COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 121/LM/Nov08
In the matter between:
Shanduka Coal (Pty) Ltd Acquiring Firm
And
Springlake Holdings (Pty) Ltd Target Firm
Panel : D Lewis (Presiding Member), Y Carrim (Tribunal
Member) and N Manoim (Tribunal Member)
Heard on : 11 February 2009
Order issued on : 11 February 2009
Reasons issued on : 06 May 2009
Reasons for Decision
Introduction
[1] On 11 February 2009 the Tribunal unconditionally approved the acquisition
by Shanduka Coal (Pty) Ltd of Springlake Holdings (Pty) Ltd. The reasons
follow below.
Parties
[2] The primary acquiring firm is Shanduka Coal (Pty) Ltd (“Shanduka Coal”).
Shanduka Coal is controlled by Glencore International AG (“Glencore”) and
Shanduka Resources (Pty) Ltd (“Shanduka Resources”). Glencore also
controls Xstrata Plc (“Xstrata Plc”), which in turn controls Xstrata South Africa
(Pty) Ltd (“Xstrata SA”).
[3] Shanduka Coal controls the following firms:
• Graspan Colliery (Pty) Ltd 100%
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• Wakefield Investments (Pty) Ltd 100%
• Lexshell 99 General Trading (Pty) Ltd 50%
[4] Glencore controls Xstrata Plc (“Xstrata Plc”). Glencore is not controlled by
any firm. Xstrata Plc is a company incorporated under the laws of the United
Kingdom and is listed on the London and Swiss stock exchanges. Xstrata Plc
controls Xstrata (Schweiz) AG (“Xstrata Schweiz”), a company registered in
Switzerland. In turn Xstrata Schweiz holds a controlling stake in a number of
subsidiaries of the following four main groups of companies:
• Xstrata South Africa (Pty) Ltd (“Xstrata SA”)
• Xstrata Holdings (Pty) Ltd (“Xstrata Holdings”)
• Xstrata Canada Corporation (“Xstrata Canada”) and
• Xstrata Zinc B.V. (“Xstrata ZBV”)
[5] Xstrata SA’s subsidiary relevant for this transaction is Maloma Colliery Ltd
(“Maloma Colliery”), a company based in Swaziland.
[6] The primary target firm is Springlake Holdings (Pty) Ltd (“Springlake
Holdings”). Springlake Holdings is a wholly owned subsidiary of Petmin Ltd
(“Petmin”). Springlake Holdings controls the following firms:
• Springlake Mining (South Africa (Pty) Ltd
• Tweewaters Fuel (Pty) Ltd
• Umgen Coal (Pty) Ltd
• Carnarvon Anthracite Coal Mines (Pty) Ltd
• Tendele Coal Mining (Pty) Ltd
Description of the transaction
[7] Shanduka Coal is acquiring all the issued shares in Springlake Holdings from
Petmin, as well as all claims which Petmin may have against Springlake
Holdings and its subsidiaries. On completion, Shanduka Coal will control
Springlake Holdings and its subsidiaries.
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Rationale for the transaction
[8] Shanduka Coal’s rationale is to enter the anthracite market and sell the output
produced by Springlake Holdings onto both domestic and export markets
together with its current thermal coal product offerings.
[9] Petmin submits that Springlake Holdings is no longer viable business and is
therefore selling it. Petmin also submits that it wants to obtain additional cash
resources in order to expand its other mine projects.
Parties’ Activities
The Acquiring Group
[10] Shanduka Coal and its subsidiaries are involved in the mining of coal in
several places in South Africa including Middelburg, Kendal and Delmas in
Mpumalanga Province. Glencore is involved in the mining, smelting, refining,
processing, marketing and trading of metals and minerals, energy products
and agricultural products. Glencore also provides financing, logistics and
other services to producers and consumers of commodities.
[11] Xstrata SA is involved in the mining, production and sale of ferrochrome,
chromite ore, vanadium pentoxide, ferrovanadium anthracite and thermal
coal. Its subsidiary, i.e. Maloma Colliery Ltd (“Maloma Colliery”) is involved in
the mining and selling of anthracite coal to the South African market.
The Target Firm
[12] Springlake Holdings and its subsidiaries are involved in the production of
sized and unsized anthracite coal. The sized anthracite is suitable for
domestic heating requirements as well as industrial and metallurgical
applications. The unsized anthracite is used in selected metallurgical
processes primarily as a reductant in sintering in the iron, steel and
ferromanganese industries.
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[13] Anthracite broadly falls into grades, namely high-grade and mid-grade, which
are used in different applications. These grades are produced in different
sizes referred to as “breeze”, “duff”, “peas”, “small nuts” and “large nuts”. The
main difference between the two grades lie in the analysis with high-grade
anthracite having high fixed carbon content and lower ash, volatile, sulphur
and phosphorus contents than mid-grade anthracite.
[14] The merging parties submitted to the Commission that Maloma produces all
specifications (sized and unsized) of the high-grade anthracite while
Springlake Holdings produces all specifications of the mid-grade anthracite.
According to the merging parties, high-grade anthracite is used in the
production of ferrochrome, titanium-rich oxide slag and electrode paste while
mid-grade anthracite is used in the production of ferromanganese, steel and
to a limited extend ferrochrome.
Competition Analysis
[15] The activities of the merging parties overlap in respect of the production and
supply of high and medium grade anthracite coal. High-grade anthracite is
used in the production of ferrochrome, titanium-rich oxide slag and electrode
paste manufacture. On the other hand, Mid-grade anthracite is used to
produce ferromanganese, steel and to a limited extent ferrochrome. This
transaction also results in a vertical integration in respect of the supply of
anthracite as an input in the production of ferrochrome.
[16] According to the merging parties, high-grade and mid-grade anthracite are
not substitutes of one another because of different compositions found in
each grade as well as the pricing of each grade. The Commission therefore
investigated whether different grades and sizes of anthracite constitute
distinct and separate relevant product markets.
[17] In this regard, the Commission found that some anthracite customers require
[17] In this regard, the Commission found that some anthracite customers require
the composition of the product to meet specific levels of ash, sulphur and
phosphorus to be able to use in their furnaces. For these customers, it would
appear that substitution is limited if not impossible. However, there are other
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customers such as ASA Metals who are able to substitute between different
grades in their applications.
[18] The Commission also noted the difference in the merging parties’ pricing of
anthracite. The pricing of Maloma’s high-grade anthracite is higher than that
of Springlake Holding’s mid-grade anthracite. In particular, the price of duff
was at least 45.6% higher than that of breeze between 2004 and 2006 before
the premium declined to 29.3% in 2007 and 22.8% in 2008. This difference in
pricing is mainly because of the ash content with duff having an ash content
of less that 10% while breeze typically has about 12%.
[19] The Commission’s analysis of the pricing of anthracite also revealed that
there has been a general upward trend in prices pre-merger both for Maloma
and Springlake Holdings. However, this increase is not peculiar to the
merging parties and the anthracite market, but to the broader coal market.1
[20] Although the Commission acknowledged that there could be narrower
relevant markets for anthracite and that the products of the merging parties
could fall into separate relevant markets (due to differences in composition,
namely sulphur, ash, phosphorus and volatile content), it concluded by
defining the relevant product market as the broader market for the mining of
anthracite coal (including both high and mid grades and all other sizes). The
geographic market is described as national.
[21] The merging parties submitted that Maloma has 7% and Springlake Holdings
16% pre-merger market share for the production of anthracite, with the
combined share of the parties being 23%. The Commission, however, found
that the merging parties’ combined post-merger market share is
approximately 27%, resulting in the merged entity being a leading supplier of
anthracite nationally. Competitors include Leeuw Mining (17%), Riversdale
Mining (23%), Slater Coal (10%), Sentula Mining (9%) and others.
Mining (23%), Slater Coal (10%), Sentula Mining (9%) and others.
[22] According to the merging parties, barriers to enter this market are not
insurmountable. They further submitted that funding for the establishment of a
new coal mine can be provided by the IDC or alternatively new entrants can
1 As shown by figures published by the Department of Minerals and Energy in the SA
Coal market for 2006.
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outsource the actual mining activity to contractors and merely commence the
mining without significant start-up capital and pay the mining fee as it
generates revenue for its coal sales. There have also been two new recent
entrants in the market, i.e. Somkhele Mining and Piet Retief Colliery.
[23] Most of the customers and competitors of the merging parties interviewed by
the Commission did not have any concerns about the merger. However,
Mogale Alloy (a customer) was concerned about the effect of this transaction
on its agreement with Maloma. 2 In this regard, the merging parties assured
that any dealings with their customers will not be affected by the merger.
[24] Another customer, SA Calcium and Carbide raised a concern about the risk of
price increases post-merger. SA Calcium and Carbide, however, did not fully
submit why price increase would be more probable post-merger. It further
acknowledged the presence of other supplies in the market in the event of
price increases by the merged entity.
[25] The Tribunal does not need to come to a conclusion on the relevant product
market, as even if the respective anthracite grades are considered
substitutes, the merging parties’ market shares are not sufficiently high to
raise competition concerns. Further, barriers to entry are low in this market as
evidenced by two new entrants in the past three years.
Vertical integration
[26] The Commission submits that there is a vertical integration in the activities of
the merging parties as Springlake Holdings produces and supplies anthracite
which Xstrata (a subsidiary of Glencore, which controls the primary acquiring
firm) uses as an input in the production of ferrochrome. This means that
Springlake Holdings is a potential anthracite supplier of Xstrata and its
subsidiaries.
[27] However, the merging parties submitted that there is no vertical integration as
the anthracite produced by Springlake Holdings is not suitable for the
the anthracite produced by Springlake Holdings is not suitable for the
production of ferrochrome as the sulphur and phosphorus contents are too
2 Mogale Alloys has a 3 year supply agreement with Maloma of sales of 3000 metric tons per
month and the price is free on truck delivery.
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high for ferrochrome production purposes. In this regard, the parties pointed
out that sulphur content plays a highly sensitive part in the process of
producing ferrochrome whereas with the production of other metals, e.g.
ferromanganese, it does not. The Commission nevertheless analysed this
aspect since there have been previous purchases of anthracite from
Springlake Holdings for ferrochrome production.
[28] The Commission found that in 2007 ASA Metal (a customer) sourced 1482
tonnes of anthracite from Springlake Holdings, whose total production is 686
000. This amounted to 0.2% of anthracite from Springlake Holdings for
ferrochrome production purposes.
[29] This amount is insignificant when comparing Springlake Holdings total sales
of anthracite with the broader anthracite market. Further, Xstrata’s remainder
of purchases of anthracite from third parties amount to approximately 7% of
sales by competitors of the merging parties. This integration is therefore
unlikely to result in any input or customer foreclosure.
[30] In light of the above the Tribunal finds that the proposed transaction is
unlikely to substantially prevent or lessen competition in the anthracite
market.
Public Interest
[31] The transaction does not raise any significant public interest concerns.
___________________ 06 May 2009
N Manoim Date
D Lewis and Y Carrim concurring.
Tribunal Researcher : I Selaledi
For the merging parties : Werksmans Incorporated
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For the Commission : L Madihlaba
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