[miningmx.com] – NORTHAM Platinum could have a warchest of R7bn for expansions and acquisitions consisting of cash from an empowerment deal announced today with the Zambezi Consortium, and debt.
Paul Dunne, CEO of Northam Platinum, said in an interview following the presentation of the R6.6bn black economic empowerment (BEE) deal that the firm would have net cash of R3.2bn to which it could add about R4bn in debt finance.
“Given our market capitalistion after the deal – of about R18bn – we could decide on a borrowing facility that would give us R7bn in total [including cash],” he said. Currently, Northam has net debt of R800m.
He declined to expand on the group’s growth plans, but said the company’s Booysendal mine, which has started ramp-up to 160,000 ounces a year of platinum group metals (PGM), could be added to.
“At the moment, Booysendal is mining from a reserve of 3.2 million oz, but we have 100 million oz in the total resource. There are also assets for sale. We will weigh up the correct combination. We are conscious we need to be careful,” said Dunne.
Although Anglo American Platinum has been the most public on selling assets – four shafts in the Rustenburg region – Dunne said his firm was looking at possible platinum assets from a number of potential sellers.
Dunne said in August that Northam Platinum could double production to one million oz/year in six years. Asked if he could elaborate, he said: “That will have to wait for another day”.
The transaction with the Zambezi Consortium, which will own 31.4% of Northam, would be concluded by April, 2015. Deal risk is thought to be low with 75% of Northam’s shareholders agreeing to the terms.
Northam will issue 22% of its share capital in new shares while the PIC will sell roughly 9% of its stake in the company. In order to pay for the shares, the Zambezi Consortium will then issue preference shares totalling R6.6bn which will then be listed on the JSE.
The preference shares carry a coupon rate of South African prime rate plus 3.5% and are likely to be paid in a single bullet payment on maturity in ten years’ time.
Coronation Asset Managers and the Public Investment Corporation (PIC) have agreed to under-write the preference shares, but they will first be offered to all shareholders on a prorata basis. As listed entities, they can be traded and may carry a premium or discount to Northam’s ordinary shares.
Shares in Northam Platinum were down 2.75% today.
Dunne said it was a no-brainer for Coronation and the PIC because there was almost no risk of a 12.5% return plus capital back on the preference shares.
The risk that does exist is if the preference shares and accumulated dividends cannot be redeemed at the end of the ten years.
Part of the empowerment transaction sees the consortium paid R400m upfront in return for not selling their positions for 10 years.
Asked how this figure was arrived at, and whether the lock-in should be for a longer period, Dunne said the R400m was also a restraint barring the empowerment partners from doing business with other parties in the platinum sector.
“We felt the R400m represented fair value,” said Dunne.
A downside to shareholders is the earnings dilution by dint of the 22% share issue which Macquarie Research calculated would be between 9% and 12%.
