The key feature of Impala Platinum's (Implats) long-awaited empowerment deal with Royal Bafokeng Resources (RBR) is the way it sidesteps the tricky issue of the existing royalty that RBR gets from Implats' mines operating on its ground.
Since 1999, RBR - the wholly owned resource business arm of the Royal Bafokeng Nation (RBN) - has received a royalty equivalent to 22% of the taxable income earned by Implats from mining near Rustenburg on land to which the RBN has the mineral rights.
That operation is known as "Impala Platinum" to distinguish it from listed holding company "Implats", which owns other platinum mines in Zimbabwe and Limpopo in which the RBN has no involvement.
With the introduction of SA's new mining legislation, all mineral rights belong to the state and the future of the royalty earned by the RBR is uncertain, pending finalisation of the money bill that deals with such financial aspects of the legislation.
It was widely speculated that Implats management would reach a deal with RBR through which the royalty would be converted into equity in Implats.
Instead, the empowerment deal now struck allows RBR to take a 7,4% stake in Implats through buying a 49% stake in Implats' Impala Refining Services (IRS) for R3,4bn. When added to the 1,35% equity stake RBR already has in Implats, that will take its overall stake to 9%.
RBR CEO Chris Molefe and Implats CEO Keith Rumble both say they wanted to get the empowerment deal done now without having to wait for the outcome of the royalty debate.
Molefe says: "The royalty is a separate issue not subject to this transaction." Rumble adds: "The royalty was kept out of the deal because of the lack of clarity on the money bill."
The RBR's concern over the royalty is that they might lose it to the state. Implats' worry is that it might end up having to pay the existing royalty to the RBR, plus the extra 4% royalty which government has initially proposed imposing on platinum producers.
JP Morgan analyst Steve Shepherd says having RBR on board as a 9% shareholder in Implats will help the group in dealing with the royalty debate, because the RBR will now be a significant shareholder with a vested interest in the business.
"RBR's interests could become more aligned with those of other shareholders once the deal is closed," says Shepherd. "Moreover, the state will surely be well disposed towards Implats for its broad-based and rapid empowerment of Impala Platinum.
"We expect the Bafokeng to fight hard over the royalty, but the question is with whom. Perhaps having gone the whole way with empowerment and with the Bafokeng, Implats' management may logically be reasoning that the royalty issue should be resolved between the Bafokeng and government."
Other aspects of the empowerment transaction include an employee share ownership programme (Esop) which will put 3% of Implats into the hands of the group's SA employees; the creation of a R340m trust to facilitate economic empowerment of "the greater Bojanala area" in the North West; and greater RBR involvement in running the business.
Once the deal is through, RBR can appoint another director to the Implats board, bringing their representation to two. The RBR will also be able to nominate three of 10 Impala Platinum board members. One of those will be a black woman and one will be deputy chairman.
Rumble calculates that this deal means Implats will meet the full 26% equity empowerment that the group must put in place at Impala Platinum in terms of the mining charter.
That's calculated as follows: the 9% RBR deal is equivalent to 14,7% in Impala Platinum, while the Esop transaction works out to another 4,7% in Impala Platinum. Finally, Implats is claiming a further 7,1% empowerment stake in Impala Platinum from last year's deal when it sold off its stake in Lonplat to create the empowerment company Incwala.
That totals 26,5% but, if there's going to be a sticking point, it could be over the Incwala deal - because the 7,1% that Implats is claiming has not been yet been ratified by the department of minerals & energy.
Empowerment considerations aside, this deal also greatly increases the probability that Implats will announce a large special dividend to shareholders in February in its interim numbers.
At end-June Implats held R4bn in cash. Now there's another R3,4bn coming in, and Implats has also backed out of the proposed US$2,25bn Ambatovy nickel project in Madagascar, which means it does not have to hold back funds it would have used to pay for a 37,5% share.
Shepherd says Implats could pay "at least R50/share" as a special dividend, in addition to the group's regular dividend.
