Johannesburg - Neal Froneman, the chief executive of Sibanye Gold, staked his claim in the future of platinum yesterday, after announcing plans to acquire Aquarius Platinum less than two months after agreeing to buy Anglo American Platinum’s (Amplats) Rustenburg assets.
Froneman’s bid for platinum assets suggests a consolidation of the sector, which has been hammered by falling global demand and weak business confidence. He has previously called for consolidation of the gold sector, to cushion against rising input costs.
Sibanye, which was formed in 2013 after Gold Fields unbundled its ageing South African assets, yesterday offered R2.66 a share for Aquarius, a 60.3 percent premium to Monday’s closing prices on the JSE. The deal values Aquarius at R4 billion.
“Rustenburg was just the first step and that consolidation in the industry was necessary for long-term survival and value creation,” Froneman said. “We always had this as a second step, we were always clearly well advanced as we were doing Rustenburg.”
Aquarius shares quickly gained as much as 46 percent and traded 36.47 percent higher at R2.32 at the JSE close yesterday, that values the company at R3.5bn. Sibanye shares soared 10.09 percent to R19.74 at the JSE close yesterday, the highest since September 14, valuing the mining firm at R18.06bn.
Bottom of cycle
Rene Hochreiter, a mining analyst at Noah Capital Markets, said yesterday that Froneman was eyeing Aquarius because platinum was at the bottom of the cycle and platinum assets were much cheaper at current levels.
“The average market cap per ounce for platinum reserves and resources currently averages $4.06 (R55.43) per ounce for listed South African platinum producers.
“Froneman has bought Aquarius at $1.46 an ounce; this is a massive discount… I think that this is a massive vote of support for the Platinum Group Metals (PGM) industry,” he said.
Asked if Sibanye’s bid for Aquarius was an attempt to boost the depressed platinum price, he said the deal was not big enough to influence the platinum price.
Platinum is used in car catalytic converters in diesel vehicles to limit emissions, and last month’s confession by Volkswagen (VW) that it used emission test cheating software in 11 million diesel cars reportedly dented demand for diesel cars and damaged platinum that had already been hit by falling demand in China.
Hochreiter did not believe that the VW scandal would have an impact on the platinum price in the long run.
“It is a storm in a teacup,” he said. “You cannot get a better metal to reduce emissions from a diesel or petrol engine than platinum and the PGMs.”
First hurdle
The platinum price fell below $900 (R12 288) an ounce last week, a seven year low, advancing to $938 an ounce yesterday.
The deal received its first hurdle within hours when InvestecAsset Management, which owns a 13.9 percent stake in Aquarius, said it would not support it under the current conditions.
Hanre Rossouw, a money manager at Investec Asset Management, said it would recommend shareholders support the transaction, which needed a simple majority to pass.
Sibanye said yesterday that some shareholders had indicated their support for the transaction.
“They’ll get the assets for almost nothing, while the premium is paid from the synergies and cash that they’ll get from the deal,” Rossouw said, referring to Aquarius’ net cash holdings of $72 million and R800m of cost savings targeted by Sibanye.
Aquarius, which owns the Kroondal mine with Amplats near Rustenburg and has a stake in the Mimosa joint venture in Zimbabwe with Impala Platinum, has been hammered on the JSE, falling by 31 percent since last year in tandem with the rest of the platinum industry.
Sibonginkosi Nyanga, an analyst at Momentum S P Reid Securities, said yesterday that Froneman was taking a long-term view of the platinum industry.
“Platinum fundamentals are expected to improve in the long term, but it is all about timing,” Nyanga said.
“Platinum sector fundamentals are not very bad if someone takes a long-term view.
“Valuation wise, everyone agrees that resource stocks are undervalued and looking at the premiums Sibanye is paying is meaningless at this point of the cycle.
“I think the deal is positive for Sibanye, as they will get the Aquarius assets for cheap.”
BUSINESS REPORT