RBPlat shares may have permanently re-rated as minorities are unlikely to sell cheaply

SHARES in Royal Bafokeng Platinum (RBPlat) may have permanently re-rated following Northam Platinum Holdings’ surprise bid for a stake in the company earlier this month.

That’s according to Nedbank Securities analyst Arnold van Graan who thinks that minority shareholders in RBPlat recognise how highly prized the firm’s two mines are by Northam and Impala Platinum (Implats) which had made an earlier offer for 100% of the company.

“This may not be the last overture for the company, given that RBPlat has one of the last few quality PGM asset bases,” said Van Graan in a report dated November 16. “We believe Northam intends to increase its stake further, while Impala would always remain interested given the potential synergies that could be unlocked between the companies,” he said.

RBPlat minority shareholders would therefore be foolish to accept a lower offer than the imputed R180 per share lodged by Northam on November 9 when it agreed with RBPlat’s main shareholder, Royal Bafokeng Holdings’ for a 32.9% stake in the firm, with the option of increasing this holding to 33.3%.

But shares in RBPlat have stayed at around R133/share – a 41% gain in the last month – far short of the price Northam is prepared to pay.

Other PGM mines in the market don’t compete with RBPlat’s BPRM and Styldfrift mines near Rustenburg in terms of output, life mine and expansion options, said Van Graan, As a result, RBPlat is one of the last viable targets if existing producers wish to avoid having to build their own new mines.

“Minority shareholders are aware of this and will not give away this optionality on the cheap, and any future offer would also have to carry a substantial premium,” he said.

However, RBM Morgan Stanley analysts Christopher Nicholson, Brian Morgan and Jared Hoover said in a recent report that RBPlat was among a clutch of South African platinum group metal (PGM) miners that had achieved “lofty heights” in valuation.

The bank said that RBPlat was in line with its own valuation and recommended shareholders take a neutral view of the stock whilst switching Implats to a buy based on the fact that in the absence of merger and acquisition activity it would pay sector-leading dividends.

RMB forecast a sector-leading free cash flow yield of 19.5% for Implats compared with an industry average of cash flow yields of 18% to 14.3% for the 2021 calendar year.

It also argued that one of the factors behind Implats’ wanting to buy RBPlat – its paucity of reserve and resource extension opportunities in the Rustenburg Lease Area – had obscured the fact Implats had “unappreciated” brownfields projects.

“Where could we be wrong? If anticipated dividend returns are redirected towards value-dilutive,” said RMB.

At spot, South African PGM producers were earning “healthy margins” of between 45% and 50% (EBITDA margin), said the bank’s analysts. They expected palladium and rhodium to remain in a supply deficit for next year before heading into a balance for the next three years. The PGM market would be in surplus in 2026.