NORTHAM Platinum was in discussions to “accelerate” by around four years the maturity of an empowerment transaction it signed in 2015 with Zambezi Platinum.
The company said in an announcement to the Johannesburg Stock Exchange (JSE) today that the potential transaction it was discussing would also maintain its broad-based black economic empowerment (BEE) ownership.
Shares in Northam Platinum closed 2.48% higher on the JSE . On a 12-month basis, the share is 54% higher, largely owing to the improvement in the rand basket price of platinum group metals (PGMs).
Said Paul Dunne, CEO of Northam Platinum today: “The significant value created for all Northam shareholders from our empowerment transaction with Zambezi Platinum, as well as Northam’s current ownership of 70% of all Zambezi Platinum preference shares and the inherent share buy-back implied by his holding, provides a unique opportunity to unlock permanent value for our shareholders, whilst maintaining Northam’s broad-based black economic empowerment ownership”.
“Northam has taken the initiative to enter into proactive discussions with Zambezi Platinum with a view to secure a successful and sustainable outcome,” he said.
Northam extended its stake in Zambezi Platinum to 70% from 46.7% on October 16 after announcing it had bought R3.5bn preference shares in the company.
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 2015 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. 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.
Terminating the Zambezi Platinum transaction, if that is to be Northam’s intention, could pave the way for traditional dividend payments by the company.
Dunne said following publication of Northam’s annual review that a decision on the firm’s long-term capital allocation plans was imminent: “The critical time is the next six months. You can expect to see some action in that time,” he said in August.
Northam recently reported record financial numbers and near record PGM production in its 2020 financial year ended-June. Normalised headline earnings were 150% higher year-on-year at R3.4bn. Share earnings increased more than 100% to 676.3 cents.
The stellar improvement was owing to rhodium and palladium prices which increased 170% and 52.4% respectively.