mr Mokomela, Trial Bundle A at p167, para 21.

4848
persist with a pricing model based on import parity prices for key inputs. As explained
above, that approach was developed for, and only makes sense in the context of, a de-
integrated NaCN business purchasing feedstock (in particular, caustic soda) at
international market prices.
[164] Whatever the reasons are why, as a vertically-integrated entity, Sasol has historically
priced caustic soda on an internal transfer basis, and priced NaCN at a significant
discount to IPP, Sasol did not provide any evidence at the hearing that any of those
reasons have changed since early 2022. We note that, even as at the date of the
hearing, there was no evidence that Sasol had (for independent reasons) decided to
start charging its NaCN business an import parity price for caustic soda, let alone that it
would continue to do so if the merger does not proceed. Therefore, no evidential basis
has been provided by Sasol to support its assertion that, if the merger does not proceed,
it would persist with its current NaCN pricing model based on international prices of key
inputs (in particular, caustic soda).
[165] There are also principles of merger control that are at issue here. If we were too readily
to accept a self-serving counterfactual advanced without any obvious evidential basis at
a Tribunal hearing, that would raise a considerable risk that merger parties would be
able to “game the system” merely by asserting that merger-specific conduct would
persist even if the proposed merger did not proceed.
[166] We do not suggest that this is what Sasol has done in this case. However, this risk
highlights why we are unwilling to accept the position advanced by Mr. Mokomela in the
absence of persuasive evidence explaining why Sasol would, if the merger does not
proceed, likely persist in a pricing practice that is inconsistent with the historical pricing
conduct of the NaCN business as a vertically integrated entity, and that appears to us
only to be appropriate for, and to have been designed for purposes of, a stand-alone
business purchasing all its inputs (including caustic soda) at import parity prices.
[167] We therefore maintain our view that the changes made by Sasol to its NaCN pricing
mechanism in 2022 and 2023 should be regarded as merger-related, and that they
should on that basis be excluded from the assessment of the effects of the merger on
the price of NaCN.
Is Draslovka likely, as a result of the merger, to increase NaCN prices to IPP levels
or higher?
[168] Apart from the pricing changes reflected in Draslovka’s proposed “cost plus” pricing
model, there is a separate question whether it is likely that the merged entity would,
5050
for the importation of cyanide have changed, and the Durban port is unable to
guarantee adherence to these international safety standards.” 139
[173] Mr Hayward of Gold Fields 140 and Mr Schoeman of DRD 141 confirmed the difficulties
currently associated with importing solid NaCN into South Africa. As Mr Schoeman
explained, this means that customers of the NaCN business have “ no feasible
alternative sources of supply and thus no credible means of disciplining the post-merger
pricing of NaCN .
.142
[174] The merger parties again disputed that this is a merger-specific concern. They argued
that the merged entity does not have any ability or incentive to increase prices post-
merger to IPP levels (or beyond) that Sasol itself would not have absent the merger.
[175] However, in our view, this again ignores the firm-specific reasons that appear to be
behind Sasol’s historical practice of pricing its liquid NaCN to South African customers
at a significant discount to IPP. As discussed above, these relate principally to the fact
that the NaCN business is currently vertically integrated within the broader Sasol Group.
As such, it already enjoys high profitability as a result of its low internal cost base and
may fear complaints of excessive pricing if it seeks to profit maximize in the context of
that low cost base. The NaCN business is also a relatively small business within the
Sasol Group, which may have broader interests and priorities than short-term profit
maximization in the NaCN business. It also appears from the evidence discussed above
that the Sasol Group has a so-called “ political
” interest in supporting the South African
gold mining industry in a manner that is not based on purely commercial considerations.
[176] None of these firm-specific factors would apply to the NaCN business in the hands of
Draslovka. Mr Bruzek accepted in his evidence that the merged entity would be able to
price up to import parity levels if it so wished (“ he ability is there
”).
143
He stated,
however, that this was not consistent with Draslovka’s pricing philosophy, and that it
would be “ commercial suicide
” for Draslovka to exploit South African gold mining
customers in this manner. 144 Significantly, though, neither Mr Bruzek nor Mr Smith
pointed to any economic factors that would constrain the merged entity from pricing up
to IPP post-merger. As Mr Bruzek stated, “ customers will always prefer to purchase
139 Witness Statement of Mr Mokomela, Trial Bundle A at p164, para 16. See also Trial Bundle A at p531.
140 Witness Statement of Mr Hayward, Trial Bundle A at p184, para 10
141 Witness Statement of Mr Schoeman, Trial Bundle A at p555, para 58
142 Witness Statement of Mr Schoeman, Trial Bundle A at p555, para 58
143 Hearing Transcript dated 25 April 2023 at p241; Hearing Transcript dated 24 April 2023 at p152-154.
144 Witness Statement of Mr Bruzek, Trial Bundle A, p90 at para 42.

5151
liquid NaCN if they can source it from a closely located producer and at a price that is,
once delivered, not higher than the price of self-dissolved liquid NaCN”.
”.145
[177] Having regard to this evidence, it appears to us that Draslovka may well have a merger-
specific ability and incentive to increase the price of NaCN up to an IPP level (or possibly
beyond). For obvious reasons, competition authorities would be reluctant to rely on self-
restraint alone to discipline the conduct of a merged entity post-merger in the absence
of any other economic constraints.
[178] In these circumstances, the evidence suggests to us that it is at least “ reasonably
possible”
146 that the Target Business would, as a result of the merger, be able to price
up to IPP levels (or possibly higher).
[179] Therefore, we are of the view that the NaCN business would likely be able to increase
the NaCN price up to an IPP level (and possibly beyond) as a result of the merger.
Do the pricing effects of the merger amount to an anti-competitive effect?
[180] The merger parties argued that, even if the NaCN business were to charge a higher
price for NaCN post-merger than it would do absent the merger, that would not constitute
an anti-competitive effect for purposes of the competition analysis under section 12A(1)
of the Act. Put differently, the merger parties argued that, on the facts of this case, the
price increase identified above would not constitute a “prevention or lessening of
competition” as contemplated in section 12A(1),
[181] The merger parties argued in this regard that the notion of a “ substantial lessening or
prevention of competition ” in section 12A(1) refers specifically to a lessening in the
process of competitive rivalry and not merely to a consumer welfare effect such as a
price rise that might result from a merger. Put differently, they argued that a merger-
specific price rise should only be regarded as an anti-competitive effect if it is the product
of reduced competitive rivalry in the market. Absent this nexus, a merger-specific price
rise would (at best) be cognisable as a public interest consideration under section 12A(3)
of the Act.
[182] The merger parties argued that, in this case, the purchase of Sasol’s NaCN business by
Draslovka would simply result in a substitution of one monopolist for another, with the
same capacity constraints and the same ability and incentive to profit-maximise subject
145 Witness Statement of Mr Bruzek, Trial Bundle A at p90, para 41.
146 Imerys, supra, at para 53.
5252
to the threat of imports of solid NaCN. The merger would therefore bring about no
reduction in competitive rivalry, or relevant change in market structure, and therefore
any price rise as a result of the vertical “de-integration” of the NaCN business from the
Sasol Group should, at best, be assessed as a public interest effect under section 12A(3)
of the Act and not as a competitive effect under section 12A(1).
[183] We agree that the proposed merger would not give rise to any increased concentration
in the relevant market – the NaCN business is currently a monopoly in the relevant
market, and will remain so post-merger. However, we disagree that the merger will not
bring about any change in market structure, or in the ability or incentive of the Target
Business to raise the price of NaCN.
[184] In our view, the vertical “de-integration” of the NaCN business as a result of the merger
would clearly constitute a structural change in the liquid NaCN value chain.
Furthermore, as a result of that vertical “de-integration”, the Target Business would pay
a significantly higher cost for caustic soda, and would therefore be likely to increase the
price of NaCN in order to pass on this higher input cost. We refer to the evidence above
in this regard.
[185] In addition, for the reasons discussed above, it appears that the constraints that have
historically caused Sasol to price its liquid NaCN at a significant discount to IPP are firm-
specific ones relating to the current position of the Target Business as a vertically-
integrated entity within the broader Sasol Group, and which accordingly would not
constrain the pricing conduct of the Target Business as a stand-alone entity in the hands
of Draslovka. In this respect, the Target Business would enjoy greater market power
post-merger than it would absent the merger.
[186] We also agree with the Commission’s submission that the merger parties’ approach to
what constitutes an anti-competitive effect appears to be inconsistent with the
Constitutional Court’s judgment in Mediclinic
147 That case involved an appeal against
a judgment of the CAC148
concerning the proposed merger of two hospital groups. In its
judgment, the CAC (contrary to the Tribunal) had found that the merger parties operated
in different local hospital markets, and accordingly that the structure of the relevant
markets, and the market power of the merger parties therein, would be unaffected by
the proposed merger.
147 Competition Commission of South Africa v Mediclinic Southern Africa (Pty) Ltd and Another (CCT 31/20) [2021]
ZACC 35 (15 October 2021) (“Mediclinic (CC)
”).
148 Mediclinic Southern Africa (Pty) Ltd and Another v Competition Commission (172/CAC/Feb19) [2020] ZACAC
3 (6 February 2020) (“Mediclinic (CAC)
).

5353
[187] The CAC proceeded to state that, in these circumstances, the Commission’s concerns
regarding post-merger price increases in the local markets should be appraised as a
public interest consideration and not as an anti-competitive effect of the merger within
the meaning of section 12A(1) of the Act. 49
The CAC stated that, because the pricing
effects alleged by the Commission would flow simply from the fact that the acquiring firm
would be imposing its higher (pre-merger) tariffs on the target hospitals, rather than from
any enhancement in the acquiring firm’s market power as a result of the merger, these
effects should be assessed in the context of the public interest assessment rather as
part of the competition assessment under section 12A.150
[188] However, the majority judgment in the Constitutional Court expressly rejected this
approach, stating as follows:
“[52] . . . . [I]t is necessary that brief reflections be shared on the test for the
assessment of harm or the substantial prevention or lessening of
competition and the correct approach to constitutional interpretation.
[53] Beginning with the test and the correct interpretive approach, the
Appeal Court failed to give proper effect to the purpose of the Act set
out in section 2(b). This is particularly so in relation to its assessment of
the likely substantial prevention or lessening of competition and public
interest considerations. It also misdirected itself in a material respect by
construing section 12A(1)(a) and (2) of the Act as requiring that a price
increase post-merger be shown to be the result of the market share
changes, which it termed “enhancement of market power”. This is not
the test required by the Act. And nothing in the language and context of
section 12A(1)(a) and (2) allows for the assessment to be conducted
with reference to the “enhancement of market power” which is not even
among the factors listed in section 12A(2). There is no textual or
contextual support for this new test. . . . . [T]he assessment of harm has
to be conducted within the specific framework of the Act. This enquiry
necessitates recourse to the Preamble to the Act and the purpose
thereof as set out in section 2. The Appeal Court thus failed to follow
this approach in circumstances where it was required to and
innovatively laid down the “enhancement of market power” as the
149 Mediclinic (CAC) at paras 98-99.
150 Mediclinic (CAC) at paras 124-128.

5454
yardstick for the assessment to be conducted under section 12A(1)(a)
and (2).
[54] All that section 12A requires in this regard is that a determination be
made whether there is a substantial prevention or lessening of
competition. And this is ordinarily measured with reference to a
potential increase in price. It does not lay down the “enhancement of
market power” as the test or provide any basis for a court to do so. It
follows that the majority departed from the wording of the Act which is
the point of departure in statutory interpretation.
[55] In its interpretation of section 12A(1)(a) and (2) of the Act, the majority
overlooked sections 7(2) and 39(2) of the Constitution, thus failing to
adopt the correct interpretive approach to statutes as set out in this
Court’s judgments. Its approach fails to advance the purpose of the Act
and to promote the spirit, purport and object of section 27 of the
Constitution.”
151
[189] The merger parties argued that the Constitutional Court’s judgment in Mediclinic is not
applicable to the present merger because it is distinguishable on two key grounds,
namely:
189.1. In Mediclinic, the fundamental reason why the Constitutional Court rejected the
CAC’s interpretation was that it failed to give effect to the right of access to
healthcare embodied in section 27 of the Constitution. The present case, by
contrast, does not implicate a right in the Bill of Rights.
189.2. In Mediclinic, the Constitutional Court found there was no basis to disturb the
Tribunal’s finding that the merger parties’ hospitals were located in the same
geographic market, and that the merger would therefore cause a structural change
in the relevant hospital market. In the present case, by contrast, there is no
suggestion of any structural change in the relevant market.
[190] We agree that the facts in Mediclinic are distinguishable from those in the present case.
However, it does not appear to us that these points of difference affect the application
of the approach set out in the majority judgment to the present case. In particular, we
do not understand the majority judgment’s approach as necessarily being limited to
151 Mediclinic (CC), paras 52-55 (citations omitted).
5555
mergers implicating a right in the Bill of Rights, nor do we understand it as being
premised on the Tribunal’s finding that the merger in that case involved a structural
change in the local hospital market. On the contrary, the majority judgment states that
the test in section 12A(1) does not require that a post-merger price increase be shown
to be the result of increased market power on the part of the merged entity.
[191] In any event, as discussed above, the merger in this case may be regarded as giving
rise to a structural change in the market (albeit not one involving a reduction in
competitive rivalry) in that it would involve the vertical de-integration of the NaCN
business from the Sasol Group, with negative consequences for the pricing of NaCN as
discussed above. The proposed merger may also be regarded as affording the Target
Business greater market power than it enjoys pre-merger as a result of its de-integration
from the broader Sasol Group and the NaCN pricing considerations associated
therewith.
[192] We therefore consider the pricing effects of the merger to be cognisable as an anti-
competitive effect under section 12A(1) of the Act, and not merely as a public interest
effect. However, even if we are incorrect in this regard, it would not affect our conclusion
regarding the merger, for the reasons we discuss further below under the heading of
“Public Interest .
.
THE SUBSTANTIALITY OF THE PRICE INCREASE
[193] Insofar as the pricing effect of the proposed merger is regarded as an anti-competitive
effect, the question arises as to its substantiality under section 12A(1) of the Act. In
Medicross, the CAC held that “ substantially
” in the context of section 12A of the Act
mean “materially or considerably in amount or duration
.
.152
[194] Any negative price effect as a result of a merger arguably represents a substantial effect
for purposes of section 12(1) of the Act. In this case, however, various of the gold mining
company witnesses provided evidence regarding the material effects that a rise in the
price of NaCN would have (and already has had) on their respective gold mining
operations.
[195] As set out above, Mr Harman calculated that the differential between the cost incurred
by the NaCN business for caustic soda and the price charged by Sasol to third parties
152 Medicross Healthcare Group (Pty) Ltd and Another v Prime Cure Holdings (Pty) Ltd [2006] ZACAC 3 (6 April
2006), para 19.
5959
involved in the Cooke operations; whilst DRD had 920 employees and 2 600
contractors.166
[210] In our view, the above evidence supports the contention of SSW and DRD that an
increase in the price of NaCN as a result of the merger is likely to have a material impact
on the LOM and financial performance of their respective mining operations, with the
knock-on environmental and employment consequences explained by Mr Schoeman.
[211] Therefore, on the basis of the above evidence, we find that, insofar as the pricing effect
of the proposed merger is regarded as a competition effect, that effect amounts to a
“substantial” anti-competitive effect within the meaning of section 12(1) of the Act.
THE LOCAL SUPPLY CONCERN
[212] The second theory of harm investigated by the Commission was whether the merged
entity would likely reduce the supply of liquid NaCN to South African customers in favour
of exports. As noted above, the Commission found that exports of liquid NaCN would
not be feasible for the merged entity, and that any manufacture and export of solid NaCN
by the merged entity was unlikely to be at the expense of the supply of liquid NaCN to
local customers.
[213] However, in their evidence before the Tribunal, Mr Schoeman of DRD and Mr Mochekela
of SSW testified that exports of solid and even liquid NaCN from South Africa are
potentially practicable and profitable (because the price of solid NaCN is higher than that
of liquid NaCN). They contend that this creates an opportunity for Draslovka – which
does not have any historical affiliation with South Africa – to establish a manufacturing
base in South Africa with a view to supplying customers both inside and outside South
Africa with NaCN, and that it would have an incentive to supply NaCN to whichever
customers – within or outside South Africa – yielded it the highest profit.167
[214] Messrs Schoeman and Mochekela stressed that security of supply of liquid NaCN is
crucial to the South African mining customers. Since Sasol’s NaCN plant is the sole
supplier of liquid NaCN in South Africa, and imports of solid NaCN are not feasible, it
would be highly prejudicial to local gold mining customers, and their respective
166 Witness Statement of Mr Mochekela, Trial Bundle A at p228, para 85; Hearing Transcript dated 4 May 2023 at
p700; Witness Statement of Mr Schoeman, Trial Bundle A at p570, para 101; Hearing Transcript dated 4 May 2023
at p602.
167 Witness Statement of Mr Mochekela, Trial Bundle A at p227-228, paras 83-84 ; Hearing Transcript dated 4 May
2023 at p700; Witness Statement of Mr Schoeman, Trial Bundle A at p568-570, paras 93-100 ; Hearing Transcript
dated 4 May 2023 at p631-633 and p717-719.
6060
operations, if liquid NaCN that was required for their local operations were instead to be
solidified and exported to other countries. 68
[215] Mr Mokomela testified that Sasol had previously exported liquid NaCN but ceased doing
so mainly because there is now sufficient local demand for liquid NaCN to take up all of
the capacity of Sasol’s NaCN plant. 169
Draslovka’s attorneys confirmed in their
correspondence with the Commission that it is commercially viable for Draslovka to
produce solid NaCN for export from South Africa, and that it intended to increase
production capacity in order to meet this demand, but that this would only be after all
local demand for liquid NaCN had been satisfied. 170 Mr Bruzek confirmed in his
evidence that exports of solid NaCN are feasible, but stated that the merged entity would
only be incentivised to construct a solidification plant and export solid NaCN if there was
sufficient surplus capacity after local demand for liquid NaCN had been met to justify
doing so.171
Mr Smith likewise acknowledged that “exports are a real possibility if they
build the new plant but referred to the evidence of Mr Bruzek that Draslovka would be
incentivised to “serve local first
.172
[216] The evidence accordingly suggests that exports of at least solid NaCN post-merger
would be feasible and potentially profitable if there was an expansion of the current
NaCN plant post-merger. The question from a security of supply perspective is,
however, whether any such exports would be at the expense of local supply of liquid
NaCN to South African gold mining customers.
[217] In our view, there is insufficient evidence before us regarding the relative profitability of
liquid NaCN sales in South Africa and solid (or liquid) exports to other countries to make
a finding on this question. Draslovka (the party best positioned to do so) did not put up
any pricing evidence on the relative profitability of exports and local sales, nor did the
Commission or the intervenors do so. Mr Harman confirmed in his evidence that there
is insufficient evidence in the record to make a determination on this question. 73
[218] We therefore leave open the question whether the proposed merger would be likely to
negatively affect the security of supply of liquid NaCN to South African gold mining
168 Witness Statement of Mr Mochekela, Trial Bundle A at p227-228, para 84; Witness Statement of Mr Schoeman,
Trial Bundle A at p569-570, paras 99-100.
169 Witness Statement of Mr Mokomela, Trial Bundle A at p163, para 7.3; Hearing Transcript dated 25 April 2023
at p344-345, and Hearing Transcript dated 26 April 2023 at p455-456.
170 Trial Bundle B at p794-795, paras 11-12
171 Hearing Transcript dated 24 April 2023 at p66-67, Hearing Transcript dated 25 April 2023 at p246-247, and
p328-329.
172 Hearing Transcript dated 25 May 2023 at p1119-1120
173 Hearing Transcript dated 25 May 2023 at p1114

6363
[228] We agree that the proposed upgrades to the Sasol plant improvements have not been
defined with any specificity, or sufficiently quantified. Draslovka acknowledged in
subsequent correspondence regarding the proposed conditions that it “ cannot
determine or give particularity regarding the upgrades that are required”. The only detail
Draslovka could give was that it “intends to guarantee long-term operational stability of
the plant, improve the performance of the plant, ensure the environmental and social
sustainability of the NaCN production plan and improve the quality of NaCN so it can be
used with the GlyCat technology
.181
[229] Even to the extent that these benefits should be characterised as pro-competitive rather
than public interest benefits of the merger, they are , in our view, not verifiable and have
not been quantified.
[230] The evidence in the record also provides some support for the Commission’s
contentions regarding the state of the existing NaCN plants. For example, the “ Project
Silver Transaction Feasibility” document dated 2 June 2020 states that, while the plant
is old, it is “well maintained and in a good operating condition
”.
”.182 There is no suggestion
in that document, or in the 2019 Debottlenecking Plan, that the plant is in serious need
of refurbishment.
[231] Mr Pobe stated that Sasol had experienced a six week breakdown in 2022, but he
subsequently indicated that this may have been a result of vis majeure (lightning) rather
than any consistent problems with the existing NaCN plant.183
[232] SSW also complained to Sasol in December 2022 about more frequent plant
breakdowns in recent years. However, this was disputed at the time by Sasol, which
explained that it had to conduct two statutory maintenance shutdowns of the NaCN plant
per year; and that there had only been one incident in 2022, which related to technology
and not to the performance of the plant.184
[233] There is also no evidence of safety concerns with the plant. Mr Mokomela has confirmed
that, even absent the merger, Sasol would ensure that the NaCN plant is safely
operated.185
181 Letter from Dentons to Competition Tribunal dated 1 September 2023, para 31.
182 Trial Bundle C2.2 at p1335 and p1331.
183 Hearing Transcript dated 23 May 2023 at p865.
184 Trial Bundle A at p531.
185 Witness Statement of Mr Mokomela, Trial Bundle A at p162, paras 6-7 and p168, para 22. See also Hearing
Transcript dated 25 April 2023 at p356.
6666
historical pricing basis than potential access to a greater volume of NaCN at a
significantly higher price.
[243] Given that PAR and Harmony had initially opposed the proposed merger on similar
grounds to SSW and DRD, we requested them to explain the reasons why they had
decided to withdraw their opposition to the merger.
[244] Mr Irons of PAR explained that its changed stance followed engagements with
Draslovka during the latter part of 2022 in which Draslovka had indicated its intention to
invest in increased capacity which would give PAR greater security of supply. PAR had
also gained the impression that Sasol’s existing plant might not be reliable given certain
shortages it had experienced. In addition, Mr Irons said that PAR valued the
transparency in the term sheet offered by Draslovka, and that there was, in any event,
no longer any material difference between Sasol’s NaCN pricing and that proposed by
Draslovka. 89
[245] As regards the transparency of Draslovka’s term sheet, Mr Irons acknowledged that
Sasol’s new stoichiometry-based pricing model has the same “ook and feel
.190
[246] Mr Pobe’s evidence was to similar effect. He explained that Harmony also changed its
stance on the merger after engagements with Draslovka. Mr Pobe elaborated that
Harmony was ultimately more concerned about security of supply than pricing,
especially because it will require increasing volumes of NaCN in the future, and does
not regard importing solid NaCN (at a higher price than that currently proposed by
Draslovka) as commercially viable. Draslovka informed Harmony that it intended to
invest in greater, and more reliable, capacity than Sasol would provide absent the
merger. Harmony also understands from Sasol’s public statements that Sasol regards
the NaCN business as non-core and is unwilling to invest further in it. 91
[247] Mr Pobe also remarked that Sasol’s current pricing is no longer materially different from
that proposed by Draslovka, although he expressed a concern that Sasol’s 2022/2023
price rises might have been merger-related.192
189 Witness Statement of Mr Irons, Trial Bundle A at p1551-1552, paras 28-36.
190 Hearing Transcript dated 23 May 2023 at p817-818.
191 Witness Statement of Mr Pobe , Trial Bundle A at p1452-1458, paras 52-59. Hearing Transcript dated 23 May
2023 at p885.
192 Hearing Transcript dated 23 May 2023 at p835 and p883-884.

6767
[248] The decisions by PAR and Harmony to change their stance on the proposed merger
therefore appear to have been motivated by two key factors, namely (i) an assumption
that Draslovka would invest in increased capacity post-merger; and (ii) an acceptance
that there is no longer any material difference between Sasol’s actual pricing and
Draslovka’s proposed pricing.
[249] However, for the reasons discussed above, we are of the view that Sasol’s more recent
significant price increases are related to the proposed merger and therefore should not
be taken into account when determining the relevant counterfactual to the proposed
merger. In addition, Draslovka indicated at the Tribunal hearing that it was not able to
make any commitment to invest in new capacity. It therefore appears to us that the
decisions of PAR and Harmony to change their stance on the proposed merger were
influenced by factual assumptions that are not supported by the evidence that emerged
at the hearing.
[250] It is also significant in this regard that Gold Fields, SSW and DRD all remained opposed
to the proposed merger for reasons that are consistent with our understanding of the
available evidence.
GlyCat
[251] As regards the potential introduction of GlyCat into South Africa, this appears to be
merger-specific on the evidence of Mr Bruzek, but it is unclear how valuable it would be
for South African gold mining customers given that it is largely untested in the specific
mining conditions that exist in South Africa.
[252] Mr Schoeman of DRD explained that it would take millions of rand over a period of up
to 2 years to test the cost-effectiveness of GlyCat for the distinct minerology of its various
different tailings dams.193
[253] Mr Mochekela stated that SSW required further information regarding the nature of the
GlyCat technology in order to assess its potential value. 94
[254] Mr Irons of PAR stated that he was “not excessively excited
” about the benefits of GlyCat
for PAR’s operations, and that “ extensive further test work and engagements
” with
Draslovka would be required in order to determine whether GlyCat would be of benefit
193 Hearing Transcript dated 4 May 2023 at p609-612.
194 Hearing Transcript dated 4 May 2023 at p719-720.
6868
for PAR. According to Mr Irons, Glycat currently “is not the shining light that I would
have hoped it might have been”.”.195
[255] Mr Pobe of Harmony stated that GlyCat could potentially have benefits for Harmony, but
that it was awaiting the results of samples it had sent to Draslovka for testing to assess
the viability of using GlyCat in its South African operations.196
[256] Mr Hayward of Gold Fields said that Glycat was an unproven technology in South African
conditions, and that he was “unconvinced
” that Glycat would have any efficiency benefits
for Gold Fields’ operations.197
[257] Mr Bruzek acknowledged in his evidence that Draslovka has never tested Sasol’s
sodium cyanide so there is no certainty it would be effective in the production of
GlyCat. 98
He also confirmed that Draslovka has not tested GlyCat technology against
South African ores, so “it’s not 100% guarantee or certainty that it’s going to work
.”
.”199
Conclusion on claimed efficiency benefits
[258] Having regard to the above evidence, it appears to us that the main potential benefit of
the proposed merger from an efficiency perspective would be an increase in the capacity
of the NaCN plant. However, as discussed above, there is no certainty that this
investment would take place post-merger nor has there been any quantification of the
price at which NaCN from the new plant would be sold to South African customers.
Therefore, an investment in additional capacity would not address the pricing concern
referred to above, namely that any NaCN produced by the plant would be sold at an
elevated price given inter alia the IPP cost that the business would be having to pay for
caustic soda post-transaction. Indeed, it appears to us that any such investment would
increase the costs on which the NaCN price is based.
[259] Furthermore, as was explained at the hearing, any NaCN capacity constraint would
simply reduce the extraction rate of a gold mining company, whereas a significant
increase in the price of NaCN might reduce its entire life of mine, with all the operational,
employment and financial consequences associated therewith.200
195 Hearing Transcript dated 23 May 2023 at p767-768.
196 Witness Statement of Mr Pobe, Trial Bundle A at p1455, para 56.9.
197 Hearing Transcript dated 23 May 2023 at p904-905. And p922-923.
198 Hearing Transcript dated 25 April 2023 at p291.
199 Hearing Transcript dated 25 April at p297.
200 Hearing Transcript dated 26 May 2023 at p1200.
6969
[260] We therefore find that, on the evidence before us, the claimed efficiencies of the
proposed merger would not outweigh the pricing effect to which it would likely give rise.
[261] We therefore conclude that the anti-competitive effects we have identified in relation to
the proposed merger are not outweighed by any efficiency or other pro-competitive gains
associated with the merger.
PUBLIC INTEREST
[262] There are two instances in section 12A of the Act where considerations of public interest
arise.
262.1. First, under section 12A(1), if the Tribunal determines that a merger is likely to
have a substantial anti-competitive effect, it must determine “ whether the merger
can or cannot be justified on substantial public interest grounds by assessing the
factors set out in subsection 3” (section 12A(1)(b)).
262.2. Second, under section 12A(1A), irrespective of its determination in section 12A(1),
the Tribunal must also make the above public interest determination.
[263] Therefore, a merger that is anti-competitive may nevertheless be justified on substantial
public interest grounds. Conversely, a merger that is not anti-competitive effect may
nevertheless not be justified on substantial public interest grounds.201
[264] As regards the public interest assessment under section 12A(3) of the Act, the Tribunal
has previously explained that it is a holistic one, in terms of which the different public
interest grounds listed in section 12A(3) must be separately assessed, and then, if
necessary, weighed against each other in order to arrive at a net conclusion on the
public interest effects of the merger.202
Section 12A(1) assessment
[265] Dealing first with section 12A(1), if we are correct that the pricing effect we have
identified in relation to the proposed merger should be regarded as a substantial anti-
201 See Mediclinic (CAC) para 138.
202 See Epiroc Holdings SA v K2022596519 (South Africa) (Pty) Ltd and Another (LM148Nov22) [2023] ZACT 32;
[2023] 2 CPLR 20 (CT) (14 April 2023), paras 75-77 (referring to Distillers Corporation (SA) Limited and
Stellenbosch Farmers Winery Group Ltd (08/LM/Feb02) [2003] ZACT 15 (19 March 2003), at paras 217-219; and
Harmony Gold Mining Company Ltd/ Gold Fields Ltd (93/LM/Nov04) [2005] ZACT 29 (18 May 2005) at para 54).
7070
competitive effect, the enquiry is whether the merger is nevertheless justifiable on
substantial public interest grounds.203
[266] The merger parties argue that the proposed merger is justifiable in the public interest on
three grounds, namely that it would:
266.1. have a positive employment effect under section 12A(3)(b) because it would not
result in any retrenchments (given undertakings made by Draslovka in this regard),
and would create a further management position and improved exposure and
training for employees of the Target Business;
266.2. have a positive effect under section 12A(3)(c) because Draslovka would allocate
25%, plus one share, in Draslovka SA to Navuka, Draslovka’s B-BBEE partner;
and
266.3. have a positive effect on “a particular industrial sector or region under 12A(3)(a)
in that it would provide gold mining companies in South Africa with security of
supply of liquid NaCN.
[267] In our view, the first benefit is not substantial, and the second benefit is not sufficiently
substantial to justify the approval of the proposed merger notwithstanding the significant
merger-related pricing effect we have identified.
[268] Regarding the third benefit, for the reasons we have discussed above under the heading
of “Efficiencies
, we do not believe that this benefit is sufficiently likely to arise, or to
outweigh the pricing effects of the merger, to justify the approval of the merger on public
interest grounds.
Section 12A(1A) assessment
[269] Moving to the section 12A(1A) assessment, the CAC stated the following in Mediclinic
“The fact that price effects must, in the present case, be assessed in the context
of public interest rather than SLC has an important effect on the evidence
dealing with the relative efficiency of the targets and Mediclinic. Where it is
shown that a merger is likely to substantially prevent or lessen competition in a
relevant market, it is for the merger parties to establish that the merger is likely
203 Imerys, supra, at para 53.
7171
to result in technological, efficiency or other pro-competitive games which will
be greater than, and will offset, the effects of any prevention or lessening of
competition (s 12A(1)(a)(i)). Because no SLC has been shown in the present
case, the merger parties do not attract this onus. In the context of public
interest, we are trying to ascertain what prices are likely to prevail at the targets
if the merger is allowed, and whether (assuming such prices to be higher than
they would otherwise have been) this is a sufficient basis to prohibit the merger
on public interest grounds. The efficiencies which were the subject of factual
and actuarial evidence are simply part of this predictive exercise.
We were not addressed on questions of onus and sufficiency of proof in relation
to the prohibition of a merger on public interest grounds. It seems to me that in
absence of evidence that a particular harm, which is substantial, may eventuate
if the merger is approved, the prohibition of the merger cannot be ‘justified’
within the meaning of s 12A(1). I leave open the question whether this requires
the likelihood of harm to be established on a balance of probability or whether
it suffices that the danger of such harm is reasonably possible. ”204 (our
emphasis)
[270] Therefore, if we are incorrect in our view that the pricing effect we have identified should
be regarded as an anti-competitive effect of the merger, we need to consider whether
that effect constitutes a significant adverse public interest effect and, if so, whether the
proposed merger can or cannot be justified having regard to that effect and any other
public interest effects of the merger.
[271] The merger parties argue that a pricing effect is not cognisable in and of itself as a public
interest effect under section 12A(3) of the Act because it is not one of the five public
interest grounds that are listed in section 12A(3). They accept that price may potentially
give rise to a substantial effect under one of those five listed grounds, but submit that
this nexus must be established on a balance of probabilities.
[272] In the present case, the Commission and SSW/ DRD contend that the pricing effect is
cognisable as an effect on “ a particular industrial sector
, being the South African gold
mining industry, within the meaning of section 12A(3)(a) of the Act. The merger parties
argue that it must therefore be shown that the price effect will cause substantial harm to
204 Mediclinic (CAC) at paras 128-129.
See also Minister of Economic Development and Others v Competition
Tribunal and Others, South African Commercial, Catering and Allied Workers Union (SACCAWU) v Wal-Mart
Stores Inc and Another [2012] ZACAC 2 (9 March 2012), at paras 113- 114

7272
the gold mining industry as a whole, and that this onus has not been discharged on the
available evidence.
[273] In Mediclinic, the CAC held that an effect for purposes of section 12A(3)(
a
) includes an
effect on competitors or consumers within a particular sector or region, 205
and that a
merger-specific price rise may potentially give rise to such an effect. It must however
be shown to be a “substantial
” effect.
206
[274] For the reasons discussed above, we believe that the likely price effects of the merger
will have a substantially negative effect on the South African gold mining sector. The
price rises caused by Sasol’s changes to its NaCN pricing mechanism in 2022 and 2023
have themselves been significant, and there is no constraint on them rising even further
post-merger towards (or perhaps beyond) import parity levels. We have discussed
above the evidence regarding the substantiality of these price increases, and regarding
the substantiality of their effect on the operations of South African gold mining
companies. Furthermore, this effect is likely to increase in the future as the South
African gold mining sector increasingly engages in (NaCN-intensive) surface tailings
operations.207
[275] This negative effect must be weighed against the potential benefit of greater NaCN
capacity post-merger. However, for the reasons discussed above under the heading of
“Efficiencies , we do not believe that this potential benefit outweighs the negative pricing
effect of the proposed merger on the South African gold mining industry. In particular,
there is no certainty that Draslovka would construct a new plant post-merger, and even
if it did so, the price of product from the new plant would likely be higher because any
such investment would increase the costs on which the NaCN price is based).
[276] For all these reasons, it appears to us that the proposed merger will likely have a
substantially negative effect on the South African gold mining sector. In reaching this
conclusion, it is unnecessary for us to make any determination on whether this likelihood
needs to be established on a balance of probabilities or merely as a reasonable
possibility (a question left open by the CAC in Mediclinic), because in our view the
likelihood has been established on either test.
205 Mediclinic (CAC), supra para 139.
206 Mediclinic (CAC), supra para 141.
207 See, for examples, Witness Statement of Mr Pobe, Trial Bundle A at p1440, paras 16 and 19..
7373
PROPOSED CONDITIONS
[277] As regards the approach to be followed in circumstances where conditions are tendered
to address the negative competition or public interest effects of a merger, the CAC stated
the following in Imerys
“[40] Where, in the situation just mentioned, the Tribunal is asked to approve
the merger with conditions rather than prohibit it, the choice of remedies
is in the nature of a discretion. I reject the proposition that the
Commission bears the burden of proving that the proposed conditions
will not adequately address the likely SLC. The Tribunal has the power
to prohibit the merger if it is not satisfied that the conditions will
adequately remedy the likely SLC. And regardless of where the onus
lies in respect of proposed conditions (if it is accurate to speak of onus
at all), I do not think that the Tribunal is obliged to approve a merger just
because it finds it more probable than not that the conditions will
neutralise the likely SLC. One should bear in mind, in this regard, the
real problem in such cases will not necessarily be competing views as
to the probable future state of the market but an inability to make reliable
predictions at all. I think it is permissible for the Tribunal to reason thus:
‘The merger will likely give rise to an SLC. Although the proposed
conditions are more likely than not to remedy the likely SLC, there is a
reasonable possibility that they will fail to do so. Therefore we prohibit
the merger.’
[41] Particularly where the uncertainty about the adequacy of the conditions
concerns the likely duration of the SLC rather than the nature and
content of the SLC, prohibition has this advantage over conditional
approval: it does not necessarily represent the final word. If the merger
is conditionally approved and the conditions turn out to be inadequate
to neutralise the SLC, the harm cannot be reversed. If, on the other
hand, the merger is prohibited and with the passing of time it becomes
clear that the merger will no longer give rise to SLC, the transaction can
be renewed.
[42] I do not say that the Tribunal would be obliged to reject conditional
approval just because there was a reasonable possibility (falling short
of a preponderance of probability) that the conditions would fail to
7474
remedy the likely SLC. The Tribunal might properly exercise its
discretion in such a case to give conditional approval. In exercising its
discretion, the Tribunal could be expected to take into account, on the
one hand, the precise likelihood and extent of the SLC; and, on the
other, the precise extent of the risk that the conditions will fail to remedy
the likely SLC. The public interest may also enter into the balancing
exercise, particularly the public importance of the markets which would
be directly or indirectly prejudiced if the conditions failed to remedy the
likely SLC.”
208
[278] In this case, the conditions proposed by Draslovka underwent various iterations during
the course of the Tribunal proceedings, including after argument had been completed,
which necessitated a further series of submissions by all the parties.
[279] The conditions finally proposed by Draslovka contained the following main
commitments:
279.1. the B-BBEE transaction with Navuka;
279.2. that the proposed transaction will not result in any job losses;
279.3. priority of supply of liquid NaCN to South African gold mining customers;
279.4. the offer of supply agreements to all South African gold mining customers on the
same terms mutatis mutandis as those contained in the term sheets agreed with
PAR and Harmony (the “Term Sheets”);
279.5. a commitment to make a capital expenditure investment of US$30 million in the
introduction of Glycat technology, a new plant and/or upgrades of the existing
NaCN plant subject to certain conditions (discussed further below); and
279.6. extended supply agreements, subject to various revisions, depending on whether
a new plant is established (also discussed further below).
208 Imerys, supra, paras 40-42.
7575
[280] As regards Draslovka’s investment commitment, this involves a commitment to incur
capital expenditure of at least US$30 million over a 5-year period:
280.1. to make available the Glycat technology to South African gold mining customers,
subject to “ sufficient demand ” (10kt of NaCN consumption) for the Glycat
technology, and on “commercially reasonable terms and conditions”;
”;
280.2. to undertake “ necessary and appropriate
” upgrades to Sasol’s existing NaCN
plant; and/or
280.3. to construct a new NaCN plant with a capacity of 50-55kt using the Andrussow
process – “ provided that the customers are willing to purchase the Product on
commercially reasonable terms and conditions and that supply is economically
and technically feasible in the ordinary course”.
”.
[281] Draslovka explained in response to subsequent queries from the Tribunal that it is willing
to commit to invest $30 million but “ t wishes to be able to choose whether it should be
done through an investment in a [new plant], upgrading the existing plant or introducing
GlyCat technology
.209
[282] We have addressed above the untested nature of GlyCat in South African mining
conditions, and the doubts expressed by the gold mining company witnesses regarding
its potential value in their respective operations in South Africa. It is also unclear what
is meant by “ commercially reasonable terms and conditions
” in relation to the price at
which GlyCat would be made available to South African consumers.
[283] As regards the possible plant upgrades, as noted above Draslovka stated that it “cannot
determine or give particularity regarding the upgrades that are required , but that it
“intends to guarantee long-term operational stability of the plant, improve the
performance of the plant, ensure the environmental and social sustainability of the NaCN
production plan and improve the quality of NaCN so it can be used with the GlyCat
technology”.
”.210
[284] As regards the new plant, Draslovka stated that its commitment to building a new plant
of 50-55kt is subject to there being the requisite demand for more NaCN volumes, which
could not be determined until the extent of adoption of GlyCat post-merger has been
209 Letter from Dentons to Competition Tribunal dated 1 September 2023, para 37.
210 Letter from Dentons to Competition Tribunal dated 1 September 2023, para 31.
7777
[288] Under the proposed conditions, Draslovka has offered revised supply agreements as
follows:
288.1. Supply agreements for NaCN produced by the existing Sasol plant will retain the
provisions of the Term Sheets save that they will be extended to apply until the
earlier of 10 years and the operation of the new plant (if any), subject to a re-basing
of the cost base in the pricing mechanism after 3 years to reflect the actual costs
of the business at that date.
288.2. Supply agreements for NaCN produced by the new plant (if any) will have a
duration of at least 5 years and contain materially the same provisions as the Term
Sheets, subject to (i) a rebasing of costs after 3 years as indicated above, (ii) a
variation of consumption factors to reflect the usage of key inputs in the Andrussow
process; and (iii) a change in margin if that change “will not result in the price per
tonne of Product being higher in the first month of the New Supply Agreement than
in the preceding final month of the Supply Agreement
.
[289] Draslovka also undertakes to “negotiate in good faith” regarding any extensions of the
above agreements.
[290] The Tribunal afforded the parties a further opportunity to engage with each other on the
conditions tendered by Draslovka after the merger hearing in order to determine whether
mutually acceptable conditions could be identified. However, those engagements were
not successful.
[291] We have given careful consideration, in accordance with the guidance provided in
Imerys to the final conditions proposed by Draslovka, and we have concluded that they
do not adequately address the pricing effect that will arise from the proposed merger.
[292] Recall that the relevant pricing effect concerns a raising of NaCN prices to reflect, inter
alia, the purchase of caustic soda at an IPP rather than the much lower internal transfer
cost the NaCN business has historically incurred for that input. We have also found that
the Target Business is, as a result of the merger, likely to raise the price of liquid NaCN
up towards an import parity level for solid NaCN (and possibly even above that
depending on the feasibility of such imports). The pricing effect is therefore a structural
one, and would be indefinite in its duration.
[293] The pricing remedy offered by Draslovka does not address this pricing effect because
(i) it is time-bound and (ii) it is premised on the very pricing effect that needs to be
8080
Tribunal case managers: Kameel Pancham and Leila Raffee
For the merger parties: Adv Michelle le Roux SC, Adv Kerry Williams and Adv
Lebogang Phaladi instructed by Dentons and
Bowmans.
For the Commission: Adv Ngwako Maenetje SC, Adv Lerato Zikalala and
Adv Silindile Mhlongo.
For Harmony Gold Mining Company
Limited:
Adv Michael Mbikiwa instructed by Herbert Smith
Freehills.
For Sibanye Stillwater Limited: Adv Robin Pearse SC, Adv Katlego Monareng and
Adv Craig Thomas instructed by Werksmans
Attorneys.
For Pan African Resources PLC: Mr Anton Roets of Nortons Inc.