Sibanye Gold rejects ‘optimistic’ Amplats

[miningmx.com] – THE cooling of Sibanye Gold’s interest in platinum, which it described in a presentation at the Denver Gold Conference earlier this week as potentially ‘value-enhancing’ rather than “a strategic necessity’, turns predictably on price.

According to an industry source, Anglo American Platinum (Amplats) wants to value its Rustenburg shafts on future earnings – and an optimistic platinum price outlook – whereas Neal Froneman, CEO of Sibanye Gold, is focusing his valuation methodology on the net present value of the shafts.

Hence, the bullet point in Sibanye Gold’s presentation at Denver that any acquisitions in the platinum sector “… must be cash flow enhancing at current commodity prices”.

There are still “a few” potential acquisitions, said Froneman, but many of the platinum deals first explored had now been abandoned. This is a far cry from the bullishness of earlier this year in which Froneman was forthright in expressing the view that buying into platinum was a question of when, not if.

Against the background of Sibanye’s fading ardour in platinum is the spectacularly negative shareholder reaction to AngloGold Ashanti’s $2.1bn capital raising and de-merger plans. If ever there was a modern-day cautionary tale guarding against ambition over parsimony, the failure of AngloGold’s transaction earlier this week would be it.

Investors in mining shares want cash-in-hand returns, don’t favour big capital outlays for uncertain future returns, and certainly err on the side of caution should there uncertainty over the value versus scale of a transaction.

James Wellsted, Sibanye’s corporate affairs vice-president, says the company doesn’t need any reminding. “We just won’t over-pay by accepting optimistic platinum price forecasts. That would be for our shareholders to enjoy otherwise why would we be doing it,’ he says.

For Amplats, it has given itself a lengthy period to get the deals away having already announced itself a seller of four shafts in the Rustenburg region, as well as its Union section and 49% share in the Pandora joint venture with Lonmin. So it can perhaps afford to bide its time and hope that its view that platinum market will improve turns out to be true.

Unlike Sibanye, however, it has a strategic interest in completing the transaction having already stated it won’t plough more capital into the shafts. There is also a limited pool of buyers and perhaps a yet more limited number of companies it would actually want to sell to bearing in mind the South African government will hold it responsible were it to sell to an unfit operator.

Chris Griffith, CEO of Amplats, indicated at the group’s interim results in June that book price – the carrying value of the assets on Amplats’ balance sheet – might be an appropriate valuation (partly because it wouldn’t then have to impair the assets).

It looks, though, as if Amplats is pushing harder than that on valuation which one would expect. It remains to be seen whether sellers and buyers can agree, if only to bring some certainty to the platinum sector.