Who’s next for preda­tors?

Share prices of ‘usual sus­pects’ don’t yet in­di­cate prowlers are clos­ing in

Finweek English Edition - - Companies & Markets - BREN­DAN RYAN bren­danr@fin­week.co.za

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

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