Narrative
Full Description
Project narrative
In 2007, China Eximbank signed a $275 million loan agreement with Asa Metals Proprietary Limited (ASA) — a joint venture between Limpopo Economic Development Agency (LEDA) [40% ownership stake] and Eastern Asia Metals Investment Co. Limited (EAMI)[60% ownership stake] — for the Dilokong Ferrochrome Plant Expansion Project. The borrowing terms of the loan are unknown. The $448.52 million project involved the construction of the ASA Metals' 600,000 ton per annum pelletizing and sinter ferrochrome plant near Burgersfort as well as the construction of two closed smelting furnaces of 66MVA. Project implementation commenced in October 2007, with a ready-for-hot-commissioning (RHC) target near the end of the second quarter of 2009. 543 construction personnel reportedly supported the implementation of the project. However, in 2010, construction was suspended due to a lack of sufficient funding for the project. During calendar years 2014 and 2015, Dilokong Chrome Mine Proprietary Limited — a wholly owned subsidiary of ASA — suffered widespread unrest within the communities surrounding the project site, resulting in the blockading of access roads, which in turn impeded ASA from continuing to operate its furnaces. Dilokong Chrome Mine Proprietary Limited also incurred additional security costs worth several million ZAR (Rands) in order to protect Its employees and property. On June 20, 2014, the financially distressed borrower failed to make an interest payment to China Eximbank. Then, in October 2015, an impromptu and unprotected strike occurred at the project site. Participants in the strike included 253 members of the National Union of Mineworkers and employees of ASA and Dilokong Chrome Mine Proprietary Limited. They staged an underground sit-in at the mine and refused to return, which necessitated that Dilokong Chrome Mine Proprietary Limited and ASA apply to the Labour Court for an order directing the employees to desist with their unlawful conduct and to return to surface. The employees only returned to surface some 4 days after they commenced their unlawful underground sit-in. Thereafter, Dilokong Chrome Mine Proprietary Limited and ASA continued with negotiations and discussions with the NUM, but these discussions failed to resolve the impasse and the NUM members continued with their unprotected strike action, to which Dilokong Chrome Mine Proprietary Limited and ASA issued a defensive lock-out notice in response. Those who participated in the strike were dismissed in November 2015. Then, on December 24, 2015, ASA announced that it would suspend production at the project site. During calendar year 2015, Dilokong Chrome Mine Proprietary Limited and ASA were also Issued with 12 notices by the Department of Mineral Resources health and safety inspectors in terms of section 54(1 )(a) of the Mine Health and Safety Act, 29 of 1996, which resulted in the ad hoc halting of mining and smelter operations. These Instructions resulted in 50 days of production lost during the calendar year which converted Into an estimated loss of ZAR 156 million in revenue. Then, near the end of November 2015, ferrochrome price and chromite ore prices further sharply deteriorated, which resulted in significantly less revenue being generated by Dilokong Chrome Mine Proprietary Limited and ASA than originally expected. ASA commenced ‘business rescue’ proceedings on February 29, 2016, resulting in the financial support of Dilokong Chrome Mine Proprietary Limited, as a wholly owned subsidiary of ASA, being withdrawn. Dilokong Chrome Mine Proprietary Limited could not survive economically without the direct support of Its holding company (ASA). Pursuant to ASA's demise, Dilokong Chrome Mine Proprietary Limited also commenced business rescue proceedings on March 24, 2016. Approximately one week earlier, on March 17, 2016, Sinosteel and the Chinese Government determined that its preferred option was to acquire the assets of ASA (a ‘zombie’ company) through a joint venture known as Tubatse Chrome Minerals (Pty) Ltd (see Record ID#16295). Then, on April 13, 2016, Sinosteel sent a letter to China Eximbank to request its assistance with the business rescue plan. At the same time, China’s State-owned Assets Supervision and Administration Commission sent a letter to Bank of China to express its support for acquiring the assets of ASA through a joint venture known as Tubatse Chrome Minerals (Pty) Ltd. Neither China Eximbank nor Bank of China provided a prompt, substantive response. Then, on November 9, 2016, China Eximbank conveyed its preference for Sinosteel and Samancor Chrome Limited to establish a new special purpose vehicle (SPV) and pledge their equity stakes in the SPV as sources of collateral to avoid conflicts with China Development Bank (which had previously issued a loan — captured via Record ID#16295 — to Sinosteel to facilitate its acquisition of the 50% equity stake in Tubatse Chrome Minerals (Pty) Ltd). This rescue plan was approved at the ASA creditors meeting on December 6, 2016. Then, on July 6, 2017, two parties signed a shareholders' agreement, which established an SPV known as Tubatse Alloy (PTY) Ltd., which is a 50:50 joint venture of Sinosteel and Samancor Chrome Limited. On September 20, 2017, the shareholders’ agreement went into effect and an ASA Asset Sales Agreement was signed. Then, in mid-October 2017, a production resumption project team was established and it officially took over all assets of ASA on November 1, 2017. Successful ignition of the smelting furnaces was finally achieved on March 7, 2018.
Staff comments
1. LEDA and EAMI signed a shareholders agreement in Beijing on 11 December 2006 ("the Shareholders Agreement"). The Agreement replaced a joint venture agreement that LEDA and EAMI entered into on December 5, 1995 and it (a) contemplated the mining and sale of chrome ore by Dilokong Chrome Mine Proprietary Limited (DCM) to ASA; (b) provided that the business of ASA was the holding of an investment in DCM, the conduct of ferrochrome smelting plant and included the sales of finished chrome products; and (c) recorded that EAMI and LEDA owned 60% and 40% of the shares of ASA. 2. EAMI is a subsidiary of Sinosteel Corporation Limited (Sinosteel). 3. ASA owned 100% of the entire issued share capital in Dilokong Chrome Mine Proprietary Limited (DCM). DCM was the holder of a converted mining right with Department of Mineral Resources (DMR) reference number LP142MRC (DCM Mining Right). The DCM Mining Right contained a provision that 40% of the interests in the right belonged to LEDA without an obligation to dilute. 4. This project is also known as Project Sunrise and the ASA Metals Ferrochrome Plant Expansion Project. 5. The shareholding of LEDA and EAMI in ASA was recorded in a shareholder's agreement concluded between the parties on December 11, 2006, which formed the basis upon which the DCM Mining Right was granted. The business affairs of ASA were managed by EAMI following the conclusion of a management agreement between EAMI and ASA. At all times, EAMI managed the business affairs of ASA and DCM until the two companies were placed in ‘business rescue’. The ASA business rescue proceedings later resulted in the sale of certain of ASA's assets including its ferrochrome smelter to Tubatse Chrome Minerals Proprietary Limited. 6. Dilokong Chrome Mine Proprietary Limited Is a wholly owned subsidiary of ASA Metals Proprietary Limited (Registration number 1996/015726/07). 7. The nature of Bank of China’s lending to ASA is unknown. This issue warrants further investigation.