Andre Janse van Vuuren
METAL prices at five-year lows will prompt Impala Platinum Holdings to seek market financing should it proceed with a targeted $2.5 billion (R30bn) of spending on mines.
That is the view of Kagiso Asset Management and Abax Investments, which say the South African producer’s five-year plan for building new shafts will force it to either raise cash or scale back capital expenditure unless platinum prices rebound. While forecasts diverge, Impala chief executive Terence Goodlace said on February 26 he did not see a recovery in prices for another 18 months.
Impala’s cash pile shrank 49 percent to R2.7bn in the 18 months through December amid a 9.9 percent slump in prices and a labour strike at its Rustenburg operation, the world’s largest platinum mine. At the same time, yields on the company’s February 2018 convertible dollar bonds have climbed, reaching a record 7.70 percent on January 16.
“They would have to change their plans if prices remain where they are,” Gavin Wood, chief investment officer at Kagiso, which manages $1 billion in assets including Impala bonds, said. “That means cutting back capex further or coming to the market for more money.”
Platinum for immediate delivery fell to $1 161.88 an ounce on February 24, the lowest since July 2009, as buyers use up reserves. It declined 0.4 percent to $1 156 an ounce at yesterday.
Prices would remain muted until the second half of next year, Goodlace said. By then, four years of supply deficits will have depleted excess stocks that the World Platinum Investment Council estimated to be 4.1 million ounces in 2012.
Impala, the world’s biggest producer of the metal after Anglo American Platinum, will be spending R30bn on projects until 2019 even as it has cut R3.5bn in the two years through June 2016 and may consider more reductions, Goodlace said. Its two new shafts being built at the Rustenburg mine will account for more than a third of production, which will increase annual capacity by 18 percent to 850 000 ounces.
The company is proceeding with these plans as it prepares to take advantage of expected supply shortfalls for at least the next eight years, Goodlace said.
“Their core plans make logical sense,” Wood said. “I would envisage a future where platinum prices are higher than where they are right now.”
While Impala’s cash flow might come under strain, the balance sheet remained strong and held the lowest percentage of debt as measured against equity, or gearing, among industry peers, he said.
Impala would have sufficient cash until at least the middle of the year and would assess if and when additional funding may be required, Goodlace said.
Fresh debt would likely cost it more than the current yields on its existing bond, Rashaad Tayob at Abax, said. “They’ll have to pay up a little more than where it is now.” – Bloomberg