NORTHAM Platinum has agreed to buy mineral resources from Anglo American Platinum (Amplats) for R1bn that will enable it to extend the economic life of its Zondereinde mine by 10 years to 30 years.
The resource, which is on Zondereinde’s North West boundary with Amplats’ Amandelbult mine, can be accessed by Northam Platinum with “a short lead time and minimal capital expenditure”. It comprises an area of Merensky and UG2 containing about 16.7 million 4E (platinum, palladium, rhodium and gold) ounces.
In return, Northam Platinum will dispose of a portion of its Zondereinde mining right to Amplats which Northam said it had no plans to mine as it was not suitable for its mining method.
The acquisition locks in the prospect of sustained production at Zondereinde whilst the company plots an aggressive expansion programme on its Booysendal property.
Between now and 2021, Northam hopes to commission 340,000 ounces a year of additional platinum production through a series of developments at Booysendal that will take total group production to about 800,000 oz/year.
For Amplats, the R1bn cash payment will short up the firm’s balance sheet having already reduced net debt 25% to R9.9bn at the half year point of its financial year ended June 30.
“The R1bn should allow Amplats to further reduce net debt,” said Johann Steyn, an analyst for Citi. “We estimate FY16E ND/EBITDA could fall below 1.0x post this deal,” he added.
The transaction may also take the pressure of Amplats having to sell its non-core assets, some of which are complex such as its 49% stake in Bokoni Platinum Mine.
“The transaction is mutually beneficial and allows us to exit resources for value which are outside of our life-of-mine plans and do not impact current mining or the future potential of Amandelbult,” said Chris Griffith, CEO of Amplats.
The transaction would not constrain Amplats’s next generation options for the Amandelbult mine which it said “… had a number of shallow and less capital intensive life extension options”.
Griffith said the packet of land from Zondereinde gave the company “… flexibility for the placement of future mining infrastructure, including options for next generation replacement or expansion plans at Amandelbult”.
For Paul Dunne, CEO of Northam Platinum, the transaction – which requires the approval for the Department of Mineral Resources (DMR) – gives Zondereinde options.
“The transaction brings flexibility and optionality to the mining operations at Zondereinde,” said Dunne in a statement today.
“The acquired resource is of high quality, is well understood by Northam and allows us to better leverage the existing Zondereinde infrastructure,” he said.
“The additional resource also enables Northam to continue mining higher-grade Merensky ore for a longer period, with relatively low incremental capital expenditure,” he said.
Among the benefits, the resources from Amandelbult will provide early access to additional higher-grade Merensky and UG2 reef, reduce the overall average mining depth of the Zondereinde mine, with associated potential savings, and reduce the mining risk as well as enhance the long-term flexibility and optionality for Zondereinde.
CONSOLIDATION
Analysts and industry executives have increasingly pointed to the need for consolidation in South Africa’s platinum sector as a means of establishing lower capital replacement ounces and expansion.
“We believe there is significant potential to be unlocked at the Western Limb through improved collaboration, whether through M&A, JV’s, royalty agreements,” said Citi’s Steyn.
Neal Froneman, CEO of Sibanye Gold, said last week at the Joburg Indaba conference that “tough discussions” were needed to ensure that South Africa’s gold and platinum industry remained competitive.
“Consolidation is a necessity to improve efficiency; it is an absolute necessity. We cannot keep subsidising loss-making platinum and gold operations or the decline will be very swift,” he said.
