Members of Impala Platinum’s board will be earning their fees in the coming weeks following rival Northam Platinum’s bid for Royal Bafokeng Platinum (RBPlat) — a company in which Implats has a 41% stake and itself seeks to control.
As Northam CEO Paul Dunne observed in an interview with the FM shortly after his firm’s R32.5bn offer was announced on November 9, Implats faces some “interesting” choices.
Implats — led by CEO Nico Muller — can accept Northam’s higher offer; lift its own earlier bid for RBPlat; or do nothing. All have their pros and cons, none more so than the do-nothing option, which could mean Northam controls the joint venture RBPlat would become.
Meanwhile, in an office in Pretoria, another group of executives will also be pondering the matter. Enter the Public Investment Corp (PIC), which owns about 10% of RBPlat, making it the “kingmaker” with the casting vote.
Economically, the decision seems simple. Implats’s mandatory offer for RBPlat, launched in January, bid R150 a share in shares and cash. Northam has bid R190 a share in shares and cash for the balance of RBPlat. (It owns up to 38% in RBPlat, including options secured in November).
But while Northam’s offer is richer, and most likely superior, the PIC has other considerations that talk to the national good. Implats’s rapidly ageing Rustenburg assets are adjacent to RBPlat. It has argued that ownership of RBPlat could therefore expand the life of some shafts by up to 13 years. If the deal fails, tens of thousands of jobs could be at risk. The PIC might, therefore, be catalysing that outcome if it accepts Northam’s higher offer. It’s a dilemma: policy owners or the national good?
“We believe the PIC’s decision is most likely to be based on additional factors above the offer considerations, particularly the sustainability of jobs at Impala lease and RBPlat,” Investec’s Nkateko Mathonsi said in a report.
“Despite Northam’s commitment to investing in the RBPlat footprint ... the majority of jobs likely at risk in future are within Implats. On life-of-mine and jobs preservation, the scales still tip in favour of Impala in our view.”
Northam has other headwinds that interested shareholders might consider. Should Implats accept its offer, which is not inconceivable, it will need shareholder approval for the scale of shares it will have to issue — up to 184-million, representing a 47% increase in its stock in issue. This adds an element of deal jeopardy. Also, if Implats accepted the offer, it would have a 14.7% stake in Northam.
In the context of RBPlat’s multigenerational asset-base, that might make the most strategic sense for Implats. Muller has previously spoken of having an array of investment options at his disposal in the event his company fails to control RBPlat. He could argue that Implats is demonstrating financial discipline and live to fight another day, much like Gold Fields CEO Chris Griffith has done after his company’s bid for Yamana Gold failed.
And if Implats doesn’t accept the offer, and remains a shareholder in RBPlat, Northam will have to stump up the maximum R10bn in cash as per its transaction mechanism. That’s fine, but shareholders might have to kiss long-awaited dividends goodbye, at least for a while.
If Implats doesn’t accept the offer, and remains a shareholder in RBPlat, Northam will have to stump up the maximum R10bn in cash as per its transaction mechanism
“While this offer could result in Northam achieving majority control in RBPlat, which can be seen as a positive, we see limited long-term synergy benefits and even the potential for value erosion based on our lower fair value for RBPlat,” said Steve Friedman, an analyst for UBS, in a note.
And what of Implats upping the ante with a higher bid of its own? Again, not impossible. It has about R30bn in cash and, in the view of Noah Capital’s René Hochreiter, could do so without endangering its dividend. “It would not be a good idea for Implats to bet on Northam not getting 50% + 1,” he says. Hochreiter believes a counter-bid can be expected. He says Implats has daylight of about R20 a share between Northam’s offer and Noah Capital’s target price.
The overlay to this competition is the asset. RBPlat has about 65-million ounces of metal in the ground, ranging from surface level to a maximum of 1km deep. That makes the assets relatively cheap to run in a market that is likely to remain in deficit for years to come. As if to demonstrate the point, the platinum price has gained 11.5% in November amid hopes in the auto sector that the semiconductor chip shortage is easing.
Dunne is a canny operator. Northam couldn’t afford this offer as little as three months ago, but delayed Implats’s takeover attempt by taking it to the Competition Tribunal. The tribunal has finished its hearings but is yet to issue a ruling. This, and the fact that Northam’s voluntary offer has set a slew of new processes in motion, mean an outcome could still be some time off.
Dunne hopes to tie the matter up by the next quarter, but Northam has set a long-stop date of June 2023 for its offer.
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