NICO Muller lacks the corporate swerve – or is it the media training that is afforded to the executive class at Anglo American or BHP Billiton ? – and that’s a good thing.
Asked what it would take to lure the platinum bulls from the wings where they are currently hiding, in order to revive the metal’s price, he responded during a recent media conference: “I don’t know; can’t answer that one”. (Who can, actually?). Questioned why the company’s share price was languishing at fresh lows, he replied: “The market doesn’t have confidence in us.” No gloss, nothing to calm the soul, or anesthetize the fear this company is out on its own, on a precipice.
He’s exactly what the market was calling for, but was reticent to impute to Muller shortly after his appointment as Impala Platinum (Implats) CEO was announced in late 2016. At the time, Implats was coming off a pretty dreadful run of luck. A fire had killed four miners and delayed development of a crucial project, and valiant attempts to take the Lease Area or Rustenburg shafts to a nameplate 850,000 oz/year of platinum group metals was failing.
Implats was in need for medicine in the form of restructuring, and fast. The blunt truth was following a potential takeover by Sibanye-Stillwater, which kicked the company tyres before walking away, was that Implats was quickly running out of options, if not money.
“In our view, Implats’ board had three main issues to consider in appointing a new CEO, including (i) a strong track record of operational delivery, (ii), a track record of negotiating and delivering on M&A, and (iii) a track record for capital allocation,” said Johann Steyn, an analyst for Citi in a report in December, 2016.
“Though Mr. Muller is a respected individual within the South African mining industry,” he continued: “… we view the news of his appointment as providing little additional short-term comfort to investors on issues (i), (ii) or (iii)”.
Steyn wasn’t wrong. Muller had been COO at Royal Bafokeng Platinum and head of Gold Fields’ South Deep project, but Implats was a completely different beast and Muller was a relative unknown. So far, he seems to be scaling that challenge pretty well. So far.
“What a difference a year makes,” said one bank following Implats’ full-year numbers. “FY18 was a transformational year at Implats: a long-awaited restructuring was articulated for the Impala Lease, the executive team was strengthened and the company has started FY19 with clear strategic and operational objectives and a well-funded balance sheet. PGM pricing is strong and a weakening rand should provide additional tailwinds to margin expansion and FCF (free cash flow) generation.”
It’s only fair to cite Citi’s Steyn who after his early reservations, acknowledged in Implats’ year-end numbers published earlier this month signs of a recovery.
The results were bleak, but gave grounds for hope: a taxed loss of R10.8bn for the year ended June 30, most of which flowed from impairments from the restructure of the Rustenburg section. Muller’s argument was that a lock up of metal inventory will release funds whilst the company was sufficiently capitalized with R6.2bn in funds consisting of R3.7bn in cash and unused debt of R2.5bn.
But there’s more to do. Delivery of the restructuring of the Lease Area is the major concern. Muller has set forth plans to cut platinum production some 230,000 oz a year – enough to reduce labour numbers at its Rustenburg shafts some 13,000 to 27,000 people over the next two years.
And scepticism remains. “With current suppressed platinum prices (at $802/oz at the time of this report, some 14% down year-to-date), we believe Implats will continue to burn cash in 2019, yielding negative free cash flow returns versus is peers,” said JP Morgan Cazenove in a report. Implats registered a cash outflow of R3.7bn during its last financial year.
