COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No.: 26/LM/Mar07
In the matter between:
IMPALA PLATINUM HOLDINGS LIMITED Acquiring Firm
And
AFRICAN PLATINUM PLC Target Firm
______________________________________________________________
Panel: N Manoim (Presiding Member), M Moerane (Tribunal
Member) and L Reyburn (Tribunal Member)
Heard on: 28 March 2007
Order issued on: 28 March 2007
Reasons issued on: 26 April 2007
REASONS FOR DECISION
APPROVAL
1)On 28 March 2007, the Competition Tribunal unconditionally approved the merger
between Impala Platinum Holdings Limited and African Platinum Plc. The reasons for
this decision follow.
THE TRANSACTION
2)In terms of the proposed transaction, Impala Platinum Holdings (“Implats”) will
acquire the entire shareholding in African Platinum Plc (“Afplats”). 1 Implats is listed
on the JSE and not controlled by any single firm. Afplats is listed on the London
1 A list of the major shareholders of both merging parties can be found on pages 23 of the
Commission’s report.
Stock Exchange and not controlled by any single shareholder.
3)The business of Afplats was the recently the subject of another transaction which
was approved by the Tribunal on 8 February 2007. 2 In terms of that transaction,
Afplats South African interests in Afplats (Pty) Ltd (‘Afplats SA’), Imbasa Platinum
(Pty) Ltd (‘Imbasa Platinum’) and Inkosi Platinum (Pty) Ltd (‘Inkosi Platinum’) were
firstly to be transferred to a new company, Newco. Thereafter Implats would
subscribe for 29.9% of the ordinary shares in Newco. Afplats would hold the rest of
the shareholding in Newco.
4)Due to certain minority protections the effect of the transaction would be that
Implats and Afplats would jointly control Newco. Implats would also have an effective
22.13% interest in Afplats SA, and an effective 14.65% interest in Inkosi Platinum.
5)The rationale for that transaction was that Implats perceived the transaction as part
of its strategy to increase production to meet growing demand, in order to remain
competitive in the market. For Afplats it would be entering into the transaction in
order to commence mining operations. Afplats had been involved in the exploration
of the Platinum Group Metals (‘PGM’) industry and sought to commence mining
operations. Afplats had 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.
6)In the current transaction, the merging parties have stated that Afplats’
shareholders were dissatisfied with the previous structure as it would have taken
longer to obtain returns on their investments – they would have to wait for a period of
four to five years when production of PGMs is expected to begin. According the
four to five years when production of PGMs is expected to begin. According the
merging parties, the current transaction enables Afplats shareholders to realize gains
from their investments in the short term. 3
IMPACT ON COMPETITION
2 Impala Platinum Holdings Limited and Islandsite Investments 225 (Pty) Ltd Case No:
03/LM/Jan07
3 During the hearing, the Tribunal was told that the Afplats’ shareholders did not have to be
consulted in the previous transaction which the management of Afplats and Implats thought
were suitable for their purposes at the time.
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7)In the previous transaction, the Tribunal had been of the view that Implats was in
fact acquiring de facto control because of the minority protections the shareholders
agreement awarded it. Therefore in its reasons issued on 22 February 2007, the
Tribunal analysed that transaction as if Implats was acquiring full control of Afplats’
PGM interests.
8)The current transaction essentially transfers de jure control to Implats and for this
reason we do not find it necessary to reproduce the previous analysis here save to
record the following:
a. In the horizontal analysis the Tribunal found that in each of the separate
markets for PGMs the market share accretions did not exceed 3%. The
changes in concentration levels therefore remain relatively low;
b. In its vertical analysis, the Tribunal raised concerns about the possibility
that the joint venture would enable Implats to control the supply of Afplat’s
PGMs onto the international market thus influencing prices. However
having heard the merging parties’ submissions, the Tribunal concluded
that it was unlikely that Implats would increase the refining costs for its
other customers because there was no incentive to do so.
“The affected producers may seek other 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. 4”
9)For those reasons, the Tribunal found that the previous transaction was unlikely to
substantially lessen or prevent competition in any of the markets which the parties
are active in.
4 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).
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10)While we endorse our previous findings, certain information came to light during
the hearing of the current transaction regarding barriers to entry in the PGM refining
sector that are worth recording here. Until recently, only three entities were involved
in PGM refining locally, Anglo Platinum, Implats and Lonmin. These refineries refined
both their own output and had toll refining and concentrate offtake agreements with
third parties. 5
11)According to Mr Mahadevi from Implats, there is a fourth refiner situated in the
Eastern Cape currently operating with the capabilities to provide the “complete”
refining process to PGM producers. Mr Mahadevi also stated that an Australian
company, independent of the existing players, had recently entered the market with
new refining technology thereby implying that barriers to entry were low. Mr
Mahadevi was unable to give details regarding the new entrant and the merging
parties were asked to make written submissions on the available refining capacity in
South Africa.
12)According to a submission filed on 4 April 2007, Heraeus has established a local
subsidiary, Heraeus Refinery S.A. (Pty) Ltd, and has built a primary precious metals
refinery in Port Elizabeth, in the Coega Industrial Development Zone, which began
operations in February 2007. Although Mr Mahadevi appeared to be more optimistic
about this refineries capabilities, the subsequent submission indicates that the
refinery is apparently only at the preliminary stage where only material from Northam
Platinum is being process. The merging parties report that the intention is to grow
the refinery in stages into a fullyfledged operation securing more supply from junior
miners.
13)Regarding the new entrant, “Independence Platinum” the merging parties’ confirm
in their later submission that Independence Platinum has announced its intention to
in their later submission that Independence Platinum has announced its intention to
establish refining facilities in South Africa for the smelting and refining of the output of
emerging platinum producers, using different technology to that currently utilised by
other precious metal refineries in South Africa. 6 According to the merging parties, it
5 The high cost of establishing and running a PGM refinery makes it economically unfeasible
for smaller mining entities to refine on their own behalf.
6 The new technology was developed as a result of the increasing exploitation of UG2 and
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appears that the intention is to refine base metals from PGM concentrate, to produce
various base metals and a highgrade final PGM concentrate for precious metals
refining.
14)There is no reason to depart from the competition conclusion reached in our
previous decision concerning African Platinum where we evaluated that now aborted
merger from the standpoint that Implats was the effective controller. The new merger
has the same economic effect albeit that Implats increases its de iure control over
the firm and its ostensible economic interest. In this enquiry the evidence of the
lowering of barriers to entry in the industry through the prospect of new players
emerging at the refinery level, whilst encouraging is too speculative at this time to be
determinative. However, even if we have a more guarded view of the prospects of
new independent entrants into the refinery market the merger does not raise
concerns for the reasons advanced in our previous African Platinum decision.
______________________
N Manoim
Presiding Member
M Moerane and L Reyburn concurring.
Platreef resources, particularly by junior miners. The UG2 reef and Platreef contain higher
quantities of chromitites than the Merensky reef, which are difficult to smelt in the sixinline
furnaces used by Anglo Platinum, Implats and Lonmin. Independence Platinum has an
exclusive 10year licence to utilise Mintek’s ConRoast Process, which, when used in
conjunction with the technology of Atomaer Technologies, is able to refine concentrates
containing higher levels of chromitites, resulting in reductions in capital and operating costs.
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Tribunal Researcher: M MuruganModise
For the merging parties: L Morphet (Deneys Reitz)
For the Commission: M N gobese (Mergers and Acquisitions)
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