The platinum follies

Nico Muller, Impala Platinum (Implats) CEO, carries a slightly haunted air at the moment. Speaking at the PGMs Industry Day conference in Joburg this month, he reflected ruefully on the chasm between shareholder expectations and the exigencies of his platinum group metals (PGM) business.

He would much prefer to pay shareholders lower dividends during periods of high metal prices so as to afford acquisitions in the down cycle, when equities are favourably priced. He also yearns for “an alternative funding methodology”, as he described it. “So you don’t go through this boom or bust when prices are low, when we are so poor we can’t even buy a corner café let alone another PGM asset.”

Implats bought Royal Bafokeng Platinum (RBPlat) for R150 a share last year, seeing off a higher offer from Northam Platinum. In January 2022, when the offer became mandatory, rhodium was trading at about $19,500 an ounce. Since then, PGM prices have deteriorated heavily. Rhodium is now worth a little over $4,000 an ounce.

Apart from looking expensive, the RBPlat transaction has saddled Implats with operational stress. Impala Bafokeng’s newly commissioned Styldrift mine is operating at 70% of capacity, making it capital inefficient. According to a report by RMB Morgan Stanley, the Bafokeng assets will burn just under $100m in negative cash flow this calendar year, assuming current stay-in-business capital and after factoring in announced restructuring.

“Any regrets about the Bafokeng transaction?” asked conference host Bernard Swanepoel, who happens to be an Implats nonexecutive director. “You are talking about winner’s remorse?” Muller replied, to which Swanepoel responded: “Sometimes you catch the bus then you blow the exhaust.”

Muller acknowledged buying RBPlat is a “stupid deal” at today’s prices, but added: “I am very convinced that 30 years from now, when we look back, ‘long’ investors will approve of the value because it makes absolute sense for our company.” That’s probable. Even Northam CEO Paul Dunne acknowledged RBPlat will be net positive for Implats in the long term.

But that’s not how some shareholders see it. Asset manager Coronation last year publicly disavowed the PGM sector. It criticised past poor capital allocation and said it was exiting the sector. Muller acknowledged mistakes have been made. He wished Implats had bought North American Palladium, a Canadian miner, today rather than in 2019 when it paid $758m. “I hope we learn how to develop the capability of efficient M&A,” he said.

In the meantime, the sector has to scrabble through the current depression. Shares have been on the rise, but Adrian Hammond, an analyst for Standard Bank Group Securities, is sceptical. “In terms of the shares, these are highly leveraged businesses, particularly Impala Platinum and Sibanye-Stillwater,” he says. Not until the autocatalyst industry’s original equipment manufacturers come out in force will positive vibes begin to flow again for South Africa’s stricken PGM sector.