RBPlat gears down
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.