Aquarius will need cash if buyout fails

IF AQUARIUS Platinum shareholders were to reject the allcash offer of $0.195 a share from Sibanye Gold, Aquarius would have to raise short-term funding for working capital, which might be through a rights issue or discounted share placement, its directors warned this week.

For the past few years, platinum companies have been shelving new projects, cutting staff, issuing shares to raise funding and looking for other ways to survive a prolonged downturn in prices caused by oversupply.

Aquarius Platinum shareholders will vote on January 18 on Sibanye’s offer, which requires a simple majority approval to be accepted.

Sibanye Gold, headed by CE Neal Froneman — made the outright buyout offer for Aquarius, the owner of low-cost platinum mines in SA and Zimbabwe — two months ago. For the past two years, Aquarius has traded below R10, compared with more than R120 in 2008. Sibanye’s offer is worth R2.92 a share at current exchange rates.

Aquarius chairman Sir Nigel Rudd said an independent valuation by Deloitte Corporate Finance concluded that the fair value of Aquarius shares was between $0.132 and $0.193.

Investec Asset Management fund manager Hanré Rossouw said the Sibanye offer significantly undervalued the Aquarius business and Investec was carefully examining its options ahead of the shareholder vote.

Deloitte’s valuation did not take into account the potential benefit to a special buyer from achieving cost savings or other synergies arising from the combination, Mr Rossouw said.

The bid coincided with a multidecade low in the platinum price, and Deloitte highlighted the sensitivity of its valuation to platinum price moves in its opinion. A 5% increase in the platinum price would move its valuation range to $0.182-$0.241, putting Sibanye’s offer at the bottom end of that range.

According to its website, Aquarius is due to redeem $125.4m of convertible bonds tomorrow. At the end of October, its cash balance was $173m. Once the bonds are redeemed, it will hold $47m of cash.

“The board is of the view that having a strong balance sheet is prudent in the current low price environment and believes that it is appropriate to maintain a sufficient buffer of cash on the balance sheet,” the company said.

“If the … amalgamation is not approved by shareholders or the amalgamation does not proceed for any other reason, Aquarius will need to consider the options available in order to restructure the balance sheet to a more appropriate and sustainable level. This will likely include some form of capital-raising.”

If the deal did not go through, Aquarius said it would have incurred substantial costs and the share price might fall back to pre-offer levels. If the implementation agreement is terminated or the board accepts a competing proposal, it could owe Sibanye a break fee of $2.9m.

The downside for Aquarius shareholders of accepting the offer included that they would not share in any upside from future platinum price increases, the payout they received would depend on exchange rates prevailing in several months’ time, and the cash payment could incur tax, the directors said.

The deal requires approval by competition authorities. This is expected by the end of March.

The board believes it is appropriate to keep a buffer of cash on the balance sheet