Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Northam Platinum Holdings Ltd. plans to spend about 17 billion rand ($1.13 billion) to become the top shareholder in Royal Bafokeng Platinum Ltd., dashing a planned takeover by rival Impala Platinum Holdings Ltd.
Implats said two weeks ago that it was in talks to buy all of RBPlat, which would give it lower cost and mechanized assets next to its sprawling Rustenburg mining complex and create a platinum-group metals giant. But that potential deal has been hit after Northam swooped in to buy a third of RBPlat from its largest shareholder at a 90% premium to its share price before the Implats talks were announced.
Northam’s deal furthers the aggressive growth strategy of Chief Executive Officer Paul Dunne, who wants to lift output to more than 1 million ounces, but sidelines other RBPlat investors who may have been hoping to sell their own shares for a premium. Northam, which doesn’t own assets as near to RBPlat’s mines, slid as much as 16% in Johannesburg. RBPlat fell as much as 7.1%.
“This transaction offers less compelling strategic merits and value creation opportunities versus an Impala-RBPlats merger,” JPMorgan Chase & Co. analysts including Dominic O’Kane said in a note. The mining synergies that the deal offers to Northam are “negligible” considering RBPlat’s reserves aren’t contiguous to Northam’s Zondereinde mine, they said.
Northam is acquiring 32.8% of RBPlat from the Royal Bafokeng nation, a community in South Africa’s platinum belt which leveraged the mineral wealth of the area and now holds an investment portfolio that spans mining, financial services and property.
Northam, which has the option to increase the stake to 33.3%, will purchase the RBPlat holding with cash and Northam shares. Royal Bafokeng Investment Holding Co. will become a significant shareholder in Northam, CEO Albertinah Kekana said.
“The RBPlat assets are young, shallow and well capitalized and occupy a strategically important position in the Western Bushveld,” Dunne said. The stake also provides a “strategic platform” for a possible combination of Northam and RBPlat in the medium term, Northam said.
RBPlat had a market value of about $2.3 billion at the close on Monday and owns mines and a processing plant in South Africa. Its assets are low-cost, and for Implats had the added appeal of being located next to its own Rustenburg complex, offering potential synergies from exploiting adjacent reserves.
Those benefits may “not be readily available” to Northam, which has mines located elsewhere, RMB Morgan Stanley said. Other analysts also agree.
“Implats would have been a bigger benefit, it would have made more sense as all shareholders would have benefited more,” said Rene Hochreiter, an analyst at Noah Capital Markets Ltd. “Implats would have come in with a better offer.”
Implats has long wanted to combine with RBPlat. Flush with cash on the back of higher rhodium and palladium prices, it wants to expand by buying lower cost and mechanized assets as some of its deep-level operations near their end. The company was closing in on making an offer for RBPlat as early as this week, Bloomberg reported on Friday.
“We are disappointed by the unexpected turn of events and will duly consider our options,” Implats spokesman Johan Theron said by phone.
Adding RBPlat as a shareholder will also strengthen Northam’s Black economic-empowerment credentials, said Dunne. The smaller company’s assets also contain a higher concentration of platinum, relative to the other group metals that are mined together, he said.
“We believe the complementary metals mix of RBPlat, with a higher relative platinum contribution, fits well within the broader Northam metals basket,” Dunne said.
(By Felix Njini)
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