Veteran mining analyst Peter Major analyses Royal Bafokeng Platinum’s decision to reject Impala Platinum’s takeover bid, opting for a deal with Northam Platinum instead. In a deal valued at around R17bn, Northam Platinum will buy a third of RBP at R180.50 per share, a 50% premium on its share price before the deal was announced. Strangely, RBP’s share price fell following the announcement. Northam’s slumped 15%, on a day where the producer of precious metals lost more than R10bn. At face value, Major says the consolidation of Impala and RBP made a lot of sense given the operational synergies. Major is more sceptical with synergies and benefits of consolidation with Northam; however, he outlines that Northam CEO Paul Dunne is a shrewd operator and has intentions to scale the business to levels that are attractive for international investment houses. – Justin Rowe-Roberts
On Northam Platinum acquiring a 33% stake in Royal Bafokeng:
Well, it looks to me like a case of money talks. If you see the price that Paul Dunne is willing to pay, I can see why Royal Bafokeng Platinum decided to go with someone else. It seems like a bit of a crazy price but I suppose this isn’t just a cash deal, it’s a share deal as well. And if you’re talking price to earnings (PE), Northern Platinum is trading on almost double the PE that Lonmin (acquired by Sibanye-Stillwater) is. It’s trading at double the PE that RBP is trading on. That’s kind of the name of the game. If you can use high priced paper to buy an asset at a lower price, that’s going to give you similar earnings; you can justify it like that, I think Paul [Dunne] can. And Paul obviously has bigger ambitions than just running Northam and Booysendal [mines]. I wouldn’t doubt he’s got visions to put the two companies together someday in one listing.
On the reasons for Royal Bafokeng’s share price decline:
That I can’t really explain, yet; unless they just think the Northam price is going to come down so much that when they get the shares, it’s going to be countered. When Impala announced a deal, it wasn’t nearly as juicy. You saw it go up like 20% in one day. I haven’t worked through the numbers yet. The market’s very efficient but you can also see the Northam price. It dropped about 9% or 10%. Then it dropped as low as 16% and went back to about 11%. Now it’s down 15%. A lot of guys are doing different permutations. Then whatever numbers you’re doing on the companies, you have to look over your shoulder and ask: what’s my view of the commodity price?
On whether the deal makes more sense for Northam or Impala:
That’s not very obvious. It’s really different. I was very surprised to see this. Impala’s share price dropped when they announced this but you didn’t have to look at it very closely to [realise] medium term, this is a good deal. Longer term, it’s a great deal. I think it was a good deal for both parties. RBP would have been getting in Impala shares but it really made sense for Impala. It seemed much more attractive for Impala than it was RBP. It was creating a dynamo, a big player and a lot of people have said RBP is unlikely to be on its own for another few years, at the most. It was easy to see the synergies. Impala was right next to RBP. It had the smelter arrangements, the refinery, it had the marketing, logistics and they were neighbours. You could tick a lot of boxes. This made good sense. Whereas with Northam, they are a long way off and Northam doesn’t have the refining capabilities that Impala does.
On why South African miners are priced at a discount relative to global counterparts:
Without a doubt, we looked across the water for decades and at companies we thought were not nearly as well run as ours (South African mines). That never seemed to have a balance sheet like ours and hardly ever had the kind of resources we have. It wasn’t attributable to infrastructure. It wasn’t attributable to the weather or deposits. We’ve got fantastic weather here. Fantastic ore deposits. We have a good infrastructure. We had everything here for long-life mines, except we had apartheid. We had a government that wasn’t able to show investors the way out. It wasn’t a democratically elected government [so we knew it couldn’t] last and none of us could wait. We were in such a rush for 1994. We were hoping it was going to be in ‘84 and ‘87. We were always praying it was going to be this year or this year and when it finally came, it hasn’t translated to what any of us wanted.
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