Share prices of both Northam and Implats jumped on news of the sale. From Moneyweb.
Northam is selling its 34.5% stake in Royal Bafokeng Platinum (RBPlat) to Impala Platinum (Implats), booking a R4 billion haircut in the process.
Northam paid roughly R17.8 billion for its stake in RBPlat back in 2021 when it entered a bidding war with rival Implats. It now exits its position for about R13 billion before accounting for deal costs.
Northam will get R90 in cash plus 0.3 Impala shares for each of the 100.2 million shares it owns.
This means Northam will receive R9 billion in cash and end up with a 3% stake in Impala, worth about R4 billion at current prices.
This leaves Implats with about 91% ownership in RBPlat, and the remaining shareholders have until Friday (21 July) to accept or reject the same deal as offered to Northam.
“We now have a clear path to 100% ownership of RBPlat,” says Implats spokesperson Johan Theron. “It means we can commence the process of integrating the two assets, though we have always said that Implats and RBPlat would remain operationally independent for now.”
Analysts were generally positive on the deal for both Implats and Northam, with the share prices of both companies improving on Thursday.
“We are of the opinion that this outcome is arguably the cleanest solution for all parties involved, as it seems a JV or other joint arrangement between the companies would have been tough, given the long-drawn-out and acrimonious battle for control of RBPlat,” a research note from Nedbank CIB says.
“This removes significant uncertainty for all companies involved and should be seen as a positive development, in our opinion.”
Northam can use some of the cash received to pay down debt, which stood at R12.3 billion in December 2022.
Analysts expect the market to look past the roughly R4 billion haircut that Northam books on the deal to the potential positives of a R9 billion cash boost to the balance sheet, possibly paying a dividend for the first time in several years.
Explaining the reason for the sale, Northam CEO Paul Dunne says prevailing market conditions and the drop in platinum group metal (PGM) prices in recent months may signal a protracted market downturn.
The deal represents “a well-timed opportunity for Northam to secure a very significant cash injection that will materially strengthen Northam’s balance sheet and liquidity position,” says Dunne in a 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, following on from the [roughly] 30% share buy-back which was implemented in 2021.”
In a note to clients, RMB Morgan Stanley says the deal is attractive for Northam given the decline in PGM prices.
Synergies
Implats shares a common boundary with RBPlat in the Rustenburg area, and they share a long-standing relationship underpinned by royalty agreements signed in 2010 covering ore mined by Implats on RBPlat properties. RBPlat earns royalties equivalent to 17.5% of gross PGMs (including gold, nickel and copper) on certain of its properties mined by Implats at its 6, 8 and 20 shafts.
Read: RB Platinum to shareholders: Take the Impala buyout offer
“We already have an agreement with RBPlat allowing us to mine across the boundary line in return for royalties. Now we will have more flexibility in the way we can mine across that boundary line, and we will effectively be paying the royalty to ourselves as owners of RBPlat,” says Theron.
Implats also has spare smelting capacity available to absorb some of the output from RBPlat, which currently has a processing agreement with Anglo Platinum. Theron says a change to the current RBPlat processing arrangement will have to be ironed out with Anglo Platinum, though a deal that benefits all parties is possible.
Yet another synergy is the ability to better manage power supply to the Implats and RBPlat operations. Speaking with one voice to electricity supplier Eskom should make for more efficient operations.
“There are short-, medium- and long-term synergies. Undoubtedly, the most compelling synergies are to be found in the long-term, as this acquisition extends the life of our combined assets by decades,” adds Theron.
