[miningmx.com] – THE decision by Impala Platinum (Implats) on May 27 to abandon the sale of its Marula mine demonstrates the difficulty of divesting assets in the current market, especially South African mines where price prospects for platinum are just part of the problem.
According to Johan Theron, head of corporate affairs for Implats, interested bidders for Marula could not agree to even non-binding offers for Marula because the valuations were informed by exogenous national factors such as regulatory, labour, and power “challenges”, never mind the platinum market.
How much more difficult for Anglo American Platinum (Amplats) which is trying to sell its larger, deeper, and more labour intensive Rustenburg assets in either a trade sale or through a book-build ahead of a Johannesburg listing?
Unlike Implats, it doesn’t have the luxury of absorbing its non-core shafts back into its strategic plans because they are so counter to Anglo American CEO, Mark Cutifani‘s vision for Australian-like open-cast, mechanised mining.
According to the UK’s The Sunday Times on May 24, however, Amplats was considering a third option of listing its entire 77% stake in Amplats. Although an brow-raising suggestion, it would nonetheless appear to be a red herring.
Still, the report adds to the perception that the task of divesting of the Rustenburg mines is a troublesome one for Anglo, and that whilst the group edges closer to its mid-year deadline, seemingly undecided on its divestment options, it allows analysts the space and time to speculate on the effects.
Commenting on the Sunday Times article, Goldman Sachs said in a May 26 report that the failure of a trade sale or an IPO “… so far raises concerns as to how strong industrial appetite for these assets is”.
That demand doesn’t seem to be terribly strong. Sibanye Gold told Bloomberg News that it was continuing to compile its bid, but it’s expected to be well short of the R10bn valuation placed on the Rustenburg mines by Amplats.
It may be that the sides can agree. It may turn out that Cutifani and Chris Griffith, CEO of Amplats, decide its worth discounting the Rustenburg mines if only because action is better than words, not to mention the management time it would free up. Shareholders, meanwhile, would be mightily relieved Anglo has acted decisively and eased the balance sheet in the process.
The alternative, however, of a separate listing of the non-core assets through a book-build, would appear to be more than just a Plan B. It would also appear to be the much more complicated option which is perhaps why an earlier outcome has not yet been delivered.
It’s quite clear, an analyst says, what the plan is in the event of an IPO of the non-core assets: Anglo will retain 30% to 40% of the shares; 30% to 40% will be issued to the market in a book-build; the remainder will be passed to empowerment firms and in an ESOP to employees – a structure the likes of AMCU president Joseph Mathunjwa would have to approve i.e buy-in, or have sight of; not to mention the government (God forbid the consequences were they not).
The empowerment partners may well be Patrice Motsepe’s African Rainbow Minerals or Phuthuma Nhleko’s Pembani Group who not only missed Anglo’s December board meeting citing a conflict of interest, but who did not stand for re-election to the Amplats board, possibly for the same reason.
Perhaps these empowerment shares will be granted “for free” with a 10-year lock-in, and in the form of share options that only need to be paid for when the platinum price moves through a certain threshold. So the theory goes.
In the meantime, the market waits.
Said Pranill Ramchander: “We have been very clear about our plans for our platinum business and have been very clear for some time that there are two options for divestment of the Union and Rustenburg assets – either a trade sale or an IPO – and we said in February that we would decide which option to go with by the middle of this year”.
In the meantime, however, analysts wonder at what will become of Amplats either with or without its non-core assets.
Goldman Sachs made the startling assessment that Amplats may be in need of further capitalisation.
“[W]e believe that further capitalisation of the business may be required given the subdued and oversupplied platinum market,” it said.
“At spot prices, we would estimate that Amplats is cash breakeven this year but would then have a negative free cash flow yield of 4% for the next three years”.
