HomeBusiness DigestCorporate vultures swoop on Zimasco

Corporate vultures swoop on Zimasco

Corporate vultures are circling around Zimbabwe Mining and Smelting Company (Pvt) Ltd (Zimasco) with a view to effect a hostile take-over of the integrated ferrochrome company in the country, businessdigest can reveal.

By Chris Muronzi

A partial view of the Zimasco smelter in Kwekwe.
A partial view of the Zimasco smelter in Kwekwe.

Investigations by businessdigest show that Zimasco, the fifth-largest ferrochrome producer in the world, has become a target of corporate raiders keen on extracting intrinsic value in the troubled company.

The company was in June placed under provisional judicial manager to protect thebusiness from creditors.

This comes as it emerged last week that Zimasco’s board of directors, chaired by then CE Li Jinqian, rejected the proposal.

It is understood that Portnex International expressed interest in writing on August 11 2015, but the offer was rejected by the board.

Zimasco is now owned by Sino Steel Corporation, a wholly-owned Chinese state enterprise.

The Chinese shareholders are said to have supported the local company with over US$100 million since taking it over in 2007 in a US$200 million deal.

Sino Steel, China’s leading steel trader, completed the acquisition of a 100% stake in Zimasco Consolidated Enterprises, which in turn owned a 73% equity in the Zimbabwe operation.

A letter dated August 11 2015 from Portnex general manager Frikkie Laubschere to Reginald Matshiya shows that Portnex was interested in acquiring Zimasco’s assets.

The proposal — a take-over bid for Zimbabwe’s largest integrated ferrochrome producer with an operational smelting capacity of 180 000 metric tonnes of high carbon ferrochrome per annum — was considered and rejected.

“Over the past five years, the company has developed an industry proven value-in model to optimise the raw material feed and subsequent profitability of various ferrochrome furnaces across the world. In addition, the company has developed a substantial database of available ores and reductants, having access to various sources of chrome ores and reductants globally,” the letter reads.

“To this end, the company has been investigating the feasibility of operating a ferrochrome production facility in Zimbabwe over the past year. Portnex wishes to express its interest to purchase Zimasco (Pvt)Ltd facilities and assets in order to establish itself as a ferrochrome producer. This will serve to unlock the value from its existing chrome ore and the ferrochrome reductants supply and availability from within the group.”

Sino Steel declined the take-over bid, but accepted a deal to lease the furnaces to Portnex.

Zimasco, according to insiders, was at the time operating only two east plant furnaces and had closed the three west plant furnaces in October 2014.

The east plant furnaces had remained open until they were shut down mid-December last year after global ferrochrome prices plunged to a level which rendered production unviable.

Zimasco provisional judicial manager Regis Saruchera told a creditors meeting in the capital on Wednesday Portnex was not paying what is due to Zimasco in monthly rentals.

He told creditors that Portnex was failing to pay rentals on time and had failed to pay around US$700 000 in deposits as agreed to in the memorandum of understanding the parties signed last year.

Saruchera told creditors Portnex was bent on making Zimasco look bad.

“They give mealie-meal to our staff and say we are failing to pay our own workers. But they fail to pay rent,” he said.

“They are behind on rent. They make all sorts of excuses all the time. The South African Reserve Bank has not given us permission.

“The excuses are too many. The next thing they say we want to buy the business,” he said.

Advocate Thabani Mpofu, who was representing Niarchaous, a company seeking permission to sue Zimasco in a class action against environmental contamination, raised conflict of interest on the part of Saruchera on the grounds he was using Wintertons as his attorneys when they were already acting for Zimasco.

Saruchera dismissed the suggestions saying Wintertons were not cast in stone as attorneys could be changed at any time.

“Let us not get bogged down in trivialities. The issue of lawyers is not why we are here,” he said.

On Portnex, Saruchera said, he still respected the agreement the parties signed.

“We have an agreement with Portnex and we must respect that agreement. Despite the problems we are having with our tenant, we believe we should not cancel the agreement,” he said. “Portnex was the only company who wanted to lease our furnaces.”

Saruchera said US$20 million will come from the leasing deal.

He said if Portnex pulled out, the company would run its own furnaces. Portnex, through its local company, Niarchos Investments slapped Zimasco with a US$500 million lawsuit.
l See also A4.

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