Northam withdraws bid for RBPlat, clearing the way for Implats

South African mining company Northam Platinum has withdrawn its intention to acquire Royal Bafokeng Platinum (RBPlat), clearing the way for a cash-and-shares offer from Impala Platinum (Implats) to go through. Implats has steadily increased its shareholding in RBPlat to around 41% since making its offer a year and a half ago, all from institutional shareholders. Northam, which holds around 35% of RBPlat shares, had previously announced plans to make a competing bid, but criticism from shareholders, including fund manager Visio, and concerns about high levels of debt and gearing appear to have led to the withdrawal of the offer. The Implats offer, which comprises R90 in cash and 0.30 Implats per RBPlat share, will now be the only one on the table. The deal has been held up for more than a year and a half by technical objections, but looks set to go ahead with Northam’s withdrawal.

Northam’s decision to back out of the deal is believed to have been influenced by negative reaction from shareholders, notably fund manager Visio, which wrote to the board criticising the bid for RBPlat given Northam’s already high level of gearing. Such purchases are best made when the commodity cycle is in a downturn, said Visio. There are also concerns about Northam’s gearing ratio, which is the highest in the PGM sector. The offer by Northam was based on expectations of higher commodity prices, said Visio. These expectations may turn out to be exaggerated, based on the recent performance of PGM prices.

In contrast, RBPlat’s mines are shallow, have relatively long lives, operate at low cost, and the group is essentially debt-free. RBPlat has more than 60 million ounces of platinum group metals (PGMs) locked up in the UG2 and Merensky reefs, most of this at shallow depths up to about 1,000 metres below ground.

While the Implats offer now looks more certain, the outcome will likely be decided on 28 April when its offer expires. Implats needs a compliance certificate from the Takeover Regulation Panel (TRP), a process that has been held up over technical objections raised by Northam. Implats spokesman Johan Theron said the offer was always the only one available to shareholders, given that the much-hyped Northam offer never materialised. All substantive conditions required for the takeover have been met. Remaining shareholders, including Northam, now have a pressing decision to either sell to Implats before the offer potentially expires on 28 April, or risk holding the equity into a softer market with no other offer available to them.

Implats will need to increase its shareholding in RBPlat from the current 41% to more than 50%. The Public Investment Corporation (PIC)’s roughly 10% would push it over that line, but what Northam plans to do with its 35% remains unknown.

The chart below shows the 71% drop in rhodium prices and weaker platinum and palladium prices that prompted Northam to terminate its offer.

Visio said RBPlat rightly belongs to Implats, and it is strongly opposed to Northam pursuing a joint venture arrangement with Implats on RBPlat due to valuation concerns, as well as the risks that come from the asset being managed by two parties that have differing priorities, given that they are at different stages of the capital cycle.