Far-seeing Xstrata made a perfectly timed bid for Lonmin on the day that Lonmin’s share price hit a 12-month low, and Impala turned smartly on Mvelaphanda Resources.

Impala is under pressure from analysts to hold back on investing in its deep Leeuwkop project and Lonmin was surprised by Xstrata as it battled tricky mining mechanisation as well as smelter issues.

While the name of Aquarius Platinum keeps cropping up every time the two words ‘platinum consolidation’ are uttered, the midcap seems to lack the gravitas to do a significant deal, and appears not to be seen as a dripping roast itself by any would-be predators.

Nevertheless, platinum consolidation attempts continue, with the possibility of it straddling the border into Zimbabwe’s Great Dyke, should the precarious settlement there gather credibility.

Both Impala and Aquarius are already deeply entrenched in Zimbabwe, and African Rainbow Minerals makes no bones about its desire to extend its platinum reach into Zimbabwe.

But market volatility in the midst of the global subprime mortgage crisis is surprising many in the platinum business, not the least being Impala Platinum marketing executive Derek Engelbrecht, whose remark about “how quickly life changes” refers to the speed at which the platinum market has swung from deficit into nigh balance.

Hit by the double whammy of lower metal prices and illiquidity, market capitalisations have been gouged, turning parti- cularly platinum juniors into takeover targets.

There was a glint in the eye of Impala CEO David Brown when he said the time was right for corporate activity in the platinum world.

Few can blame him for setting his cap for Mvela Resources, which can give Impala the shallow Booysendal project. Royal Bank of Canada Europe analysts Leon Esterhuizen, Arnold van Graan and Yuen Low suggest that Booysendal has the potential to be the “next Impala Rustenburg”, with more than 100- million attributable platinum- group metal (PGM) ounces.

They suggest further that it can allow Impala to mark time on the expensive Leeuwkop project and obtain “significant shallower, low-cost PGM ounces”.

Mvela Resources owns 63% of Northam Platinum, which, in turn, owns Booysendal, and the analysts say that Impala is discussing acquiring Mvela Resources rather than Northam itself, for “tax reasons”.

They add, too, that dis- cussions are “friendly at this stage” while no numbers have been made public.

Mvela Resources executive manager: commercial James Wellsted has for long been a forecaster of consolidation.

“We have seen quite a dramatic pullback in metal prices recently, which has taken a lot of the euphoria out of the market and certainly taken the fizz out of the smaller platinum players that are not in production yet. The big producers have also come down 30% to 40%, but among smaller companies, who are still in development phase or getting into production, the impact is more dramatic and there has been a bigger pullback in the ratings,” Wellsted explains.

Even though the metal prices have declined significantly, he points out that the companies already in production are still generating healthy margins and that there is invariably an offset element to dollar-priced declines in the form of a weaker local currency, which protects revenue.

While Lesego Platinum saw the current lack of market appetite for equity as a good enough reason to postpone its scheduled main-board JSE listing, emerging precious metals exploration and mining company Platfields remains gung ho.

The difference between the two is that Lesego’s assets are deep and Platfields’ assets are shallow.

“What we’ve seen in recent weeks is an entirely understandable and arguably anticipated market shift after a good run. Precious metals fundamentals remain sound and we are likely to see a correction of this shift in the near term,” says Platfields CEO Bongani Mbindwane, whose company intends going ahead with its main-board JSE listing before year-end and raising R450-million, despite current conditions not being conducive to capital raising.

He maintains that this scenario, together with the company’s ability to move rapidly through exploration to openpit, cash-generative mining, presents those investing in Platfields with real growth potential into the future.

Formed in 2002, Platfields has two near-surface PGM exploration projects, Berg and Leeuwkop – as distinct from that of Impala by the same name – on the Bushveld’s eastern limb, and the near- surface gold Grootfonteinberg exploration project, in Mpumalanga.

Although there is widespread reference to prices being down and the market turning lower, and averaging some $1 450/oz, “we fail to see the bad news in that story” is the point Impala’s Engelbrecht makes.

Many see the metal basket in rands as still good for Anglo Platinum, Impala Platinum, Lonmin, Northam, Aquarius and, maybe, Eastplats, but, as Wellsted points out, the limited power available (owing to Eskom’s capacity constraints) is clouding the growth outlook for the sector, with the outlook for junior miners exacerbated by the difficulty of obtaining power assurances for new projects from Eskom.

“Obviously, some are looking to self-generation as an option, but it’s expensive and will impact on project returns,” says Wellsted.

The other hurdle strewn in juniors’ paths that was not there when they set out their project stalls is illiquidity.

“This makes it difficult for platinum juniors who don’t have a strong balance sheet and cash flow to raise debt,” Wellsted elaborates.

Some juniors require sizeable amounts, with R5-billion and R6-billion not uncommon, and raising such magnitudes off thin, cash-flow-bereft balance sheets is some ask.

As that level of debt funding is invariably insurmountable, juniors who look to equity currently find the markets intensely risk averse.

And where an equity raising may succeed, it is likely to come at an excessive discount to fair value as new investors take advantage of the credit crunch.

This unsettles existing shareholders who are diluted as a result.

The speed at which costs are rising is another factor in the investor flight, with Wellsted estimating that capital and operating costs have risen 20% to 30%.

This may force junior com-panies back to the drawing board to redo bankable feasibilities done less than a year ago to see if their projects are still generating adequate returns.

Cash-rich majors are very much the top dogs, and con- solidation will be driven by the value that is there to be negotiated, as well as regional synergies.

Possible Bedfellows

Xstrata seems to be intent on consolidating the south-western limb of the Bushveld Igneous Complex and Wellsted concedes merit in at least discussing the value that can be unlocked between Mvela Resources and other neighbouring producers, into which one can read the location of Aquarius’s Everest South mine next door to Booysendal.

But the big matter of the moment is Impala’s desire for the entire issued share capital of Mvela Resources, and the concomitant acquisition of Northam.

Owing to Mvela Resources’ classification as a ‘pyramid company’, in terms of the Securities Regulation Code on Takeovers and Mergers, any offer resulting in a change in control of Mvela Resources requires the offeror to make a comparable offer to shareholders of Northam.

Any potential transactions arising from such approaches, if successfully concluded, may have a material impact on the price of the companies’ securities.

Impala Platinum wants to create a “South African-controlled platinum champion”, and sees acquiring Mvela Resources as its way of doing so. The transaction, if successful, could be South Africa’s third-biggest to date, says Reuters.

Besides the operating western limb Northam mine, there is also the potential to take Booysendal beyond the initially planned 400 000-t/m production level.

Black-controlled Mvela Resources also owns 15% of gold major Gold Fields, and Vestec analyst Sasha Naryshkine says that a Mvela Resources buyout could have implications for Gold Fields South Africa’s black economic-empowerment status.

Booysendal contains 103- million ounces, and could be in production as early as 2011, ramping up to full production in 2014/15.

Impala, which operates mines in South Africa and Zimbabwe, produced 1,9- million ounces of platinum in the year to June 30, 2008, and needs more shallow ounces to make its mark.

Other Deals

While the Wesizwe, Anglo Platinum and PTM deal provides one of the latest insights into the intricacy and intertwining of the consolidation trend, other possibilities include Platmin and Sedibelo as another logical regional consolidation opportunity.

Black economically empowered (BEE) Wesizwe Platinum is getting its hands on Anglo Platinum’s entire 37% stake in the Western Bushveld Joint Venture (WBJV) for R1,162-billion, in exchange for 211-million new shares in Wesizwe, headed by astute CEO Mike Solomon.

Part of this deal is Wesizwe’s back-to-back agreement with PTM, which will buy a 37% participation interest from Wesizwe in Project One and Project Three of the WBJV for R785,5-million.

The purchase consideration will be offset by the sale of PTM’s 18,5% participation interest in the WBJV Project 2 for R367,9-million, of which about 12% comprises the Wesizwe project.

The balance of R408,6-million will be payable in cash, says Solomon, who adds that the money will remain in the WBJV as a contribution to Project One’s capital cost.

This will enable Wesizwe to own 100% of its core Frischegewaagd-Ledig project, while Anglo Platinum will own 26,57% of Wesizwe. As a result, Wesizwe’s attributable PGM resources will increase from 13-million ounces to 15,7-million ounces, and the company’s forecast attribut- able production ounces will increase from 331 000 oz/y to 415 000 oz/y, once the two projects have reached steady-state production.

Quite a mouthful, but there is still more.

“The issue of control is important, and we will have total control of our core asset, while PTM will have total control of the operational aspects of the WBJV. As far as the capital raising is concerned, this [transaction] also facilitates a much easier capital raising process,” says Solomon.

The net effect for PTM is a rise from 37% share ownership in the WBJV to 74% ownership, with Wesizwe maintaining a 26% BEE interest in the WBJV.

PTM CEO Mike Jones concedes that the overlapping mineral rights make it a complex transaction that is initially hard to understand.

“The big winner is the community. They will have two mines going forward, which will generate some 6 000 jobs,” says Jones.

Proposed Lonmin Takeover

Xstrata’s proposed takeover of Lonmin signals market confidence in a period of downturn, although Lonmin’s tough resistance to the takeover may prove insurmountable.

Xstrata is showing no sign of increasing its £33-a-share offer, which Lonmin condemns as being too low.

Professional services firm KPMG director Sandile Hlophe sees the Xstrata-Lonmin deal as positive with the potential to create a larger South Africa-based resources entity that has a global dimension.

“Consolidation should lead to more output demands and to more jobs if the consolidation synergies are fully realised. Thus, there should be no job shedding, but more employment. Projects and exploration should go full steam ahead once consolidation is bedded down,” says Hlophe.

Department of Minerals and Energy spokesperson Spuitnik Ratau tells Mining Weekly that it is up to the mining companies to make an economic choice of consolidation.

“In any business transaction, the issue of black economic empowerment must not be compromised, as it is not negotiable,” he adds.

There is also a situation that the small companies have smaller asset bases that do not have long life, but if one consolidates them on a regional basis, one can exploit their orebodies in a logical fashion and in a way that adds more value and can sustain jobs and social development over a longer term.

NUM general secretary Frans Baleni says that the union will object if such consolidation leads to job losses.

“The view that we have as a union is that we do not have any preferences regarding obvious consolidation possibilities because it will compromise our standpoint. We want to deal with issues as a principle of worker protection and job security,” Baleni says.

Hlophe adds that the global resources sector is currently in consolidation mode as a means of increasing market share, volume output and ultimately share price.

“Consolidation will have a limited impact in terms of BEE, as the share price of the consolidated entities will be very high and only affordable by the early movers in the BEE space, who have credentials in the mining sector.”