IMPALA Platinum and Sibanye-Stillwater distanced themselves from an offer for Northam Platinum on Tuesday, which means Valterra Platinum is the only one likely to have an appetite for a further one million ounces a year of platinum group metal production.
Make that 1.5 million oz in terms of Northam’s recently stated growth ambitions. If achieved – by 2032 according to the company – that would be an astonishing trajectory for Paul Dunne, CEO since 2014. When he joined the company, Northam was producing about 350,000 oz annually of the metals.
In the event of a Valterra takeover of Northam, that production number would also invite huge anti-trust scrutiny, especially from the Chinese, who are major buyers of PGMs. “We believe any large-scale merger and acquisition transaction would likely face significant regulatory scrutiny, resulting in a long, drawn-out process,” said Arnold van Graan, an analyst for Nedbank Securities. “We also believe the process would prove distracting despite management’s efforts to minimise this risk.”
As a result, the combination of businesses as described by Northam today would most likely be at the asset level (though one PGM executive says a merger of Northam and Valterra is not out of the question).
Two possibilities stand out in this regard. Northam’s deep, aged but profitable Zondereinde mine is located near Valterra’s Amandelbult, the latter a bit of a problem child for Valterra until it was recently remediated by its CEO Craig Miller. Both mines are on the western limb of the Bushveld Complex, in the Waterberg area of the Limpopo province.
The other is Booysendal, Northam’s newly opened mine, which sits on the eastern limb of the Bushveld Complex, in the Steelpoort/Burgersfort area, near Valterra’s Mototolo/Der Brochen complex. Mototolo produced about 140,000 oz of PGMs in the six months ended June. Following the takeover of Glencore’s stake in Mototolo, Valterra is ramping up a combined Mototolo/Der Brochen life extension programme.
“With Northam’s production expertise and Valterra’s assets, a joint venture could remove overheads and increase the returns nicely,” said René Hochreiter, an analyst for Noah Capital, who adds another take on a possible deal between the two.
“It is quite well known that Valterra wants to exit its joint venture with Modikwa (with African Rainbow Minerals),” he said. “It may want to do the same on the two mines and offer Northam increased offtake for which it has quite a lot of spare capacity.”
Processing
There is also potential for Northam to gain access to processing capacity held by Valterra to support its own expansion plans. Valterra has about five million ounces of refining capacity but only uses about 3.4 million oz, according to Keenen Du Toit of Vunani Securities in a note on Tuesday.
It appears these ideas have been on the cards for a while, based on comments made by Northam’s head of investor relations, Hurbey Geldenhuys. While they clearly make sense, it seems Northam wants to extract the best possible deal and has therefore made the conversation public.
While that may not please Valterra – the company is yet to comment amid a 5.4% price decline on the JSE today – the hope may be to get a company such as Ivanplats in the conversation. Ivanplats, part of Robert Friedland’s Ivanhoe Mines, is certainly of a frame of mind that would consider a big-picture takeover of Northam.
In the tightly connected world of PGMs in South Africa, Northam and Ivanplats are business partners of a sort: the two concluded a ten-year offtake agreement in 2021 under which Northam buys 50% of the PGM concentrate produced by Platreef’s Phase 1 (roughly 20,000 tons of concentrate a year).
Outside of Ivanplats, it’s hard to know whether any other party would have an obvious interest in Northam. Northam’s announcement that it intends to make itself open to proposals until December 1 gives ample time to find out.
It also serves to demonstrate that, before committing to a deal with Valterra, shareholder value is thoroughly explored. Cross-boundary deals make sense, as demonstrated by Anglo American’s agreements in South America with Vale and Teck, both of which have helped Anglo attract an improvement in its multiple.
“Whether the process ultimately crystallises that value remains to be seen,” said Van Graan. “Several blocks need to fall into place for a transaction to materialise, and any outcome is unlikely to be quick.”
He warns investors should dig in for “a prolonged period of uncertainty and potentially elevated volatility”.
