IT has taken some 40 years but Northam Platinum has finally achieved the “rock star” status that the former Gold Fields of South Africa envisaged when it decided to develop the Zondereinde mine in 1986.
That is an outcome which seemed highly unlikely during the first 20 or so years of the mine’s life when operations were hit by serious geological and mining problems encountered in developing what was then the deepest mine in the platinum sector.
Mining conditions at depth on the Merensky reef turned out to be ugly. The temperature gradient on a platinum mine is double that of a gold mine – so a platinum mine at 1,500 metres is as hot as a gold mine at 3,000m – and Northam encountered a nasty geological phenomenon known as potholing which gets worse with depth.
That greatly disrupted large sections of the Merensky reef and caused mayhem with mining layouts. Northam nearly failed and was saved at one point largely through the acquisition of shallower reserves from Anglo American Platinum’s (now Valterra Platinum’s) adjacent Amandelbult operation.
That was then. Today Northam is making money hand over fist and has the most attractive growth prospects in the platinum industry where overall supply is steadily declining.
Last week, its CEO Paul Dunne unveiled plans to increase output even further to an estimated 1.5 million ounces of annual production of platinum group metals (PGM) through the Vision 2031 plans. That leads to the burning question posed by Noah Capital analyst René Hochreiter who asks: “Why put the company up for sale with these results?”
Dunne does not like that ‘for sale’ assessment even though, in his own words: “… the net has been cast”. He stresses Northam’s action is in response to the informal approach made by a third party
“This is our response which we think is fair and transparent and will reveal the true strategic value of this company. The main objective of this process is to ensure that Northam’s long-term value and industry position are appropriately recognised and crystallised for the benefit of the company and its shareholders.”
Basically, Northam is calling for approaches at asset and corporate level from parties interested in making a play for the company and/or its assets.
Which, from where I sit, seems odd because the best placed people to assess Northam’s true value is Dunne’s own management team. They have all the statistics, possible strategies and scenarios at their fingertips including a lot of information not known outside the company. Dunne’s reply to that is that it will be the bidder who sets the price.
Speculation on the identity of the bidder has focused so far on Valterra – probably because it has declined to comment while two other majors – Sibanye Stillwater and Impala Platinum – have ruled themselves out of involvement.
There are possible synergies between Valterra’s Amandelbult mine which sits adjacent Northam’s Zondereinde mine and its Der Brochen operations which sit adjacent Northam’s Booysendal mine.
But Valterra is widely held to own the best assets in the South African platinum sector. Why would it want to pay premium market prices for assets that may not be as good as the ones it already owns? That would seem to rule out a corporate deal and an asset-based deal is going to have to be clearly in Valterra’s favour.
Looking at the corporate level and a possible merger or takeover offer, I reckon any bidder is likely to be a company looking to greatly increase its immediate exposure to the platinum business and so save the time needed to do it through organic growth.
This is pure speculation but – there’s plenty of that going around – so let me add my five rands worth. I reckon two possible candidates could be Robert Friedland’s Ivanhoe/Ivanplats group which is developing the Platreef mine north of Northam’s Zondereinde mine and African Rainbow Minerals (ARM).
Over the past few years ARM chairman Patrice Motsepe has repeatedly stated his desire to get more heavily into platinum which he sees as a key growth sector.
Currently ARM is about to invest R15bn developing the Bokoni Platinum operation which it bought for R3.5bn from Anglo Platinum a few years back. But Bokoni is a dog which none of its previous owners have been able to mine profitably.
ARM has already changed its mining plans for Bokoni after its initial proposed low profile mechanisation system did not work. Northam’s proven operations would be a much better proposition if they could be acquired.
Ivanhoe executive co-chairman Robert Friedland is known for doing major, radical and innovative deals. He has sounded off long and hard about the great future he sees for platinum which is why he has piled into the South African industry with the Platreef project in the first place. Maybe he might want to double down on that?
