Imerys-Andalusite Resources takeover appeal postponed to February 2016

By Liz Gyekye
Published: Monday, 30 November 2015

Suspension gives parties more preparation time. CompComm argues merger is bad for industry, while Imerys denies it wishes to control market.

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Imerys and Andalusite Resources both operate mines in the Thabazimbi area of South Africa, where the companies say they can achieve significant cost synergies if they are allowed to merge. (Source: Pascal Parent)

The South African Competition Tribunal’s hearing of Imerys SA’s appeal against a blocked merger with Andalusite Resources Pty Ltd has been suspended until February 2016, after both companies delayed the submission of their supporting information.

The hearing began on 5 October and was intended to establish whether a merger would be anti-competitive, as alleged by the South African Competition Commission (CompComm). According to CompComm’s assessment of the deal, which would see France-based Imerys take control of South African-operating Andalusite Resources, andalusite would become more expensive to buyers and create difficulties for refractory producers and other end users.

The case was originally scheduled to last three weeks and end on 23 October. Proceedings were postponed on 15 October, to resume on 26 October when the parties, which both support the merger, would introduce new evidence to CompComm. However, the postponement has now been extended to February 2016, after it appeared that the companies would not have their revised submissions ready in time.

In its report published in April, CompComm found that Imerys and Andalusite Resources were the only miners and suppliers of andalusite in South Africa and that a tie-up between these companies would have the effect of "significantly preventing competition" in the fine and medium grade andalusite market.

In response to the concerns raised by CompComm, Imerys and Andalusite Resources said the businesses had jointly proposed a supply condition limited to two-to-three years for all grades of andalusite other than coarse grade, in order to give local downstream operators time to adapt to changes in the sector brought on by a merger.

According to court transcripts seen by IM, on the second day of the hearing, counsel for CompComm, Jerome Wilson, said: "This transaction is largely about an attempt by a dominant andalusite miner, both globally and in South Africa, to buy the thorn in its side which has grown."

He also referenced a document entitled "Andalusite South Africa Business Review", produced by Imerys in 2013, which stated that Imerys’ aim was to "obtain [a joint venture with] or buy ARM [Andalusite Resources] to increase our leverage in the markets."

"It does seem like a remarkable coincidence, doesn’t it, that at exactly the time that you are engaging for purposes of a potential acquisition with Andalusite Resources, you have a document from the general manager of your South African business, which indicates quite clearly a motivation behind a transaction as to increase our leverage on the markets and you take the position opportunistically here that that had nothing to do with the decision making within your organisation?", Wilson said.

Imerys’ strategy and business development manager in high resistance minerals, Alan Parte, responded by saying that the company had been looking at several targets at the time the document referred to was published, not all of which had been competitors to Imerys. "We even visited Andalucita in Peru in the same period," he said. 

Parte argued that significant expansion by international rivals and enhanced competition in export markets was creating a very competitive environment and that the merged entity "will be able to compete more effectively than the parties individually in these markets".

Both Andalusite Resources and Imerys operate andalusite mines in the Thabazimbi area of South Africa, which is around 220km northwest of Johannesburg.

"The rationale is, basically, we have two sites that are next to each other, we can become much stronger. Our focus is in the export markets, so we do export actually 85% of our volumes, that’s not too confidential," Parte explained.

World producer

Andalusite forms part of the alumina-silicates group of compounds that possess heat-resistant properties, making them suitable for use in high temperature industrial processes.

South Africa possesses by far the largest portion of the world’s known andalusite deposits, accounting for around 64% of global supply.

Through its various subsidiaries and mining operations in South Africa, France and China, Imerys controls around 67% of the world andalusite market. A merger with Andalusite Resources, which controls another 15%, would leave only 18% of the market in the hands of other suppliers.