Implats changes thinking from deep to shallow
Impala Platinum has clearly drawn a line under any further large investments in growth projects around Rustenburg that would entail deep, expensive shafts and has gained a toehold in one of the best remaining undeveloped shallow prospects in SA.
For a $30m investment, Implats, the world’s secondlargest platinum producer, has bought a 15% stake in the Waterberg deposit northwest of Polokwane in Limpopo, as well as the right to oversee a definitive feasibility study into building a mine at the shallow resource, which is rich in palladium rather than platinum.
It has also secured the right to invest $166m more to buy 50.01% of the deposit. This gives it control and access to a fresh stream of concentrate for its smelting operation in Springs as its older mines are worked out. It also sets its remaining mature mines the target of becoming profitable or facing closure.
The definitive feasibility study, which follows a prefeasibility study done by Canada’s Platinum Group Metals (PTM), will be completed by March 2019, with Implats looking at the option of staggering production instead of the big-bang approach of a mine of $1bn and 744,000oz of four platinum-group elements a year envisioned by PTM and its partner, Japan Oil, Gas and Metals National Corporation.
“It’s reasonably far down the track. It’s not just a twinkle in anyone’s eye,” said Implats chief financial officer Brenda Berlin.
“If the definitive study yields good results, which we obviously hope it will, and it’s economically viable, it’s a pretty quick start to bring it into production, nothing near a deep-level mine,” she said. The mine, with 60% of its metal content being palladium, gives Implats an additional strategic advantage of increased exposure to the metal used in petrol-fuelled vehicles and seen in a long-term deficit against rising demand, she said.
Implats, with its future control of the project, would decide how best it fit its own plans and smelting capacity, said Nedbank mining analyst Leon Esterhuizen.
“Implats is in charge of the timeline. Implats chooses the size and Implats provides the cash. Nico will move as and when he wants to,” he said.
It is a comment that surely flags future potential clashes between the pragmatic and tough new Implats CE Nico Muller and his executive team and that of PTM headed by CE Michael Jones.
Implats’s experiences in Zimbabwe in sinking declines into the shallow deposits there stand as a proxy for what it expects from the Waterberg resource, Berlin said, with a two- to three-year building programme being the norm in Zimbabwe.
With the high capital expenditure and large labour force needed for mines in the Rustenburg area where most of the shallow resources have been mined, it implied that the next generation of platinum mines was unlikely to be built there, said RMB Morgan Stanley in a note.
“The relatively shallow, more mechanisable [and hence less labour intensive] basemetal rich northern limb ore body provides a more obvious location for future growth and replacement capex in the industry,” it said, pointing to Anglo American Platinum’s Mogalakwena mine south of the Waterberg deposit as the “largest most profitable mine in the South African industry”. The shallowness and ease of starting a mine in the deposit — starting 120m below ground level and the size of a 13-storey building — was a key attraction, Esterhuizen said.
Impala Platinum (Implats) is set on a hard-nosed transformation of its asset base, led by a tough executive team that has reached the end of its patience with unprofitable, deep-level, old platinum mines.
Implats has come under the new stewardship of Nico Muller, who was appointed by the board as CE to steer a new strategy for the company.
The strategy involves stopping unprofitable production, winding down four old platinum mines as quickly and as profitably as possible, making its mature mines cash generators, bringing two large new mines into production on time and budget and diversifying its South African risk by buying shallow deposits that can be mined mechanically.
The first part of the strategy around the existing suite of assets will take time and runs the risk of annoying the unions and the government, both stakeholders kicking up a fuss when companies move to close perennially loss-making mines or assets that are at the end of their lives.
The second part took shape this week, with Implats dipping its toe into the undeveloped Waterberg deposit, paying $30m for a 15% stake in the large resource with a clear view to taking control of it if the economics of a definitive feasibility study stack up.
This is critically important for Implats, giving it access to shallow, low-cost, mechanised production, returning it firmly to compete with Anglo American Platinum and its fabulous Mogalakwena opencast mine south of the Waterberg deposit, and Northam, which is going hell for leather on an expansion programme and focusing heavily on its shallow, mechanised Booysendal deposit.
The rest of the industry that has to contend with deep-level deposits is at a distinct disadvantage if the future for platinum remains as bleak as it is now.
Investors on the JSE are not always quick to welcome stocks that are, for want of a better term, “a little out of the ordinary”. But yield seekers should probably take a closer look at GAIA Infrastructure Capital, a specialist vehicle that invests in cash-generative infrastructure projects and assets.
The beauty of GAIA is that its underlying assets are typically of a predictable nature, meaning consistent dividend growth.
The company declared a maiden dividend of 63.5c per share in May and followed this up with an interim payout of nearly 25c per share.
The recent interim results reflect mainly the throughput of the 25.2% stake in the Dorper Wind Farm — acquired in 2016 for about R500m.
Interim revenue came in at R23m, with dividend income of R13.3m. In September, the Dorper asset was supplemented by a R188m investment for an effective 20% stake in the Noblesfontein Wind Farm in the Northern Cape.
It seems GAIA has a decent pipeline of new opportunities. The company added that the strong investment pipeline yielded above-target investment returns on a blended basis. This means GAIA’s tangible net asset value should be stable.
The last stated net asset value (at the end of August) was R10.24 per share versus a market price of 826c.
That infers a rather attractive forward gross yield for the full year to end-February — a situation that might be further sweetened by what appears to be a multitude of new opportunities set to be brought to book in the next 12 to 18 months.