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Impala Platinum goes for it
Brendan Ryan
Posted: Fri, 17 Oct 2008
[miningmx.com] -- IF IMPALA PLATINUM (Implats) succeeds in the acquisition of Mvelaphanda Resources (Mvela) and Northam Platinum (Northam) then it will have pulled off a monumental coup.
Getting hold of the 103m oz of platinum group metals (PGMs) hosted in the Booysendal deposit that Northam owns will solve Implats’s main problem – to ensure long-term growth from its South African operations.
Implats will be able to start mining at Booysendal from surface, which will make it a far more profitable operation to run than the proposed deep level Leeuwkop mine near Rustenburg.
Not only that, Implats could actually end up producing more platinum in total than arch-rival Anglo Platinum – depending on how quickly it develops Booysendal and how Anglo Platinum deals with its own production problems and growth plans.
Acquiring Booysendal also reduces the perceived risk
posed to Implats by its Zimbabwean mining operations. The flip side of that is, should Zimbabwe stabilise then Implats’s growth could be explosive if it goes ahead with planned expansions there currently on hold.
The irony of the situation – and an aspect proving controversial – is that Anglo Platinum previously owned Booysendal. Anglo Platinum only parted company with the asset to inject it into Mvela and Northam through one of two major black empowerment deals required to ensure it received conversion of its “old order” mining rights into “new order” rights.
RBC Capital Markets analyst Leon Esterhuizen says RBC doesn’t believe Anglo Platinum would have sold Booysendal to Implats so “this could well cause some problems with approval”.
I’ll come back to that aspect later, as a more pressing issue is what’s happening to the share prices of Mvela and Northam, which should be trading in accordance with the ratios laid out in the Implats offer. They aren’t.
Instead, they’re trading increasingly below the nominal ratio levels and that’s already leading some market observers to believe this deal may not go through.
Implats is effectively offering 35 of its shares for every 100 Northam shares and 33,8 of its shares for every 100 Mvela shares, with the payments to be made 70% in equity and 30% in cash. The bid was made on share price levels as of 1 October,
when Implats traded at R165,75 and the offers worked out to R58 per Northam share (than a 28% premium) and R56 per Mvela share (a 26% premium).
Implats shares have since dropped sharply, along with the rest of the platinum sector, in response to a slump in the platinum price to below US$1 000/oz, which compares with a high of around $2 400/oz in March.
At Implats’s price on 7 October of R126,50 the offer valued Northam at R44,27 and Mvela at R42,75: but the shares were trading well below that, with Northam at R35,48 and Mvela at R30,50 on the same day.
One analyst is drawing a comparison with what happened to the Lonmin share price that started dropping sharply a few days before Xstrata decided not go through with its bid.
It seems early to draw that sort of conclusion in this case, as the offer will only be voted on in January. But it’s clearly not a healthy situation. While valuations are relative in situations like these, it seems some
investors are still unhappy with the prices being offered for their Mvela and Northam shares.
Says Mvela CEO Pine Pienaar: “It’s a relative value game and on our graphs Implats hasn’t dropped as much as the other platinum companies. But things can change. This market is running overwhelmingly on sentiment and I don’t know how to call it anymore. Everybody is looking extremely cheap.
"The only execution risk I can see on this deal is if share prices get driven down to a point where they’re below the discounted cash flow valuation of the companies. Then the shareholders aren’t going to vote in favour of it. Six months ago I’d have said that was impossible – but that’s how volatile the markets are now.”
There are a number of conditions precedent to the deal in addition to approval by Northam and Mvela shareholders. The two key ones are approval by SA’s competition authorities and also by the Department of Minerals & Energy (DME), which must confirm the
deal “will not affect Northam’s or Booysendal’s empowerment credentials”.
The DME must also confirm the conversion credits that accrued to Anglo Platinum for putting Booysendal into Northam will “not be prejudiced” by the transaction.
That aspect was highlighted by DME director-general Sandile Nogxina when interviewed recently at a function at Mintek. Nogxina said he couldn’t express an opinion on the deal because the DME was still evaluating it and he didn’t wish to “prejudge” the situation.
Pienaar says: “We held extensive discussions with the DME on this transaction. They asked a number of specific questions, which we answered – including the empowerment issues. They clearly indicated they supported the deal. We wouldn’t have announced it otherwise.”
Implats is already 17% empowered at the top holding company level through prior deals with the Royal Bafokeng Nation.
Acquiring Mvela/Northam will push the group’s empowerment level above
20%, while Mvela chairman Lazarus Zim will be appointed deputy chairman of Implats.
Nogxina’s viewpoint is that companies such as Mvela/Northam that received assets through the empowerment process should develop them and not be in a rush to sell them on.
Says Pienaar: “That remains an option. As far as we’re concerned it’s business as usual with the development of Booysendal until the vote takes place. Implats made an unsolicited offer that we decided to support after taking into account issues such as sustainability, risk diversification and broader transformation and empowerment issues.”
Prior to Implats’s offer there had been speculation in the markets that other companies might be interested, with possible bidders including Gold Fields, Xstrata (once it had shelved its Lonmin bid) and a combination of Lonmin and Aquarius Platinum.
Pienaar confirms Mvela had received “unsolicited approaches” from other parties, which he won’t name. He seems dubious
whether anyone might now bid in competition to Implats. “There aren’t many companies that could make a bid and none have the empowerment at the equity level that Implats has,” he says.
Assuming the deal goes through there will be ramifications for Gold Fields as well as diamond producer Trans Hex. Mvela holds a 20,7% stake in Trans Hex and, as of March next year, it will own 50m shares in Gold Fields – equivalent to around 10% of Gold Fields’ equity.
Both assets are likely to be sold by Implats. That scenario was made clear by Pienaar earlier this year, when he said any bid aimed at Booysendal must come in at the Mvela level to avoid “cherry-picking” Mvela’s assets. “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,” he says.
* Brendan Ryan holds shares in Impala Platinum and Mvelaphanda Resources.
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