The largest diversified South African mining company listed at R32 a share on the JSE this week amid speculation that its listing would start a bfree hammer mill plan
idding war for its world-class assets.
Commenting on the speculation, CEO Dr Con Fauconnier says that, "My view and that of my executive is that the future and the growth of Kumba is not in the selling of the assets, but in the maximisation of these assets through mining. However, if somebody makes shareholders an offer that they cannot refuse, it is our responsability to evaluate it and give shareholders the best view".
Thus, if an offer of R45 a share were placed on the table he would ask them to think about it, while if an offer of R20 a share were offered he would suggest that they should reject it.
The tricky part comes in if a company offers between R30 and R35 a share since, while it meets the market valuation, the price is less than the value that the company believes it has when blue-sky potential is taken into account.
However, the company will not put up a defensive block to hinder any deal, despite management's belief that its present strategy will be successful in unlocking long-term future growth in its iron-ore, coal, base metal and mineral-sands business units, says Fauconnier.
All of these already have their own portfolio expansion plans and mine-use maximising plans, although all plans will be somewhat constrained by the firm's R2,12-billion debt.
This has necessitated an inorganic growth strategy that requires the investigation of mergers and synergies rather than out-and-out bid possibilities that would require large amounts of cash.
While this is its own growth strategy, many companies will be looking particularly to the company's iron ore assets – Sishen, Thabazimbi and Hope Downs – as potential parts of their own growth strategies.
Its iron-ore assets include the world's third-largest iron-ore mine, Sishen, with its present 1 724-million-ton resource, which could increase if Sishen South – formerly Welgevonden – proves to be the ten-million-ton-a-year mine that a prefeasibility study suggests it is.
The eventual addition of between 15-million tons a year and 25-million tons a year could allow it to narrow the gap between itself, as the fourth-largest producer in the world, and its nearest competitor, BHP-Billiton.
Other assets that potential buyers could be eyeing are its coal assets, which include one of the lowest-cost and most efficient operations in the world, 16-million-ton-a-year Grootegeluk mine.
Sister mines in the coal business unit include 1,6-million ton Leeupan and 540 000 t/y Tshikondeni.
In the company's base metals division, assets include its Namibian zinc smelter, Zincor – the third-lowest-cost zinc smelter in the world – and Rosh Pinah – the 72 000 t/y zinc concentrate producer.
Meanwhile, the heavy-minerals division boasts a 60% share in Ticor South Africa, with its Hillendale mine in Richards Bay and Empangeni central processing plant and smelter, as well as its 46,7% shareholding in Australian-listed Ticor.
The smallest division, Industrial Minerals, holds a 40% share in shipping company Safore and a 50% share in Bridgetown dolomite, as well as 100% shareholdings in Glen Douglas dolomite and Ferrosilicon.
Although it has not been the company's goal getting to the point where global companies are interested in its assets, its metamorphosis into a sought-after company has been a long one that began when former parastatal Iscor started transforming itself from being an uncompetitive, unfocused company through a process of rationalisation and re-engineering six years ago.
What emerged from the process were two distinct streamlined mining and steel entities, with Kumba as the mining group while Iscor was transformed into a solely-steel company, that has elected to keep its name for the moment.
On listing, the mining firm's shareholders were the same as those in the steel company, and were also identical to those of the prelisting steel and mining company.
Its largest shareholders are the Industrial Development Corporation and Stimela Mining, after Avmin agreed to sell its 11,5% stake in the pre-listing steel and mining group Iscor earlier this month.
However, Avmin may still play a role in Kumba since, despite its R746-million sale of each prelisting Iscor share at R24, it has retained an option to acquire between 10% and 25% of the Kumba shares at R20,25 a share, plus related costs.
Via this route, Avmin could again become a 4% shareholder in Kumba.
In addition to its two large shareholders, several fund managers have shareholdings that comprise anything up to 10% of the new entity.
Fauconnier acknowledges that the post September 11 listing may not have been at the most opportune time, but it is something that has been planned strategically during the creation of two commercially-viable entities.