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COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No:85/LM/Sep12
[015628 ]
In the matter between:
Samancor Chrome Ltd
Acquiring Firm
And
NST Ferrochrome (Pty) Ltd
Target Firm
Panel : Norman Manoim (Presiding Member)
Yasmin Carrim (Tribunal Member)
Andreas Wessels (Tribunal Member)
Heard on : 05 December 2012
Order issued on : 05 December 2012
Reasons issued on : 21 December 2012
Reasons for Decision
Approval
[1] On 05 December 2012 the Competition Tribunal (t he “Tribunal”)
unconditionally approved the acquisition by Samanco r Chrome Ltd of NST
Ferrochrome (Pty) Ltd. The reasons for the approval follow below.
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Parties and their activities
[2] The primary acquiring firm is Samancor Chrome L td (“Samancor”), a
company established in terms of the laws of the Rep ublic of South Africa.
Samancor is a wholly-owned subsidiary of Samancor C hrome Holdings
(Pty) Ltd (“Samancor Holdings”), which is in turn controlled by International
Mineral Resources B.V. (“IMR”) of the Netherlands.
[3] Samancor controls the following firms: Middlebu rg Technochrome (Pty)
Ltd, Batlhako Ferrochrome (Pty) Ltd, Waterkloof Chr ome Mines (Pty) Ltd,
Henry Gould (Pty) Ltd, Middleburg Steel & Alloys (P ty) Ltd and Crometals
(Pty) Ltd.
[4] Samancor is involved in the mining of chrome or e and is a vertically
integrated ferrochrome producer with chrome operati ons in Limpopo,
Mpumalanga and North West. Samancor is also involve d in the production
of electrode paste through a joint venture called F erroveld with a
Norwegian company, namely, Elkem AS.
[5] The primary target firm is NST Ferrochrome (Pt y) Ltd (“NST”), a company
incorporated in terms of the laws of the Republic o f South Africa. NST is a
50-50 joint venture between Samancor and Nippon Denko Co Ltd (“Nippon
Denko”), a company incorporated in terms of the law s of Japan. NST has
been in operation since 1993 and as part of the joi nt venture agreement
between Samancor and Nippon Denko, NST acquired a f urnace from
Samancor on the Tubatse smelting complex
1 located in Limpopo Province.
NST utilises this furnace to produce ferrochrome. T he merging parties
submitted that all the ferrochrome produced by NST is exported to Japan
where it is exclusively marketed by Nippon Denko. T he merging parties
further submitted that NST has since its inception been exclusively
1 According to the merging parties there are other f ive furnaces in this complex which are
owned by Tubatse Chrome (Pty) Ltd (“Tubatse”). Sama ncor Chrome has a 50% indirect
shareholding in Tubatse.
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sourcing chrome ore (an essential input in the prod uction of ferrochrome)
from Samancor.
Description and rationale of the transaction and rationale
[6] In terms of the Sale of Shares Agreement conclu ded by the merging
parties, Samancor intends to acquire the remaining 50% interest in NST
currently held by Nippon Denko. Post-merger Samanco r will have sole
control over NST.
[7] Samancor submitted that it was informed by Nipp on Denko that it was
disposing of its 50% shareholding in NST and termin ating the joint venture
agreement as it wants to focus on its manganese ope rations in Japan. In
terms of the joint venture agreement Samancor has a pre-emptive right to
acquire Nippon Denko’s shares and has chosen to exercise this right.
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Competition Analysis
[8] The Commission identified a horizontal overlap as well as a vertical
integration in the actitivities of the merging part ies. The horizontal overlap
is in respect of the production of ferrochrome and the vertical integration is
in respect of the mining of chrome ore and the prod uction of electrode
paste. Chrome ore and electrode paste are both esse ntial inputs in the
production of ferrochrome.
Horizontal Analysis
[9] In respect of the production of ferrochrome the Commission defined the
geographic market as being global. The combined pos t-merger market
share of the merging parties is approximately 10% a nd the accretion is
2 Samancor also submitted that the acquisition of th e remaining shareholding in NST will
enable it to be in a position to effect indirect co ntrol of the sixth furnace and avoid the
complexity of introducing a third party investor on the smelting complex which might not only
complicate the management of the Tubatse smelting but also prejudice its rights.
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less than 1%. Competitors in this market include Xs trata, Hernic, ASA
Metals, IFM and others. The Commission concluded th at the horizontal
overlap in the activities of the merging parties is unlikely to result in a
significant prevention or lessening of competition as the market share
accretion is low and there are firms who compete wi th the parties in this
market.
Vertical Analysis
[10] In relation to the upstream market for the min ing of chrome ore the
Commission defined the geographic market as being n ational. In this
market Samancor has a market share of approximately 30% and its
competitors include Assmang, ASA Metals, Hernic, Laxness and others. In
the downstream market for the production of ferroch rome the parties have
a combined global post-merger market share of appro ximately 10%.
Although Samancor supplies NST with chrome ore the Commission found
that input foreclosure is unlikely to occur as the majority of Samancor’s
chrome ore production is distributed to other customers.
[11] The Commission was further informed by local p roducers of ferrochrome
such as Xstrata, Hernic and Assmang that they are v ertically integrated
like the merging parties and have their own chrome ore mining operations.
These firms submitted to the Commission that they a re self-sufficient to
produce chrome ore as an input for their own produc tion of ferrochrome as
well as supply other customers with the product. In addition, the
Commission found that customers can source chrome o re from platinum
mines that produce it as a by-product as well as fr om non-vertically
integrated firms (who only mine chrome ore).
[12] In relation to the upstream market for the pro duction of electrode paste
the Commission did not conclude on the relevant geo graphic market as
the merger is unlikely to raise any competition con cerns. In this market
Samancor, though the Ferroveld joint venture has a market share of
between 42% - 51% and competes with Rand Carbide an d Char
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Technology. In the downstream market for the produc tion of ferrochrome
the parties have a combined global post-merger mark et share of
approximately 10%.The Commission found that input f oreclosure is
unlikely - Samancor cannot consume all the electrod e paste produced by
the joint venture as there are other partners who m ust also be supplied
with the product. Further, the Commission found tha t between 30% and
40% of the sales of electrode paste from the Ferrov eld joint venture is
distributed to third parties. In respect of custome r foreclosure the
Commission found that it’s unlikely that competitor s of the merging parties
will be foreclosed as NST currently sources all its inputs from Samancor
(chrome ore) and the Ferroveld joint venture (elect rode paste) and will
continue to do so post-merger.
Public interest
[13] The merging parties submitted to the Commissio n that the proposed
transaction will not have any significant effect on employment.
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public interest issues arise as a result of the proposed transaction.
Conclusion
[14] Having regard to the facts above, we find that the proposed transaction is
unlikely to substantially prevent or lessen competi tion in any relevant
market. Furthermore, the proposed transaction raise s no public interest
concerns. Accordingly, we approve the proposed tran saction
unconditionally.
____________________ 21 December 2012
Norman Manoim Date
Yasmin Carrim and Andreas Wessels concurring.
3 See merger record, page 85 and page 35 of the Commission’s merger report.
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Tribunal researcher: Ipeleng Selaledi
For the merging parties: Adv. Jerome Wilson instructed by Faber Goertz
Ellis Austen Inc.
For the Commission: Thelani Luthuli