Impala Platinum's Marula mine. File picture: TYRONE ARTHUR
Impala Platinum's Marula mine. File picture: TYRONE ARTHUR

Impala Platinum (Implats) is close to removing a large and expensive bond from its balance sheet, spending up to R523m to bring more certainty to its earnings.

Holders of  Implats's $250m convertible bond due in 2022 have largely accepted a cash and share offer to terminate the instrument early, removing the bond that attracted interest payments of R300m a year and made earnings volatile.

The bond created volatility in earnings since it was issued in 2017, with mark-to-market valuations needing accounting adjustments affecting earnings, said Vunani Securities head of equities Hurbey Geldenhuys.

"Without the bond valuation earnings will be cleaner and more reflective of underlying operating trends," he said in a note last week when Implats unveiled the offer.

Implats has said its improved financial situation because of higher prices for the basket of platinum group metals it produces as well as a recovery in its operational performance, allowed it to address its debt.

So far, Implats has received acceptances from holders of 88% of the bond and indications from another 11 percentage points that they wanted to convert but had missed the deadline for various reasons.

Implats is paying $30,069 for each tranche of $200,000 of bonds. Based on the prevailing exchange rate, Implats will pay up to R523m to the holders of these bonds in total.

Graphic: DOROTHY KGOSI
Graphic: DOROTHY KGOSI

It is issuing 56.55-million ordinary shares, or 7.15% of its shares in issue to the holders of $220m of bonds. Another 7.7-million shares will be issued to the holders who have indicated they missed the cut off time.

Implats, the world’s third-largest platinum miner, told the market that by the close of the offer on Monday evening, it had received offers to convert $220m worth of bonds in the early termination.

It noted that holders of another $29.8m worth of bonds had also indicated their desire to convert, but had been unable to meet the Monday deadline for administrative reasons.

Implats will contact these holders and offer them the same terms as those holding the $220m worth of bonds.

Holders of the remaining $200,000 bonds will have until July 31 to convert their bonds. Implats may impose the conversion of the holders of this tranche.

Implats has said if there is an 85% acceptance of its offer it will impose the offer on the remaining bond holders.

The dollar bond was one of two convertible bond Implats issued in 2017 to raise $500m to redeem two bonds of $200m and a R2.67bn that were falling due in 2018.

These two new convertible bonds due in 2022 raised $250m and R3.25bn at a time when Implats was grappling with low metal prices and balance sheet difficulties stemming from the majority of its South African mines being unprofitable.

The 2022 rand bond of R3.25bn attracts annual interest payments of R120m and will be dealt with later.

Implats’ financial situation improved in the six months from the end of June 2018, the first half of its financial year, as a focused operational improvement strategy at its problematic mines around Rustenburg took effect and benefited from the higher metal prices.

Net debt fell to R976m by the end of December from R4.4bn at end-June 2018, with gross cash rising to R6.4bn from R2.7bn. Gross debt fell by R1.7bn to R7.3bn.

seccombea@bdfm.co.za