JOHANNESBURG – Impala Platinum (Implats) told investors on Monday that it had moved to buy its first producing mine outside of Africa and had entered into an agreement to acquire North American Palladium (NAP), a mechanised platinum group metals (PGM) operation in Canada for R11.4 billion.
Implats, which has Rustenburg and Zimbabwe operations, said acquiring the mine was in line with repositioning the group into a high-value, profitable and competitive PGM producer with a strong focus on low-risk, shallow, mechanised, palladium-rich assets.
Implats has become South Africa’s second PGM producer to acquire mining operations in North America after Sibanye-Stillwater bought the Stillwater mining operations and the Columbus Metallurgical Complex in Montana, US.
Implats chief executive Nico Muller said geographic risk diversification from South Africa and Zimbabwe was a secondary spin-off and not the primary motivation for the acquisition.
“We are quite happy to be based in South Africa, and notwithstanding the economic issues in Zimbabwe, we recognise we have been able to conduct business.
“What attracted us to NAP is that they have everything that we aspire to. They are mechanised, and they have gone for 12 months without a single lost-time injury. From an environmental, social and corporate governance perspective, they are world-class,” Muller said.
He said NAP’s mining asset had growth potential, as it was the second-lowest PGM producer in the world. “The other attraction was the strong cash flow, so we are not buying into a greenfields project with project risk, they are generating cash. That fits into our investment thesis,” Muller said, adding the company could acquire the operation without adding industry supply which had been an issue in recent years.
Muller said there were advantages to geographic diversification. “We will not have exposure to Eskom risk; there is no risk associated with the availability of cheap water; to a large extent we are shielded from the economic crisis in Zimbabwe, which is a secondary spin-off,” he said.
The operation has a nine-year life, which can be extended to 15 years or longer. “The number of reserves being drilled and not classified yet means that the life of the mine can easily be extended to 15 years,” Muller said.
He said he deal represented 14 percent of the company’s market capitalisation, and that the increase in the rand PGM price and operational efficiencies had beefed up the company’s balance sheet.
“This has allowed Implats’ to pursue the transaction through a prudent and efficient financing structure and in doing so, is expected to be strongly value accretive to shareholders on both spot and market consensus prices, generating returns above the group’s internal cost of capital, with attractive payback periods,” said Muller.
The deal has been in the pipeline for three years. The company said that in terms of funding, R6bn would be paid for from the company’s balance sheet.
It said the acquisition would be funded using a combination of existing cash of $288 million (R4.33bn), proceeds raised from a metal prepayment of excess inventory of $120m and a loan of $350m advanced under a bridge facility agreement to be entered into between BidCo as borrower and Morgan Stanley Senior Funding.
The deal is subject to conditions, including approval from the Canadian and German competition authorities, and exchange control approval from the South African Reserve Bank.