South Africa’s competition authorities still have not yet approved the 2021 sale of Sasol’s sodium cyanide business.

The Competition Commission (CompCom), concerned that the sale of the country’s only producer of sodium cyanide will harm the local mining industry, did not allow the transaction when the parties initially applied for approval. This led to an appeal to the Competition Tribunal to reconsider the proposed sale.

At stake is nearly R1.5 billion, quite a big step in Sasol’s programme of divesting from its non-core businesses.

Read: Competition Commission says no to sale of Sasol’s sodium cyanide assets [Nov 2021]

The Competition Tribunal listened to submissions from Sasol and the buyer, speciality chemicals producer Draslovka, last week.

Mining group Sibanye-Stillwater joined the proceedings as an interested party due to concerns that the acquisition by Draslovka would lead to an increase in the prices of  chemical compounds needed to recover gold from ore during the refining process.

Sodium cyanide is also used in the mining of other metals, and its production also produces by-products used as inputs in the manufacturing of insecticides and pesticides for use in agriculture.

The problem with the proposed transaction is that Draslovka Holding a.s. is based in the Czech Republic, and its local operation – Draslovka SA – might charge local users an import-parity price, which might lead to higher prices for a critical input necessary in SA’s mining industry.

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The Tribunal listened to factual and expert economic evidence on 24 and 25 April. Its final decision is due within weeks.

First application

Commenting on the CompCom’s decision to prohibit the proposed merger in November 2021, the Tribunal says this was based “on grounds that, among others, it would likely result in a substantial prevention or lessening of competition due to post-merger price increases which would be detrimental to customers”.

“The Commission also found that the proposed merger would have a substantial negative effect on the gold mining sector,” says the Tribunal.

Sodium cyanide is a poisonous chemical compound commonly used in the extraction of precious metals like gold and silver.

“Sasol is the only producer of liquid cyanide in South Africa and the gold mining sector is dependent on Sasol for the supply of liquid cyanide,” it adds.

“The merger parties thereafter filed an application for consideration to the Tribunal based on several grounds, including that the Commission had not considered the significant efficiencies and public interest benefits arising as a result of the proposed transaction.”

Industry’s view

The Tribunal says Sibanye-Stillwater, SA’s largest gold mining company, was granted leave to participate in the proceedings after submitting an application for intervention.

Sibanye was granted leave to intervene with specific reference to:

• The likelihood that the merger would result in an increase in prices charged by the merged entity for liquid sodium cyanide in SA (including with reference to the import parity price and the effect of any such increases on the commercial sustainability of gold mining operations);
• The likelihood that the merger would give rise to uncertainty or insecurity of supply of the chemical in SA;
• Whether or not the proposed merger results in the removal of a potential competitor to Sasol’s sodium cyanide business, including Draslovka’s rationale for the proposed transaction and its plans to construct a new plant in SA;
• The potential adverse public interest effect of price increases or supply disruptions on the gold mining industry; and
• The adequacy or otherwise of any proposed conditions that may be imposed on the merger.

The Tribunal notes that any party that has a material and substantial interest in a matter can formally apply to it to participate in proceedings. In deciding whether to grant “entry” into the matter, it also considers a party’s ability to assist in its consideration of the matter.

James Wellsted, spokesperson for Sibanye-Stillwater, confirmed that the mining company has joined the proceedings.

“Sibanye-Stillwater is an interested party and has been accepted as an intervenor in the proceedings before the Competition Tribunal,” Wellsted says.

“Security of supply at reasonable and fair commercial rates going forward is of importance to the industry and the intervention is aimed at ensuring this,” he adds.

“Unfortunately, we are not able to comment on further details of the transaction or on our application at this stage.”

Surprised

Sasol tells Moneyweb it has nothing new to add at this stage and stands by its statement issued at the time of the CompCom’s original decision.

In that 2021 statement Sasol said the commission issued its decision prohibiting the transaction on the final day of the prescribed merger review period.

“The Commission based its decision on pricing effects which had been raised and dealt with by the Commission at an earlier stage in the review process. Both Sasol and Draslovka (the parties) had engaged with the Commission throughout the review process and the pricing effects issue was fully evaluated by the Commission during these engagements.

“The prohibition of the transaction was therefore unexpected.”

‘Significant benefits’

Sasol says both parties remain convinced that the transaction is in the interest of the cyanide business operations, its employees and domestic customers.

“It is anticipated that Draslovka will contribute to the cyanide business operations and enhance its competitiveness,” it says, adding that Draslovka is a specialist cyanide producer with world-leading technology.

“Its plans for the business include expansion and capital investment, which will bring a number of significant benefits to the country – including significant foreign investment, employment, economic upliftment and long-term stability of supply for the mining industry.

“Furthermore, the parties are of the view that the Commission’s decision does not take the full circumstances and the interests of stakeholders and customers properly into account.

“Notably, the pricing effects issue was raised again only on the day that the decision was due to be issued, and therefore afforded the parties very limited time to engage the Commission.”

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In the meantime, Sasol is still running the business to ensure the supply of cyanide to customers and that all employees remain on the Sasol payroll.