Deal has been held up for more than a year and a half in largely technical objections. From Moneyweb.
Northam Platinum announced on Wednesday that it has terminated its intention to acquire Royal Bafokeng Platinum (RBPlat), citing lower platinum group metal (PGM) prices.
This leaves the Impala Platinum cash-and-shares offer the only one on the table. It is offering R90 in cash and 0.30 Implats per RBPlat share.
Implats has steadily built up a roughly 41% shareholding in RBPlat since first announcing its offer a year and a half ago, all from institutional shareholders.
Read: Implats: Energy crisis dampens production, subdues earnings
Northam holds about 35% of the shares and the Public Investment Corporation (PIC) another 10%. Last year Northam announced its plans to make a competing bid, but had not yet published the details of its offer. The Wednesday announcement by the company makes it clear there will be no offer.
High gearing
Northam’s decision to back out of the deal was likely influenced by negative reaction from its shareholders, notably fund manager Visio, which wrote to the board criticising its bid for RBPlat given its already high level of gearing, which would increase substantially should it take on more debt to fund such a large acquisition.
Such purchases are best made when the commodity cycle is in a downturn, said Visio.
There are also concerns about Northam’s gearing ratio, the highest in the PGM sector. The offer by Northam was based on expectations of higher commodity prices, said Visio. These expectations may turn out to be exaggerated, based on the recent performance of PGM prices.
In its results for the six months to December 2022, Northam enthused about its planned bid for RBPlat, which it described as one of only six mining operations in the world producing more than 500 000 ounces a year. RBPlat’s mines are shallow, have relatively long lives, operate at low cost, and the group is essentially debt-free.
RBPlat has more than 60 million ounces of PGMs locked up in the UG2 and Merensky reefs, most of this at shallow depths up to about 1 000 metres below ground.
While the Implats offer now looks more certain, the outcome will likely be decided on 28 April when its offer expires. Last month, Implats CEO Nico Muller said the company “cannot hang its future on the outcome of a process where it has no control” and said there will be no more extensions. Implats needs a compliance certificate from the Takeover Regulation Panel (TRP), a process that has been held up over technical objections raised by Northam.
“Our’s is the only offer on the table and was always the only offer available to shareholders given the much hyped Northam offer never materialised,” says Implats spokesman Johan Theron.
“All substantive conditions required for the takeover have been met. Remaining shareholders, including Northam, now have a pressing decision to either sell to us before the offer potentially expires on 28 April, or risk holding the equity into a softer market with no other offer available to them.”
Implats will need to increase its shareholding in RBPlat from the current 41% to more than 50%. The PIC’s roughly 10% would push it over that line, but what’s unknown at this point is what Northam plans to do with its 35% – hold on to it or sell to Implats.
The chart below shows the 71% drop in rhodium prices and weaker platinum and palladium prices that prompted Northam to terminate its offer.
Rhodium platinum and palladium prices (USD)
Source: ShareMagic
RBPlat rightly belongs to Implats, said Visio in its letter to Northam.
“We are also strongly opposed to Northam pursuing a joint venture arrangement with Implats on RBPlat due to the above valuation concerns, as well as the risks that come from the asset being managed by two parties that have differing priorities, given that they are at different stages of the capital cycle.”
