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 Jean-Nel-CEO-Aquarius-PlatinumJean Nel, CEO, Aquarius Platinum

Aquarius Pt wins plaudits, but is it enough?

David McKay | Tue, 06 Aug 2013 10:00
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[] – IT’S been a year since Aquarius Platinum slumped to its all-time low of R4.50/share. At the time, the company was busily mothballing its mines amid a tanking platinum price. So what’s changed in a year?

There’s new management – Jean Nel is the CEO after the resignation of Aquarius’ outspoken leader, Stuart Murray – and the strategy, implemented by Murray of turning to an owner-operator model rather than contract mining, seems to be showing early signs of success.

This strategy recently materialised in a strong fourth quarter showing; in fact, analysts are now adjusting for a lower full-year loss than first expected. Even the share has responded: it is now trading at just under R7/share, nearly a doubling on its 12-month low.

And yet there’s still pessimism and gloom about the stock. The feeling was captured most aptly by a recent report by the JP Morgan precious metals team which asked whether the fourth quarter performance for Aquarius was ‘as good as it gets?’

“Although we are encouraged by the relatively rapid and seamless turnaround of the business, shares in the company do not present a compelling investment case at this time, in our view, due to the risks surrounding the implementation of the Mimosa indigenisation agreement and our expectation of a lower average PGM basket price in 2014,” said Macquarie Resarch in a recent report.

There’s are also concerns regarding the potential impact of a $300m convertible bond. While it only becomes payable in 2015, the risk of the bond is likely to sit on the share well before the due date. According to Liberum Capital, the platinum price would have to improve 44% off current levels before Aquarius would marshall the cash flow to pay the bondholders out.

This raises the risk of having to issue shares, or an expensive refinancing such as has already been undertaken by AngloGold which issued a corporate bond at over 8%, raising $1.25bn. (No wonder it was oversubscribed three times).

There is some light. Justin Froneman, an analyst for Standard Bank Group Securities, makes the point that Nel and his team have vastly improved labour relations on Aquarius’ extant operating South Africa mine, Kroondal. This follows a wage agreement a few points above consumer inflation.

“Despite the current operating environment across South Africa’s broader PGM sector, it is testament to the company?s turnaround that Aquarius has managed to successfully negotiate with its employees without any disruption,” said Froneman.

The long and the short of it is that Aquarius is waiting for the platinum price to substantially revive. Only then can it reopen its other mines and start to generate necessary cash flow. Until then, the company is in survival mode in an industry that offers little opportunity for growth.

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