'Big brother' looks after Anooraq

Brendan Ryan | Mon, 18 May 2009 12:43
[miningmx.com] -- ANOORAQ Resources’ March quarterly results show a working capital deficit of $1.3m, but the directors reckon it has enough cash resources to meet expenditure requirements until June this year.

That’s when the revised deal with Anglo Platinum (AngloPlat) over Lebowa Platinum should have received all the required approvals. The transaction, which was announced on May 14, will secure Anooraq’s future.

Anooraq management said in the management discussion and analysis section of the March report that it was “confident” of completing the process.

But the “boiler plate” legal clauses accompanying that assessment spell out that Anooraq will have to raise additional financial resources should the deal not go through by then.

If this transpires, Anooraq would be “required to curtail operations and exploration activities. Furthermore, failure to continue as a going concern would require that the company’s assets and liabilities be restated on a liquidation basis.”

It’s highly unlikely this would happen, given the way in which AngloPlat has already bent over backwards to ensure the success of this particular black economic empowerment (BEE) deal.

The first-glance assessment of the deal by RBC Capital Markets analyst Leon Esterhuizen is that big brother in the form of AngloPlat has saved the day.

Esterhuizen said: “Anooraq will end up with debt of about R2.6bn which it would have to repay with its 51% share of Lebowa mine’s cash flows – an operation struggling to generate positive cash flows at current platinum group metals (pgm) prices.

“We believe pgm prices will have to increase significantly within the next couple of years to enable Lebowa to generate sufficient cash flows to service the debt. Only once this debt has been repaid will Anooraq fully benefit from any metal price upside.

“For now, we maintain our sector perform, above average risk rating.”

Esterhuizen said: “AngloPlat had to fulfil a number of BEE commitments as part of its mining right conversion requirements. The Lebowa transaction was part of these commitments and it is therefore imperative that the transaction goes ahead.

“As a result, we believe AngloPlat had little choice but to step up to the plate and provide the financing needed to complete the deal.”

The Anooraq share price has shot up in recent months after collapsing to a 12-month low of 270c in October from a 12-month high of R31. The share price recovered to about 450c by January and trades at around 800c.