Implats no closer to certainty on Zim

[] – SAVIOUR Kasukuwere, Zimbabwe’s minister
responsible for indigenisation, said in a text to Miningmx that Tuesday’s
agreed framework for a deal with Impala Platinum (Implats) over state control of
Zimplats would bring certainty to the JSE-listed stock and even help stabilise it.


For now, you can’t say Implats is in any more a certain place than it was before. In
summary, the Zimbabwean government’s National Indigenisation and Economic
Empowerment Board (NIEBB) has accepted Implats’ indigenisation offer for the
handover of 51% of Zimplats.

“I can’t believe they rolled over so easily,’ one analyst commented on the deal
framework. “There was no compromise,’ said another. “I think Implats
shareholders are much worse off,’ he said. Macquarie Securities titled its note on the
deal as “Throwing in the towel’.

The main area of discontent is that previous empowerment or indigenisation related
transactions – such as the handover of 36% of some 140.8 million ounces of platinum
bearing property – stands for naught. Implats did not receive credit for past social
investment deeds either.

Beyond this, there are so few details available. The stand-out uncertainty is that the
value of the deal is yet to be agreed. Secondly, it’s not known what happens to the
cash Implats generates between now and when a final indigenisation deal is signed.
Is it to be held in escrow, or does it already make its way to Zanu-PF’s election
campaign costs?

Nor do we know how the Zimbabwean government will follow its rights on Zimplats’
capital calls, for instance, the stage three expansion of Zimplats’ mine which would
take production to one million ounces/year at an estimated cost of $1bn.

In fact, says one analyst, were a furnace and smelter complex to be built at Zimplats,
the total capital cost would be $10bn. We don’t even know if the Zimbabwean
government’s purchase of 31% in Zimplats is going to be a purchase at all, or a free-
carry, or vendor-financed a la black empowerment in which interest and debt
is paid for from dividend flow.

We do know, however, that the deal will be struck at 100% of the company; in other
words, minority shareholders in Zimplats will be diluted. It is also supposed that the
deal arrangement is for 10% of Zimplats to go to an employee share ownership
programme (Esop), with another 10% to a community trust. The 31% making up the
balance is valued at about A$360m ($378m), based on Zimplats’ market value.

Kasukuwere’s only concession is that there were no timelines for completing the deal
– suggesting, perhaps, that getting Implats to agree to handing over 51% of Zimplats
is, for now, predominantly a political victory. Would Implats’ board have recognised
this, and therefore agreed to it knowing that by the time an economic agreement is
signed there could be regime change in Zimbabwe? Perhaps, but that would be risky.

“They’ve kicked this deal down the road so many times hoping for a change in
Government. I think they can’t do that anymore,’ said one analyst.

Implats’ share price gained a percent today, which tells us the market has priced in
indigenisation. Analysts tell us the market affords no value to Zimplats in Implats’
share price in any event. Yet it’s fair to say that Zimplats’ growth trajectory to
270,000 oz in 2015 is the only growth ounces Implats possesses. Its South African
projects are aimed at maintaining production; so-called replacement ounces.

The Zimplats “deal’ also sets a precedent for Implats’ 50% share in Mimosa Platinum,
which also needs to comply with indigenisation laws. Aquarius Platinum, run by Stuart
Murray, won’t be thanking counterpart David Brown for this indigenisation deal.

In fact, it makes for grim reading from a platinum miner perspective, particularly in
view of the fact that the 5% royalty payable by miners in Zimbabwe will double and a
new surface-rental fee, which would increase the annual charge levied on 48,500
hectare of ground held by Zimplats to $48.5m from $45,000.