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Northam to sell its RBPlat stake to Implats, cites ‘protracted cyclical downturn’ in PGM prices

Northam to sell its RBPlat stake to Implats, cites ‘protracted cyclical downturn’ in PGM prices
One of the mines (top) within the Royal Bafokeng Platinum group. (Photo: Supplied) | The entrance to the Northam Platinum Booysendal platinum mine outside the town of Lydenburg in Mpumalanga, South Africa, on 23 January 2018. (Photo: Waldo Swiegers / Bloomberg via Getty Images)

Northam Platinum said on Thursday that it was selling its 34.5% stake in Royal Bafokeng Platinum (RBPlat) to Impala Platinum (Implats). The R13-billion transaction comes in the wake of Northam ending its quest to acquire RBPlat in May after an at times bitter M&A battle with Implats.

Northam said the time was right to sell its stake in RBPlat, a coveted asset with shallow, high-grade ore bodies, with an eye to its balance sheet as platinum group metal (PGM) prices sink under the weight of a global economy that remains fragile. 

“The prevailing PGM market conditions and the material decline in the PGM basket price during, in particular, the last four months may signal a potentially protracted cyclical downturn,” Northam CEO Paul Dunne said in a statement. 

“Relative positioning on the industry cost curve and the ability to retain operational flexibility and balance sheet strength will become increasingly important over time.” 

In layman’s terms: It’s a good time to have some extra cash at hand as PGM prices remain under pressure after scaling record highs in 2021 – a state of affairs that, in hindsight, looks like a case of irrational exuberance. 

Read more in Daily Maverick: After the Bell: SA’s platinum sector has lost its mojo, but it can be found again

Northam, it must be said, is receiving about R4-billion less than it originally paid for the stake, but the current focus of markets and investors is on the future. The company will get a cash injection of R9-billion and around R4-billion worth of Implats’ shares. 

“The impending closing of the Implats Mandatory Offer, with a substantial cash underpin not affected by substantially lower equity valuations across the sector, presents a well-timed opportunity for Northam to secure a very significant cash injection that will materially strengthen Northam’s balance sheet and liquidity position,” Dunne said in the statement. 

“It will also positively affect Northam’s ability to continue to return value to its shareholders in the short to medium-term, including through potential dividends and/or share buy-backs.” 

Northam’s share price leapt over 6% by afternoon trade on Thursday, underscoring the point that in the current market, cash is indeed king. Implats’ share price, by contrast, slipped slightly.

“Despite the poor capital allocation decisions and a crystallised loss of R5-billion in our estimates, we view this outcome and decision as positive,” SBG Securities said in a note on the transaction.

“Time, resources, capital allocation and the balance sheet can now be better focused on returning the business to becoming the flagship PGM producer with a solid growth story. The cash inflow from their sale will return the business to a net cash-neutral position. On this basis, Northam may be in a strong position to pay a special dividend which would help re-rate the stock.”

So, both companies ultimately walk away with something to show after their struggle for control of RBPlat erupted in late 2021. 

Implats now controls about 91% of RBPlat – its ultimate goal is 100% – giving it long-term access to an excellent asset adjacent to its Rustenburg operations. This provides synergies and a safety valve to redeploy employees as some of its shafts in Rustenburg, a labour unrest flashpoint in the past, reach the end of their lives. 

And Northam, despite question marks over its entrance into the fray, now has a liquidity boost and potential upward re-rating of its stock. 

Both companies now, like the broader sector, just need an eventual rebound in the prices fetched for their product. DM

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