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[January 2009]
Richards Bay Minerals Reaches Agreement On Special Empowerment Transaction
Rio Tinto's South African joint venture with BHP Billiton Plc (BHPB), Richards Bay Minerals (RBM), has announced that agreements with a Broad-Based Black Economic Empowerment (BBBEE) Consortium have been signed, in which 24% of the company will be transferred to a group comprising local communities and investors with a further 2% to be transferred to a trust for the benefit of RBM employees.
This means that RBM will be fully empowered in accordance with the South African Mining Industry Charter five years ahead of the required empowerment date in 2014. The business of RBM involves the mining and processing of titanium-bearing ores to produce titanium dioxide feed stocks, associated minerals and various co-products and by-products.
Rio Tinto and BHPB have also entered into agreements to restructure the joint venture while maintaining their respective interests in RBM. As part of the RBM restructuring negotiations, the parties have agreed that Rio Tinto will grant BHPB a put option over BHPB's entire interest in the restructured RBM, calculated on a fair market value based on the discounted cash flows of RBM at the time of exercise. BHPB's interest in RBM is currently valued at approximately R9 billion. BHPB's right to exercise the put option will terminate in certain circumstances including if a Rio Tinto entity ceases to be the sales agent for the RBM business or if BHPB sells its interest in the joint venture to a third party.
Rio Tinto and BHPB will facilitate the funding of the equity acquisitions by the incoming BBBEE shareholders. Part of this facilitation will mean the host communities and employees benefit trust will not need to raise funds for their stake in RBM.
The transaction will become effective upon the fulfilment of the remaining outstanding conditions precedent, including finalising of the funding agreements which is expected to occur by 1 April 2009.
At the same time as the restructuring RBM, BHPB and Rio Tinto have agreed, prior to the transactions becoming effective, to settle arbitration proceedings between them concerning the joint venture and the operation of a related party agreement. As part of this process, Rio Tinto has agreed to pay a sum to BHPB out of the future sales commissions paid to Rio Tinto as sales agent for RBM, which has a net present value of US$19 million.
Cameron McRae, Managing Director of RBM, said: "We are delighted that this long process is closer to completion and that further benefits from the equity deal will soon flow to the communities and employees of RBM. We are also pleased to be able to fully empower RBM five years earlier than the legislation requires. RBM will continue to support the community development programmes running in the host communities. RBM has been a key generator of employment in Kwa-Zulu Natal and will continue to be so over coming decades”.
RBM will submit its mining rights conversion application to the Department of Minerals and Energy following the signing of the BBBEE transaction agreements.
ENDS