Dineo Faku
THE embattled platinum industry may see a spurt of takeover and merger approaches soon as investors turn up the heat on the bosses to devise other ways to ride out the current crisis.
With more than a third of platinum mines operating at a loss, consolidation might be what awaits the industry, according to analysts.
Platinum producers are battling stunted demand, soaring costs, fractious labour relations and a wary government, bent on minimising job losses even as companies plead for leeway to ensure their future viability by taking painful restructuring decisions today.
Deal activity could involve purchasing or tie-ups of individual shafts between struggling mines. “We can expect co-operation between neighbours where it makes sense. One example is the royalty agreement between Royal Bafokeng Platinum and Impala Platinum,” said Michael Kavanagh, a mining analyst at Noah Capital.
Suitors from outside the sector were likely to scour the industry for potential takeover targets as they were in a better financial position, analysts said. Those suitors could include Chinese investors and local empowerment mining companies like Exxaro and African Rainbow Minerals (ARM), he added.
But if history is a guide, any whiff of a mega deal in the platinum industry right now would raise concerns in government circles because the industry’s current state makes it more than likely that job cuts would be a feature in any of the deals contemplated.
Competition issues are another hurdle. Back in 1996, a merger attempt between Impala Platinum, the world’s second-biggest platinum producer and Lonmin, the world’s third-biggest platinum producer was shot down by the competition authorities due to fears of over-concentration of supply.
Glencore Xstrata, which has an interest in platinum through its 25 percent stake in Lonmin, could also become a potential suitor, Kavanagh added. However, it was not clear whether the recently merged mining and commodities giant, had the appetite to boost its exposure to platinum.
Kavanagh said recent share slumps indicated that investors were bailing out of the platinum sector, opting instead to sit back until stability returned. “If you put yourself in an investor’s shoes, you have to deal with rising costs, labour issues, and animosity from government,” he said.
Platinum, which has fallen 15 percent so far this year, traded at $1 455 (R13 674.8) an ounce yesterday. In early 2008 it briefly went over $2 000.
Last year, ARM chairman Patrice Motsepe said that the company was positioning itself for acquisitions.
Tyler Broda, an analyst at Nomura, said it was not clear whether Anglo American would consider selling its 80 percent stake in Anglo American Platinum (Amplats), partly because its new chief executive Mark Cutifani had yet to announce his strategy.
Amplats, whose shares have shed about R44 billion in market value so far this year, has been forced by the government to scale down its restructuring, adding to uncertainty about its long-term future.
“There is going to be a full review of [Anglo’s] portfolio, not only Amplats, which could lead to potentially selling off Amplats,” Broda speculated.