Northam Platinum plans to sell its 34.5% stake in Royal Bafokeng Platinum (RBPlat) for R9 billion to its rival Impala Platinum due to a decrease in platinum group metals (PGM) prices, which led to adverse market developments.
In a statement, Northam, which had been a contender in the takeover bid of RBPlat that was won by Implats, said it has submitted its acceptance of the Implats Mandatory Offer in respect of all of the 100.2 million RBPlat shares held by Northam Holdings.
Northam withdrew from its proposed acquisition of RBPlat in April.
Northam CEO Paul Dunne said: “The prevailing PGM market conditions and the material decline in the PGM basket price during, in particular, the last four months may signal a potentially protracted cyclical downturn.
“Relative positioning on the industry cost curve and the ability to retain operational flexibility and balance sheet strength will become increasingly important over time.
“Northam has always maintained inherent optionality and flexibility in executing its growth strategy, and these considerations remain key drivers to all decisions".
The group said subsequent to Northam announcing its initial acquisition of a 32.8% interest in RBPlat on November 9, 2021, the PGM market strengthened significantly, resulting in a peak increase of 41% in the ZAR 4E basket price based on the average price split across RBPlat’s operations, from the announcement date to March 8, 2022.
“The basket price remained strong throughout 2022, with a net increase of 10% from the announcement date to the date of Northam Holdings announcing its firm intention to make a voluntary, conditional offer to RBPlat shareholders to acquire the remaining RBPlat shares not already held by Northam Holdings on November 9, 2022.“
Northam said the basket price later declined materially, from R36 404 per 4E oz to R23 652 per 4E oz as of July 18, 2023, representing a decrease of 35%
The group said the net decrease in the basket price from the announcement date to July 18, 2023 was 28.6%.
According to Northam, these adverse market developments have resulted in a material contraction in profit margins and cash generation capacity across the PGM industry, including at RBPlat.
“As a consequence, equity valuations across the entire PGM sector have declined substantially. Against this backdrop, Northam’s wholly-owned operations continue to perform well.“
The group said from the date of the termination announcement of its proposition to acquire RBPlat on July 18, 2023, the basket price has further deteriorated by 17.6%.
The group said Implats mandatory offer had provided Northam with full optionality since December 2021.
“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 strong cash underpin that has not been adversely affected by the steep decline in PGM equity valuations across the sector,” the group said.
It said the disposal also presents Northam with an opportunity to significantly strengthen its balance sheet and liquidity position, which in turn provides additional flexibility and optionality for Northam, subject to the relevant regulatory requirements and approvals necessary.
Dunn said the disposal will also positively affect Northam’s ability to continue to return value to its shareholders in the short to medium term, including through potential dividends and/or share buy-backs, following on from the 30% share buy-back which was implemented in 2021.
“Northam’s growth strategy initiated in 2015 remains on track, and we are pleased with the operational performance and contribution of all our assets,” he said.
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