COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 27/LM/May10
In the matter between:
Lexshell 140 General Trading (Pty) Ltd Acquiring Firm
And
Incwala Resources (Pty) Ltd Target Firm
Panel : Norman Manoim (Presiding Member),
Yasmin Carrim (Tribunal Member), and
Andreas Wessels (Tribunal Member)
Heard on : 23 June 2010
Order issued on : 23 June 2010
Reasons issued on : 16 July 2010
Reasons for Decision
Approval
1] On 23 June 2010 the Competition Tribunal (“Tribunal”) approved the
acquisition by Lexshell 140 General Trading (Pty) Ltd of Incwala
Resources (Pty) Ltd. The reasons for approval follow below.
The parties to the transaction
2] The primary acquiring firm is Lexshell 140 General Trading (Pty) Ltd
(“Lexshell”), a dormant special purpose vehicle (SPV) acquired
specifically for the purposes of the proposed transaction. Lexshell is
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wholly owned by Lexshell 806 Investments (Pty) Ltd (“Lexshell
Investments”), also a dormant SPV. Lexshell Investments is wholly
owned by Shanduka Resources (Pty) Ltd (“Shanduka Resources”). All
firms controlled by and controlling Shanduka Resources will collectively
be referred to hereinafter as “Shanduka”. Shanduka has various
investments in the resources sector.
3] The relevant firms within the Shanduka group for the purposes of
assessing the competition aspects of the instant transaction are
Assore, Pan African Resources plc (“PAR”), DRA and Minopex.1
4] The target firm is Incwala Resources (Pty) Ltd (“IR”). IR is a SPV
established for the purpose of holding shares, as a black economic
empowerment shareholder, in South African mining subsidiaries of
Lonmin plc. Lonmin plc and its subsidiaries will be referred to
hereinafter as “Lonmin”. Lonmin and the Industrial Development
Corporation of South Africa Limited (“IDC”) each hold 23.56% of the
share capital of IR, with the remaining 52,88% being held by the
following empowerment shareholders:
• SAWIMIH Trust 0.273%
• The Lonmin Employees Masakhane Trust 1.095%
• Thelo Incwala Investments (Pty) Ltd 16.22%
• Vantage Capital Incwala Investments (Pty) Ltd 16.22%
• Dema Incwala Investments (Pty) Ltd 16.22%
(the above-mentioned shareholders are collectively
referred to as the “target shareholders” hereinafter); and
• Mirrorball Investments 0019 (Pty) Ltd 2.85%
5] IR holds 100% of the issued share capital of Incwala Platinum (Pty)
Ltd (“IP”). IP in turn holds 18% of the issued share capital of each of
Eastern Platinum Ltd and Western Platinum Ltd (collectively
“Lonplats”).2 Lonplats is a primary producer of certain platinum group
metals (PGMs), and it also obtains the following minerals in the PGM
mining process: gold, copper, nickel and chromite concentrate.
6] IR also holds a 26% shareholding interest in Akanani Mining (Pty) Ltd
6] IR also holds a 26% shareholding interest in Akanani Mining (Pty) Ltd
(“Akanani”), a company in the Lonmin group which owns prospecting
rights. However, at this point Akanani produces no products and
renders no services.3
1 For a full description of the relevant shareholding of Shanduka in these firms, their shareholding
interests in other firms and their various activities, see pages 59 to 66 of the record.
2 The remaining 82% of Lonplats is held by Lonmin.
3 Akanani remains in the project phases of possible mine development.
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The proposed transaction
7] The proposed transaction effectively replaces the existing
empowerment shareholders in IR, i.e. the above-mentioned target
shareholders, with Shanduka. After the proposed transaction Lexshell
will hold interests directly and indirectly representing in aggregate
50.03% of the issued share capital of IR.
The rationale
8] From Lonmin’s perspective the proposed transaction will result in
Lonmin securing a high quality BEE partner via a robust funding
structure. According to the merging parties, Shanduka will provide
leadership to IR and strategic support to Lonmin in achieving its BEE
objectives. From the perspective of Shanduka the proposed transaction
affords it an opportunity to invest in operational mining activities in the
PGM industry.
Product overlap
9] Shanduka and IR both have indirect minority shareholdings in PGM
and gold mining companies. The overall PGM market includes the
following products: platinum, palladium, rhodium, ruthenium, iridium
and osmium. PGMs are mostly used in the automotive industry to
produce autocatalysts and are also used in jewellery production.
However, the notional horizontal overlap between the activities of
the merging parties is limited to the production and sale of only three
PGMs, namely platinum, palladium and rhodium, as well as gold.
Relevant markets
10]In line with previous Tribunal decisions we define the production and
sale of gold 4 and the production sale of each of the relevant PGMs 5,
i.e. platinum, palladium and rhodium, as separate relevant product
markets. The geographic scope of these markets is considered to be
international.
11]From a vertical perspective Shanduka has a minority shareholding
interest of 11.7% in Assore which produces ferrochrome. Lonplats
produces chromite fines from the tailings (waste product) generated
from its PGM production activities. These chromite fines can be used
from its PGM production activities. These chromite fines can be used
in ferrochrome production as a partial substitute for metallurgical
grade chrome concentrate.
4 See, for example, the large merger involving Harmony Gold Mining Company Limited and Pamodzi
Gold Free State (Pty) Ltd (71/LM/Oct09).
5 See, for example, the large merger involving Aquarius Platinum SA (Pty) Ltd, Rustenburg Platinum
Mines Limited and First Platinum (Pty) Ltd (29/LM/Mar09).
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Completion analysis
Horizontal assessment
12]The merging parties submit that the proposed merger will have no
effect on competition in the above-mentioned relevant markets since
the merger is essentially a restructuring of the empowerment
shareholding of IR, and will not confer control to Shanduka over the
underlying operational assets of Lonmin. 6 However, the proposed
transaction will result in Shanduka indirectly acquiring a further
minority stake in certain additional PGM assets.
13]The merged entity’s estimated market shares in all of the above-
mentioned relevant markets remain below 15% post merger.
Furthermore, the accretion in these market shares as a result of the
proposed deal is very low, i.e. less than 1% in each of the affected
markets. The merged entity further competes with a number of major
mining houses in all of the said markets.
Vertical assessment
14]The merging parties contend that there can be no post merger
concern that Lonplats may withdraw its chromite fines supply from the
market and supply them exclusively to Assore given that this supply
will post merger be committed to certain third parties for a number of
years. Furthermore, there are a number of alternative PGM producers
from which ferrochrome producers can obtain their chromite tailings
requirements. We therefore conclude that the proposed deal does not
result in any significant foreclosure concerns.
Public interest
15]The merging parties confirmed that the proposed transaction will have
no adverse effect on employment. Furthermore, no other public
interest issues arise from this proposed merger.
CONCLUSION
16]The merged entity’s post merger market shares remain low in all the
potentially affected horizontal markets. Furthermore, no vertical
foreclosure concerns arise as a result of the proposed transaction. The
transaction is therefore unlikely to substantially prevent or lessen
transaction is therefore unlikely to substantially prevent or lessen
competition in any of the relevant markets. Lastly, no public interest
concerns arise from the proposed deal. We accordingly approve the
6 See pages 72 and 73 of the record, par 8.1.7 of the merging parties’ competitiveness report.
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transaction.
____________________ 16 July 2010
Andreas Wessels DATE
Norman Manoim and Yasmin Carrim concurring.
Tribunal Researcher: Thandi Lamprecht
For the merging parties: Werksmans Incorporating Jan S. De Villiers
For the Commission: Maarten van Hooven
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