RBPlat gears down

Finweek English Edition - - IN THE NEWS - BY DAVID MCKAY

There’s some­thing dis­tinctly “un-cor­po­rate” about Royal B a f o k e n g P l a t i n u m’s (RBPlat’s) de­ci­sion to turn its back on the debt mar­kets and pre­fer­ring to de­lay its 300 000- ounce- a-year ex­pan­sion of its R10bn Styldrift mine in the North West.

The trend among plat­inum com­pa­nies so far has been to grow prof itable pro­duc­tion where pos­si­ble as a means of low­er­ing unit costs and boost­ing re­turns to share­hold­ers. Whether this helps an over-supplied met­als mar­ket is another mat­ter, but it seems stop­ping the mas­sive de­te­ri­o­ra­tion in share prices is up­per­most in the minds of min­ing ex­ec­u­tives.

Martin Prinsloo, chief f inan­cial off icer of RBPlat, how­ever, be­lieves it’s “pru­dent” to keep the bal­ance sheet com­pletely ungeared; in other words, debt-free, as well as main­tain­ing a cash buf­fer of R1bn.

“The mo­ment you are geared, you are driven by things other than value such as re­pay­ing debt or mon­i­tor­ing re­stric­tions on covenants [agree­ments with banks],” said Prinsloo. “It is an ap­pro­pri­ate time to put a peg in the ground and not step onto the tread­mill.”

The ma­jor con­cern at RBPlat is the con­tin­ued slide in the plat­inum mar­ket.

The plat­inum price has been weak all year, but it’s in the last month that the price has re­ally started to worry, fall­ing to $960/oz, the low­est it’s been since 2009. That’s a de­cline of a quar­ter of its value this year alone in dol­lar terms.

Prinsloo pointed out t hat t he weak­ness of the rand against the dol­lar had re­sulted in a slightly softer land­ing – the rand bas­ket price for plat­inum group met­als (PGMs), which in­cludes pal­la­dium and nickel as the prin­ci­pal by-prod­ucts RBPlat mines, was down 18% ver­sus the 30% in dol­lar terms – but the ef­fect is set­ting off alarm bells.

Steve Phiri, CEO of RBPlat, added that the above-ground stocks of plat­inum were start­ing to “tick up again” and de­spite his hope that plat­inum de­mand would re­ceive a boost f rom diesel au­to­cat­a­lyst pro­duc­tion in the sec­ond half of 2016, the mar­ket was too hard to call. The above-ground in­ven­to­ries are par­tic­u­larly wor­ry­ing. Ac­cord­ing CEO of Royal Bafo­keng Plat­inum to the World In­vest­ment Plat­inum Coun­cil (WIPC), above-ground stocks of plat­inum were set to de­cline in 2015.

Paul Wil­son, CEO of WIPC, said in March that the sup­ply def icit in plat­inum in 2015 would be 235 000oz, lower than the 700 000oz deficit in 2014, but suf­fi­cient to cut stocks 8% to 2.54m ounces. These stocks fell 20% in 2014, but their ex­is­tence has been pin-pointed as the main rea­son the plat­inum mar­ket is cur­rently stuck in its boots, and why it did not re­spond to the five-and-a-half month plat­inum strike in 2014.

“We are be­ing pru­dent,” said Phiri in a pre­sen­ta­tion to an­a­lysts. “The de­ci­sion to slow down Styldrift is not driven by the avail­abil­ity of funds from the mar­ket. It is more about pru­dence. It is re­spon­si­ble in this mar­ket con­di­tion, given its out­look,” he said.

In the mean­time, Prinsloo be­lieves some de­vel­op­ment of Styldrift, which is roughly half­way com­plete, will be f inanced with ex­cess cash f lows and in­come from reef it mines as it de­vel­ops Styldrift, although he’s re­luc­tant to say what this may be.

Ac­cord­ing to Citi an­a­lyst Jo­hann Steyn, not much. RBPlat’s ex­cess cash only to­talled R100m in the half-year ver­sus the R900m bud­geted for Styldrift cap­i­tal ex­pen­di­ture this year.

Still, an­a­lysts are bullish on RBPlat. It will gen­er­ate cash from its ex­ist­ing Bafo­keng Rasi­mone plat­inum mine, which pro­duces about 300 000oz/year of PGMs, it has a strong bal­ance sheet, and it is pre­serv­ing its growth for ounces for a bet­ter mar­ket, said Allan Cooke, an an­a­lyst for JP Mor­gan.

“In our view, it’s uniquely po­si­tioned to weather the trough of the PGM cy­cle and to ben­e­fit from a re­cov­ery in met­als prices, when it comes,” he said in a note ear­lier this month.

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