THE deteriorating condition of the platinum market for South African producers was demonstrated today in an announcement by Royal Bafokeng Platinum (RBPlat) that it would ice a R944m rights issue intended to pay for the purchase of Maseve mine.
The company said in September that it would issue shares – about 37 million – to pay for the transaction which includes the Maseve concentrator and other surface infrastructure for $58m (R701m). The purchase, which is from Toronto-listed platinum group metal (PGM) development firm, Platinum Group Metals, was today completed. Maseve is near RBPlat’s Styldrift I project, north of Rustenburg in South Africa’s North West province.
In addition to the cost of the concentrator, RBPlat also agreed to buy shares in Maseve and other liabilities due for some $12m (145m). This aspect of the transaction is not yet concluded as the parties are waiting for the Depatment of Mineral Affairs to grant its approval in terms of South Africa’s change in control regulations.
So the total cost of the transaction, assuming the current rand/dollar exchange rate, is R846m. The deal is important for RBPlat because it it removes the risk of having to build a new concentrator for Styldrift, whilst simultaneously brining forward mining – and crucially, cash flow – from Styldrift. When fully commissioned, the Styldrift project is forecast to double RBPlat’s platinum group metal production to 600,000 oz/year.
However, RBPlat said today that having assessed the company’s near-term capital requirements it would not proceed with the rights issue, preferring instead to finance the transaction out of cash resources and available debt.
Said RBPlat: “Having assessed the company’s near-term capital requirements with regards to the plant consideration, related upgrades as well as the Styldrift ramp-up, and given current market conditions, the board does not believe that it is in the best interests of the company to raise equity capital at this time.
“The company currently has sufficient liquidity, cash and available debt facilities to settle its obligations, and will reassess its capital needs from time to time as required,” it said.
RBPlat’s balance sheet has been under pressure during the last 18 months to two years. Building the R10.5bn Styldrift I project cost the company R2bn in capital expenditure in its last financial year at a time when cash flow was not been assisted by the price of platinum, which has been pedestrian at best.
During the firm’s 2017 financial year, RBPlat raised R1.2bn through a convertible bond. There is now R2.3bn left to complete Styldrift, but shares in the company have fallen 14.5% in the last three months. On a 12-month basis, RBPlat shares have performed yet worse – down 28% from R35.50 to the current level of R25.50/share.
During the 2017 financial year, however, the company secured a new R2bn debt package and ended as of December 31 with cash of R1.3bn up from R835m at the close of the previous year. As of the year-end, the company had R1.9bn in debt available to it. The crucial gloss to this, however, is the rand basket price for PGMs.
The operating environment for PGM companies has been tough following a strengthening of the rand whilst the platinum price has fallen 5.4% in the last three months. The price of palladium, which had previously been on a bull run and had supported the rand basket of PGMs previously, had fallen nearly 17% over the same period.