[miningmx.com] – THE prospect of Anglo American Platinum (Amplats) choosing a listing of its non-core platinum assets has drawn heavy criticism from an analyst who believed that investors would be foolish to take up shares in the firm.
Amplats CEO, Chris Griffith, said last year that the company would consider listing its underground mines and even its Union section, which it is also selling, if it couldn’t find a buyer for the assets. Although unconfirmed by the company, it is thought the group is seeking a book value of about R10bn for the mines which exclude the smelter facilities.
However, buyers have been hard to find, especially at that price: Northam Platinum, Royal Bafokeng Platinum, and African Rainbow Minerals have lost interest in the bidding process, while a fourth and perhaps the most willing suitor, Sibanye Gold, thinks the price is too rich.
As a result, the Plan B that Griffith referred to last year is being considered as a Plan A option, with speculation emerging that Amplats will sell about 26% of the mines to an empowerment partner, with a further 30% to 40% sold in a book-build exercise, and the balance retained by Amplats.
However, Leon Esterhuizen, an analyst for CIBC Capital Markets in London, questioned the possible success of an IPO of the mines saying that listing the mines when there were no buyers probably confirms it to be a poor proposition.
“Why would investors be willing to take the risk in full knowledge that several companies with detailed access to the data had baulked at the price?’ he said.
“If these assets hardly make sense in the hands of Amplats, how will it be able to make sense in the hands of another company that has to pay away as much as 20% of the revenue line on the offtake agreement (for smelting and refining)?’
Esterhuizen added that R10bn seemed too much for such an out-the-money option, particularly as Amplats would want to increase output at much lower cost from other assets.
“If the story is correct about Amplats looking to sell part to a BEE vehicle, as well as hold on to a large chunk of stock, the value proposition for prospective investors will be even further diluted.
“It must also be a forgone conclusion that Amplats, having not found buyers for these assets before, will be looking to sell the entire holding as soon as possible, creating an ever-present overhang on the potential for the stock to rally.
Esterhuizen also believed that Anglo American, which controls about 80% of Amplats, would not prefer that option as it is seeking to sell assets in order to reduce pressure on its own balance sheet.
Mark Cutifani, CEO of Anglo American, told Miningmx in February that the group would “not hold out of the last dollar’ when it negotiating the sale of its non-core assets. It’s possible, therefore, that Anglo may send Amplats back to the negotiating table.
“Anglo must have thought holding out an IPO possibility would put pressure on the buyers to up the ante, but it did not work because the value is just not there at these metal prices and now the possibility of such an IPO mix – possibly leaving them still holding a large part of this tar baby – is looking like something they should much rather not pursue,’ said Esterhuizen who said Amplats would be able to sell the mines for about $500m (R6bn).
Three other analysts polled by Miningmx said, however, that they felt Amplats was moving towards an IPO nonetheless.
“It appears that’s the way it’s going,’ said Des Kilalea, an analyst for RBC Capital Markets. An industry source said Amplats was “leaning towards listing’.
An asset manager who asked to remain anonymous said the company might be persuaded to buy the IPO company, but it would have to be “at the right price’.
Amplats would have to prove that the Rustenburg mines were “a going concern’ and that they could generate cash after capex, he said.
For its part, Amplats is betting on a higher platinum price supporting a listing which it said would take longer to design than a trade sale of its assets, probably well into 2016.
Other platinum producers don’t see the same price improvement with Impala Platinum and Northam Platinum saying they believed the platinum price would stay lower for longer owing to the worry that the market had to work a large part of the 2.5 million ounces of above-ground inventories of the metal before the price would improve.
“I’d love to be more optimistic – looking for another “Sibanye’ type of trade, but no matter how hard I try, these assets just don’t work on a sustainable basis unless your metal price assumption is much higher,’ said Esterhuizen.
“Now why would the metal price be much higher if we are constantly keeping assets open that should be shut,’ he said.
