COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case no: 56/LM/Jun05
In The Large Merger Between:
Merafe Ferrochrome and Mining (Pty) Ltd
Xstrata South Africa (Pty) Ltd
and
The Xstrata – Samancor Production Joint Venture
Samancor Ltd
Reasons for Decision
Approval
1. On 8 September 2005, the Competition Tribunal issued a Merger Clearance Certificate
approving the transaction between Merafe Ferrochrome and Mining (Pty) Ltd, Xstrata South
Africa (Pty) Ltd, the Xstrata – Samancor Production Joint Venture and Samancor Ltd Ltd.
The reasons for this decision follow.
The Transaction
2. The parties to the transaction are Merafe Ferrochrome & Mining (Pty) Ltd (“Merafe
Ferrochrome”), Xstrata South Africa (Pty) Ltd (“Xstrata”), Samancor Ltd (“Samancor”) and
the XstrataSamancor Production joint venture also known as “ Gemini”1.
3. Merafe Ferrochrome is a wholly owned subsidiary of Merafe Chrome and Alloys (Pty) Ltd,
which in turn is controlled by Merafe Resources Ltd. Merafe Resources’ majority
shareholders are the Royal Bafokeng Resources (Pty) Ltd, a wholly owned subsidiary of the
Royal Bafokeng Nation, holds 32,09%, the Industrial Development Corporation (“IDC”) holds
24,36% and various institutions, stakeholders and individuals hold the remaining 56,45%.
4. Xstrata is a wholly owned subsidiary of Xstrata (Schweiz) AG. Xstrata Plc holds the entire
issued share capital of Xstrata (Schweiz) AG. 2 Samancor is a wholly owned subsidiary of
Samancor Holdings (Pty) Ltd which is controlled by BHP Billiton Plc (60%) and Anglo
American Plc (40%).
1 Gemini is an unincorporated joint venture between Xstrata and Samancor for the purposes of producing
ferrochrome using chrome ore mined from various chrome mines belonging to Xstrata and Samancor.
2 A list of Xstrata’s subsidiaries can be found on page 2 of the Commission’s Report.
5. The proposed transaction involves a number of composite parts: 3
5.1. Merafe Ferrochrome will acquire the 50% participation interest held by
Samancor in Gemini;
5.2. Thereafter the assets and business of Gemini will effectively be placed under
the control of an existing pooling and sharing venture (“PSV”) between
Xstrata, Merafe Ferrochrome and Merafe Resources. 4
5.3. In addition, Xstrata and Merafe Ferrochrome are acquiring certain chrome
mineral rights known as the “Kroondal Resources” and the “Marikana
Resources” from Samancor. Xstrata has also entered into a letter of intent
with Samancor relating to certain chrome mineral resources held by each of
Xstrata and Samancor on the Kroondal and Waterval Farms. The resources
held by Samancor, which form the subject of the letter of intent (“exchange
resources”), as well as the Kroondal and Marikana Resources will be placed
under the control of the PSV.
6. In short, Merafe and Xstrata will contribute to the existing PSV their respective interests in:
6.1. The Gemini joint venture;
6.2. The Kroondal resources (of which Xstrata holds 50% and is acquiring the
remaining
50% from Samancor); and
6.3. The Marikana resources (of which Xstrata holds 26% and is acquiring the
remaining
74% from Samancor);
7. According to the parties, the additional resources will inter alia provide the PSV with an
increased reserve base, increased quality chrome ore production and will reduce operating
costs.
The merging parties’ activities
8. The Royal Bafokeng Nation is an indigenous community that owns approximately 2000
square kilometres of land and certain mineral reserves on the land in the greater
Rustenburg area. The IDC, a quasipublic corporation, is a selffinancing stateowned
development finance institution, which provides finance to entrepreneurs in competitive
industries through loans and other financial instruments including equity.
9. Merafe owns a ferrochrome smelter in Boshoek (North West Province), chromite mineral
rights in the immediate vicinity of the smelter, a UG2 gravity concentrator plant some 12 km
from the smelter and Horizon chrome mine situated 40km northwest of the smelter. The
feedstock for the Boshoek facility is provided by the Horizon mine and the concentrator
plant. All these assets have been contributed to, and fall under the control of the joint board
of the PSV. According to the parties the Merafe group currently has no business other than
3 From page 19 of the record
4 See pages 758760 of the record. Also Xstrata SA and South African Chrome and Alloys Case Number:
32/LM/Apr04 where this pooling and sharing venture was the subject of the transaction.
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that which it has contributed to the PSV.
10. Xstrata operates as a vertically integrated ferrochrome producer, involved in the mining and
sale of coal, zinc, copper, ferrochrome and vanadium. Xstrata has various subsidiaries
which are relevant for purposes of evaluating the transaction, viz:
10.1. CharTech produces char/gas coke, 5 electrode paste as well as tar, char fines
and coke fines (byproducts of char/gas coke);
10.2. KwaNdebele Coal is a dormant company, which owns mineral rights in
respect of coal deposits;
10.3. Complex Chrome is a dormant mineral rights holding company;
10.4. The Duiker group mines and sells steam coal, as well as supplies small
amounts of low phosphorus and low sulphur bituminous coal to the
metallurgical industry;
10.5. Egalite and ICH 6 are holding companies of subsidiaries involved in the
production of char/gas coke as well as their byproducts, tar, coke fines and
coal fines.
11. The pooled assets of the existing PSV between Xstrata and Merafe Ferrochrome
comprised the ferrochrome and chrome mining assets, infrastructure, contracts,
arrangements, operations chrome businesses of the parties as well as the parties’ chrome
mining rights and land and certain ferrochrome assets and mining authorisations and rights
belonging to the Royal Bafokeng Nation. 7
12. The premerger Gemini joint venture made use of inter alia the Kroondal resources to
produce ferrochrome at a ferrochrome facility situated near Wonderkop in the North West
province.
13. Samancor is the common law holder of the mineral rights at Kroondal and the resources
were mined as part of Gemini’s acitivities. Samancor is vertically integrated into the mining
of chrome ore and the production of ferrochrome.
14. The parties aver that the Gemini JV neither markets, sells nor distributes ferrochrome as
14. The parties aver that the Gemini JV neither markets, sells nor distributes ferrochrome as
Xstrata and Samancor carry out these activities separately and independently of the joint
venture.
Competition analysis
15. The transaction has both horizontal and vertical effects. The horizontal effects arise from the
overlapping activities of the merging parties for the production of ferrochrome as well as the
mining and production of chrome ore. The vertical effects result from the parties’
involvement in the production of various inputs in the production process of ferrochrome. To
5 “ Char” is virtually identical to “gas coke”, the difference being only in the production process used to
produce each of them.
6 See Case Number: 54/LM/Jul04 where this transaction was approved by the Tribunal subject to certain
supply conditions.
7 Page 758 of the Merger record.
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produce ferrochrome, chrome ore is used together with various reductants (char, gas coke,
coke, metallurgical grade coal and anthracite) and other materials, such as quartz and
dolomite in furnaces. According to the parties, the Gemini JV purchases certain of its inputs
from firms in the Xstrata group viz. electrode casings, char, electrode paste, coal, chrome
ore and quartz). 8 The Xstrata group also sells these inputs (with the exception of coal) to
firms outside of the Xstrata group.
A: Horizontal Effects
16. The Commission identified the following relevant markets:
16.1. National market for the mining and production of chrome ore; and
16.2. Global market for the production of ferrochrome.
17. An examination of the market share accretions in the above markets reveals the following: 9
17.1. The Gemini JV constitutes approximately 5% of the national production
market of chrome ore of which Xstrata and Samancor have 50% ownership
each. Therefore 2,5% (i.e. Samancor’s 50% share of 5%) of the national
chrome ore market is being transferred to the PSV between Xstrata and
Merafe.10
17.2. The combined market share for the merging parties in the market for the
production and supply of ferrochrome is approximately 24%. The market
share accretion is approximately 1% which is relatively insignificant.
B: Vertical Effects
18. The Commission identified the following relevant product markets:
18.1. the supply of chrome ore to ferrochrome producers;
18.2. the mining of coal, char/gas coke, anthracite and coke;
18.3. the production of electrode paste;
18.4. the production of electrode casings; and
18.5. the production of quartz/silica.
19. The relevant geographic markets for all the markets identified above are defined as national.
20. An examination of the market share accretions in the above markets, as well as the
Commission’s and parties’ submissions reveal the following: 11
20.1. In the market for the supply of chrome ore to ferrochrome producers, the
transaction will lead to an increase in market share of approximately 1%.
According to the parties, the PSV consumes approximately 98% of its chrome
ore inhouse. The Commission found that there are alternate suppliers of
chrome ore, which can supply ferrochrome producers with their chrome ore
8 At page 776 of the Merger record.
9 See pages 15 –18 of the Commission’s report.
10 If the chrome ore produced by PGM (Platinum Group Metals) producers is taken into account, the
market share of Gemini decreases to approximately 3%. This means that 1,5% is transferred to the PSV.
11 See pages 19 –20 of the Commission’s report.
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requirements. Furthermore chrome ore is one of the byproducts of platinum
production, ferrochrome producers may look to PGM producers for supply of
chrome ore rather than having to acquire and mine chrome mineral
resources.
20.2. Xstrata is the dominant supplier of char/gas coke. However, in a previous
transaction, 12 the Tribunal imposed certain supply conditions on Xstrata,
requiring it inter alia to comply with the provisions of its char/gas coke supply
agreements with ferrochrome producers up until 20 December 2007. 13 The
Commission’s investigations revealed that there is an imminent credible
entrant into this market.
20.3. The market for the production of electrode paste is highly concentrated.
Xstrata, through its subsidiary CharTech has the second highest market share
out of three players. According to the parties, 14 CharTech supplied the
Gemini JV with a relatively insignificant amount of its total production of
electrode paste in 2004. Furthermore, electrode paste constitutes a small
percentage of the total cost in the production of ferrochrome approximately
1,5%. According to the Commission, the proposed transaction will merely
consolidate a preexisting vertical relationship.
20.4. The dominant supplier of electrode casings is Rustenburg Steel Construction,
which accounts for approximately 95% of the market. According to the parties,
Xstrata accounts for less than the remaining 5%. Of the electrode casings that
it does produce, Xstrata primarily consumes it inhouse, although it has in the
past supplied a small number of units to a competing ferrochrome producer.
However, the parties state that Xstrata is in the process of phasing out the
supply of electrode casings to members of the Xstrata group and to third
parties, as electrode casings are more competitively available from
Rustenburg Steel Construction.
20.5. In the market for the production of quartz/silica, Eggosand and Delmas Silica
account for 30% and 60% respectively of the market. Xstrata and others
account for less than 10% of the market.
21. Based on information provided to us by the Commission and parties, we are of the view that
the transaction is unlikely to substantially prevent or lessen competition in any of the
markets identified.
Public Interest
22. There are no public interest issues, which would alter our view.
Conclusion
23. We accordingly approve the transaction for the above reasons.
12 Xstrata South Africa (Pty) Ltd and Egalite (Pty) Ltd and International Carbon Holdings (Pty) Ltd Case
number: 54/LM/Jul04.
13 Three years from the date that the merger was approved.
14 Page 998 of the Merger Record.
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13 February 2006
Y Carrim Date
Concurring: N Manoim, L Reyburn
For the merging parties: H Hillestad (BHP Biliton) D Rudman and C Baird (Werkmans).
For the Commission: R Labuschagne and H Ratshisusu (Mergers and Acquisitions).
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