Bafokeng nears platinum deal conclusion

Allan Seccombe | Tue, 20 Oct 2009 12:19
[miningmx.com] -- ROYAL Bafokeng Holdings (RBH) is not rushing any aspect of its two platinum projects and at this stage is focused on getting them right rather than looking around for outside growth, said Andrew Jackson, the director of strategic investments for RBH.

It’s a year since RBH unveiled a transaction with Anglo Platinum whereby RBH would take operational control of the Bafokeng Rasimone Platinum Mine (BRPM) and set up a new company incorporating its platinum assets, which at this stage comprise its 50% participation interest in the BRPM joint venture incorporating the currently mined Boschkoppie and undeveloped Styldrift and a portion of Frischgewaagd properties.

The new vehicle, currently called “Newco”, will be listed on the JSE at some point. Annually, iIt will have nearly 200,000 oz of refined platinum output from BRPM and another 200,000 oz from Styldrift, which is expected to be completed in 2017.

Once the deal is finalised and Newco is listed, Anglo Platinum will hold a direct 33% stake in BRPM and 15% of Newco. RBH will own 65% of Newco, which in turn will hold 67% of BRPM. The remaining 20% of Newco will be owned by investors, who will take up shares when it is listed.

Terms of the agreements under which control of BRPM is finally transferred to RBH are expected to become effective in the next few months.

The listing depends on satisfying the conditions precedent and the right market conditions, Jackson told Miningmx.

“Once the agreements are effective we could list within 12 months, but we’re not going to bust a gut on that. There is no commercial pressure on us to list. The market conditions must be right,” he said.

The overwhelming sense coming from speaking to Jackson about BRPM and Styldrift is that RBH is proceeding with utmost caution.

“Without our core operations running properly we’ve got nothing,” Jackson said. “We’ll do a handover when it’s right for the business.”

This is why time is being taken in the operational handover of BRPM to RBH, which has painstakingly put a team of engineering and financial people together. “Our first priority is to make the operational transition as smooth as possible – very little at the mine will change during this transitional period – otherwise the costs will go the other way instead of coming down,” Jackson said.

What’s clear from a reading of BRPM’s results published by Anglo Platinum since 2004 to the latest annual figures up to end-financial 2008 is that the mine has declining production, falling to 170,000 oz of refined platinum from a peak of 240,000 oz in 2006 and 183,000 oz in 2004.

The output of a basket of the mine’s four platinum group elements – platinum, palladium, rhodium and gold – has mirrored the decline, coming down to 272,000 oz from 314,000 oz a year earlier and 290,000 oz in 2004.

Worryingly, cash operating costs have escalated relentlessly, rising to $1,132/oz of refined platinum from $770 four years earlier, but this is much in line with the broader South African mining industry, which is facing rapidly escalating electricity tariffs and muscular union demands for wage hikes.

“We wouldn’t have done this transaction if we didn’t think there were efficiencies which could be extracted,” Jackson said. “There is certainly going to be a far thinner overhead structure, but we are not going to compromise this asset. We don’t have definitive cost numbers yet.”

Another point to bear in mind is that the mine will be a top priority asset for Newco and by extension RBH, instead of being just one of a number of joint ventures in the Anglo Platinum stable, which means it will receive a focused approach on production and driving costs down.

The other asset taking up RBH’s time is the Styldrift project, where a twin-shaft underground mine will be built as well as a concentrator at the cost of R8bn (in current money terms) , which will be funded proportionally by its owners, debt and capital raised in the listing. A definitive feasibility study has been completed for the project and bulk earthworks started in March 2009.

The Royal Bafokeng Nation (RBN) has cash resources of about R5bn. RBH is the business arm for the Royal Bafokeng Nation, which for years derived healthy royalty payments from Impala Platinum. By the end of 2007, RBH had an investment portfolio worth nearly R34bn.

Having a partner like Anglo Platinum on board will certainly go a long way towards helping Newco raise debt to build a mine at Syldrift where work on surface infrastructure has already started. There are procurement and developmental synergies that can be extracted from the partnership, which puts RBH Newco at a distinct advantage compared to its peers.

The property next door to Styldrift and BRPM JV’s portion of Frischgewaagd is owned by Wesizwe Platinum, which has completed a final feasibility study, but has been unable to raise the nearly R6bn it needs to build a twin-shaft mine and concentrator. As a result the project has been shelved until the full financing can be arranged.

Asked if Wesizwe could be a consolidation play for RBH or if there were any other targets on the horizon, Jackson said: “Quite frankly, at the moment we have our head down with these two projects and we are not as outwardly looking as we perhaps could be. These are our primary deliverables and we can’t afford to mess them up.”

The free float of just 20% appears a bit small, but Jackson said RBH and Anglo Platinum at this stage wanted to sell as little of the asset as possible and would use the process of acquisitions or mergers for Newco over time as the platform from which to issue more equity to the public.