IMPALA Platinum (Implats) is in line to receive a huge cash fillip after a US court awarded the platinum producer $201m, equal to R2.96bn, potentially adding 7% to its market value currently set at R40.7bn.
The award relates to a dispute between Implats and A-1 Specialised Services and Suppliers, the South African firm’s former recycling customer, which failed to meet a contract to supply Impala Refining Services (IRS) with metal. This was following the slide in platinum group metal prices after the world economic crisis in 2008.
In terms of the contract, Implats paid an advance to A-1 for recycled platinum which Implats refined at IRS and then sold into the market. The balance of amounts due to A-1 were paid after revenue was earned by Implats.
However, the decline in metal prices after 2008 meant that Implats began to overpay A-1 in terms of its advances – a situation the sides attempted to remedy by increasing the volume of metal from A-1 to Implats. The problems really began when A-1 failed to deliver more metal into the contract.
At the time, Implats took a R212m initial impairment, but it eventually wrote down the whole contract for about $200m whilst deciding to take the matter to court. The dispute was first filed with the Pennsylvania Eastern District Court in May, 2013.
Implats later opted for arbitration which was eventually heard in its favour by the London Court of International Arbitration in December this year. The development today is that the United States District Court for the Eastern District of Pennsylvania has confirmed the award issued by the London Court after an appeal by A-1.
“Implats will pursue all legal avenues available to it to collect the amount due,” the company said in a statement to the Johannesburg Stock Exchange.
Johan Theron, spokesman for Implats, added that it was in the nature of legal processes that there may be other options open to A-1, but since the dispute has been found in Implats’ favour, with costs, it meant the company could start to put the squeeze on A-1.
“Were we to get this money in one cheque, it would be a massive and very significant improvement to our liqudity,” said Theron. “The likelihood is that the money would be paid over time,” he added.
Citi analyst, Johann Steyn, commented that the ruling was not priced in to Implats’ share. “Should IMP succeed in collecting the funds, we estimate it could add c.7% to IMP’s market value,” he said in a note. “We doubt whether the market was pricing in this ruling. Our estimates do not include the impact of a positive ruling and collection.”
He added that there may be difficulty in making the collection.
Shares in Implats have been on the charge this year having gained 121% although some the lustre has disappeared from the counter of late amid concerns the South African platinum sector is pricing in metal price improvements not sustainably evident in the market.
Were Implats able to recover the monies, however, it would help ease pressure on the company’s balance sheet which has R5.5bn in convertible bonds due for settlement in 2018. The company has some R4bn in liquidity available to it.
Analysts have speculated this year about the platinum firm’s ability to pay the bonds.
In January, Edward Sterck, an analyst for BMO Capital Markets commented that Implats might face a funding shortfall and could resort to another rights issue assuming forecasts and the then spot price of platinum of about $833 per ounce.
The platinum price has since improved to $1,055/oz but Goldman Sachs is the latest to query the level of Implats’ ability to finance itself in the long-term.
