PIC buys 8% stake in Northam as Afripalm exits

[miningmx.com] – AFRIPALM Resources, the black economic
empowerment investor of which Lazarus Zim is director, has exited its stake in
Northam Platinum.

Northam Platinum confirmed an earlier Miningmx article in which it said a
block of 37.2 million shares in the platinum producer had been sold by Afripalm
Resources. The shares were first bought by Afripalm Resources in 2007.

The shares were acquired by the Public Investment Corporation (PIC), taking its
overall stake in Northam Platinum to 18.9%.

What’s unclear, however, is whether the transaction counts as a BEE deal. Analysts
were doubtful, which would mean the total BEE shareholding in Northam would have
fallen to about 12%. The Department of Mineral Resources (DMR) said in August that
Northam Platinum must restore its BEE shareholding to 26%.

The shares were offered to the PIC by Nedbank, which held them as collateral for at
least R1bn in debt that it had provided to Afripalm Resources, excluding interest. At a
sale value of about R25/share, some R930m would have been netted by Afripalm, a
market source said. The remainder of the debt Afripalm shouldered for its stake in
Northam is thought to be owed to Anglo American Platinum (Amplats) in the form of
subordinated debt and preference shares.

Fidelis Madavo, head of resources at the PIC, said the transaction offered gold value
for the PIC. “I think we did pretty well out of this transaction,” adding that “Northam
has a good investment case”.

He declined to specify the price paid for the shares, but market suggestions that the
shares were on offer between R24 and R25/share “wasn’t far off the mark” – Afripalm
Resources bought the Northam shares for about R30/share. Afripalm was forced to
sell the shares as it was in danger of breaking bank covenants with Nedbank, which
has recovered most of its capital but not the interest which, when rolled up over the
years, would mean Afripalm Resources required a Northam Platinum price of
R50/share to break even, according to some estimates.

The trade has caused a degree of consternation in the market because the shares
were offered at a discount without other existing shareholders in Northam Platinum,
such as Coronation Asset Managers and Sanlam Asset Management, being given an
opportunity to buy the shares. In the view of one sell side analyst, this should not
have been the case, although another said the PIC was probably the only asset
manager that could have bought such a large slug in a single trade.

All eyes now fall on a Northam shareholder meeting that is likely to see the platinum
producer attempt to restore its BEE shareholding to 26%. Miningmx said in
August that analysts were concerned that existing BEE shareholders in Northam would
benefit from the scheme.

“Northam’s BEE shareholders have been required to dispose of a significant portion of
their Northam shareholdings in order to address current breaches of covenants
contained in the BEE financing agreements,’ the company said at the time.

The sale of the stake in Northam Platinum by Afripalm Resources also raises the
question as to whether Zim will continue as Northam’s non-executive chairman.