Story of two capital raising efforts

RAISING money for platinum mining in the current market can be something of a hazardous business; or is it? Well, the answer is that it just depends.

In the case of Royal Bafokeng Platinum (RBPlat), its efforts to tap shareholders for R800m was completed at a canter with the company saying on April 14 its offer of shares was more than four-and-a-half times oversubscribed. This was after offering the shares for just under a 15% discount to its 30-day average share price.

For Aquarius Platinum, however, the picture looks somewhat different.

Earlier this month, it unveiled a rights offer of its own with an announcement in which it said it hoped to raise $225m (R2.34bn) – only some R1.1bn less than its market capitalisation – but at a massive 66% discount. Some analysts were puzzled at the heavy discount believing it might be informed by the underwriters.

“We believe the significant discount may be an indication of the underwriter’s risk appetite and conservative stance taken in its forecast of PGM [platinum group metal] basket prices,’ said Justin Froneman, an analyst for Standard Bank Group Securities (SBGS). The implication is a weaker market would crimp Aquarius’ cash flow generation ability.

The lesson from the two capital raisings, however, is that even with the platinum price remaining relatively unresponsive to the three-month strike in the sector waged by the Association of Mineworkers & Construction Union (AMCU), there’s a lot of differentiation to be seen among local platinum counters.

RBPlat is in possession of the R10bn Styldrift project, and generates cash from the Bafokeng Rasimone Platinum Mine, both of which produce rich amounts of Merensky reef, a geological deposit where the yield is high.

Aquarius Platinum, however, has been a business in the past that has cleverly worked business agreements to capitalise entrepeneurially on its less richly endowed resources. In the current market, it is less financeable than RBPlat proving that success and failure in the resources business is all about the quality of the orebody.

Not that Aquarius Platinum is failing. Far from it. Its CEO, Jean Nel, has brought the company back from the brink, turning mining to an owner-operator model and cutting costs aggressively. He has closed unprofitable mines and is now turning his hand to de-stressing the balance sheet.

Some $300m in convertible debentures mature in 2015 so the plan is to offer 92 pence/share in the pound (£1.00) for each bond against which some $172.6m worth of bondholders have accepted. In order to pay these bondholders for their options, Nel and his team at Aquarius believe $225m is necessary.

Investec Securities commented that the bondholders who preferred not to accept the offer, notwithstanding the discount, are probably comfortable with the work Nel is doing, despite the troubled nature of the balance sheet.