Northam Platinum is exploring using the cash from the sale of its 34.5% stake in Royal Bafokeng Platinum (RBPlat) to pay a maiden dividend or embark on a share buyback.
The other option is to reduce debt, the group’s CEO, Paul Dunne, said on Thursday, after the announcement of the sale of the stake to Impala Platinum.
Northam said the R13.1bn deal will provide it with a potential buffer against the uncertain outlook in the platinum group metals (PGM) market.
Northam spent R17bn to secure almost a third of the shares in RBPlat 20 months ago, meaning that the latest deal comes at the loss of R4bn.
The future of its strategic holding was a subject of market speculation after it in early April backed out of a bruising battle with Implats over RBPlat, which is envied for its large, shallow and high-quality assets.
Implats led by CEO Nico Muller proceeded to successfully bring its crosstown rival under its wing after the Public Investment Corporation helped it cross the critical 50% threshold.
“We commend the board on their decision to tender the RBPlat stake into the Implats offer and agree with their rationale,” Visio, which manages more than R35bn in assets on behalf of its clients, said on Thursday.
“Their operational strength, high quality flagship Booysendal mine and a degeared balance sheet will hold them in good stead in this uncertain macro environment.”
The asset manager said Northam’s heavy capital expenditure cycle was nearing an end while some of its peers were now entering a reinvestment cycle.
The transaction means RBPlat, valued at R38bn on the JSE, is now a subsidiary of Implats, which has a market capitalisation of about R118bn.
Northam will receive about R9bn in cash as a result of the latest deal, as well as the 3.3% stake in Implats now valued at R4.1bn.
Northam said: “In light of the prevailing market conditions and negative medium-term outlook, the Implats mandatory offer presents a unique and attractive opportunity for Northam to lock in substantial value in relation to the disposal shares, with a strong cash underpin that has not been adversely affected by the steep decline in PGM equity valuations across the sector.”
Dunne said that PGM market conditions and the fall in the PGM basket price, particularly in the past four months “may signal a potentially protracted cyclical downturn”.
Prices of PGMs, used to make jewellery and cut harmful emissions in internal combustion engines, dropped off their historic highs in 2021 during the Covid-19 pandemic. The global economic outlook has also become uncertain, potentially affecting the demand outlook.
The weaker market led to lower profit margins in the PGM industry.
“Northam decided to take the cash and shares as the cash will help it become debt free and if it holds the Implats shares long enough, it will probably recover some of its losses on the deal,” said Greg Katzenellenbogen, senior portfolio manager Sanlam Private Wealth.
Northam earlier this month said it had concluded and implemented an agreement to restructure its existing banking facilities, whereby the R2.4bn has been fully settled and cancelled, and the existing R7.1bn five-year revolving credit facility has been increased by R2.8bn to R10bn.
Northam’s share price ended 7% higher at R152.54 on the JSE, their biggest one-day gain since mid-April, according to Infront data.
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