COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No:03/LM/Jan07
In the matter between:
Impala Platinum Holdings Limited Acquiring Firm
And
Islandsite Investments 225 (Pty) Ltd Target Firm
Panel : Y Carrim (Presiding Member), N Manoim (Tribunal
Member), and M Mokuena (Tribunal Member)
Heard on : 7 February 2007
Decided on : 7 February 2007
Reasons Issued: 22 February 2007
Reasons for Decision
Approval
1] On 7 February 2007, the Tribunal unconditionally approved the merger
between Impala Platinum Holdings Limited and Islandsite Investments 225
(Pty) Ltd. The reasons for approving the transaction follow.
The parties
2] The primary acquiring firm is Impala Platinum Holdings Limited (‘Implats’), a
public company duly registered on the JSE Securities Exchange. Implats is not
controlled by any single firm. Its major shareholders and their percentage
shareholding are as follows:
[2.1] Public Investment Corporation 7.2%;
[2.2] Old Mutual Group 6.5%;
[2.3] Merrill Lynch 6.4%; and
[2.4] Tegniesse Mynbeleggins Ltd 5.0%.
3] The primary target firm is Islandsite Investments 225 (Pty) Ltd (‘Newco’), a
newly formed South African subsidiary of African Platinum plc (‘Afplats’), a
company duly listed on the London Stock Exchange. Afplats is not controlled by
any single shareholder. Afplats’ major shareholders and their percentage
shareholdings are as follows:
[3.1] North Sound Capital LLC 14.44%;
[3.2] CGT Management Limited 9.91%;
[3.3] Royce and Associates Inc. 6.33%;
[3.4] US Global Investors Inc. 4.10%; and
[3.5] Tocqueville Asset Management 4.08%.
The transaction
4] This transaction involves two interconnected steps. The first step involves an
internal restructuring in terms of which shareholdings of Afplats in Afplats (Pty)
Ltd (‘Afplats SA’), Imbasa Platinum (Pty) Ltd (‘Imbasa Platinum’) and Inkosi
Platinum (Pty) Ltd (‘Inkosi Platinum’) will be transferred to Newco. 1 Newco is
currently a wholly owned subsidiary of Afplats which has not begun trading.
1 74% of Afplats’ shareholding in Afplats SA, 60% of its shareholding in Imbasa Platinum and
its 49% shareholding in Inkosi platinum will be transferred to Newco.
2
5] The second step involves Implats subscribing for 29.9% of the ordinary shares
in Newco. Afplats will continue holding the rest of the shareholding in Newco.
Arguably, Implats will acquire a form of control over Newco because of the
significant minority protections. 2
6] The effect of the transaction will be that Implats will acquire 29.9% and joint
control of Newco, and therefore an effective 22.13% interest in Afplats SA, and
an effective 14.65% interest in Inkosi Platinum
Rationale for the transaction
7] Implats perceives the transaction as part of its strategy to increase production
to meet growing demand, in order to remain competitive in the market.
8] Afplats submitted that it is entering into the transaction in order to commence
mining operations. Afplats has been involved in the exploration of the Platinum
Group Metals (‘PGM’) industry and is seeking to commence mining operations.
Afplats has submitted that in order for it to commence mining operations it has
partnered with Implats for the latter to provide financial backing as well as
technical and management expertise.
The parties’ activities
9] Implats is involved in the business of mining, refining and marketing of the six
PGMs namely platinum, palladium, rhodium, osmium, ruthenium and iridium,
which occur together in nature alongside nickel and copper.
10] Afplats is an exploration, investment and development firm focused on PGMs.
Overlapping activities
2 Although Implats will not have a veto right, there will be a deadlock breaking mechanism in
place. The deadlock provision contained in clause 7.4 of the Framework Agreement concluded
between the parties sets out the approach to be followed in instances where the parties fail to
agree on issues regarding the management of the Projects.
3
11] The merging parties submitted that there are no overlapping activities between
them since Afplats has not commenced the mining of PGMs. However, the
Commission assessed the effects of the transaction in each of the PGMs in
light of the fact that Afplats owns reserves of PGMs and that it has entered into
the transaction in order to obtain the financial and technical capacity to start
mining these reserves.
12] The Commission noted that the proposed transaction will also give rise to
vertical integration as Implats provides the downstream PGM refining services. 3
Relevant markets
13] The Commission and the parties submitted that in many of its decisions, 4 the
Tribunal has endorsed the European Commission’s decision in the matter
between Gencor Limited and Lonrho PLC (‘Gencor/ Lonrho’), 5 that PGMs do
not constitute one single market, but rather six different markets corresponding
to each of the PGMs and these are Platinum, Palladium, Rhodium, Iridium,
Ruthenium, and Osmium.
14] The Commission noted that PGM refining constitutes a separate and distinct
market. PGM producers without refining capabilities will contract with PGM
refiners for concentrate offtake. A specific type of plant and expertise is
required to refine PGMs. 6
15] In many of its previous cases 7 the Tribunal has recognised that the geographic
markets for PGMs and the market for the refining of PGMs are international.
3 The parties submitted that Afplats and Impala Refining Services Ltd (‘IRS’), a subsidiary of
Implats, have already concluded a concentration offtake agreement prior to the agreement.
The merging parties submitted that this agreement was concluded after a competitive tender
process and not in anticipation of the proposed transaction.
4 Two Rivers Platinum and Assmag Ltd Case No. 54/LM/Sep01 Rustenburg Platinum Mines
4 Two Rivers Platinum and Assmag Ltd Case No. 54/LM/Sep01 Rustenburg Platinum Mines
and Eastern Platinum Mines Ltd ‘Pandora Joint Venture’ and Rustenburg Platinum Mines Ltd
Case No. 55/LM/Aug02, Rustenburg Platinum Mines Ltd and 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 Case No. 78/LM/Oct02; and Aquarius
Platinum (South Africa) (Pty) Ltd/ Rustenburg Platinum Mines Ltd Case No. 35/LM/Jul03.
5 Case No. IV/M.619 OJ L011.
6 RT Jones, Platinum Smelting in South Africa, 1999 (www.mintek.co.za).
7 Refer to footnote 4 and 5.
4
16] In our view there have been very few changes in the mining, refining and
marketing of PGMs to support a different approach to market definition.
Competition Analysis
Horizontal effect
17] The parties submitted that this transaction is not between two existing
producers of PGMs, and thus, cannot be seen as advancing the already high
levels of concentration in the market for PGMs. Afplats has been involved in the
exploration of PGMs and is now seeking to commence mining activities through
its partnership with Implats. They argue that there are no overlapping activities
and, as a result, the transaction does not substantially prevent or lessen and
does not affect the current status of competition in the various markets.
18] We disagree with the merging parties. Afplats owns PGM reserves and is a
potential producer. At the hearing, the parties confirmed that in terms of the off
take agreement between them, Newco will sell the PGMs it produces to Implats
and the latter will be responsible for selling the PGMs on to the world market as
its own product. Thus the PGMs from Newco will increase Implats’ output of
PGMs on the world market. Accordingly we consider both parties to be in the
market for the production of PGMs.
19] The Commission assessed the effects of the transaction in each of the PGMs in
light of the fact that Afplats owns reserves of PGMs and that it has entered into
the transaction in order to obtain the financial and technical capacity to start
mining these reserves.
20] The Commission has submitted that the market share accretions resulting from
this transaction are as follows:
Table 1 Global market share accretion 8
PGM Market share accretion (%)
8 The Commission obtained these figures from Implats (2006). The Commission calculated
the estimated market share accretion by analysing the ounces per annum to be produced from
the estimated market share accretion by analysing the ounces per annum to be produced from
the Merensky ore and UG2 ore in relation to global annual production of platinum in 2006.
5
Platinum 2.3
Palladium 1.1
Rhodium 2.2
Ruthenium 2.6
Iridium 2.0
21] In analysing the accretions in market shares brought about by this transaction,
it is evident that they are low since they do not exceed 3% and changes in
concentration levels remain relatively low. 9 Therefore, this transaction, on its
own, does not substantially prevent or lessen competition.
Vertical effects
22] The transaction gives rise to vertical integration in that a downstream provider
of PGM refining services (Implats) is acquiring an upstream potential producer
of PGMs (Afplats). As shown by the market share figures brought about by this
transaction, Afplats will not be in a position to foreclose the competitors of
Implats in the market for the refining of PGMs.
23] A further concern raised by the Tribunal was that the joint venture would
enable Implats to control the supply of Afplat’s PGMs onto the international
market thus influencing prices. The merging parties explained that Newco, the
joint venture company, and not Implats, will decide how much PGMs ought to
be mined. Implats already had a number of existing agreements with third
parties, in terms of which it was required to fulfill delivery of PGMs. Any form of
stockpiling was not possible because these agreements determined the future
quantity of PGMs that Implats will sell in the market. 10 In addition, the offtake
agreement provided for Afplats to seek alternative marketing opportunities in
the event that Implats did not fulfill its sales obligations as agreed. 11
24] It is unlikely that Implats will increase the refining costs for its other customers
because there is no incentive to do so. The affected producers may seek other
9 Commission’s recommendations, p79.
10 Transcript, page 8.
11 The clause entitled “Equality of Misery” permits Afplats the opportunity to market the
excess product in certain circumstances in order to limit the potential losses to both parties.
Record p319)
6
alternatives including the development of their own refining capabilities. Should
the refining costs be increased, that will have very little impact on the total
production costs. 12
Public Interest
25] There are no public interest issues.
Conclusion
26] This transaction does not raise competition concerns. The transaction is
accordingly approved unconditionally.
________________ 22 February 2007
Y Carrim DATE
Tribunal Member
N Manoim and M Mokuena concur in the judgment of Y Carrim
Tribunal Researcher: R Kariga
For the merging parties: L Morphet and L Vundla, Deneys Reitz Attorneys.
For the Commission : M Ngobese (Mergers and Acquisitions)
12 The minimal impact is precipitated by the fact that it is estimated that refining accounts for a
very small percentage of the total operating costs. The operating costs for each stage are as
follows: mining (72%), concentrating (10%), smelting (9%) and refining (9%) (RT Jones,
Platinum Smelting in South Africa, 1999, www.mintek.co.za).
7