[miningmx.com] – IF the results presented by Anglo American Platinum (Amplats) on July 21 sounded surprisingly upbeat, it’s partly because the group’s strategic deliverable of selling its non-core shafts and joint ventures for good value requires a certain air of unhurried nonchalance.
It certainly appeared as if Amplats CEO, Chris Griffith, wanted to project a company at peace with its lot; certainly not a company in an urgent need to sell assets notwithstanding its 1% return on capital employed (ROCE), a far cry from the 15% required by its parent, Anglo American.
Instead, the message made for positive reading.
Amplats would produce only 100,000 ounces less platinum for its 2014 financial year than first guided notwithstanding the five-and-a-half month strike waged by the Association of Mineworkers & Construction Union (AMCU).
Furthermore, the balance sheet was under control – although capital expenditure has been reduced to between R5.5bn to R6.5bn from R7bn – whilst there was further good news in store in that the market for platinum group metals was in decent shape, said Griffith.
Impala Platinum (Implats) may fear lost mining face owing to the duration of the strike, and Lonmin is reputedly having start-up problems following cable theft during the strike, but Amplats doesn’t believe it has lost a single panel at mines affected by the downtime.
In addition, an asset unaffected by the strike, Mogalakwena, produced record output of 185,000 oz whilst production of equivalent refined ounces from all but Modikwa of Amplats’ joint venture partners and associates increased during the six months ended June 30.
The operations may have been remained free cash flow negative in the period, taking net debt R900m higher to R12.6bn, but the market bought the argument that in deciding to sell its lower margin assets – from which Amandelbult has been excluded – Amplats has turned a crucial corner.
Amplats shares increased 6% from July 18 and now show a 58%, 12-month return including today’s trade in which they nudged marginally higher. The stock has been on an upward trajectory ever since the AMCU strike broke out in January. This may partly be in concert with the weakness of the rand to the dollar, but the strike only accelerated the inevitable hiving off of Amplats’ weaker assets which the market loves.
Griffith, however, wasn’t having any connection made between the strike and surgery to the portfolio. “We don’t have to rush out there. It’s not a fire sale,” he said of plans to sell the Rustenburg shafts, Union section, as well as its stake in the Pandora joint venture held with Lonmin.
Glancing up from his prepared notes, Griffith visibily bristled as he turned on media for reporting that that the firm’s decision to sell assets was a direct consequence of the strike. “It’s very important to note that the exit is not a result of the strike,’ he said. “This is a continuation of the restructuring and repositioning of portfolio that we announced in 2013.’
Clearly then, the horse-trading has started. In fact, Sibanye Gold CEO, Neal Froneman, started it in April when he said he hoped to be in possession of a platinum mine before the year-end.
Said Griffith: “We have a two-prong approach in which we would prefer to sell assets, but it’s not the best time in the world to sell assets. There is the option, which is widely used, of listing the assets, but that is not our preferred option”.
Listing a new platinum business containing a low margin asset like Rustenburg doesn’t seem much of an option at all even if the platinum market is fundamentally in good shape as Griffith contended.
For evidence, look no further than Pallinghurst Resources which has been reticent to list its Sedibelo Mines whilst Tharisa, a platinum and chrome producer, would have preferred not to have listed in Johannesburg in April, but only did so in order to honour the debt owed to its preference share holders. It raised half the amount of capital it first wished for.
The only single asset companies that thrive in the platinum sector are those with extremely good quality orebodies such as Royal Bafokeng Platinum which has in its Bafokeng Rasimone mine one of the few Merensky-rich deposits left in the Bushveld.
The stage is therefore set for the hard bargaining to begin and makes the process of restructuring among some of South Africa’s oldest platinum areas somewhat difficult to predict.
Griffith said he wants book value, or the value at which the assets are carried on the balance sheet minus depreciation or goodwill. That sounds like full value and may not take into account the risk of a rapidly change labour dynamic on those assets.
“We are certainly not going to chase acquisitions for the sake of growth,” said James Wellsted, head of corporate affairs for Sibanye Gold. It’s an oft-repeated claim of the gold firm which said its priority is to pay dividends.
“Angloplats persistence to extract value from the sale by achieving close to book value may push the potential sale well into FY15 given current market dynamics and the limited list of potential buyers in our view,” said Seten Naidoo, an analyst for Standard Bank Group Securities.
It also suggests that Amplats’ share price gains may have run its course for the time being. Said UBS in a recent note: “We like Amplats potential to transform itself, but feel this theme has largely played out already in its relative outperformance versus peers year-to-date.’
