Impala Platinum (Implats) nearly withdrew its takeover offer for Royal Bafokeng Platinum (RBPlat). “You’ll never know how close we came to it,” says Implats CEO Nico Muller. The board sanctioned ditching a R150 a share cash and shares offer early this year after failing to acquire 50% in roughly 14 months of bidding.
Muller’s strongly held view was that the joint venture that would have resulted with rival Northam Platinum would have been unworkable.
Even now, two years after the dust-up between Implats and Northam broke out, there’s rancour. Implats eventually won control of RBPlat, courtesy of the PIC voting its 9.5% stake for Implats’s offer, but Muller doesn’t seem in the mood for reconciliation with Paul Dunne, his opposite number at Northam. Implats has the right to appoint RBPlat’s board and committees as it sees fit, and won’t be including Northam’s people.
The competing process as far as I’m concerned has destroyed any possibility of us having co-operation
— Nico Muller
“The competing process as far as I’m concerned has destroyed any possibility of us having co-operation,” says Muller — a reference to objections Northam laid about Implats’s offer for RBPlat with various regulatory authorities, including the Takeover Regulation Panel. “He [Dunne] will never be on the board, not him or any Northam representative will ever be on that board,” says Muller.
Dunne is reluctant to comment but he’s said previously he regards Implats as competent miners and would have welcomed a joint venture. In Dunne’s favour is the fact that Northam has a 34% stake in RBPlat, which enables it to keep RBPlat listed. That makes sense because minority protections are easier to uphold in the public glare. While Implats controls RBPlat’s management structures, Northam will be able to make representations.
Despite this, how will Northam’s interests be served when Implats is so firmly in the driving seat, especially over time?
Dunne has said previously that RBPlat, with its 68-million ounces of platinum group metal resources, is the last of the great jewels of the Western Bushveld, the geological formation from which South Africa mines its platinum. He is enormously bullish about PGM price prospects. He thinks electric vehicle adoption will be much slower than forecast; internal combustion engines will continue to enjoy wide use. Moreover, supply is shrinking. Northam estimates South African production could fall to 3-million ounces of platinum from 5-million. RBPlat’s resources are also relatively shallow and therefore increasingly less costly over time.
But Muller is less convinced that RBPlat’s resource can be mined for decades, as Dunne has argued. Says Muller: “Where is the other enterprise in the world, the other market observer that has that particular view? If you wanted to defend insanity by taking a position like that, you might find an audience. I suspect it’s a limited audience.”
Whereas Dunne strongly pushed the economic potential of expanding RBPlat through the second phase of its Styldrift mine — especially in representations to the Competition Commission — Muller was more concerned about the life-extension potential that RBPlat’s current operations have for Implats’s adjacent shafts in its Rustenburg division, some of which are due to close.
According to Citi analysts at least three years could be added to some of the Rustenburg Mines shafts, extending operations to 2033, as well as lowering operating cost and capital efficiencies by as much as 10%. “It may also use some infrastructure to gain early access to some part of the reserves,” the bank said, in reference to Styldrift II, the second phase expansion of RBPlat’s current Styldrift mine.
Says Muller: “It is highly unlikely that we are going to see development on such a new mining complex on its own unless you have a competitive advantage, which I think we have.”
For Implats, RBPlat first and foremost solves the problem of declining margins at the firm’s Rustenburg Mines. Sharing the cost of producing 500,000oz or so a year in PGMs with the 490,000oz a year from RBPlat gives Implats the scope for “a longer tail”, as Muller describes it. “That for us was the driving force to pursue this transaction, to provide life extension to our existing assets.”
Despite his reticence about expansion, Muller said he would make a review of a feasibility into an extension of Styldrift II a priority. But as for pressing the button now on an entirely new project, that seems unlikely. This raises the broader question as to how much influence, if any, Northam will have over allocation capital in RBPlat? And whether that might extend even to capital returns?
What if Implats were to decide not to pay dividends from RBPlat? “Sure, but then you’re not paying yourself either; then it would become retained earnings,” says Dunne.
Asked about whether Implats will pay dividends from RBPlat, Muller says: “It will be beneficial to the empowered partners in order to pay down [their] debt. But it’s not a legal obligation. It [RBPlat] decides to do that as a board function which is appointed by Implats. Therein lies your answer.”
Muller adds: “I am not sitting here and saying out of revenge we are going to make stupid decisions to destroy value by withholding dividend payments from all shareholders, including ourselves. Our ambition is to accrue maximum value for all stakeholders, including the shareholders through this acquisition.”
In any event, shareholders in Implats and Northam might have something to say about this, according to Arnold van Graan, an analyst for Nedbank Securities. He thinks reason will prevail in this uneasy entente cordiale between Implats and Northam.
Similarly, were Northam to unnecessarily obstruct Implats’s strategy, it would have to answer similar questions. Never mind the future value of PGMs, it may be that co-operation will be the most highly prized asset in this awkward union.
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