Come on down, Mr Pienaar

[] — THE motley crew at Mvelaphanda Resources will have feet planted firmly under desks again after failing last week to consummate a takeover by Impala Platinum.

One moment, it was pina coladas all round, now it’s a mug of Ricoffy and that “what now” feeling you can only imagine Mvela’s execs must be feeling.

It was a cruel blow for Mvela Resources, but it was no surprise Impala played hardball what with the markets crashing around its ears, including the platinum price. A year ago, it cost about $1,600 to buy an ounce of platinum. It now costs half that.

How on earth could David Brown, Impala CEO, justify a bid even close to the initial R25bn (which included Mvela’s stake in Northam Platinum) he submitted in October when only a few months later, he was suspending the company’s own share buy-back programme, and threatening to cut capex? As a somewhat buoyant Brown said in a podcast last week: “Mvela was a nice to have, not a must have.”

“Nice to have’s” represent a thin, artless dream in the current climate, particularly if David Davis, Credit Suisse’s platinum analyst, is right. He reckons the platinum industry will be heavily restructured this year with all the attendant job losses.

So where does this leave Mvela? What’s coming is a flurry of financial contortions at a time when you’d prefer to be keeping low.

Mvela’s short-term issue is refinancing some R2bn in mezzanine debt it used to buy 50 million shares in Gold Fields, equal to 7%, but worth a notable R4.1bn. Remember that landmark deal (requiring an MSc in applied mathematics to understand) that Mvela completed five years ago? Well, the matrix of debt within it now needs turning into a neat bowtie by March.

Mvela may be planning to refinance the mez debt sharpish, and then perhaps sell Gold Fields shares to settle it.

Booysendal conundrum

Then, in the medium term, there’s the question of how to finance building Booysendal. Booysendal, which is owned by Northam, is an enormous mine with gob-smacking potential. It has up to 100 years of mining and more than a hundred million ounces in resources. It could produce 400,000 oz/year of platinum group elements, which is a whack load. The trouble is it’ll cost R8bn to develop. That’s R3bn more than Mvela Resources is worth.

Wouldn’t the kindly bosom of Impala have been better than contending with the banker’s quill? You bet, but this is Mvela CEO Pine Pienaar’s moment to shine. He’ll know, for instance, that Booysendal has the kind of geological configuration that makes modular development possible. What this means is Mvela doesn’t have to develop the mine in one shot but in little sherry glass sips.

Year one of Booysendal may cost R1bn. In the original R8bn scope of the mine, peak funding would have been R2.7bn. But Northam and its shareholders do have the flexibility to choose how large a mine they want and can afford. Moreover, Northam has no debt, about R1bn in cash, and still generates cash even at current platinum prices. (For more on how Northam is coping, watch out for Miningmx’s coverage of its interim results on February 5).

Northam also has the option of raising cash through issuing shares, although this will ask Mvela to stump up or be diluted. For its part, Mvela has about R500m in cash at least which is not negligible. It’ll be interesting to see if Northam pays any dividends. Investments in which Tokyo Sexwale, Mvela’s ultimate owner, has a stake, usually do!

There’s also talk of interest by Asian private equity in Booysendal as well as potential end-user participation, and I haven’t even mentioned the old, hoary speculation that Aquarius Platinum could become involved in Booysendal again now that its rival – and most probably enemy – Impala Platinum is out of the fray. There’s a few options here to keep Mvela’s board cogitating for many a night. Like I say, come on down Mr Pienaar. The floor is yours.