After Chinese buyers walk, debt-laden Aquarius Platinum on the brink

It’s not entirely clear whether the Chinese consortium wanting to buy a stake in Aquarius Platinum didn’t fully comprehend the extent of the regulatory hurdles set out by the Dept of Mineral Resources for the sale, or whether the Dept dragged their feet. But after an astonishing nine postponements to get the regulatory issues sorted, the deal is off. And the big loser is Aquarius Platinum which now finds itself in a very precarious financial position. Peter Major, mining consultant at Cadiz Corporate Solutions explains. – CP

GUGULETHU MFUPHI: We’ve got Peter Major on the line now, from Cadiz Corporate Solutions. Peter good to have you with us, as usual. Maybe if we take a look at the story, which does kind of, highlight the fundamental floors that South Africa has, when it comes to regulatory control and approval.

PETER MAJOR: Yes, I think you’ve put it very succinctly Gugu. It does, it highlights the regulatory roles that people have, trying to mining transactions.

ALEC HOGG: But if anyone was going to get it right, Peter, surely it would be the Chinese. There is a political alliance, or we thought there was anyway, between the Chinese Government and the South African Government. This is a Chinese State owned business that was coming to put about R400m into South Africa, through buying a couple of platinum mines, yet it fell flat. What’s the story behind this?

PETER MAJOR: Well, I think there are a lot of reasons Alec, first of all, the timing. You’re on the downside of commodity cycle, so everybody is walking on glass. They’re not sure how far down these metal prices are going to come and they’re not sure how long they’re going to stay down here, so people are a lot less enthusiastic and a lot less bold, buying commodity companies, in a downtrend. Then there are other problems. A lot of the foreigners, especially the Chinese they really don’t understand BEE, and we’ve been involved in quite a few large, small, and medium South African/Chinese transactions but there is a real difference, I would say ideology, but there’s a very large difference in how they understand the BEE. Especially if they’re buying a company that has the BEE and that company has to tag along, it means that you buy 100-percent of something, you pay out the other part of it, and then you have to fund another BEE to come in for the 26%, so they see that as paying twice. It is hard to explain to them, clearly why they’re not paying twice. The Chinese aren’t patient but you can see they gave nine extensions to this and it wasn’t enough, so there’s a lot of regulatory paperwork and there’s many delays, always in these transactions, which shouldn’t be there.

Can Aquarius Platinum survive? The three year share price tells a sorry story
The 3 year Aquarius Platinum share price tells a sorry story

ALEC HOGG: Peter, the guys on the other end of the transaction. They’re no mugs. They knew before they walked through the door. They know about BEE. We should never underestimate the intelligence of people. Did they perhaps just use this as an excuse to not consummate the deal when they saw the mining side or the commodity cycle, as you mentioned earlier, was just getting worse?

PETER MAJOR: Look, when somebody wants out of a deal, you’ll find any reason you can. I’ve been on both sides of deals but if you’ve given someone nine extensions, and the commodity price keeps going down or the stock market’s fall, you’ll use any excuse you can to get out of it. I’m not saying they don’t quite understand, they don’t exactly understand BEE but do you want to pay twice for something Alec? Do you want to buy 100-percent of a company, you pay out the existing 26-percent BEE, if you pay out the 74-percent of the shareholders, then you have to go and find another BEE and you have to fund them? Do you want to pay twice and nine extensions? I don’t want to point at anybody here but why does this take so long to do?

ALEC HOGG: Where does it leave Aquarius?

PETER MAJOR: It leaves them in a very difficult position because they’re not making any money now. They have massive debt and they’ve already had massive rights issues, and the Rand price of PGM sits in two different, from what it was a few years ago, but boy we know they’ve had double digit cost increases, wage increases, electricity suppliers and this leaves them in a really difficult position. Government has got to help our companies, in a difficult position. The Government has got to bend over backwards and work 24/7 with our industries to keep them viable.

GUGULETHU MFUPHI: Well, thank you so much to Peter Major, Mining Consultant at Cadiz Corporate Solutions, there giving us his opinion on the Aquarius platinum deal, which fell through with the Chinese.

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