Northam considers its options after bagging stake in Royal Bafokeng Platinum

Its bidding war with Implats over RBPlat poses some interesting possibilities.
Difficult operational conditions at Booysendal (pictured) and Zondereinde mines were aggravated by higher absenteeism due to Covid, affecting Northam’s metal production. Image: Supplied

Overshadowing Northam Platinum’s 16.8% increase in revenue and 67% increase in after-tax profit for the six months to December 2021 is the acquisition of a 34.68% stake in Royal Bafokeng Platinum (RBPlat) in recent weeks.

This week the Takeover Regulation Panel of the JSE ruled that Northam had not triggered a mandatory offer which would mean extending an offer to the remaining roughly 65% of RBPlat shareholders. That would also mean not having to drum up billions in cash that it does not have.

Impala Platinum (Implats) meanwhile has bumped up its shareholding in RBPlat to 37.62%. It triggered a mandatory offer once it passed the 35% mark and is offering R90 in cash and 0.3 in Implats equity per RBPlat share.

The Takeover Regulation Panel ruled this week that Northam had not triggered a mandatory offer, so that means Implats will likely end up with the rump of RBPlat shares, leaving Northam with slightly less than 35%.

It also means Implats and Northam will have to find some way of cooperating over RBPlat assets going forward.

The RBPlat mix of metals meshes well with that of Northam, particularly its relatively higher platinum contribution.

“The RBPlat assets are young, shallow and well capitalised and occupy a strategically important position in the Western Bushveld,” says Northam in its latest financial commentary for the six months to December 2021.

“We recognise the Royal Bafokeng Nation’s important contribution and ongoing legacy in respect of RBPlat and are cognisant of our responsibility in respect of the long-term sustainability of RBPlat’s operations and its impact on the broader communities and the Royal Bafokeng Nation as a whole.”

Options

The acquisition of a 34.68% stake in RBPlat, apart from boosting its BEE status, gives Northam a number of options.

A joint venture operation seems the most logical and beneficial route forward for both sides, according to Implats corporate relations executive Johan Theron.

Implats has operations abutting RBPlat (Northam does not, though it has two mines in the vicinity), so it has the most to benefit from operational synergies.

Implats may end up in a JV with Northam over the RBPlat assets, similar to its JV with Sibanye-Stillwater at Mimosa in Zimbabwe, or the Two Rivers JV with African Rainbow Minerals in Mpumalanga.

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Royal Bafokeng Investment Holdings now holds 8.7% in Northam following the RBPlat deal, which was settled by way of equity in Northam and cash of R8.6 billion, some of which is deferred.

Northam says it is committed to working closely with Royal Bafokeng Holdings and the Royal Bafokeng Nation in the areas of renewable energy, enterprise development and skills development through establishing a trade school.

Interims

On the operational side, lower sales volumes for platinum group metals (PGMs) and a stronger rand-US dollar exchange rate were trumped by higher PGM prices compared to the first half of 2021.

Revenue jumped 16.8% to R13.9 billion (2021: R11.9 billion).

Operating profit decreased by 12.7% in part due to a 20% increase in cost of sales, resulting in operating profit margin declining to 42.2% (2021: 43.7%).

Northam’s refined metal output remained flat at 351 359 oz, while chrome concentrate production dropped 17.3% to 430 697 tonnes.

Difficult operational conditions at the Zondereinde and Booysendal mines, and two mine fatalities at Zondereinde, were aggravated by higher medical absenteeism due to Covid. Community unrest in the eastern region of the Bushveld Complex resulted in lost production days at Booysendal. This has negatively impacted the group’s metal production and unit cash costs.

Expansion projects that had been scaled back at the onset of the Covid lockdowns have now been restarted, and full capex spending for the year is expected to be R4.6 billion.

No dividend

No dividend was declared at the halfway stage. Explaining this decision, Northam says group share capital has reduced by 28.9% as a result of the maturity of a BEE transaction and through the acquisition of preference shares.

“The company is currently at a critical juncture in respect of its growth trajectory, with various potential outcomes which remain to be determined. These outcomes will contribute to and inform our approach to dividends,” says Northam.

Northam share price

Listen to Northam Platinum CEO Paul Dunne speaking about the group’s interim results: 

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