Peter Major on Impala’s second attempt at Royal Bafokeng Platinum

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Mining guru Peter Major looks at the performance of the commodity sector during 2021, where prices seesawed over the course of the year. Despite the first six months seeing record prices across the board, commodity prices have fallen off a cliff in the second half. The last few weeks have been flooded with mergers and acquisitions activity, which historically has indicated the top of the commodity cycle and has concerned analysts. Impala Platinum has made a second attempt to takeover mid-tier precious metals producer Royal Bafokeng Platinum (RBPlats), with competitor Northam having recently acquired a third of the business for R17bn. Impala’s part-cash, part-share deal of R150 per share values RBPlats at R43bn. Glencore has been under pressure from activist shareholders to disinvest from its thermal coal operations, however, Major believes these cheap, attractive assets will continue to deliver good shareholder returns. – Justin Rowe-Roberts

Peter Major on whether Impala’s second takeover attempt of RBPlats came as a surprise 

No, I wasn’t surprised. We all love the Impala deal with Royal Bafokeng. They are paying a little bit of a premium but we thought there is more than a justification for it. I was surprised when Northam came out with their bid and to pay that much means you had to think it through. We know Paul Dunne (Northam CEO) is not a knee-jerk guy. He is a very strategic thinker. I am not sure there anybody is better than him. I don’t know if we’ve got a better operator than Paul Dunne. So, when we saw that huge price he was paying, we thought he must have been working on this for a while. But, that still didn’t justify the price. We were all waiting for Impala’s reaction. It was pretty well thought out. Nico Muller (Impala CEO) had a lot of reasons to make that offer. He did a few weeks ago and for Northam to just come in and kind of make life difficult for him, he wasn’t going to run away because the reasons he wanted to buy RBPlats still exist. You know, massive synergies, on the border, going to lower overall costs, going to give a lot longer life, which should improve Impala’s rating. RBPlats was the cheapest platinum share by far. So, Nico (Muller) has done a really measured strategic move here, and I believe it’s going to go through.

On what the new RBPlats will look like 

Well, it’s going to have a long-term holder in Northam. Northam is not going to sell for below R180 per share and I don’t know anybody that is going to offer him close to R180. But remember, Northam was holding on to a little diamond share called Trans Hex, and they also made lots of noise about what they weren’t going to sell Trans Hex for. In the end, they sold it for a lot less than that, for good reason. You will sell something at a lesser price than you paid for it if you can use that money to get something at an even better deal. I think Northam may be in that position. They are holding on to a good asset [for which] they overpaid. Who knows whether these PGM prices stay here or go up; they could end up making money on that deal but it’s going to take a while. 

On the mining counters being re-rated by the market

This has knocked me over more than anything I see on the screen. I was wondering why Goldfields was sitting at R170 per share a few days ago when I took off. I came back and what is it? R180/R190. The gold price is the same, if not a little bit lower. The rand is stronger, definitely stronger than when I left. We were talking about mining shares getting rerated; mining shares in general, not just South African mining companies. Mining shares in general are trading at a quarter of the price-to-earnings ratio (PE) of the S&P 500, maybe 25% to 30%. That is pretty extreme but it’s not often they trade at that kind of discount to the S&P. The S&P, if it’s not getting tired, must be getting ready for a break. Can it really increase its earnings much more? It’s sitting on a 30 PE. I think people are saying these mining companies are churning out massive profits on massive margins. Massive margins mean 40%/50%. They’re paying massive dividends. They have been pretty prudent on not doing crazy M&A or crazy capital expenditure.

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