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Implats and Northam battle for control of RBPlat

‘I think a lot of analysts are praying that if the PGM prices start coming off, Impala can vacuum up enough shares to get 51%’: Peter Major – director of mining, Mergence Corporate Solutions.

FIFI PETERS: We’re talking about my favourite story of the day today, and that is the bidding war going on between Northam Platinum and Impala Platinum for the assets of Royal Bafokeng. It got hotter today when Impala announced that it had increased its stake in RBPlat even further to just over 32%. This after Northam Platinum yesterday announced that it had upped its stake in the platinum mine located just 30 kilometres from Rustenburg in the North West to 34.95% – let’s call it 35% – with the option to increase it further to around 38%. This is the most intense fight for control in a company right now, specifically in the platinum sector.

We have Peter Major, the director of mining at Mergence Corporate Solutions, here to tell us more. Peter, what are your initial thoughts on the action that has transpired so far?

PETER MAJOR: Boy, this is a very tough fight because you’ve got two very equal parties that want the same asset. They’ve got about the same share price, and they’ve got about the same kind of good management that knows what to do with these assets. So yeah, what do we make of it? Neither is going to let go without a fight. But I think the market is pretty much hoping that Impala gets it, because Impala will definitely realise synergy easier, which will help it boost its share price, help it boost its earnings, help extend its life.

FIFI PETERS: I can tell you that the latest executive to throw a punch in the fire today is Paul Dunne, CEO of Northam. I see that Royal Bafokeng issued a statement today to say that a special meeting will be held on January 13 with Mr Paul Anthony Dunne, as well as Ms Aletta Helena Coetzee, both directors of Northam, to discuss their seats on the board.

PETER MAJOR: Yes. Look, when you buy enough shares they have to give you a seat on the board. It comes with the cheque. You’re not spending that much money to have somebody else decide your future for you, so the question is who’s going to get the 50% – and that’s what the game is all about. You want to get 50%, then you’ve got control.

The Public Investment Corporation, the PIC, is probably holding the biggest hand, but Sanlam and Kagiso also have enough shares. So both parties are probably going to wine and dine them, and most of the investment institutions are looking over shareholder funds, client funds, and they have to do what’s best. If you look what’s best for the country – and the PIC is supposed to take a somewhat different view from that of the average fund manager.

We always hear various government officials saying their job is to create jobs, their job is to ensure a good future for the country and to do what is in its interest. One thing is for sure – if Impala doesn’t get this, it’s going to be under a lot more pressure than if Northam doesn’t get it.

FIFI PETERS: I don’t know if much can be read by the position that Ninety One Asset Management took today in upping its stake in Impala. I don’t know if that is Ninety One asserting its view on who will win this race. Nonetheless, I was looking at the share prices of both Northam and Impala and both were weaker on the day – some 3% to 4% when last I checked. Should we interpret anything from the weakness of the stock prices today?

PETER MAJOR: Fifi, because they’re running shoulder to shoulder it’s really hard to say what made them both come down, because you’re right, they came down almost equally. But if you look at the PE, Northam looks a little more fragile on an 8.5 PE compared to Impala on a 5 PE, and Northam is paying R180/share to get its shares, whereas Impala is paying R150/share. So it’s obvious that Northam’s going to pay a lot more if it wants to get more shares and it’s going to be hard to justify how you get an IRR [internal rate of return] on an asset that you’re paying R180/share for, which asset was trading at around R100/110 a month ago, whereas Impala has to justify how they are going to get a positive IRR out of paying R150/share.

That’s why people are saying the synergies are easier to see for Impala to pay R150/share than even if Northam had to pay R150/share. But the fact that Northam’s paying R180/share [means] they’re paying almost a 20% higher price, and they don’t have the easy synergies that Impala’s going to get.

FIFI PETERS: By that IRR you’re talking about, simply put how are you going to justify the return for the initial investment?

PETER MAJOR: Yes, the internal rate of return. That’s right. How are you justifying that return? Their board and the shareholders need to be asking that. Nobody’s a better salesman than Paul, but it it’s a lot harder for him to justify paying a 20% higher price when he doesn’t border Royal Bafokeng’s property like Impala does.

FIFI PETERS: I know you market experts always tell us not to look at the day-to-day share price news. I didn’t. I went back to January to see what these stock prices have done since January. And wait for it – Northam Platinum’s stock price is up 27% since the start of the year. Impala’s stock price is up 3.6% since the start of the year. Then you’ve got Royal Bafokeng, which just trumps them all. That stock price has essentially more than doubled because it’s up 113% since January. I want to know – am I supposed to be following the herd and putting my money in Royal Bafokeng Platinum, as seems to be the case by the larger investment community?

PETER MAJOR: Well, it’s a little way now, because Northam’s not going to pay R180/share, I believe, for one more share. You’ve already seen their announcement. They bought a few more shares and they paid an average of, I think, R162/share. Would Impala pay a little bit more? Possibly, but not much. I think there’s better value now. The run’s been done. You had to be in Royal Bafokeng until Impala’s upping of the offer to R150/share. You can’t get into it now and think you’re going to outperform the rest of the year.

FIFI PETERS: We’re talking about the end game, and the end game or the one who becomes the winner is the one who gets the 51% – if that is the scenario that we end up with – because it’s possible that neither of them do get that 51%. Maybe one has a little more control than the other, as is the case presently in which Northam is leading; but maybe it’s a situation where it’s more evenly balanced. In that sense, these two people have to work together at the same table. Do you see that happening, and successfully so?

PETER MAJOR: I do. I see it as moderately successful, but somebody’s got to get more because, if you’ve got two heavyweights sitting there at 35%, they both want to drive this bus. So it’s going to be difficult for a board to make strategic decisions here until this issue gets resolved. It could be within six months. Northam can’t offer less than R180/share for six months. Impala can’t offer less than R150 for six months.

Let’s say the platinum price starts really running, Impala would probably have to pay more to get it. Now let’s say the PGM price starts falling, people are going to find Impala easier to sell their shares to at R150. Northam’s definitely not going to touch your shares. So I think a lot of analysts are praying that if the PGM prices start coming off Impala can vacuum up enough shares to get 51%.

FIFI PETERS: But Northam, at its initial offer at R180 – I remember there were some who were saying that the R180/share was where they were possibly overpaying; of course the R180/share was offered to a very select group of investors in the form of the Royal Bafokeng Investment Company – it wasn’t given to everyone else. Do you think that perhaps they boxed themselves [in] and they limited just how they could move here by having excluded the majority of minority shareholders?

PETER MAJOR: Yeah. Without a doubt they have created walls around them which makes it a lot harder for them to manoeuvre than it does for Impala. Yes, without a doubt, Fifi. By offering that R180, that’s drawing a very difficult line in the sand. It means you can’t offer anybody less than that for six months.

FIFI PETERS: Absolutely not. I wouldn’t take it. Peter, we’ll leave it there – for now – as we await the latest or the next move from either party.

That was Peter Major, the director of mining at Mergence Corporate Solutions, just talking about the battle for RBPlats happening between Impala and Northam.

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