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Northam Pt penalised on dilution fears Posted: Tue, 04 Sep 2007 [miningmx.com] -- INVESTORS sold Northam Platinum shares on short-term concerns its R6.25bn transaction with Mvelaphanda Resources (Mvela) unveiled today was heavily dilutionary and would cut the company’s dividend yield. The platinum company’s shares were about 3.2% weaker in Johannesburg trading at R53.50/share and were as much as 7% lower intraday. Anglo Platinum closed 4.7% stronger. Shares in Mvela Resources and Anooraq Resources, which was also part of Anglo Platinum’s empowerment deal, were higher. As part of Anglo Platinum’s drive to meet empowerment related legislation in South Africa, it sold 50% of the Booysendal platinum group metal prospect to Mvela Resources which already owns half of the property. Mvela then on-sold 100% of Booysendal to Northam Platinum in return for some 125 million new shares in the company. Including the 22.4% stake in Northam that Mvela bought from Anglo Platinum, Mvela’s total stake in Northam increased to 63.4%. Norman Mbazima, joint acting CEO of Anglo Platinum, said in a press briefing Anglo Platinum’s stake in Booysendal had been sold for a 30% discount. “That is a sustainable discount,” he said. This would be extended to the other parties [involved in the various transactions], he added. But an analyst said Mvela had subsequently “took a R3bn turn” (profit) on the Booysendal sale on the basis that as the empowerment entity it had helped facilitate the deal. “It’s easy to hide the valuation of the parts of this deal behind politics and regulatory requirements, but it looks as if the market feels Northam has paid too much,” said Brenton Saunders, a hedge fund manager and analyst at Craton Capital. “But I would say in the longer term that the deal puts Northam in a much stronger position strategically,” said Saunders. Platinum group metal resources increased to 129 million oz from 17 million by virtue of the 112 million oz Booysendal prospect, and once it was developed, in about three years, operational focus will not be entirely on Northam’s current, deep-level mine. Northam will double production to 650,000 oz from the current 325,000 oz/year and according to Pine Pienaar, there’s scope for another 130,000 oz/year increase in output from Booysendal. This will take Northam Platinum to an 800,000 oz/year producer. But analysts are unconvinced the stated $7.84 per PGM valuation placed on what Northam paid for Booysendal is really cheaper. “I don’t buy this valuation,” said another analyst. “It assumes all platinum ounces in the ground are equal, that they can be mined tomorrow, and at the same cost.” There’s additional worries that not all Booysendal’s resources can be mined even at a long-term platinum price of $950/oz on which the transactions were based. The price of platinum is currently about R1,266/oz. “The upfront dilution is on the basis of earnings and dividend yield,” said Pienaar. “But the value of an asset is also on its reserves,” he said. “My off the cuff view is investors see they’re getting something different in Northam than they’re used to,” said Liston Meintjes, chief investment officer for Metropolitan Asset Management. “They are saying: ‘That’s not what we bought’,” he said. Northam Platinum was traditionally a high dividend payer, partly to reduce debt held by its empowerment partner, Mvela, but also because it had no additional growth prospects and cash flow could be passed out once costs were covered. Click Here to subscribe to our daily newsletter
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