Motsepe dodges call for ARM payout policy

There was a concerted push at Friday’s annual results presentation from African Rainbow Minerals (ARM) for the board to communicate a dividend policy, something executive chair Patrice Motsepe skirted around.

Analysts put pressure on Motsepe and his team to put in place a dividend policy as the company generated strong cash, swinging to a net cash position of R995m from net debt of R1.3bn. It paid a total dividend of R10 a share for the year.

With the failed $400m investment in Lubambe in Zambia with Brazilian partner Vale behind it and eyes on potential merger and acquisitions in the copper space, analysts are jittery about how the company will determine rewards for shareholders if there is demand on capital. ARM has also triggered the R2.7bn modernisation project at the Gloria manganese mine held jointly in Assmang by ARM and Assore.

Johann Pretorius from Renaissance Capital wanted an assurance that ARM would not waste money on a “value destructive project or acquisition”. Tim Clark from Standard Bank and Derryn Maade from HSBC grilled management on the lack of such a policy.

Clark says the share is trading at a discount to its peers because of “capital allocation uncertainty” and it should put a policy in place.

Motsepe said ARM did not want to commit to a dividend policy in which it did not have “significant confidence”, but that it had a clear policy of being a “dividend-paying company”.

While Motsepe might have listened, he wasn’t hearing the anxiety around this issue.

Northam Platinum CEO Paul Dunne and the board want to reward shareholders, but it’s the mechanism that’s under debate.

Northam has turned in an astonishing year of growth as it realises its ambitions, snapping up unmined resources from Anglo American Platinum, buying the mothballed Eland mine from Glencore, a stalled US platinum group metal recycling business, building a new furnace, and investing heavily in its new Booysendal mining complex. The company notched up record expenditure of R3.8bn during the 2018 financial year to end-June, pushing its cash holdings down by more than R1bn.

But it has more than R2.5bn worth of unprocessed metals lying in front of its two furnaces and this will be processed during the 2019 financial year, restoring the balance sheet.

With capital expenditure dropping sharply after 2019 when it spends R2bn, mainly on its Booysendal South mine, the question is what will the company do with what Dunne expects to be strong cash flows.

Dividends may not be as attractive as they once were because of a 20% tax on payouts. Northam can either reduce debt or carefully manage its debt and start actively buying back the preference shares that are in its empowerment structure. It has paid upward of R1bn in the past two years as dividends towards these shares, leaving it in a net loss position despite sound operational performances.

Northam would like to buy these 159 million preference shares, which are underpinned by 159 million ordinary shares. The strategy will reduce interest payments and generate value for shareholders.