Implats CEO doubles down on RBPlat’s value in the long term, but there’s little to be positive about in the PGM sector right now
18 April 2024 - 06:00
byDAVID MCKAY
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Implats CEO Nico Muller at the PGMs Industry Day in Joburg, April 10, 2024. Picture: REUTERS/Ihsaan Haffejee
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.”
I am very convinced that 30 years from now … ‘long’ investors will approve of the value because it makes absolute sense for our company
Nico Muller
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.
We’ve been here before, says Froneman
Sibanye-Stillwater’s AGM on May 28 carries more than the usual jeopardy following the company’s surprise $500m convertible loan launched last year. If shareholders vote against the normally standard resolution permitting the issue of shares, Sibanye-Stillwater will have no option but to settle the bond in cash.
Right now, with net debt last stated at R12bn and commodity prices cratering, the company would find it difficult to do so. Based on analysts’ questions at the group’s annual results presentation on March 5, there’s a view that management should solve its own liquidity problems rather than having shareholders pay for it with equity.
One repeated question was whether Sibanye-Stillwater planned a rights issue. “This perception is completely wrong,” replied CEO Neal Froneman. Asked by the FM last week if he feared a negative shareholder backlash at the AGM, Froneman said he would prefer to settle the bond in cash anyway.
He also pointed to a recent improvement in the share, up a fifth in the past 30 days. Though still short of the bond’s conversion price of R24.31 to R25.24 a share, assuming a 30% to 35% premium to the share’s November 21 close, Froneman said the recent share price performance shows confidence is growing.
In the meantime, Sibanye-Stillwater is assessing how it can destress the balance sheet. The best solution would be for a resounding improvement in PGM prices. In the absence of that — which analysts consider unlikely this year — the company will be pushed to sell assets.
Sibanye-Stillwater plans to invite bids for its extensive uranium resources. It also hopes to sign a prepayment or streaming deal on gold metal byproducts from PGMs. These are worth an estimated $500m at the current gold price over the life of Sibanye-Stillwater’s PGM mines.
Unfortunately, a second wave of restructuring is also under way. Sibanye-Stillwater is reviewing up to 4,000 jobs at its head office and its older gold shafts (though the number of jobs lost will be much lower). Froneman acknowledged that these are testing times: “The challenge is to keep our own team focused. Sometimes there is a bit of panic among shareholders and even staff. But we’ve been here before. It’s just business cycles.”
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
The platinum follies
Implats CEO doubles down on RBPlat’s value in the long term, but there’s little to be positive about in the PGM sector right now
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.
We’ve been here before, says Froneman
Sibanye-Stillwater’s AGM on May 28 carries more than the usual jeopardy following the company’s surprise $500m convertible loan launched last year. If shareholders vote against the normally standard resolution permitting the issue of shares, Sibanye-Stillwater will have no option but to settle the bond in cash.
Right now, with net debt last stated at R12bn and commodity prices cratering, the company would find it difficult to do so. Based on analysts’ questions at the group’s annual results presentation on March 5, there’s a view that management should solve its own liquidity problems rather than having shareholders pay for it with equity.
One repeated question was whether Sibanye-Stillwater planned a rights issue. “This perception is completely wrong,” replied CEO Neal Froneman. Asked by the FM last week if he feared a negative shareholder backlash at the AGM, Froneman said he would prefer to settle the bond in cash anyway.
He also pointed to a recent improvement in the share, up a fifth in the past 30 days. Though still short of the bond’s conversion price of R24.31 to R25.24 a share, assuming a 30% to 35% premium to the share’s November 21 close, Froneman said the recent share price performance shows confidence is growing.
In the meantime, Sibanye-Stillwater is assessing how it can destress the balance sheet. The best solution would be for a resounding improvement in PGM prices. In the absence of that — which analysts consider unlikely this year — the company will be pushed to sell assets.
Sibanye-Stillwater plans to invite bids for its extensive uranium resources. It also hopes to sign a prepayment or streaming deal on gold metal byproducts from PGMs. These are worth an estimated $500m at the current gold price over the life of Sibanye-Stillwater’s PGM mines.
Unfortunately, a second wave of restructuring is also under way. Sibanye-Stillwater is reviewing up to 4,000 jobs at its head office and its older gold shafts (though the number of jobs lost will be much lower). Froneman acknowledged that these are testing times: “The challenge is to keep our own team focused. Sometimes there is a bit of panic among shareholders and even staff. But we’ve been here before. It’s just business cycles.”
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