Lonmin sale will set Implats free to mine new frontiers

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Deal simplifies Impala Platinum's structure, making it more attractive to investors and opening up empowerment benefits 
Resources Correspondent 

IMPALA Platinum's (Implats) intention to sell its stake in Lonmin is viewed as a positive move by a number of analysts. 

They maintain that the value of the 27% interest in Lonmin has never been fully reflected in the share price of the world's secondlargest platinum producer, Implats. 

Last week Implats announced a deal with London-headquartered Lonmin which involves the company selling its stake in Lonmin. 

In the mid-1990s Implats and Lonmin had planned to merge, hence the Lonmin stake held by Implats. The move, though, was stymied by the European competition authorities in 1996 and although there had been speculation that this merger plan could be revived, it looks as if Implats and Lonmin have decided that such a deal would be unlikely to get past European Union competition authorities. 

Allan Cooke, precious metals analyst at HSBC in Johannesburg, said the $800m deal unlocked value for Implats. He said it should simplify the company's corporate strategy and structure, making it easier to understand and so potentially attractive to more investors. 

Gencor's unbundling and the distribution of its Implats stake earlier this year have greatly increased Implats' liquidity, making it more attractive to investors. 

Implats now has 82,5% in Zimplats, 80% in Marula Platinum and 50% in Mimosa. It also has a 45% stake in the potential platinum group metals project Two Rivers. 

The fate of Barplats, an 83%held subsidiary, has yet to be settled but it is likely it will be sold, mothballed or closed. Once the Lonmin stake is sold, the only operations in which Implats will retain a noncontrolling interest are Two Rivers and Australian-listed Aquarius Platinum, in which Implats has a 25% stake. 

The deal also brings empowerment benefits. For selling its stake and facilitating a deal which should lead to the establishment of a new black empowerment company, with the potential to list on the local bourse, Implats says it will gain significant empowerment credits. 

Implats said these would be equivalent to black economic empowerment investors holding 15% of Implats' equity. For Lonmin, the empowerment credits for the deal should equate to empowerment at a holding company level of 18%. 

For Implats, the empowerment aspect of the deal is valuable as it means the company is now in no way hostage to the Royal Bafokeng. 

At its Rustenburg operations Implats pays the Bafokeng a royalty for letting it mine reserves and the possibility that Implats might need to pay a double royalty may have muddied the waters further. 

"There is less of an imperative (to do a deal with the Bafokeng) post this deal. It levels the playing field in terms of negotiations to convert the royalty to equity," Cooke said. 

Implats CE Keith Rumble said the deal did not "preclude" Implats holding talks with the Royal Bafokeng at a holding company level. 

He said, though, that in any discussions the need for black economic empowerment would not be a key driver. Any venture with the Bafokeng would be more of a commercial nature. 

Cooke said the deal was also a positive for Lonmin. It will meet many of the company's empowerment obligations and by buying another 9,1% in Lonplats, Lonmin's South African platinum subsidiary, the company has more room for similar deals. 

Analysts have suggested that the deal makes both companies potential takeover targets. 

However, the feeling is that until uncertainty surrounding the details of the Royalty Bill has disappeared, predators would be wary of making a move. 

Graphic - bar chart of impact of deal on Implats attributable production (graph with Simba - also open on my desk) and pic of Implats' CEO Keith Rumble. 
Sep 22 2003 07:20:10:000AM Julie Bain Business Day 1st Edition