THE deal Impala Platinum (Implats) did to acquire Royal Bafokeng Platinum (RBPlat) would be viewed as “incredibly stupid” if done today at current prices and expected future cash flows, according to Implats CEO Nico Muller.
But he added such investment decisions cannot be based on price variations “over a year or two” despite feelings of winner’s remorse* after the competition with Northam Platinum to acquire RBPlat which he also said dragged on too long.
“You have to understand the strategic value of the asset – in this case acquiring the last remaining resource of Merensky Reef on the Western Limb adjacent to our existing asset which has a limited life,” said Muller.
“So I am very happy to be criticised at this point given where the market is at the moment but I am convinced that – 30 years from now when you look back – long-term investors will approve the value from that acquisition because it made absolute sense for our company.”
Questioned by conference chairman Bernard Swanepoel at the PGM’s Industry Day held in Johannesburg, Muller said a key lesson drawn from his seven years running Implats was the need to develop a more efficient funding strategy to support the company’s objectives through merger and acquisition activity.
Muller said he would prefer to pay shareholders lower dividends so as to build up more cash reserves to carry out future acquisitions and avoid situations where – when metal prices are low – “the company is so poor” that it cannot afford to do any deals.
“If you want to have a strategy of buying at the low end of the market then you have to develop as a company the capability of doing that.”
Muller added that – looking back – he also believed more investment should have been made in platinum market development.
Tensions with investors
Asked by Swanepoel whether Implats’ shareholders – in particular Cape Town based Coronation Fund Managers – understood the allocation of capital between requirements such as market development and dividends Muller replied there were “natural tensions” with shareholders and investors.
He said investors were seeking financial returns over time lines which were not aligned with those of a capital-intensive, long-lead industry.
“When we make decisions it takes 10 to 15 years to build a mine. It takes two to three years to do a transaction. What shareholders want to see is – if the price goes down then shut down production and if the price goes up then start up production – but the nature of the business does not allow that.
“I understand Coronation’s frustrations. They would have liked to see a far stronger dividend flow during the boom times and they would have been very happy to forego the R50bn capital investment programme we announced, but the consequence for us as a company of doing that is that 50 years from now there would be no Implats left.
“So we need to understand the tensions between investors and the nature of the company and balance those priorities as well as we can.”
*Miningmx has updated this article to make clear Nico Muller, Impala Platinum CEO did not say he had “buyer’s remorse” regarding the firm’s acquisition of RBPlat. Miningmx apologises for the error.
