SOUTH AFRICA: COMPETITION TRIBUNAL CONDITIONALLY APPROVES MERGER BASED ON NOVEL COMPETITION AND PUBLIC INTEREST CONDITIONS
In July 2018, the South African Competition Commission (Commission) prohibited a small merger involving Chinese owned IRL (South Africa) (Pty) Ltd (IRL) and local mine, Mapochs Mine (Pty) Ltd (Mapochs Mine). The prohibition was premised on a likelihood that post-merger, local firms would be foreclosed from sourcing vanadium-bearing ore from Mapochs Mine.
The merger parties applied to the Competition Tribunal (Tribunal) for reconsideration of the merger and, on 26 October 2020, the Tribunal issued an order conditionally approving the merger (Order).
At the Tribunal stage, local firms Vanchem Vanadium Products (Pty) Ltd (Vanchem) and EVRAZ Highveld Steel and Vanadium Ltd (Highveld), both of which were in business rescue, applied to participate in the merger. The Tribunal awarded intervention status to both firms, as well as the Minister of Trade, Industry and Competition (Minister). Vanchem was subsequently purchased by Bushveld Minerals Ltd and withdrew from the proceedings.
The focus of the Minister’s participation related to the adverse consequences to the public interest that would prevail in the absence of a secure source of supply from the Mapochs Mine to the Highveld complex and other potential beneficiators in South Africa.
Prior to the Tribunal hearing the merger based on its merits, the merger parties, Highveld and the Minister reached agreement on a set of proposed conditions. These conditions recognised by the Tribunal reflect a novel position aimed at incentivising local beneficiation and investment in the mine. The conditions include inter alia:
- Investment: IRL commits to investing in Mapochs Mine and its associated infrastructure, a minimum aggregated sum of ZAR 160 million over a period of three years from the date of merger approval, including in relation to the refurbishment and operationalisation of Mapochs Mine and to also develop the resources associated with the mine.
- Employment: IRL commits to growing and improving the operations of Mapochs Mine and to creating employment opportunities throughout the supply chain associated with the mine in South Africa. More specifically, IRL undertakes that there will be no less than 200 direct and indirect employment opportunities within Mapochs Mine and its surrounding area within three years from the date of merger approval. This minimum level of employment will be maintained and, where commercially feasible, will also be enhanced.
- Ore supply and availability: IRL commits to entering into and concluding a Vanadium-Bearing Titanomagnetite Ore Supply Agreement (Ore Supply Agreement) with Highveld as a pre-condition for merger approval. After the volume commitments in terms of the Ore Supply Agreement have been met, IRL commits to affording local beneficiators (excluding beneficiators related to mines with alternative deposits similar to ore) the right of first refusal to purchase ore from Mapochs Mine. When dealing with local beneficiators, IRL also commits to identifiable pricing and non-discriminatory, no less favourable and no less advantageous, terms and conditions of sale, and also that the price at which ore is sold to local beneficiators will be equivalent to the price at which Highveld purchases the ore, save for certain adjustments.
- Independence: IRL undertakes that Mapochs Mine shall be managed as a separate business unit with its own executive management and audited financial statements. Moreover, IRL commits to retaining records of sales for at least five years after the sale has occurred.
In terms of the Tribunal Order, the conditions imposed will endure for as long as IRL owns, controls or operates Mapochs Mine.
IRL also undertook to submit detailed reports to the Commission and the Minister attesting to its compliance with the conditions. The reporting obligation is to persist for a period of five years from the date of merger approval and/or for as long as Mapochs Mine supplies ore to Highveld.
The Minister and the Commission are also entitled to request additional information from IRL from time to time and as reasonably necessary for the monitoring of compliance with the conditions imposed. A mechanism is also provided for lifting, revising or amending the conditions.
The outcomes embodied in the Tribunal’s Order are welcomed as they are anticipated to enhance the scope for beneficiation, industrialisation and job creation in South Africa.
Bowmans acted on behalf of the Minister in the proceedings.