Who’s next for predators?
Share prices of ‘usual suspects’ don’t yet indicate prowlers are closing in
XSTRATA’S PLAY FOR LONMIN has temporarily halted the slide in some platinum stocks as investors ponder who might be next up in the on-going consolidation of South Africa’s platinum sector. The obvious target is Toronto- and JSE-listed Eastern Platinum (Eastplats) – but you’d never think that from the way its share price has continued to fall.
Eastplats has dropped from R13,99 just ahead of Xstrata’s offer to currently trade at around R10,70/share – which is getting very close to its 12-month low of R9,97. That puts Eastplats 67% down on its 12-month high of R32/share.
The weakness in Eastplats is surprising – for two reasons: it’s already in production, which reduces the investment risk, and its operations occupy strategic positions.
If Xstrata succeeds in its bid for Lonmin then the Eastplats Crocodile River mine near Brits will be contiguous with its western boundary with Lonmin’s Pandora project, which, in turn, is contiguous with Lonmin’s core Marikana mines. The Crocodile River mine is contiguous with its eastern boundary with Xstrata’s Eland Platinum operation, which it bought last year for R7,6bn.
Near Steelpoort in Limpopo Province the northern section of Eastplats Kennedy’s Vale/Spitzkop complex sits adjacent to the southern end of Nkwe Platinum’s Tubatse and Garatau projects, in which Xstrata is now a 50% joint venture partner.
That makes Eastplats a “sitter” according to one investment manager, who comments: “Xstrata will take out Eastplats just as soon as it has Lonmin in the bag.”
Yet a platinum sector analyst says the situation isn’t so clear cut, despite Eastplats’s attributes of 100m oz resource of platinum group metals (PGMs) and a permitted smelter at the Crocodile River mine. “The Nkwe deal provides Xstrata with plenty of potential, given that Nkwe is claiming a current resource base of 20m oz of PGMs with a targeted resource of 100m oz of PGMs and annual production of 1m oz of PGMs. They don’t really need Eastplats.”
Ironically, the Xstrata joint venture deal has done nothing for Nkwe shareholders, with the share falling from A$0,98 the day the deal was announced to trade at around A$0,87 currently.
Speculation over a bid by Xstrata for Lonmin has been running for years but the group has moved into platinum carefully, first setting up the Mototolo joint venture with Anglo Platinum two years ago and then buying Eland Platinum.
It seems the pounce on Lonmin was finally triggered by the sharp pullback in the prices of many platinum stocks over the past month. That bears out recent comments by
Aquarius Platinum CEO Stuart Murray, who said: “It may well prove easier to transact deals in the bad times rather than the good times because there’s a greater chance of commonsense prevailing in the bad times.”
Aquarius is, of course, the company over which merger and acquisition speculation has been just as intense as Xstrata/Lonmin. The reason is that Aquarius has been churning profits from its four operating mines – three in SA and one in Zimbabwe – but the group’s mediumand long-term growth prospects are limited.
Aquarius’s price hit a 12-month low of R54,4 immediately ahead of the Xstrata bid for Lonmin, from which it immediately rebounded to R69,80 and
currently trades at around R62/share. The obvious target for Aquarius is the Booysendal property now owned by North- am Platinum, because Booysendal sits adjacent to Aquarius’s operating Everest mine. Northam is controlled in turn by Mvelaphanda Resources (Mvela) and Mvela CEO Pine Pienaar threw the options wide open earlier this year, ranging from an outright sale of the southern third of Booysendal to a full merger which, if it happened, would take place through Mvela and not at the level of subsidiary Northam. A platinum analyst says: “Murray’s problem is that his currency has depreciated more than Mvela’s.”
The Aquarius price at current levels is 55% off its 12-month high, which matches the 52% drop in Northam’s share price but not Mvela’s, which is 42% off its 12-month high.
Murray is playing his cards close to his chest at this stage. All he’d say at the recent presentation of Aquarius’s 2008 financial results was: “I believe the opportunities in the platinum sector have never been more interesting – even if the operating environment remains challenging.”
Opportunities have never been more interesting. Stuart Murray