Charlotte Mathews
7 October 2008
Johannesburg — MARKET views on which company will benefit most from the merger proposed last week between Impala Platinum, Northam Platinum and Mvela Resources appeared to depend largely on the outlook for platinum group metals (PGMs) prices.
Implats (IMP) said it would offer a combination of cash and its own shares to Northam (NHM) and Mvela Resources (MVL) shareholders to acquire all their shares. Mvela Resources owns 62% of Northam and shares in Gold Fields SA and Trans Hex; Northam's main asset is its 100% stake in the Booysendal platinum project, which can be developed in the next four years into a substantial mine.
Regarding Capital Management (RE:CM) analyst Danie Malan said yesterday the firm had been holding defensive shares for the past 18 months to two years and its commodities exposure was limited to a couple of gold shares and one diamond company.
He said RE:CM was continuing to look at resources companies carefully and when it considered they offered value, it would buy. On RE:CM's calculations, sustainable long-term commodities prices were still a long way below current spot prices, he said.
Imara SP Reid analyst Steve Meintjes said in a note to clients that the deal would result in a material increase in Implats' resource base through a project that was likely to have lower production costs and enhance Implats' black empowerment credentials.
He said the timing of the deal could favour Implats, since part of the acquisition price would be based on the cash equivalent of its depressed share price. Despite lower PGM prices, and management's forecast that costs would rise 17% this year, Implats would still be profitable, Meintjes said. Imara SP Reid expected that PGM prices would recover next year on sustained autocatalyst, jewellery and industrial demand.
Meintjes recommended that Implats shareholders approve the transaction but warned that share price volatility would continue for some time.
Cadiz African Harvest fund manager Peter Major said yesterday the deal looked like a great one from the Mvela Holdings and Mvela Resources points of view. Mvela Holdings owns 23% of Mvela Resources.
He said the companies did not have the funds or the internal expertise to develop Booysendal on their own. Although with their depressed share prices, the timing looked poor, the deal had probably been under negotiation for several months, with many parties involved. In fact, the share ratio Implats was offering was attractive, he said.
Major said it was a less positive deal from Implats' point of view but it did provide Implats with the shallow, lower-cost mine that it lacked. The group's only other options for near- surface mining were the Leeuw-kop deposit acquired from Afplats last year, which it was likely to put on the back-burner, and its properties in Zimbabwe.
Fitch Ratings yesterday confirmed Implats' long-term and short-term credit ratings. It said the combined group would have a similar financial profile to Implats. Although development costs were expected to lead to an increase in debt over the next two to three years, the new group's gearing should remain below one times net debt/operating profit. The transaction would enhance Implats' scale and operational diversification.
All three groups' share prices weakened yesterday on a further softening in the platinum price. By midday, Implats was trading 7% down at R131, Mvela Resources 14% lower at R34,15 and Northam 12% off at R38.
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