Posted: 2006-02-28 23:59 Xstrata and ARM create ARM Coal  Presenter: Lindsay Williams Guest(s): Patrice Motsepe Black-owned mining group African Rainbow Minerals (ARM) and UK-listed Xstrata plc create black-controlled ARM Coal in a deal valued at R2.4-billion. With ARM executive chairman Patrice Motsepe, ARM chief executive Andre Wilkens, and Xstrata chief operating officer Peter Freyberg LINDSAY WILLIAMS: John Clemmow from Investec in London is a foremost resources commentator - in 2005 he said Africa looks to be their best bet. Both ARM and Xstrata were looking for a deal, and they seem to have found each other. Patrice, you flagged the market that a deal was about to be done, but I don’t think many people expected it to be in this form. PATRICE MOTSEPE: We’ve been looking for quite some time at an appropriate opportunity. It’s very important if you look at where we come from in terms of the old ARM Gold days - we basically bought mines that were either closed, or at the end of their lives. The Avmin transaction put us in a position where we lacked cash flow to initiate or even undertake some of the projects that we wanted to fund. We’ve been talking to Xstrata for more than a year - what excites us is not only in terms of what we can do in South Africa with Xstrata Coal, but also the basis for a partnership to look at other opportunities in Africa. LINDSAY WILLIAMS: Peter, it sounds as though from the way John Clemmow phrased it in October 2005 that Africa might be actually third choice after Australia and Canada? PETER FREYBERG: That’s not the case - we look at the business case wherever we go, and invest accordingly. LINDSAY WILLIAMS: Andre, looking at the mechanics of the deal R400-million is going in for 51% from ARM, and R384-million is going in from Xstrata - what are the mechanics of the deal? ANDRE WILKENS: We’re going to use that money to buy 20% of the operations that are currently there - but there’s also another loan coming in from Xstrata for another R756-million. With that we then buy 51% of Goedgevonden which then forms ARM Coal being the current operations and the new mine. LINDSAY WILLIAMS: Is ARM Coal going to be a separate listed entity at any stage? Are you going to spin it off so we can actually get direct exposure to the coal market on the local exchange? PATRICE MOTSEPE: At this stage it’s definitely going to be a division within ARM itself - the critical issue is we have to continuously look at how we can create value within ARM itself. The exciting thing for us now is the partnership in ARM Coal itself can look at other opportunities in South Africa in the long-term, but in the short-term to develop this exciting Goedgevonden project that we have. LINDSAY WILLIAMS: Can you tell us about that in terms of its reserves and potential? PETER FREYBERG: Goedgevonden is going to be a new major operation in South Africa - we’re going to build a 12-million ton mine with coal handling and beneficiation facilities. This mine will produce about 3.5-million tons of export grade coal, and will also produce a similar amount for the domestic market. LINDSAY WILLIAMS: The coal industry worldwide has been booming - there’s been an awful lot of consolidation, and quite a few deals announced recently, notably for example Kumba announcing a new coal initiative - is the coal price still on the way up, China being the major influence? PETER FREYBERG: We’re very positive about the coal market globally - China is a big influence in that, but energy prices all over the world are going up, and coal has a very important role to play. LINDSAY WILLIAMS: Patrice, you mentioned in the press release on the occasion of your results being released that there were deals - you didn’t say one deal. This is one of them - does that mean there are more deals outside this coal venture? PATRICE MOTSEPE: The specific one we referred to over the last 12 months has been this specific deal. Since we took over Avmin we’ve looked at what we have within Avmin - which is now ARM. We’ve announced the Nkomati expansion, we’ve announced the new Two Rivers platinum project. Coal represents an exciting opportunity, which if we look at the numbers could really make a contribution to ARM in terms of cash flow. LINDSAY WILLIAMS: Andre, ARM gets an immediate cash flow benefit - which is something that’s maybe been lacking in your portfolio... ANDRE WILKENS: Certainly. This deal - if one looks at the facilitation done by Xstrata - gets cash flow upfront. For the first five years there’s a significant amount of cash coming out of this deal - that makes us strong going forward. LINDSAY WILLIAMS: The next commodity you might be targeting - it might be a sensitive time to ask, but is there any particular gap that needs to be plugged in your portfolio? PATRICE MOTSEPE: We are competing against some of the best in the world, and as a junior diversified mining company we have to look in terms of not only what we currently have, but how we can create value, how we can we manage what we currently have even better. As part of the long-term process we’ve got to look out and see what is value accretive to ARM itself. LINDSAY WILLIAMS: Peter, from Xstrata’s point of view what are your ambitions for Africa and Southern Africa? PETER FREYBERG: I can certainly talk about the coal business here - we have put ARM Coal together with Patrice Motsepe, and we would like to see our business grow very significantly. First obviously is the Goedgevonden Project, but we do see a lot of greenfields opportunities and acquisitive potential in the industry here. LINDSAY WILLIAMS: Patrice, the mechanics of the deal - the timing, the funding - can you put it in a nutshell for us? PATRICE MOTSEPE: In terms of the value the deal is valued at R2.4-billion - Andre spoke earlier in terms of the R400-million that ARM has to put in, and the R378-million that Xstrata puts in. What’s important is to look at this as a foundation to see how we can grow ARM Coal in South Africa. What excites us is for a young company to be able to be associated with a global player like Xstrata with a mutual commitment to look at Africa - that’s very exciting for us. Comments Related to this transcript: Comment on this transcript... Name : Email : Comments :