Implats is pretty close to acquiring Royal Bafokeng Platinum, but not set in stone

Impala Platinum (Implats) is in talks to acquire Royal Bafokeng Platinum (RBPlat), the companies said in a cautionary statement on 27 October. It is a bold move that would further consolidate SA’s cash-spinning platinum group metals (PGM) sector.

The companies say that they are “in discussions relating to a non-binding indicative proposal from Implats to acquire 100% of the issued ordinary shares of RBPlat.

“The parties have completed a reciprocal due diligence exercise and are progressing a proposed transaction implementation agreement,” they say.

That means while it is not yet set in stone, a deal is pretty close, and it seems unlikely that a rival PGM producer would try to beat Implats to the punch. Sibanye-Stillwater does not want further exposure to SA, while Northam Platinum and Anglo American Platinum appear to be focused on their current operations.

The move would be the next major consolidation step in South Africa’s PGM sector after Sibanye swallowed the ailing Lonmin. It would add significantly to Implats’ production and earnings profile. Implats, like its peers, has been posting record profits on record prices and in its last financial year produced almost 2.4 million ounces. RBPlat produced about 420,000 ounces last year, and in August, it posted record interim earnings that shot up 465% to R4.87-billion.

When RBPlat unveiled its latest earnings, its CEO Steve Phiri said: “Barring being a takeover target, we are open for any M&A that makes sense to the shareholders.”

The company has clearly changed its tune in the space of a couple of months.

RBPlat’s assets are the only known deposits of significance that are shallow and high-grade — factors that cut costs and lift profits — on the rich Merensky Reef. Labour relations at RBPlat have also generally been good. This profile has made the producer an ideal takeover target, but its status as a black-owned PGM producer could potentially throw regulatory obstacles in the way.

Implats’ CEO Nico Muller has overseen a significant restructuring at the company’s Rustenburg operations which, combined with the surge in PGM prices, has made them profitable. Adding nearby cash-spinning assets certainly makes business sense.

RBPlat’s share price immediately jumped 20.57% to R114.30, suggesting the market has high confidence that the deal will be done.