COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 78/LM/Oct02
In the large merger between:
Rustenburg Platinum Mines Ltd & The royal Bafokeng Nation in their
capacity as the Participants in the “Bafokeng Rasimone Joint Venture”
and
Rustenburg Platinum Mines Ltd and the Royal Bafokeng Nation
Reasons for Decision
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Approval
On 11 December 2002 we unconditionally approved the joint venture between
Rustenburg Platinum Mines Ltd, the Royal Bafokeng Nation and Royal
Bofokeng Resources (Pty) Ltd. The reasons for our decision follow.
The Transaction
1. Rustenburg Platinum Mines Ltd (“RPM”) intends to establish a joint
venture, the Bafokeng Rasimone Joint Venture (“the JV”), with the
Royal Bafokeng Nation (“RBN”) through Royal Bafokeng Resources
(Pty) Ltd (“RBR”) 1.
2. The acquiring firms, RPM and RBN, in their capacity as participants in
the JV, each holding a 50% interest, will acquire the right to use the
Styldrift, Boschkoppie and Frischgewaagd mineral and surface rights,
the concentrator area and the existing mining infrastructure, plant,
equipment and operations of Boschkoppie.
3. The parties will continue to hold their respective mining rights, but will
hold them for the benefit and use of the JV. RPM and RBR (being a
wholly owned subsidiary of RBN) will each contribute half of the nett
expenditure to the joint venture. The mine will be managed by a joint
management committee and will be operated by Anglo Platinum
1 Xshelf Trading 5 (Pty) Ltd, a shelf company which is wholly owned by the Royal Bafokeng Nation,
is in the process of changing its name to Royal Bafokeng Resources (Pty) Ltd
Management Services (Pty) Ltd, an Anglo Platinum Company.
4. Part of the JV agreement is that RPM will refine RBR’s portion of
concentrate for a limited period 2 from the effective date of the JV.
Thereafter RBR will be entitled to sell its 50% of the concentrate mined
to other smelters/refiners, subject to the right of RPM to accept and
match any offer made by such a refiner.
The parties
3. Rustenberg Platinum Mines Limited (“RPM”) is ultimately controlled by
Anglo Platinum. Its primary operations comprise 6 mines, a smelting
complex, a base metal refinery and a precious metals refinery, used in
the production of PGMs 3. It holds the mineral rights in respect of
portions 1 and 2 and the remaining extent of the farm Boschkoppie 104
and half a share of a portion of portion 10, and portion 14 of
Frischgewaagd in the Rustenburg area.
4. RPM will contribute to the JV the use of its existing mining operations
on Boschkoppie. The existing mining infrastructure, plant, equipment
and mining operations of Boschkoppie will form a substantial part of the
mining infrastructure which will be used for the exploitation of
Boschkoppie and Styldrift as one combined mine. Its existing rights to
the surface of Boschkoppie and the concentrator area and its PGM
mineral rights in respect of the JV area are also included for the use of
the JV.
5. RBR is a shelf company acquired by RBN for its mining rights. RBN is
the owner of surface rights and mineral rights over the farm Styldrift 90,
a property adjacent to Boschkoppie.
6. RBN’s largest source of income, apart from its retail interests, is from
royalty payments from RPM, Impala Platinum, Kudu Granite, Marlin
Granite and Kelgran. It is not currently involved in the mining of
PGMs.4
7. RBN shall, for the life of the combined mine, contribute to the JV such
PGMs.4
7. RBN shall, for the life of the combined mine, contribute to the JV such
use of the surface of Styldrift as may be reasonably required for the
purposes of the JV. RBR will contribute its PGM mineral rights in the
JV area.
2 Confidential information.
3 PGMs is the abbreviation for Platinumgroup metals.
4 RBN currently only has a passive role in the PGM mining industry in the sense that it receives
royalty payments and as a result of its 1% shareholding in Impala Platinum.
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Rationale for Transaction
8. According to the JV partners the purpose of the JV is to exploit PGMs
in the UG2 and Merensky Reefs under Boschkoppie, Styldrift and
Frischgewaagd in the North West Province and to process and
beneficiate to concentrate stage the PGM ore generated by the
exploitation as one combined mine. The JV will provide RBR, a black
owned and controlled firm, an opportunity to enter the PGM market in
its capacity as a firm with joint ownership and control of the JV. The
capital costs for the development of the combined mines are
substantial. The JV will allow RBR to use its share of the proceeds of
the operations of the mine to pay for its share of the capital costs.
9. RBN and RBR lack the requisite skills and expertise necessary to
independently manage the platinum mine. Participation in the JV will
provide them with an opportunity to acquire and develop skills and
expertise in this sector. The JV provides for a joint management
committee consisting of three members from Royal Bafokeng and three
members from Anglo Platinum that will make decisions on, for
example, policy and approving of budgets. The parties will also engage
in a skills transfer program.
10. RBR and the RBN’s participation in the JV forms part of a strategy to
become an active participant in both the platinum and the wider mining
sector, rather than relying on royalty payments from other operators
from the exploitation of its natural assets.
11. The properties are adjacent to each other and its utilisation of the
existing infrastructure will lead to significant efficiency gains.
12. RPM is entering into the JV as part of its strategy to open new mines
and expand mining operations with a fiftyfifty black empowerment JV.
and expand mining operations with a fiftyfifty black empowerment JV.
This is also in line with the firm’s obligations in terms of the new
minerals legislation.
The relevant market
9. As was noted in Competition Tribunal case No: 55/LM/Aug02, the
Pandora Joint Venture merger, Platinum group metals – PGMs –
comprise platinum, palladium, rhodium, ruthenium, iridium and
osmium. The properties of this group of metals are such that
substitution of PGMs with metals outside of this group is not
commercially or technically viable over an important range of uses.
There is a certain degree of substitutability between the members of
the PGM. However the 1996 European Commission report on the
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proposed merger of the platinum interests of Gencor (viz. Implats) and
Lonrho (viz. LPD) (henceforth ‘the GencorLonrho report’) found that
PGMs do not constitute a single relevant market but rather six relevant
markets, each comprising the various members of the platinum group
of metals. 5 Although subsequent developments may indicate a greater
degree of substitutability between platinum and palladium in the
manufacture of autocatalysts than that suggested in the EC report, we
are confident that the relevant markets identified by the European
Commission remain valid. 6 We will consider the same relevant market
as defined in the abovementioned Pandora Joint Venture merger
case.
10. Since the Tribunal, in that case discussed the platinum product market
in great detail, in par. 9 – 19 of that decision, we will not repeat the
information again, other than to add that Anglo Platinum, the largest
primary platinum producer in the world intends to expand its platinum
production to 3.5 million ounces a year by 2006. Its current capacity is
2 million ounces per year and its estimated market share of the total
world platinum supply is 38.43%.
The impact on competition
11. As stated earlier the merger will result in the acquisition of joint control
by RPM and RBR over existing mining operations currently exclusively
controlled by RPM. Although the transaction does not impact
significantly on the market share of RPM it is estimated that the
Styldrift part of the JV will produce 3% of the total world platinum
production there are vertical aspects to this merger that raise
competition concerns. 7
12. RPM will control the supply of PGMs to the market for a limited period
after which time the concentrate is then split 50/50 and RBR will then
have the right to refine their half of the concentrate independently,
have the right to refine their half of the concentrate independently,
subject to RPM’s right of first refusal. This tying of RBR into the vertical
process is a matter on which the Tribunal has previously expressed
concern in PGM joint venture cases, it has had to consider because
5 Commission Decision of the 24 April 1996 declaring a concentration to be incompatible with the
common market and the functioning of the EEA Agreement (Case No IV/M.619 – Gencor/Lonrho).
Note that we shall refer to this report at other points in this decision. The EC report is particularly
apposite because both analyses deal with the same geographical market populated by the same
participants.
6 The parties pointed out that in 2001, the autocatalyst sector accounted for approx. 40% of platinum
demand and 71% of palladium demand. They remarked that this demand substitutability signified that
platinum and palladium could indeed constitute a single product market, especially as fabricators
become more price sensitive.
7 In Two Rivers Platinum Limited and Assmang Limited, Case No: 54/LM/Sep01, we examined the
vertical aspects of this industry in par. 19 – 37. This is referred to in par. 23 of Case No 55/LM/Aug02.
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the barriers to entry in the refining stage are becoming so high that it
becomes highly unlikely that a new entrant will enter the refining
market. In fact, in the previous two merger cases, mentioned earlier,
the Tribunal noted that it was becoming increasingly difficult to enter
the capitalintensive refining stage of the market because Angloplats,
Implats and Lonmin controlled sufficient of the present ore output and
reserves to deter any wouldbe entrant at the refining stage. 8
13. The parties argue that the period is purely a commercial arrangement,
on the one hand to finance the project, i.e. to expand RPM’s refining
capacity and ensure a return on its investment, and on the other hand
for RBN to be able to finance its 50% interest in the JV. Moreover, this
JV agreement differs from, for example, the Two Rivers JV, in that it
will continue for a limited time only and not for the life of the mine. The
parties allege that had it been a commercial bank financing this
transaction the bank would have insisted, as a safety factor, on a much
longer term probably until the full amount was paid back. Anglo is also
offering a lower interest rate.
14. In light of the commercial reasons advanced for tying the refining
process to the JV for a specified time we find that the transaction will
not substantially prevent or lessen competition. We therefore approve
the transaction unconditionally.
Public interest
15. There are no public interest concerns which would alter this conclusion.
_____________ 14 January 2003
D. Lewis Date
Concurring: N. Manoim, M. Holden
For the merging parties: Deneys Reitz Attorneys and Bell, Dewar and
Hall.
For the Commission: A.Coetzee, Competition Commission
8 See par. 23 of Case No 55/LM/Aug02
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