Silver medal ain’t so bad
There are many questions over the future of Royal Bafokeng Platinum (RBPlat) now that Northam has dropped its R172.70 per share offer to buy all of the company, due to the plunging price of platinum group metals (PGMs). The FM spoke to Northam CEO Paul Dunne.
What now for Northam?
PD: Northam owns 35% of the asset, and we described that as the silver medal; we’re still very happy. We’re a smaller shareholder than Impala Platinum [Implats]; they still have an offer on the table, so we will have to see what they want to do. I assume they will continue to accumulate shares in the offer. But we are not a seller, we’ve made that very clear. RBPlat owns a shallow, large, unexploited orebody. There are 68-million ounces of resource there. Fifty million reside in Styldrift, and it’s still early days for Styldrift. So 35% of 68-million ounces is not too shabby.
Northam had a target to grow to 1-million ounces of PGM production a year from its own mines. Was that always excluding RBPlat?
PD: Yes, and we still maintain that strategy: 500,000oz from Booysendal, 350,000oz from Zondereinde and more than 150,000oz from Eland.
Would it not be more prudent to sell into the Implats offer, take the cash and invest that in your own operations, which you already understand?
PD: You assume they are mutually exclusive; the original strategy remains intact, so irrespective of the outcome at RBPlat we are still going to invest in our assets to their full potential.
You don’t need the cash you spent building up the RBPlat stake?
PD: No. The capital programme is fully funded. And that 35% we’ve paid for.
How much cash do you have left?
PD: I can’t answer that until we publish our results. It’s market-sensitive.
PD: Since we initiated the offer in November 2021, the basket price we received is down 25%, a significant reduction in revenue for the target asset. The firm intention has embedded in it protection mechanisms for such an event, called material adverse conditions, or MAC, provisions. So if there is such a serious downturn in the prices we receive and the price the target asset receives, we are entitled to exercise the MAC provisions which we have prudently done. I think that’s what you’re seeing from the market. For the six months that we’ve just reported on to December, we had a rand basket price of R80,000 per platinum ounce. Today it’s about R61,000.
based on revised assessments of the PGM price?
PD: We’re in “no comment” territory there. But there are now two large mining shareholders in RBPlat: Implats at 45% and growing, and ourselves at 35%. We would not be adverse to a joint investment case. We do respect Implats. But of course it depends on their strategic objectives.
Some seem shocked that the rhodium price has fallen so hard, but should we be shocked that it rose so much in the first place?
PD: It is cause for concern. Rhodium is a concentrated market with concentrated supply/demand dynamics. About 90% of all rhodium originates from UG2 [Upper Group 2 Reef] in South Africa and about 90% of all rhodium is used in autocatalysis for the control of nitrous oxides in vehicles. It’s a small market and thinly traded. In recent times, Chinese auto demand has been quite weak and there are no alternative demand sources, so you will get a reaction downward. And the same in converse. The current price is about $7,500 an ounce and our MAC level was $9,000. The MAC level is where you get really worried, and we’re well below even that.
Did you fall into the trap of making assumptions based on its price at the peak?
PD: The market is the market; there’s good price discovery in rhodium, so when the price was high there was good reason for that. We didn’t foresee such a weak recovery in China. But when it was strong, I don’t think you could say it was mispriced.
What do you expect of the PGM basket this year?
PD: It’s called the platinum sector because 60% of the basket volume is platinum. And over the past decade platinum has been the weakest performer. But it’s behaving a bit better, so that gives us some encouragement. For the rest, we have to watch the automotive sector and see what happens in terms of battery electric vehicles (BEVs). What will be the future penetration rate of BEVs at the expense of internal combustion engines? The jury is out on that.