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[2016] ZACT 46
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Kimberley Ekapa Mining Joint Venture v Processing and Treatment Plant and Related Mining Assets held by Ekapa Minerals Proprietary Limited and Others (LM007Apr16) [2016] ZACT 46 (2 June 2016)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No:
LM007Apr16
In
the matter between:
KIMBERLEY
EKAPA MINING
JOINT
VENTURE
Primary Acquiring Firm
and
THE
PROCESSING
AND TREATMENT PLANT
AND
Primary Target Firms
RELATED
MINING ASSETS HELD BY EKAPA
MINERALS
PROPRIETARY
LIMITED
THE
PROCESSING
AND TREATMENT PLANT,
RIGHT TO
OPERATE
THE
TAILINGS
(THROUGH THE KIMBERLEY MINERS FORUM)
AND
RELATED
MINING
ASSETS HELD BY
SUPER STONE
MINING
PROPRIETARY
LIMITED
THE
RIGHT TO OPERATE AND CONDUCT MINING ACTIVITIES AT
THE
KIMBERLEY UNDERGROUND MINES HELD BY CROWN
RESOURCES
PROPRIETARY LIMITED
Panel
: Andreas Wessels (Presiding Member)
: lmraan Valodia
(Tribunal Member)
: Medi Mokuena
(Tribunal Member)
Heard
on
: 18 May 2016
Order
Issued on
: 18 May 2016
Reasons
Issued on
: 02 June
2016
Reasons
for Decision
Approval
[1]
On 18 May 2016, the Competition Tribunal ("Tribunal")
approved the proposed transaction between the abovementioned
parties.
[2]
The reasons for approving the proposed transaction follow.
Parties
to proposed transaction
Primary
acquiring firm
[3]
The primary acquiring firm is Kimberley Ekapa Mining Joint Venture
("KEM JV"), a newly established joint venture incorporated
in accordance with the laws of the Republic of South Africa.
[4]
KEM JV's shareholding will be held by the following entities:
•
Crown Resources
Proprietary Limited ("Crown Resources") as to 64.85%;
•
Ekapa Minerals
Proprietary Limited ("Ekapa Minerals") as to 22.14%; and
•
Super Stone Mining
Proprietary Limited ("Super Stone") as to 13.01%.
[5]
The abovementioned entities will collectively be referred to as "the
Joint Venture Partners".
[6]
Crown Resources is controlled by Luxanio Trading
105
Proprietary Limited ("Luxanio Trading") with a 68.5%
shareholding.
[1]
Luxanio
Trading is, in turn, wholly owned and controlled
by
Petra Diamonds
Limited
("Petra Diamonds"), a company listed on the London Stock
Exchange.
[7]
Crown
Resources
controls
Kimberley
Underground
Mines
Joint
Venture
("Kimberly
Underground
Mines")
with a
74%
shareholding.
[2]
Prior to the
implementation
of
the proposed joint venture,
Kimberly
Underground Mines will no longer be a standalone company.
It
will be integrated into Crown Resources. Other than Crown Resources,
Luxanio Trading has a non-controlling 49.9% shareholding
in Ekapa
Minerals (one of
the
shareholders of KEM JV).
[8]
Petra Diamonds and its subsidiaries including Crown Resources will
collectively be referred to as the "Petra Group."
[9]
The
Petra Group is involved in the mining, processing and sale of rough
diamonds.
In
addition
to
its
mining
activities,
the
Petra
Group
through
its
subsidiary,
Tarorite
[3]
conducts
limited
diamond
cutting
and
polishing
activities
as
well
as
diamond
sale
activities from time to time.
[10]
Ekapa
Minerals
is
controlled
by
Ekapa
Mining
Proprietary
Limited
("Ekapa
Mining")
with
a 50.01% shareholding.
[4]
[11]
Ekapa
Minerals
wholly
owns
and
controls
KOIN
International
DMCC
("KOIN")
[5]
and
Ekapa
Mining
controls the following
firms:
(i)
Super
Stone;
(ii) Ekapa Consolidated Minerals Proprietary Limited; and (iii)
Basfour 2309 Proprietary Limited.
[12]
Super Stone controls
Kimberley
Miners
Forum Proprietary Limited ("Kimberley Miners Forum")
[6]
with a
60.6%
shareholding.
[7]
[13]
Ekapa Mining and its subsidiaries including Ekapa Minerals and Super
Stone will collectively be referred to as the "Ekapa
Group."
[14]
The
Ekapa
Group
through
its
subsidiary
Ekapa
Minerals
holds
a
diamond
dealer
licence and buys, sells and exports rough diamonds. Since the
acquisition
of
Kimberley
Mines
from
De
Beers,
the
Ekapa
Group
through
Ekapa
Minerals
also
holds
the
exclusive
right
to
use
and
exploit
the
Kimberly
Mines
and
conduct
the
relevant mining
activities.
The
Ekapa
Group
furthermore,
through Super
Stone,
renders
haulage
and
processing
services
to
Kimberley
Miners
Forum
on
a
cost
recovery
basis,
in
return
for
a
service
fee.
It
also
sells
stone
aggregate
as
a
by-
product
of
its
operations.
[8]
The
Ekapa
Group
also
provides
loading
and
hauling
services;
commissions diamond polishing; and
holds
certain investment properties.
[9]
[15]
KOIN facilitates the sale of rough and polished diamonds to the
international market using an internet-based tender platform.
Primary
target firms
[16]
The transferred firms for purposes of the proposed transaction are:
•
the processing and
treatment plant and related mining assets held by Ekapa Minerals;
•
the processing and
treatment plant, right to operate the Tailings (through the Kimberley
Miners Forum and related mining assets
held by Super Stone; and
•
the right to
conduct mining activities at the Kimberley Underground Mines held by
Crown Resources.
[17]
The Joint Venture Partners will each contribute the following to KEM
JV:
•
Crown
Resources
will
contribute
all
of
the
ore
recovered
from
Kimberley Underground Mines
[10]
and associated
assets
of Kimberley Underground
Mines;
•
Ekapa Minerals will
contribute the sole and exclusive right to use and exploit
the
Kimberley Mines
[11]
and
conduct the relevant mining activities; and
•
.
Super Stone
will contribute the sole and exclusive right to use and exploit the
Super Stone
operation
[12]
[18]
The abovementioned transferred firms to be contributed to KEM JV will
collectively be referred to as "the Transferred
Businesses".
Proposed
transaction and rationale
[19]
The proposed transaction involves the establishment of a joint
venture wherein the Joint Venture Partners intend to group the
Transferred Businesses into KEM JV. On completion of the proposed
transaction the Joint Venture Partners will have joint control
of KEM
JV and KEM JV will control the Transferred Businesses.
[20]
The merging parties submitted that KEM JV offers the potential to
improve the operational efficiencies of
inter
alia
the combined treatment and processing operations and will
substantially increase the overall life of mine and plant of the
respective
mining assets.
Impact
on competition
[21]
The Competition Commission ("Commission") found that the
proposed transaction results in a horizontal overlap between
the
activities of the merging parties in the international market for the
production and sale of rough diamonds.
[22]
The Commission also noted a potential vertical dimension between the
merging parties' activities since, as mentioned above,
the Petra
Group through its subsidiary, Tarorite, is active in the cutting and
polishing of diamonds, as well as the sale of diamonds
from time to
time.
[23]
In relation to the horizontal overlap, the Commission found that the
merging parties have an estimated market share of less
than 10% in
the international market for the production and sale of rough
diamonds. The Commission further found that the merging
parties will
continue to be constrained by other players in this market such as
the De Beers Group of companies, ALROSA, SODIAM
and the Rio Tinto
Group amongst others.
[24]
The Commission
furthermore
noted
that
there
is
no
restraint
of
trade
[13]
or
non
compete
agreement entered into
by
the
merging parties.
[25]
In relation to
the
vertical
aspect,
the
Commission
found that
Tarorite
does
not
and has not previously offered beneficiation services to any third
parties. Counsel for the merging parties stated that the
only
instances where Tarorite has ever been utilised for
the
cutting
and
polishing
services,
were
in
relation
to
instances
where
Petra
Diamonds was unable to secure the necessarily capacity for polishing
and cutting of diamonds from
beneficiators
within
the
market,
those
being
independent
beneficiators.
In
those
outlying
instances
Petra
Diamonds
then
provided
the necessary employees with the skills to fulfil the function.
[14]
Furthermore, the merging
parties
indicated that post-merger, the cutting and polishing activities will
continue to be outsourced to third parties.
[26]
Given the above the Commission concluded that the proposed
transaction is unlikely to substantially prevent or lessen
competition in any relevant market. We concur with the Commission's
conclusion.
Public
interest
[27]
The merging parties confirmed that the proposed transaction will not
have a negative effect on employment.
[15]
[28]
The proposed transaction further raises no other public interest
concerns.
Conclusion
[29]
In light of the above, we conclude that the proposed transaction is
unlikely to substantially prevent or lessen competition
in any
relevant market. In addition, no public interest issues arise from
the proposed transaction. Accordingly, we approve the
proposed
transaction unconditionally.
02
June 2016
DATE
_______________________________
Mr
Anreas Wessels
Prof.
lmraan Valodia and Ms Medi Mokuena concurring
Tribunal
Researcher: Kameel Pancham
For
the merging parties: Ahmore Burger-Smidt of Werksmans Attorneys
For
the Commission: Billy Mabatamela
[1]
The remaining shareholding is held by Kago Diamonds Proprietary
Limited (13.0%) and ltumeleng Petra
Diamonds
Employee Trust (18.5%).
[2]
The remaining shareholding is held by
Sedibeng
Mining Proprietary Limited ("Sedibeng") (26%).
[3]
Tarorite holds a diamond dealer and diamond beneficiation licence
and has equipment that can be utilised for the cutting and
polishing
of rough diamonds.
[4]
The remaining shareholding is held by Luxanio Trading (49.9%).
[5]
A
company
incorporated
in
Dubai.
KOIN
does
not
control
any
firm
in
South African.
[6]
Kimberly
Miners
Forum
is a
consortium
of
small
diamond
miners
operating
in
Kimberley that processes Tailings
Mineral
Resources
("TMRs")
to
recover
rough
diamonds
which
are
supplied
to
Ekapa
Minerals.
TMRs
are
partially
processed
kimberlite
ore
(the
host rock for
diamonds).
Typically they
have
been
processed
by
previous
miners
over
the
years
but
because
of
improvements
in
technology
they
can
still
be
re-treated
and
diamonds
recovered
from
them.
[7]
The remaining shareholding is held as by Superkolong Proprietary
Limited (30.4%) and El Nino Proprietary Limited (9.0%).
[8]
It should be noted that Super Stone does not recover rough diamonds
for its own account. Ownership of all recovered rough diamond
vests
in Kimberley Miners Forum, which in turn supplies Ekapa
Minerals.
[9]
The merging parties submitted that the Ekapa Group does not
themselves (or any entity within the group)
conduct
cutting
and
polishing
activities.
This
activity
is
on
an
ad-hoc
basis
outsourced
to
third parties,
although
on a
relatively
small scale.
Further,
they
indicated
that
the
Ekapa
Group
retains
ownership
of
these
stones
and
pays
the
relevant
fees for
the
services
rendered
to
the
applicable
cutters
and
polishers.
After
that
the
Ekapa
Group
markets
and
sells
such
polished
stones
directly
to
its
customers.
[10]
Kimberley
Underground
Mines
comprises
of
underground
diamond
mines
and
tailing
of
TMRs,
namely
the Bultfontein, Dutoitspan and Wesselton mines situated in
Kimberley in the Northern Cape.
[11]
The Kimberley Mines comprise of the following: the mining right, all
assets and operations and infrastructure required to conduct
processing operations, specific TMRs, the combined diamond
treatment
plant located at Kimberley Mines, specific immovable properties and
other assets and liabilities related to the mine
and the mining
right and specific immovable properties and liabilities used for
mining or processing purpose.
[12]
The Super Stone operation comprises of the load, doze, haul and TMR
processing business, operations and all related rights and
assets
held by Super Stone.
[13]
Also see Transcript, page 11.
[14]
Transcript,
page
6.
[15]
Merger Record
inter
alia
pages
10 and 66.