Implats takes a hit to the bottom line as it acquires RBPlat

After a scintillating 2021 financial year, platinum group metal prices have softened from their peaks.
The share prices of both RBPlat and Implats pumped higher over the last week. Image: Implats

Impala Platinum’s results for the six months to December 2021 show a 4.6% drop in refined output and a similar drop in sales – a deliberate strategy to withhold roughly 100 000 ounces of platinum group metals (PGMs), which will pay off handsomely as these are sold in the current financial period when PGM prices are once again on a tear.

Despite a stronger rand, revenue per ounce sold was nearly 2% higher at R36 230 an ounce (oz) compared to the previous interim period.

Revenue was flat at R55.6 billion (2020: R56.1 billion), and headline earnings slightly down at R13.8 billion (2020: R14.4 billion).

An interim cash dividend of 525 cents per ordinary share, amounting to R4.5 billion, was declared.

Royal Bafokeng Platinum

One of the big expenses over the period was a R9.2 billion cash outflow and R6 billion issue of equity for the acquisition of a 35.3% stake in Royal Bafokeng Platinum (RBPlat).

That stake in RBPlat has since grown to 35.66%, and once it passed the 35% mark, the offer became mandatory. Implats had to have a war chest of roughly R20 billion in cash and debt facilities to cover the cost of acquiring all the remaining shares, should all other RBPlat shareholders accept the offer of R90 in cash and 0.3 in Implats equity per RBPlat share.

The RBPlat board considered competing bids by Northam Platinum and Implats and recommended its shareholders accept the Implats offer.

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The price of both RBPlat and Implats shares pumped higher over the last week on expectations of a deal that would allow Implats access to shallower, mechanised mining operations that would extend its operations by at least two decades at current levels of output.

“The proposed acquisition of all outstanding RBPlat shares will provide compelling strategic, operational, and financial benefits for Implats and RBPlat stakeholders and local communities,” says Implats.

“It will secure a Western Limb production base to enhance and entrench the region’s position as the most significant source of global primary PGM production, and will deliver tangible socio-economic benefits for the region, its communities, and South Africa as a whole, including employment security and sustained indirect benefits for the greater-Rustenburg region.”

Analyst’s take

Terence Hove, market analyst at Exness Africa, says although output dropped at Rustenburg and Impala Canada, this was offset by improved throughput at Marula.

“Also noteworthy is that Implats put itself in a strong position by having zero debt going into 2021.”

Hove says though cash operating costs increased 12% over the reporting period, this was offset by high PGM prices and strong global demand for commodities.

Cost increases were inflated by power outage disruptions and the additional costs of improving safety and security, after a number of fatalities were reported during the period. Also bumping up costs were staff bonuses announced in the 2021 financial year.

Outlook

After a volatile 2021 for PGM prices, 2022 started on a more positive note with auto production supply constraints easing. That should support increased physical demand and firm PGM prices through the year.

The group expects to achieve production output of between 3.1 and 3.2 million ounces for the 2022 financial year, with unit costs of between R16 800 and R17 400/oz.

The operational focus in the remainder of FY2022 will be on restoring operational momentum at Impala Rustenburg and Impala Canada, progressing delivery across the project suite currently underway, and advancing those projects approaching approval at the broader group level.

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