30 September 2010

Publication: Financial Mail
Author: Charlotte Mathews

What will be Sephaku Holdings’ next project, after bringing in an equity investor on Sephaku Cement? Will it be the fluorspar mine at Naauwpoort/Kromdraai?

Yes. We have received a mining licence, completed a feasibility study on the mine and are busy with a feasibility study into a beneficiation plant. It will probably be a two-year project, like Sephaku Cement, but will cost less, about R1,2bn in total.

Could you merge it with other mines in the area, such as Vergenoegd or Sallies’ Witkop?

We are not planning to merge , as it stands up as an independent operation. There are two ore bodies, one with a resource of 8,2Mt and the other 2,9Mt. What differentiates this project is that other fluorspar operations are just mining and exporting raw material, while we are considering building SA’s first fluorspar beneficiation plant to add value in SA. It would produce about 18000t of hydrofluoric acid and 60000t of aluminium fluoride a year.

Would you do something similar to Sephaku Cement, where you brought in Dangote Industries of Nigeria to take a 64% stake?

Yes, we would definitely use the same formula, such as bringing in foreign investors as equity partners to fund the project. We are negotiating with a number of interested parties, both local and foreign, including a Chinese group and a European group.

Would it be your strategy to retain a long-term stake in both cement and fluorspar operations?

Long-term, Sephaku Holdings will retain 36% of Sephaku Cement. In the fluorspar project, we would probably retain a larger stake because it is smaller and needs less external funding. We cannot say how much because we are in negotiations, but we are flexible.

What’s the state of the fluorspar market for rand producers?

The global price of fluorspar has firmed to between $280 and $350/t, depending on quality, because of strong demand from China. Until now there has been substantial supply from Mexico. But at some point that source will dry up, so most global buyers are looking for other sources. China has its own fluorspar but it would not be enough to satisfy its long- term strategic supply needs.

What’s the plan for your coal and other mineral deposits?

We have announced plans to unbundle and the final documentation and circular are being prepared. We will retain only the more developed projects in cement and fluorspar.

How can investors value your shares, with your projects still in development phase? Is the current price of R3,90 a fair reflection?

The value of the 36% stake in the cement business, based on the deal with Dangote, is R4,08/share. The value of the fluorspar, based on the competent persons’ report and applying the same discount that we used in the Dangote transaction, is R2,50/ share. That does not include the value of the mineral deposits being unbundled or cash holdings. We believe the shares have been ignored largely because the group is a combination of industrial projects and exploration, and exploration is not popular with investors at the moment. Once the exploration assets are unbundled, investors will be able to value us as an industrial development business.

Is it a good time to try to attract foreign investors to SA — either as shareholders or long-term project financiers — given fears about electricity, labour and regulatory issues?

We believe foreign fund managers are keen to get exposure to emerging markets, since developed markets are still very volatile. Most are over exposed to Asia, which means that Africa or South America are attracting attention. SA is well positioned within Africa, with good infrastructure and financial systems. The interest from strategic investors in our projects reflects the fact that since 2008 many plans have been put on hold but now with some stability in global economies they are ready to move forward.

What are Sephaku Holdings’ long- term plans?

We intend expanding the cement business in SA. The first project is our entry into the sector but we will not stop there. We see long-term growth prospects because SA needs infrastructure spending and we have other strategic limestone resources which we are exploring at the moment.