Picture: SUPPLIED
Picture: SUPPLIED

Exxaro Resources is to sell up to 18.4-million shares, or a third of the stock it holds in New York-listed titanium products company Tronox, worth about $397m or R5.43bn.

The funds would be used for capital projects, debt repayment and to return capital to shareholders, it said on Tuesday.

Exxaro’s shares surged as much as 5.8% to R132.92 on the news, before correcting slightly to trade about 5% higher. They have gained about 52% since the end of June.

Exxaro’s executive head of stakeholder accountability Mzila Mthenjane said the specific return of cash had not yet been determined, but it would be through either a share buyback or special dividend.

Avior Capital Markets analyst Matthew Shields said the Tronox share sale could result in an additional share buyback after Exxaro had fully exited its investment, but it was difficult to predict how large it would be as Exxaro had capex commitments until 2022. Exxaro has also announced a buyback of about R2.7bn of its shares as part of  a new black-empowerment shareholding structure.

Mthenjane said the five-year sustaining and expansion capex programme was worth about R20bn and the black economic empowerment (BEE) share buyback would be cash neutral as cash would flow in from the issue of new shares.

Exxaro had sufficient funds from operations and facilities to meet these commitments.

Tronox entered SA in 2011 when it merged its mineral sands business with Exxaro’s operations in KwaZulu-Natal and the Western Cape. The deal resulted in Exxaro holding an initial 38.5% of the merged entity in the form of Class B shares, which rank equally with the Class A shares but carry certain rights and minority protection.

Exxaro has since raised its stake in Tronox to 42.7%.

It will sell 16-million shares and has granted an option to the book-running managers and underwriters of the offering to take another 2.4-million shares.

If 16-million shares are sold, its stake in Tronox will fall to about 29.4%. Once sold, the Class B shares will convert to Class A shares on a one-for-one basis. Exxaro said it would sell the rest of its Tronox shares over time, in a staged process.

It would retain a 26% stake in the two SA operating entities, Mthenjane said.

The announcement coincides with Tronox shareholders granting approval for the issue of new shares as part of the deal announced in February in which Tronox is buying chemical and mining company Cristal for $1.7bn cash and shares.

The deal will create the world’s largest integrated titanium oxide pigment producer.

Shields said the timing of Exxaro’s share sale was good as Tronox shares have strengthened on the transaction with Cristal and momentum in the titanium pigments market. Avior has conservatively assumed the sale of this tranche of shares would be at a discount of up to 20% to the Tronox share price, but it could be less as there was good demand for the shares. Mthenjane said the Cristal transaction would not affect Exxaro’s decision to sell its interest, the value of which would remain the same.

Exxaro also reiterated its cautionary notice on its BEE transaction. It said the pro forma financial effects of the unwinding of the existing transaction and its replacement with a new structure had not yet been announced.

When final, the new black empowerment transaction is expected to reduce Exxaro’s black shareholding to about 30% from 52.1% under the previous 10-year structure, which matured in late 2016.

mathewsc@fm.co.za

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