JOHANNESBURG (miningweekly.com) – The government of Zimbabwe will need between $500-million and $1-billion in hard cash to honour its commitment of paying South Africa’s Implats fair value for control of Zimplats, Mining Weekly Online can today report.
Treaty protection under the South Africa-Zimbabwe bilateral agreement commits the Zimbabwe government to paying fair compensation for shares that it is forcing Implats to sell to it.
There is no point in Implats going back to the Zimbabwe negotiating table if South Africa’s errant neighbour is unable to show that it has access to between $500-million to $1-billion in cash to pay for the 31% of Zimplats, analysts have calculated.
While Zimbabwe’s Youth Development, Indigenisation and Empowerment Minister Saviour Kasukuwere has agreed in principle to be “fully contributory for cash at an independently determined fair value to be agreed”, consensus in financial circles is that it would surprise on the upside if Zimbabwe were able to come up with even the $500-million that is required to cover the barebones of the real value. This barebones value is made up of the $153-million for the land that Implats voluntarily gave over in exchange for empowerment credits that did not materialise, plus the $350-million that represents 31% of ASX-listed Zimplats' current market capitalisation.
However, Laurium Capital fund manager Gavin Vorwerg made the point during the Implats analyst and media conference call that any independent expert would value 31% of Zimplats at “a significantly higher figure” than the $350-million value that 31% of the current market capitalisation tallies.
To arrive at fair value, the net present value of Zimplats’ Phase 2 expansion that is in the process of ramp-up must be taken into account, as well as planned future investment and the value of the undeveloped platinum still in the ground.
While Implats CEO David Brown refused to divulge the value that his company has arrived at for 51% of the asset, he was prepared to disclose that the value his company had submitted took into account the proposed $1-billion Phase 2 expansion of Zimplats as well as the undeveloped ounces at $1/oz in determining Zimplats’ overall value.
Brown also made it patently clear during the same conference call that there was absolutely no chance of Zimplats vendor financing Zimbabwe’s National Indigenisation Economic and Empowerment Board (NIEEB) 31% purchase as it had agreed to do for the shares to be acquired by the community trust and the employee trust, which will 10% each.
Implats, which owns 87% of Zimplats, has agreed that vendor financed loans be granted to the community trust and the employee trust to enable them to fund their collective 20% of Zimplats, which is expected to take place fairly quickly even if the NIEEB aspiration is delayed.
However, if the NIEEB did succeed in sourcing funds to pay fair compensation and Zimbabwe did succeed in restoring a favourable mining investment climate, Brown promised that Implats would then reward the errant country by proceeding with Phase 3 of the Zimplats expansion at a capital cost of $1-billion and would also consider investing in a refinery in Zimbabwe that would be used by all the country’s platinum producers and not only Zimplats.
Implats currently has an offtake agreement with Zimplats for all the platinum concentrate that it produces, which is transported to South Africa for final processing into refined product.
But there would also be strategic value for Implats in making that additional investment in Zimbabwe should the economic conditions be appropriate as it would likely result in Implats regaining control of Zimplats.
This is because the new 51% Zimplats shareholders will at that stage presumably be wanting to benefit from their investment rather than seeing fit to plough in even more capital, which they are required to do in terms of the in-principle agreement, or dilute their combined shareholding to a level below 51%.
As Zimbabwe appears to be following a once-empowered, always-empowered position, failure of the new shareholders to follow their rights would mean loss of control.
Even without any additional investment, Implats employs close on 5 000 people in Zimbabwe and, with the multiplier effect of 10:1, some 50 000 people are directly and indirectly dependent on its operations in Zimbabwe, which include the Mimosa platinum mine.
Implats co-owns the higher-margin Mimosa with JSE-listed Aquarius Platinum and both have been ordered to come up with new indigenisation plans for Mimosa, which Brown is currently reluctant to discuss.