[miningmx.com] – IT WILL BE interesting to see the stake with which Coronation Asset Managers (Coronation) is eventually left in Northam Platinum, the company it agreed to support after buying 15 million shares in a claw-back rights offer valued at R600m.
The plan is for Coronation to mop up some or all of those shares – just under 4% of the total issued share capital – after Northam shareholders have been given an opportunity to buy them in an offer launched on November 18 and which is due to close on December 6.
The shares have not yet actually flowed, although Coronation has paid Northam the R600m given its need for the cash. When the size of the shareholder acceptance is determined, the balance of outstanding shares will be held by Coronation.
The shares are to be sold at a 2% discount to Northam’s 30-day volume weighted average price (VWAP) and at a 5% premium to the 60-day VWAP as of September 18, equal to R40/share.
In the unlikely event of there being no takers, Coronation will increase its stake in Northam to about 17%, thereby becoming the platinum firm’s second largest shareholder, just behind the Public Investment Corporation (PIC) which has an 18.9% stake.
The likelihood, however, is that shareholders will take a long-term view on Northam notwithstanding its short-term problems which, at the time of writing, include a strike by members of the National Union of Mineworkers (NUM).
Neill Young, an analyst for Coronation, says the asset management firm was attracted to the share because its long-term business case is solid. “Metal prices are low now. I agree, if you look at fundamentals (excluding investment flows into the JSE-listed exchange traded product), the platinum market is in balance, but over a 10-year horizon there will be a deficit.
“Palladium is a more interesting metal as there is a fundamental deficit there now,’ he says.
He also rates management “among the best in the platinum industry’ and thinks that although deep and high-cost, Northam’s Zondereinde mine is being engineered back to recovery, while Northam’s developing asset, the Booysendal project, represents low-cost, mechanised, and scaleable platinum production.
As for the strike, the claw-back and additional R400m refinancing of the balance sheet, was in anticipation of the strike, Young says. Ironically, a profit share arrangement saw workers paid out prior to the strike giving them financial support to endure no pay for a little while at least.
“The rights issue was a proactive, pragmatic step by management. They realised the potential for a strike,’ said Young. Northam also required working capital following the smelter burnout which meant there was a lock-up of metal or an inventory build-up.
In terms of the circular to shareholders, Coronation also receives a 2% handling fee, equal to about R13.8m. Young says, however, this will be passed on to Coronation clients.
