Pine Pienaar, CEO, Mvelaphanda Resources
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SA junior platinum sector ripe for consolidation
Brendan Ryan
Posted: Mon, 19 May 2008

[miningmx.com] -- CONSOLIDATION of the booming South African platinum junior sector was the dominant theme at the RBC Capital Markets platinum group metals (pgm) conference held in London last week.

Mvelaphanda Resources (Mvela) CEO Pine Pienaar told the conference that “there are logical clusters for consolidation and, in my mind, it will happen.”

Pienaar readily acknowledged that one of those “clusters” involved Mvela and he effectively indicated that it would be “game on” once the Mvela/Northam/Booysendal transaction is finally approved by shareholders on June 6.
The question is whether it is do-able
“A nice combination would be Mvela with Anooraq and Aquarius Platinum. The question is whether it is do-able. The Pilanesberg area also seems to offer more consolidation opportunities,” Pienaar said.

The third likely area for consolidation – but one not specifically mentioned by Pienaar - involves Xstrata's Eland Platinum and Eastern Platinum (Eastplats) mines just west of Brits and the adjacent Pandora project.

Xstrata last year bought Eland Platinum while Lonmin indicated it considered Pandora to be “non-core” to its future growth plans. Lonmin and Anglo Platinum each own 42.5% of Pandora.

Widespread market speculation since Xstrata bought Eland has been that Eastplats is the resource giant’s next target.

Eastplats has just put a shareholder protection plan in place and Eastplats CEO Ian Rozier was first up to address the conference.

"When eight of the world’s largest banks come to you all offering a defensive strategy against a takeover you start to get a bit uncomfortable," he said.

"The fact is that we have taken the risk out of Eastplats. We are getting the production and the recoveries we said we would.

“The shareholder plan does nothing for management -- we are good-sized shareholders and we will take our chances with everybody else -– but what it does do is buy time to negotiate a better deal if a bid comes in.”

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Eastplats’ particular worry is that its stock is currently way undervalued as are nearly all the other platinum juniors.

While that protects Eastplats to an extent from advances from other juniors – given all of them are in the same valuation boat - it leaves the company exposed to advances from a mining major.

RBC Capital Markets analyst Leon Esterhuizen commented that none of the PGM juniors “reflect a value at or in excess of spot NPV (net present value), not even those like Eastern Platinum which is already producing.

“This is unusual as the majors generally tend to trade close to this NPV value and even more so if one takes account of the significant growth potential offered by a company such as Eastern Platinum relative to many of the majors.”

Esterhuizen’s assessment was backed up by Rene Hochreiter – former top-rated platinum analyst and now a partner in consultancy AllanHochreiter – who was a delegate at the conference.

Hochreiter reckoned the platinum juniors were all badly undervalued because investors were assessing them at PGM prices as low as 25% to 50% of the current “basket price” being received on metal sales.

He added Eastplats was particularly exposed as a takeover target because the company had no controlling shareholder.

But Hochreiter said he was generally opposed to mergers unless there were good technical reasons driving them such as combining two sections of the same oreobody.

He commented mergers carried out for financial reasons inevitably created organisations that were too large to be effectively managed.

Interviewed after his presentation, Pienaar said any merger should aim at achieving an overall business balance. He added that “size does count” because, amongst other factors, it reduced risk through diversification of operations.

He said both Anooraq and Mvela had good medium and long-term growth prospects while Aquarius was generating plenty of cash in the short-term but had limited growth prospects.

Pienaar stressed that, should merger negotiations concerning its platinum interests get underway, the deal would be struck at the level of holding company Mvela.

He said Mvela would not deal at the level of Northam Platinum which will directly control all the group’s platinum operations.

Mvela will own 63% of Northam if shareholders approve the Booysendal transaction on June 6 but Mvela also owns important minority stakes in Gold Fields and diamond producer Trans Hex.

"We will not allow any cherry-picking of our assets because that would lead to Mvela being left behind as a value trap holding the other interests. Anyone wanting to deal with us takes the lot and decides afterwards what they want to do with the assets they may not want to own,” Pienaar said.