JOHANNESBURG (miningweekly.com) – The world’s largest platinum company, Anglo Platinum (Angloplat), with net debt of R17,9-billion, was reviewing all balance sheet options including a rights issue, Angloplat CEO Neville Nicolau said on Monday.

Nicolau, in reply to Mining Weekly Online’s question, did not exclude a rights issue as a route to strengthening its balance sheet.

Angloplat CFO Bongani Nqwababa stated that the company’s net debt was expected to increase going forward.

Making reference to a possible rights issue, Macquarie First South mining analyst David Pleming queried why Angloplat was capitalising a large part of its interest – R1,021-billion – and taking only a very small part of it into the income statement.

“The way in which you are accounting at the moment is giving a very low cost of debt relative to equity, which may even distort matters in terms of doing a rights issue,” Pleming said, adding that capitalising the interest improved the look of the income statement and asking when the full cost of the interest would be reflected.

Nqwababa replied that Angloplat had not changed its accounting policy.

“We still stick to the same accounting policy in terms of accounting for debt,” Nqwababa said, adding that the full interest charge had been disclosed, as well as the value of the interest that had been capitalised.

For as long as capital was driving the debt, a proportionate level of interest would be capitalised, Nqwababa added.

He commented to Mining Weekly Online afterwards that the capitalising of interest was a well-established practice of companies that were gearing up and which had high capital expenditure.

Nicolau pointed out that two-thirds of Angloplat’s capital expenditure would generate ounces, and was not merely stay-in-business capital.

JP Morgan analyst Allan Cooke explained that the capitalising of the interest was a reflection of the increased debt that Angloplat was incurring as part of its expansionary capital expenditure programme, and that the company would eventually allocate the interest to ounces that the expansion projects delivered in the future.

“Remember, with some of the deep-level shafts, ounces will be many years out, so that interest will only come back on to the books, in terms of the accounting policy, when those ounces are mined,” Cooke said.

Credit Suisse Standard Securities mining investment analyst David Davis doubted whether the capitalising of the interest would be well received.

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