Press Release

The diversity of the South African mining industry, as well its world class banking and finance systems, makes the country an ideal base from which Chinese firms can expand their investment into Africa.

This is according to Otsile Matlou, Head of Mining at ENS (Edward Nathan Sonnenbergs), who says that South Africa is increasingly becoming an attractive destination for Chinese investment.

“South Africa has over 150 years of experience in mining and is among the top five best banking systems in the world. Furthermore, we arguably have more mineral diversity than any other country in the world – mining over 50 economic minerals within South African borders. These factors are very important for Chinese investors,” he says.

In addition, Matlou says the recently amended Regional Headquarter Company tax legislation provided a favourable tax position for foreign companies to set up their regional headquarters in South Africa. It has made it even easier for Chinese firms to use the country as a launch pad for the rest of their African projects. “We expect that there is going to be an influx of Chinese investment into Africa, through South Africa, as a result of this.”

Matlou, whose firm has advised on mergers and acquisitions throughout Africa, says ENS has already seen an increasing interest from China, specifically in African mining ventures. “The indication is very much that the Chinese are going to invest in a diverse mining sector. They are not going to focus on one commodity and are looking to diversify in iron ore, manganese and gold, amongst others.”

He refers to the recent Jinchuan / Metorex deal whereby Jinchuan’s R9.1 billion acquisition of SA-based mining house Metorex made headlines throughout 2011 and was named Dealmakers’ Deal of the Year in March after being judged for its innovation and creativity, the deal size, the complexity of the matter, its value and regulatory approvals.

According to Richard De la Harpe at ENS, who was the South African corporate law adviser to Jinchuan, the transaction entailed a competing offer by Jinchuan Group Limited (through a wholly-owned subsidiary) to acquire the entire issued share capital of Metorex Limited by way of a scheme of arrangement in terms of section 114 of the new Companies Act, 2008 and a separate offer to the holders of options in terms of Metorex’s share incentive schemes.

At the time of Jinchuan’s approach to Metorex, Brazilian based, Vale S.A. had already made an offer to acquire Metorex by way of a scheme of arrangement for approximately R7,5 billion, which presented many challenges that had to be dealt with under extremely tight time constraints. Jinchuan only gained access to Metorex’s information on 17 June 2011, the same day that Metorex issued the Vale S.A. scheme circular, convening the scheme meeting to approve the Vale S.A. offer on 22 July 2011. It took intense effort and diplomacy for Jinchuan to make its superior bid on 5 July 2012.

“The transaction involved many extraordinary aspects, including having to navigate the extensive restrictions and matching offer provisions contained in the implementation agreement Metorex had concluded with Vale S.A., which made it challenging to procure access to information and facilitate the Jinchuan offer. To complicated matters, a number of material Metorex shareholders had given irrevocable undertakings to support the Vale S.A. offer. The result was a very rare bid by means of a ‘competing’ scheme of arrangement (certainly a first under the new Companies Act, 2008 which had only just come into effect on 1 May 2011),” he says. .

In so far as de la Harpe is aware, the Jinchuan offer was also the first scheme of arrangement by a listed company to be proposed and approved entirely under the new Companies Act, and this required consideration and compliance with the provisions of the Companies Act and the new Takeover Regulations without the guidance of precedent. Catering for the new appraisal rights, which gave objecting shareholders the right to require Metorex to acquire their shares for fair value, required some finesse to deal with the timing of the exercise of the rights and possible later withdrawal. Credit goes to Jinchuan for managing to procure all the required regulatory approvals in various jurisdictions, including South Africa, the DRC, Zambia and the Peoples Republic of China, and implementing the transaction in January 2012, which evidences how seriously it is committed to establishing a platform for its mining operations in Africa.

Matlou says the increased interest of the Chinese in Africa has significant advantages for South Africa, if the South African authorities balance labour regulation and economic growth. “Foreign Direct Investment is always good for an economy and is often a catalyst for growth.”

However, he explains that the Chinese often tend to import their own country’s human capital for projects, in order to maintain control. “This could potentially pose a serious threat to local job creation. The trick is to balance job creation and economic growth” he concludes.