NORTHAM Platinum extended its stake in Zambezi Platinum to 70% from 46.7% after confirming today the purchase of R3.5bn preference shares in the company.
The platinum firm bought about 37.2 million preference shares taking its overall stake in the business to 111.9 million shares.
Northam has preferred the repurchase of the preference shares in Zambezi rather than paying out dividends to shareholders, arguing that it was a comparable form of shareholder return.
Zambezi Platinum subscribed for Northam shares in 2016 as part of an empowerment scheme. These shares were issued at R41 per share with Northam agreeing to pay the difference if the value of Northam shares fell below that level when the preference shares matured in 2025.
Apart from removing the guarantee risk, Northam argues that in buying back the preference shares, it will reduce the dividend expense and cut shares in issue in the event the preference shares holders in Zambezi Platinum elect to redeem their shares for ordinary shares in Northam.
Zambezi Platinum is owned by a number of empowerment groups and employees. According to a report by Bloomberg News on Wednesday, Lazarus Zim, Zambezi Platinum chairman, and co-investors Sipho Mseleku and Brian Mosehla, who together own 55.4% of Zambezi platinum, stand to benefit from the purchases.
Commenting on the transaction, Northam Platinum CEO, Paul Dunne, said his company no longer considered the back-up guarantee provided to Zambezi preference shares as a dilution risk which he said was “a significant milestone” for the company.
“Our mines and operations have proved to be resilient following the Covid-19 induced national lockdown and the commitment demonstrated by the Northam employees in restoring operations to normality has been outstanding,” he said.
Earlier this month, Global Credit Rating upgraded Northam Platinum’s long-term credit rating owing to its “… strengthened earnings profile” and expectations of “robust” free cash flow.
Northam produced record financial numbers and near record platinum group metal production in the 12 months ended June. Normalised headline earnings were 150% higher year-on-year at some R3.4bn. Share earnings increased more than 100% to 676.3 cents.
The question for Northam will be whether it continues to buy up additional Zambezi Platinum preference shares or switches its focus by adopting a dividend policy. Dunne said in September the company was considering its options.
“All options for returning value to shareholders are now open to us and the board will continue to review this over time … The critical time is the next six months. You can expect to see some action in that time,” he said.
Shares in Northam eased slightly on the Johannesburg Stock Exchange, about three-quarters of a rand off its all-time high registered mid-month. On a year to date basis, Northam is 45% more valuable.