Anooraq weighs liquidity, finance poser

[] — PHILIP Kotze, president and CEO of Anooraq Resources Corp. says he expects the firm’s 26% shareholder Anglo Platinum will exit the company in the foreseeable future. Realised now, and taking into account the preference shares that comprise Anooraq’s debt structure, some R1.5bn worth of shares would be released – a positive development for both parties.

Anglo Platinum would hone in on some of its debt pile, while Anooraq, which I imagine is also casting a wary eye over its balance sheet, will provide much needed liquidity for its share.

Anooraq’s free-float is only some 40 million shares whereas a carefully managed release of Anglo Platinum’s stake would increase the free-float to some 160 million shares. It wouldn’t come at a better time for Anooraq, to be renamed Atlatsa Resources, because the firm is due to move to the Toronto Stock Exchange’s main board in about two months. Kotze says there’s been some initial interest from funds in Anooraq but investors need to trade shares easily.

“We have been in discussions to see how it will get done,’ says Kotze who added that at R11 to R12/share in May, Anooraq might have been worth selling.

Incidentally, JP Morgan has a 12 month target of R16/share while Macquarie First South has targeted R16.50/share.

Whether Anglo Platinum would be a willing seller right now is unknown. It wasn’t returning calls last week. But if there’s any reluctance to sell the stake immediately it may relate to keeping closer tabs on Kotze’s progress, mostly because so much is at stake. Anglo Platinum has guaranteed just over R700m in a draw-down facility to Anooraq of which R272m has been exercised. Anooraq is also an important constituent in Anglo Platinum’s empowerment portfolio.

Early days

On the mining front, one gets the sense Anooraq is only just kicking the machine into progress. On Friday last week, the company posted its first full year of results and while there are some signs of progress, the company still has a lot to prove. “People aren’t backing us to turn this thing around,’ says Kotze of the Bokoni Platinum Mine, Anooraq’s key operating asset. But Kotze believes the first year has delivered solid results: production is up a quarter, costs are down a fifth, production in tonnes shifted is 30% higher, with some lock up following recovery problems in the concentrator.

Notwithstanding this performance, Bokoni was always the poor cousin in former owner Anglo Platinum’s stable when its was known as Lebowa mines. Relatively uncared for, the mine’s culture is, therefore, not easily given over to the kind of productivity impetus Kotze is trying to inject.

Recent labour stoppages were partly related to discontent over changes to miners’ bonus schemes which only now kick in when stoping teams break 300 square metres per month compared to 200 square metres per stoping team per month previously.

However, there’s no cap or ceiling on the bonus once the threshold is reached. Kotze is effectively asking miners to work harder to get rewards while working harder still will generate increased bonuses.

Getting production up is crucial to lowering unit costs at the mine as is generating cash after capital expenditure, an eventuality Kotze says is due in the new calendar year.

We are actively seeking a means of refinancing because the current debt structure is very cumbersome

That’s because Anooraq has a heavy debt burden totalling R2.19bn. There’s no obligation to pay interest to the senior lender Standard Chartered of some R576m for the first three years while debt to Anglo Platinum, which includes a tranche of preference shares and a cash flow draw down facility, carries interest only payable in six years.

Nonetheless, if Anooraq wants to be generating after capex cash in January to get into the debt. There’s also the prospect of refinancing the balance sheet. “To be honest, this has always been on the cards and we will certainly look at a refinancing.’

Miningmx, quoting JP Morgan analysts Steve Shepherd and Allan Cooke, reported that Anooraq might consider selling its Boikgantsho prospect to Anglo Platinum which owns the adjoining Mogalakwena mine as a means to reduce its own debt considerations.

Kotze says there are no immediate plans for this but concedes the project is now in the throes of a prefeasibility study due for completion at the end of next year. “We’ll know then what the valuation is and whether it’s a core asset,’ says Kotze.

Anooraq doesn’t particularly need extra ounces in the ground for valuation purposes with some 100 million ounces already under its belt – making it the third largest platinum group metal player by resources in South Africa – while Anglo Platinum could work the synergies between the two assets.

Says Kotze: “We are actively seeking a means of refinancing because the current debt structure is very cumbersome’.