Winner takes (almost) all
Finally, Impala Platinum (Implats) has secured control of more than 55% of Royal Bafokeng Platinum (RBPlat) 18 months after first pitching a bid for R150 a share. The Public Investment Corp’s (PIC’s) decision to sell its 9.6% stake, not to mention rival Northam Platinum opting to pull its higher priced offer, means Implats now has a sure growth future in the Rustenburg area. The FM spoke to Implats CEO Nico Muller.
Did it require a lot of persuasion to get the PIC to accept your offer? It’s all taken so long.
NM: It’s difficult for me to talk on behalf of the PIC, [but] it has been under pressure in recent years for governance on a number of transactions and this had become a very high-profile transaction, given the hostile competition, so it wanted to make sure to dot every “i” and cross every “t”. I think in the end it was the social value proposition
the fact that Implats and RBPlat are contiguous so [the deal] is about sustainability and employment, so there’s benefit to the North West economy that ultimately carried weight.
Not to mention Northam withdrawing its own bid.
NM: Yes that was the catalyst at the end.
Do you think there’s a problem in South Africa in that we don’t have a “put up or shut up” clause when it comes to offers and deals such as this?
NM: There are many ways to frustrate the process, such as the hostile action that we encountered from Northam’s side, which was done under the guise of acting as a shareholder. I don’t think it bodes well for business investment if 18 months down the track you still don’t have the regulatory approval process finalised. If you were an international firm contemplating the acquisition of a South African enterprise and you followed this story that’s not good.
And it’s the same thing with environmental licences, mineral rights applications; we just have an incredibly inefficient framework.
You probably want to get on with the business of running your mines, but is there any way to lobby for any sort of changes here?
NM: From a broader front, I think there is a lot of scope for collaboration between business and the government, and that does happen through the Minerals Council South Africa. Forget about mergers & acquisitions for a moment we’re looking at power security, at rail infrastructure, [at] the evolution of crime around mining operations, so we do have an industry lobbying very strongly. As far as M&A is concerned, we have direct interaction with the minister of trade & industry, and that’s the route to follow to try to emphasise the consequence of this inefficient and weak process.
Do you at all regret the price at which you pitched your bid (R150 a share), given what’s happened in the interim to palladium and rhodium prices?
NM: The platinum group metals (PGM) industry is a cyclical business, so when you make investment decisions your time horizon should exceed a typical cycle. Our offer price is on a long-dated price for a basket of metals, so I still think it’s a fair price. Obviously at today’s spot prices you could conclude it’s a rich price, but the value will be determined over the next two decades.
We did wonder whether Implats would be a cash-spewing monster without this deal; do you now have to be more conservative?
NM: We have R27bn cash on our balance sheet and in the absence of a major transaction, the vast majority of that would have been allocated to shareholders. In the long run, the fact that we are strengthening a core asset provides a baseload for our smelter complex; we will see a longerterm sustained cash generation and allocation to shareholders rather than a high peak in the short term that may have resulted in business closures seven years from now.
So was buying RBPlat absolutely necessary to secure your long-term future?
NM: Rustenburg is a mature asset; it can maintain its present rate of production for the next five to seven years, but thereafter production starts declining. It’s the most labour-intensive conventional operation, at a depth below 1,500m. We are now incorporating an asset which has a 10% higher grade, a depth of less than 1,000m below surface and which is predominantly mechanised, so will result in a lower capital intensity at our combined assets. While Rustenburg has a very long tail, the fact is that if the production rate declines below a particular level, the entire entity becomes economically unviable.
Does this negate the need for any exploration for more assets, especially if we know that South Africa contains 80% of the world’s known PGM reserves?
NM: You’re touching on a valid concern. If you look at the previous up cycle from 2007/2008, you see a significant amount of investment in new production, and then we went through a long decline in prices. There are few new production assets coming on stream, and you’ve also seen a decline in investment in greenfields exploration, particularly from the major mining houses, so all the exploration happening is through juniors. We are not investing in greenfields exploration simply because we believe the Bushveld complex in South Africa has limited potential. But where we do have an interest is in the Great Dyke in Zimbabwe, where we have a strong position through Zimplats and Mimosa. In spite of the jurisdictional risk, we have a stable history there. That is probably where Implats sees greater potential.
That’s quite an irony.
NM: Zimbabwe is always perceived to be a high-risk jurisdiction, but it’s actually been the most stable of our assets: we’ve consistently met production targets, it’s safe, and it does not have the same exposure to social unrest as South Africa. The only issue is we have to collaborate with its government on policy certainty.