Zimbabwe: SA Analysts Remove Red Flags On Implats

SOUTH African financial analysts have downgraded their alert on Impala Platinum following its completion of the Zimplats indigenisation transaction.

Last month Johannesburg Stock Exchange-listed Impala Platinum sold 51% of its stake in Zimplats to indigenous Zimbabwean entities for US$971 million, in order to comply with the country's empowerment laws.

The majority of analysts described the deal as fair as it solved the uncertainty regarding ownership structures and might provide Zimplats with sufficient confidence to commit to additional future expansion.

Zimplats said it will forge ahead with its multi-million dollar expansion plan targeted at boosting production by almost a 100 000 ounces in the next two years under Phase 3 of the project.

The company has also spent US$30 million on feasibility studies on opening a platinum refinery.

Standard Bank Securities in its analysis of the transaction said such clarity potentially unlocked future shareholder value and therefore maintained its 'buy' tag on Impala.

The securities firm said the transaction was surprisingly fair, providing for shareholder clarity and potential to unlock value from a quality platinum group metals asset.

JP Morgan analysts said the new shareholding structure was based on contribution, so if the indigenous shareholders did not up the ante on their share of any expansion equity capital funding required, they would be diluted.

The analysts put a 'neutral' tag on Impala, saying although the transaction value was marginally negative to their valuation; it would be viewed as slightly positive by the market as it removed an element of uncertainty with respect to the group's operations in Zimbabwe.

"It also paves the way for future expansion projects to be considered at the mine, always assuming that the goalposts are not moved again," said JP Morgan in its investment note.

Recently South African president Jacob Zuma supported Zimbabwe's indigenisation programme, saying companies were now going to the country to be part of it.

"People will always have some nervousness when we say things... When Zimbabwe said indigenisation people jumped all over. Today people go to Zimbabwe to be part of indigenisation," Zuma said in an interview on CNBC's Political Exchange programme.

"Mining can't make huge profits with no benefits to the people of the country... (if you are not) addressing the economic need of the country you must know we are dealing with a problem."

However, Citi Research downgraded Implats to 'neutral' from 'buy' arguing it was executed at a 42% discount to the fair value they had estimated for the company. Zimplats as a going concern was valued at US$2,6 billion by Brainworks Capital while on an asset valuation the value is at US$1,7 billion.

Brainworks put the value of the in-situ resource at US$508 million, which was deducted from the purchase price. The value of the 51% stake therefore amounted to $818 million before the government debt of US$153 million.

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