Given the turmoil in markets everywhere, it's hardly surprising that so many black economic empowerment (BEE) deals in South Africa have slipped deep underwater, especially within the mining sector, where commodity price crashes have created a separate cluster of problems. Gold bullion is about the only commodity that's been treated with any respect; it's within that subsector that some distinct BEE success stories may be found.In 2001 gold traded at trough levels around $250 an ounce, and then rose slowly to just over $1 000 an ounce early in 2008. Since then the precious metal has been trying to break through the magic thousand level once again; in the meantime, its relatively high levels have been a blessing for global miners operating in the subsector. The longer-term gold price upcycle was a key factor behind the success of Patrice Motsepe's African Rainbow Minerals, and, equally, the billions of rands in equity gains scored by Mvelaphanda Resources, as seen in a number of announcements this week.This story dates back to 2003, but March 17 2004 was the milestone date for most of the ingenious, if not complex, transactions associated with the deal. The architects of the deal, Mvela stalwarts Mark Willcox and Bernard van Rooyen, devised and drove a commercial deal running into billions of rands, peppered equally with clear and present dangers and also big potential rewards.Global Tier I gold miner Gold Fields effectively sold 15% of its South African assets to Mvela Resources, which loaned Gold Fields R4.1bn. The Mvela loan itself was funded by way of commercial bank debt of roughly R1.3bn, mezzanine finance of about R1.1bn, with the balance of some R1.7bn financed from cash raised by way of Mvela Resources's international private placement of shares.Mvela's commercial loan was paid off on an amortising basis by year five, and eliminated. However, the mezzanine finance built up over the same period, with capitalising interest that was not serviced. The mezzanine started out at R1.1bn and ended after five years at around R2.1 billion; it was then re-financed, just this week.Also this week, Mvela Resources converted its stake in the Gold Fields South African assets into around 7% of the listed Gold Fields global stock, equal to 50m of those shares, currently worth R5.7bn. In a nutshell, equity provided upfront of R1.7bn has today returned R4bn in further equity. The structure of Mvela Resources today comprises its 63% stake in Tier II platinum miner Northam, currently worth R5.6bn to Mvela Resources, the stake in Gold Fields (R5.7bn), cash of nearly R700m, smaller assets worth about R250m, mezzanine debt of R2.1bn, and Northam preference shares of R2.3bn.That produces a net visible asset value for Mvela Resources of R7.8bn, worth R36.43 a share. Mvela Resources has long traded at a discount to its NAV, but the discount has narrowed sharply in recent months upon realisation that the stock's inherent value was increasingly on the block for fuller unlocking by a determined executive team.Mvela Resources has made it clear that, given the state of global markets, debt should be paid down wherever possible. At the same time, there is a clear objective of refinancing Northam so that it can proceed with building and realising the huge value of Booysendal, acquired during 2008 from Anglo Platinum.It is also clear that Mvela Resources is looking to collapse the pyramid structure above it by, in effect, eliminating itself and unbundling its value, to be represented in the medium term mainly by its holding in a recapitalised Northam. For the meantime, the Mvela Resources holding in Gold Fields can be regarded as a cash equivalent. Cash is always a simple concept, and when Mvela Resources disappears, and the new Northam emerges, a clear BEE platinum champion can be heralded by investors keen to see a more even balance in South Africa's investment landscape.
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