All eyes on Northam as Friday spells day when it can act on controversial RBPlat strategy

Paul Dunne, CEO, Northam Platinum

ALL eyes on Northam Platinum on Friday (May 20) which is the date when it is no longer required to make a mandatory offer to shareholders of Royal Bafokeng Platinum (RBPlat) at the price it bought a 34.7% foothold in the company.

Northam acquired the foothold in RBPlat on November 9 at a price of R180.50 per share. In terms of the JSE’s takeover rules it would have to make an offer to all RBPlat shareholders at the same value were it to inch up its stake to 35% within six months of buying 34.7%.

At the time of buying its foothold in RBPlat, Northam also bought options that could potentially take its holding in RBPlat to 37.97% of RBPlat. These options have not yet been exercised by the company although it wouldn’t make sense to fail to put them to work.

Paul Dunne, CEO of Northam, made it plain in March that Northam’s plans for RBPlat extended beyond its November beachhead despite the fact the company’s balance sheet was worked hard as of December 31 with net debt of R14.3bn.

“We desire to control the asset,” Dunne said of RBPlat following Northam’s interim results presentation on March 31. “Whether we are able to is not yet determined. There are a number of potential outcomes other than the obvious.”

“You should be aware there is more than one potential outcome,” he added, possibly in reference to Impala Platinum’s (Implats’) mandatory offer to all shareholders in RBPlat after it exceeded the 35% ownership threshold in January.

According to a note by JP Morgan Cazenove, the release of Northam from this obligation opens up “new event risk”.

Northam has been the worst performer of South Africa’s PGM shares since it bought the stake in RBPlat in November – a position compounded by its relatively poor financial results in March in which its unit costs increased 18.6% to R32,814 per ounce. All in all, Northam reported a R10.7bn cash outflow excluding some R5.7bn in deferred payments to RBPlat.

Dunne’s play for RBPlat drew the disapproval of one of its shareholders, Allan Gray. Sandy McGregor, one of the asset management firm’s portfolio managers said there was no logic in Northam’s acquisition of RBPlat shares.

“We have spoken to the managements of both companies (Implats and Northam) and we respect their opinions, but we are very uneasy about this situation,” he commented at the PGM Industry Day in April.

“We see the logic in Impala Platinum’s actions given that their operations are adjacent to RBPlat. We do not see the logic in Northam Platinum’s actions although Northam previously invested very competently at the bottom of the cycle which is the right behaviour.”

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