Glencore, Rebosis and Harmony - everybody loves a garage sale

By The Finance Ghost

16 Apr 2023

When you play in Papua’s house, you play by Papua’s rules.

In frontier markets, mineral resources represent the hope of a brighter future. This is why governments don’t just let multinational mining corporations walk in and bleed them dry. It’s a long process and state equity participation is almost a guarantee.

As Gemfields recently demonstrated in Mozambique, having the government on your side is of critical importance when there are security or other issues at play.

Developing new mines is a gruelling task, with the initial legalities just the first step in this dirty dance. Harmony Gold and Newcrest Mining are developing the Tier 1 Wafi-Golpu Project, a copper-gold deposit that they describe as being “one of the world’s premier, undeveloped copper-gold deposits”. Sounds juicy!

The State of Papua New Guinea also likes the sound of this, with a Framework Memorandum of Understanding now signed by the parties, that provides for equity participation by the State in the form of royalties and the option to buy an equity stake of up to 30% at any time before the commencement of mining.

The timing is important here. Giving yourself options is always valuable. Think about it – the State is only on the hook to pay for equity if they choose to do so, which they wouldn’t do unless the project is a success. At the very last minute before mining begins, they would exercise the option.

Although the option price means that they would need to pay a pro rata share of accumulated exploration expenditure, the point is that the mining companies are carrying far more risk here. They must carry all the expenditure and risk of failure up to the point where the State invests.

When developing mines, it’s unfortunately rather easy to get shafted. This one will hopefully work.

Business rescue at Rebosis: everyone loves a garage sale

Of course, they’re selling more than just the garages right now. In fact, the entire property portfolio is up for grabs, including everything from office buildings to malls.

Those who are keen to get their hands on a slice of the Rebosis property pie have been invited to apply for the public sale process.

All it costs is a measly (and obviously non-refundable) R5,000 to get in the door, presumably to weed out opportunists.

There must be some decent properties in the portfolio because nobody pays an entrance fee at a flea market! Rebosis will certainly need this to be the case, as the business rescue plan is based on selling properties and paying down debt. This was the most predictable plan in the world, as there’s not much else you can do with a property fund that is underwater.

And in today’s finest example of shooting a water pistol at the sun, a creditor owed all of R22,816 was the only vote against the business plan. For context, the “yes” votes are worth R8.7-billion.

Teck says tsek to Glencore – again

I just love corporate finance, having spent about six years in the industry before formally becoming a ghost. There was possibly a stint in retail in the middle of all that.

Glencore’s courtship of Teck Resources in Canada is corporate finance at the highest levels. Ugly words like “opportunistic and unrealistic proposals” get thrown around, even though we know the parties would happily take pictures together if the price was right. This is business, not Bumble.

In real life, Teck would have a restraining order in place by now. In corporate dealmaking, Glencore is still in the early stages of this dance.

After being told in which direction to disappear after the first proposal, Glencore went back to Teck with an amended proposal. This time, it included a cash element to the proposed merger and demerger, which would see Teck shareholders receive 24% of “MetalsCo” (the cleaner transition metals business) and $8.2-billion in cash to buy them out of “CoalCo” – the one that Greta wouldn’t approve of.

Glencore also understands that many people are only as green as the colour of their money, so a combination of cash and CoalCo shares would be on offer to those who are happy to hold investments in fossil fuels.

Despite Glencore being such an accommodating suitor, Teck has said no once again. One of the reasons given is the “poor ESG track record and unresolved investigations”. Could Glencore’s poor past behaviour be the reason why this deal slips away?

Or, will they just throw money at the problem until it works? DM168

After years in investment banking by The Finance Ghost, his mother’s dire predictions came true: he became a ghost.

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R25.

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Business rescue at Rebosis: everyone loves a garage sale

Teck says tsek to Glencore – again