Impala Platinum Holdings Limited (IMP) Earnings Call Transcript & Summary

Good morning, everyone. Thank you for joining us on such a short notice. My name is Johan Theron, and I'll be facilitating this webcast call today. The SENS announcement that we released this morning follows a cautionary announcement that we released to the market together with Royal Bafokeng Platinum on the 27th of October. We've probably been working with RBPlat for the better part of 20 years to optimize value delivery from our western limb operations. We still see deep value in doing this and are, therefore, delighted to finally move forward in this regard. I will shortly hand over to Nico Muller, our CEO, to take you through some of the highlights of the announcement today before we open up with Q&A. With me today as well to answer some of the points that you might be raising is our CFO, Meroonisha Kerber; our Executive Director and Head of People, Lee-Ann Samuel; and our Business Development Head, Kirthanya Pillay. With that, I will now hand over to Nico.

Thank you, Johan. Before we start the business of the day, I regret to inform you that we had a fatality at our 16 Shaft on a Saturday, which resulted as a consequence of a jackhammer operator drilling into a misfire. Following on from that, yesterday, it was reported that we had experienced a mudrush at the bottom of our 6 Shaft in Rustenburg, which resulted in the inundation of the shaft bottom and the palm chamber in which 7 of our employees were conducting spillage cleaning operations. Two employees managed to escape to safety, but unfortunately, there are still 5 employees that are unaccounted for at this particular point. We have instituted around the clock pumping operations as well as proto team support to remove the mud and rocks in an effort to search and recover the employees as soon as possibly practicable. And any further update on any progress in this regard will be communicated as soon as that is available. As a consequence, I will be heading off to Rustenburg shortly after this engagement, and I will leave Johan and the rest of the team to field any further one-on-one discussions or any questions that may emanate from this announcement. So with regards to our SENS announcement released this morning, I would like to stress the following pertinent points. Absolutely, delighted that we can confirm that we announced a general offer to acquire a majority stake in RBPlat this morning. This follows a very comprehensive due diligence and valuation, and I wish to thank all the participants from all sides for their contribution in this very important process. Our offer amounts to ZAR 150 per RBPlat share and comprises of a cash consideration of ZAR 90 per share as well as 0.30 ordinary shares in Implats for each RBPlat share, which equates to a further ZAR 60 per share. The offer translates in the 23% premium to the RBPlat on the basis of a share closing position on Wednesday, the 24th of November and an 80% premium compared to the 30-day volume weighted average price prior to our joint cautionary announcement on the 27th of October. Importantly, this offer is supported by a pre-bid process that was conducted last week with the lead minority shareholders during which process we achieved agreement to acquire 24.5% of the shares issued in RBPlat. It is anticipated that the transfer of these shares to interest will be affected by the end of this week. We are launching the offer with the full support of the RBPlat Board and have concluded a collaboration agreement with a company to facilitate the offer to their shareholders. The offer is fully funded and requires no further approval process and/or financing arrangements. It will be settled through existing cash reserves and the issue of up to 57 million new Implat shares. To dispel any uncertainty that may exist, this offer is not deemed a competing offer as there are no known other offers at present. The Northam RBH transaction announced 2 weeks ago was a bilateral agreement between the 2 parties and therefore, does not constitute an offer to all shareholders. Our offer to acquire a majority stake in RBPlat is firmly aligned with our strategy and one we believe will raise significant value for all stakeholders. From the perspective of governments, communities and employees, it will create a more sustained and competitive western limb production base in the future. Sharing common infrastructure and resources were optimally between the contiguous assets of RBPlat and Impala and leveraging long-term strategic optionality will result in cost and capital efficiency improvements and, therefore, strengthen our ability to deliver tangible socioeconomic benefits for the region over a significantly increased life of mine. These benefits include employment security as well as sustained direct and indirect benefits for the various industries and stakeholders supported by mining activities in the greater Rustenburg region. From an RBPlat shareholder perspective, it crystallizes immediately, the inherent equity value at an attractive premium through the receipt of a combination of cash and our high-quality and highly liquid script. In receiving our script, RBPlat shareholders also gain exposures to our geographically diversified PGM portfolio, value generated from the full PGM value chain as a consequence of us being a mine-to-market producer as well as attractive dividend yield, which is underpinned by clear and disciplined capital allocation, high-quality cash-generative operations as well as a strong and flexible balance sheet. For Implat shareholders, the transaction is immediately value-accretive and materially advances our value-focused strategy. With respect to our western limb assets, the transaction will increase ore reserves by 100%. It moves up from 13.1 million ounces to 29.7 million ounces on a 100% basis. It also increases the production base by between 600,000 and 800,000 6E ounces per annum. It provides a life of mine extension in excess of 10 to 15 years. It furthermore provides a more favorable long-term metal mix due to the increased platinum content in the Merensky [indiscernible] Reef at RBPlat. Very importantly, it increases our exposure to production from mechanized mining from 10% to 20% as a consequence of the mechanized Borden pillar mining methods employed by Stalder. It will reduce the overall cost efficiency as well as capital efficiency for our western lamb assets. The transaction will also provide much enhanced future strategic optionality under various metal price scenarios. Further to this, the transaction will, in time, also allow us the opportunity to leverage a range of unique synergies available between our operations due to the contiguous nature of the operations and substantial strategic optionality provided by our surface assets, mining operations and available mineral resources. So to sum up, this is a compelling transaction for all involved. It secures a significant western limb production base. It removes material long-term regional life-of-mine challenges. It enhances regional collaboration, optimizes value extraction and enhances our ability to progress regional socioeconomic stability, sustainability and shared value delivery. We strongly believe that support for this offer will realize long-term and sustainable value for all stakeholders. We may not end up with 100% of the RBPlat shares as a reasonably envisaged but remain confident that most of the original value can still be delivered over time through securing a majority stake in the company. Our strong reputation in working collaboratively across a number of joint ventures with industry peers stand testament to this. I thank you and hand you back to Johan at this point for Q&A. Thank you.

Thank you, Nico. So we shared a lot of information this morning on our website in terms of background information, the SENS news release and all related information. Equally, we are happy to take some questions now on the webcast. There's an opportunity, obviously, to ask questions if you got dialed in through a chorus call, I will revert to chorus Call now just to find out if there's any questions. I don't see any queues. And then equally, if you have questions on the webcast, you're welcome to type it in, and we'll answer it from the room here. So let me just first check there are no questions on chorus call.

Yes, correct. There are no questions on the phone line at the moment.

So I've received 2 questions from the webcast. The first one is from Adrian Hammond. What happens if you don't secure a majority stake? Can you best work with Northam to ensure that what is best for each party? Please explain the time lines and deadlines for the general offer? And why you only expect it to close in next year in August? So maybe, Nico, I can ask you to talk to the first one and Kirthanya on the time line?

Thank you so much, Johan. So naturally, our favorite position is to acquire a majority stake and to ramp that up as high as possible as we believe that the more ownership we have in the company, the stronger the ability to leverage potential synergies. To the extent that we are unable to achieve a majority stake in the company, we will then evaluate the position and our options. There will be 2 either to not proceed with the general offer or to proceed. And I think both of those are potential outcomes. We believe that in the fullness of time that the same position will prevail at the northern -- at the RBPlat asset. If I look at our joint venture with ARM in the eastern limb as well as our joint venture with Sibanye in Mimosa, when partners manage a joint operation, we make decisions that are in the best interest of all shareholders as well as stakeholders. And I've got no doubt in spite of potential posturing during the M&A process. But at the end, we will find a very strong and collaborative relationship between the eventual shareholders. It will be in our joint interest to make best decisions. And I think it's not necessarily a bad outcome that there may be synergies from both sides to the extent that either of the major companies can provide a superior offering. I think that will have to be considered by the RBPlat team. And I think that, that will contribute to value increase. So it's not something that we necessarily frown upon, there are advantages for us with Northam being a significant shareholder. One is -- we believe that they've got a strong operational track record and that's always attractive in a joint venture or a partnership arrangement. We are also absolutely delighted that a critical part of the overall transaction has been addressed through a very constructive commitment from Northam as a consequence of their bilateral agreement with RBH with regards to a number of very particular social reinvestment projects. And so that is critical for Implat. It's a cornerstone of every decision that we make. And so we are absolutely delighted that data has already been secured. And so I think that there are positives that will be realized as a consequence of the participation of Northam in that project. From a time line point of view, I think I will hand over to Kirthanya to just fill in the details.

Thanks, Nico. In terms of the offer time line, the general offer is expected to open around mid-January when we send out our offer circular. The current time lines or the normal general offer time lines envisage the offer being open for at least 30 business days with the option to extend for another 15 business days. At that point in time, the offer will go unconditional as to acceptances depending on whether we get to the 50% or not. However, in order for the offer to go completely unconditional, we would need all regulatory approvals to have been received. And the Competition Commission process is, as we all understand, is a longer-term process. We expect that process to be at least 6 months. So in order for us to give ourselves time to receive that final regulatory approval. We have noted that the long stop date is the end of July for the offer to go unconditional and close in early August. That is obviously still subject to that -- to how long the competition process will run for. It will need Competition Commission approval as well as tribunal approvals.

Thanks, Kirthanya. I see Patrick Mann from Bank of America and Chris Nicholson from JPMorgan asked very similar question about the structure and how it will work. I think we have largely answered that. To the extent that we haven't or you want any specific nuance of that emphasize Patrick, Chris, can I just ask you to maybe just ask a bit more specific. I think we have given a good overview of the structure and the collaboration and how we see that working going forward.

Sorry Johan. Can I just answer 2 parts of it?

Yes, please.

So in addition to what we've already stated, to what extent can we leverage the synergies. I think it is clear -- it is important to understand that any potential synergy that may exist, will have to be offered at a fair value and at arm's length. So there will be an independent board at RBPlat. And so any synergy must unlock value for both the potential offer of that synergy as well as for the RBPlats. And we are very confident that, that position will be achieved. It is the fiduciary duty of the management team or the Board of -- and RBPlats to evaluate those opportunities and to ensure that they make decisions in the best interest of the shareholders. And so I've got no doubt that the synergies that we've highlighted, there will be room for it and it will be in time be positioned in front of the RBPlats team, and it will then be up to the team to evaluate the value add. Then there was a question about why only now? If it's -- if we have been working on this. So, I think you will remember that even during the listing of RBPlats in 2010, there were overtures from Implat, which is at that stage, blocked by Anglo at that stage. And there have been many processes that have been entertained subsequently. Now in order to affect a transaction, many stores have been aligned -- have to be aligned. And I suppose it has just culminated at this point that the stores have become aligned. I mean, we engaged in these discussions prior to COVID and in COVID is too disruptive for us to continue any further discussions. So up until the end of 2019, any transaction for Implats would have been very difficult, given the financial position of the company. And so since then, there have been multiple steps that have to be crossed in order to make this transaction possible. We are just very delighted that we are at a point that we can proceed and that all the stars are aligned at this particular point.

I'll answer a question from Patrick Mann, specifically, what happens on social and labor plans perspective? Will Impala and Northam collaborate on this? Or will each company do its own thing? So Patrick, it's clear that from social and labor plans, it's joint obligation of the company and its shareholders. So we will happily collaborate on that. It is also our clear policy to go beyond compliance. And we have noted in the announcement from Northam that they have made some specific commitments on social spend. So we would be very happy to sit and understand exactly what they have in mind and where possible, work with them to make sure that the community benefits as far as possible through our involvement from both sides. The follow-on question from Wade Napier. Does Impala still target ZAR 20 billion cash buffer. Nico, you want to start on that one?

So there's a question from Wade about why we acquired NAP 2 years ago instead of RBPlats and then we can go to the ZAR 20 billion question. So first of all, when we turn the clock back. Two years ago, North American Palladium represented an attractive proposition to the company given the size of the transaction, given the fact that it provided Impala Platinum with geographic diversification and particularly provided us with a landing position in North America, and we believe that there are a number of other opportunities. At the time, I know the market was concerned about the pricing, the fact that we are at the top of the cycle. I think the period that has followed from indicates that it was a value-accretive transaction and that the Impala shareholders has benefited from that acquisition. With regards to the ZAR 20 billion cash buffer, I just want to be a bit more explicit. Part of the consideration of strengthening the balance sheet and making sure that they are cash reserves to enable the company to make the kind of transactions that we are currently contemplating and at the same time, fund all other requirements, including strategic aspirations to optimize our processing and all of our other obligations. It is not always possible for us to be 100% transparent into what those strategic considerations are because as we have now seen to the extent that we are too explicit, it does invite third-party interloper. And so I think it is important to say that I think a strong balance sheet and a cash buffer on the balance sheet would be useful. But I think it's also important to say that the extent of that cash buffer may vary depending on what the market prices are at any given time in the forecast as well as the company performance. So I think we strategic -- if it had not been for the balance sheet of the company, the fact that we have gotten 0 debt that we had some form of cash reserve this transaction would not have been possible. And that sort of talks to Adrian's question about why this transaction has only taken place now. Thank you, Johan.

Thanks, Nico. Next question is from Nkateko at Investec Bank. Why not 100% cash? Do the rules allow for 100% cash offer? Kirthanya, maybe I can ask you to answer that one.

Thanks, Johan. The rules do allow for us to vary the offer if we go forward. However, we -- we have, in our prebid discussions and in this follow-on offer made it clear that -- we did look at the best way to structure the offer from a cash and scrip point of view and any offer would be on the same terms for both the prebid as well as the follow-on offer acceptances. And we believe that the right level for this transaction is based on a 60% cash, 40% scrip basis, which talks to Nico's point just now about the other benefits or other options we have for some of that cash to utilize it strategically. And we do believe that 60% -- on 60% cash and 40% script basis, it gives shareholders the ability to crystallize some value on the cash portion, but also the ability to share in the upside from holding shares and Implats going forward.

Thanks, Kirthanya. Question from Tracy. Can you please quantify the scope of cost synergies and revenue synergies from your acquisition? Nico, you want to talk a little bit about the synergies and how we think about that?

So from a starting position, one of the things we've been very careful about is not to build in a significant efficiency improvement at any of the operations directly as a consequence of this operation. We left that as upside potential subsequent to the transaction. So I mean our sense of value at ZAR 150 a share does not constitute a specific position on inherent efficiency improvements at any of the operations. But they are very important synergies. Let me just talk to some of them potentially. One is the fact that we've got strategic surface infrastructure. As an example, we have UG2 process concentrators, which may be used to treat the RBPlat's UG2 and treated separate -- treated Merensky separately in the concentrators at RBPlat. And what this could do is it could improve the recoveries, and there would be potential shared value between Implats and RBPlat as a consequence. Secondly, we will have capacity to treat at least 50% of the current concentrate. And we believe that there is potential to increase the terms of the current contracts enjoyed by RBPlat with the current provider for that function. Another potential area is if you look at the mining operations, we are currently mining through royalty agreements onto the RBPlat's ground 6, 8 and 20 Shaft. We believe that there is material optionality to improve and to enhance the cross-boundary exploitation of what is deemed very long-dated ounces on the RBPlat's lease area.

Thank you, Nico. [ Ree Jay ] asked why are you doing the deal now? Please explain the timing. Ree Jay simply, I have alluded to the fact that for the better part of 20 years, we've tried to do some sort of deal because clearly, the value proposition, I think, is well understood. Safe to say that I've always said that the planets have to align in a particular way to make that possible. And hopefully, we're at that stage now. I am encouraged by the fact that we were able to speak to the major minority shareholders and able to acquire those stakes from them which hopefully gives us confidence that maybe those planets have finally stacked up as we've always hoped they would. Patrick Mann has got a follow-up question on the Royal Bafokeng Nation. They've sold their stake to Northam, but clearly remains a very important stakeholder. And the question specifically is about our relationship and discussions with them and how we view that on an ongoing basis. Again, maybe, Nico, maybe can I just pass that to you.

Absolutely no problem. So first of all, I think the RBN through the RBA transaction with Northam has extracted, I think, a very lucrative value extract. They can support for the commercial transaction between Implat and remaining shareholders, I do not believe is critical. Our relationship with RBN is critical and will remain critical because they are our host community. And from that point of view, they represent probably the most critical stakeholders. So we will continue to collaborate and enhance our investment into the community. But I don't think the offer that we announced this morning is dependent on the RBN or RBA support for the commercial aspects of the transaction.

Thank you, Nico. A follow-on question from Adrian Hammond. How does this deal affect group planning around other strategic options, for instance, Zimplats, NAP, et cetera. Adrian, the short answer is that we have enough firepower to do everything that is on our radar screen and that we deem essential. So we are very comfortable that while this is an important transaction for us, it in no means diminishes our ability to execute some of those other key strategic actions. Chris Nicholson, a follow-up question. Could you provide some further details on how soon RBPlat's ground could be exploited in a positive way to extend production or mine lives at Impala Rustenburg Nico as the miner in the room, maybe I can ask you again to just give some color there?

So if I had to look at it and I think the 20 Shaft is probably the most important area of potential collaboration at this point. And I think it probably -- there could be benefit starting to accrue probably over the next 3 to 5 years.

Thanks, Nico. I think people sometimes forget that we have the privilege of you having worked on both sides of the fence, whether that's an advantage or a disadvantage, I think time will tell, but quite clearly, we are mining under royalty agreement, and those things can be actioned quite quickly.

Yes. But just to understand that, I mean, we currently have an agreement to expand to any shafts across the boundary. And so I'm looking at not benefits accreting from that specific royalty agreement. So in my mind, I'm looking at how long will it take us to start delivering value beyond the current royalty agreement. And I think that's 3 to 5 years out from now.

A follow-up question from Chris Nicholson. How does this impact your prior statements around spending on processing CapEx specifically to increase efficiency and the capacity of your processing assets?

So Johan, I think that you have really answered the question. And maybe I just want to point out that any singular decision that the company makes, any investment decision is always made in context and we don't ever evaluate a decision without understanding the implications across the group. I mean we do have to think about the other strategic ambitions of the company. We do have to think about liquidity, solvency, capital allocation. And so I want to provide comfort that the decision for this transaction was supported by an evaluation and that no strategic ambition has been compromised and that the company will remain in a very strong and robust position subsequent to the transaction.

Thanks, Nico. There's some related questions about whether we will increase our offer, what's the chances of competing bids and speed bumps. Kirthanya, you would like to start answering some of that and give some context in that regard?

Sure. So to address the first question, the 24.5% stake that has been acquired will have the same rights as any follow-on offers. to the extent that there are any changes. However, we do believe that the ZAR 150 is a very good price does allow shareholders to crystallize value at a very strong premium 80% relative to the undisturbed price before the quarter we went out and does allow shareholders to participate in the future upside through holding our shares. So we do not anticipate changing that offer price. We do acknowledge that it is -- we are -- we have made and also -- but ours is the only offer on the table to just be clear. I think the -- there was an offer that was made to RBPlat's major shareholder, but there is no offer on the table to remaining shareholders and minority shareholders. So ours is the only offer on the table at the moment at ZAR 150. To the extent that, that changes, we will -- we do believe that ZAR 150 is a strong value and we will evaluate our options if there is a competing offer 2 hours that comes to market in the coming months.

Thank you very much, Kirthanya.

Sorry, Johan, I just want to add I just want to reaffirm what Kirthanya is saying, we believe that the offer that we are making represents fair value to all shareholders. The question about our response should there be a competing offer is a hypothetical equation. And I support Kirthanya saying, to the extent that, that transpires, the management team and the Board will reflect upon it and make a decision about the best course of action to the extent that that's required.

Thank you, Nico. I see that we have run out of questions on the webcast and on the call. So with that, I'm going to close this session. Let me just close in thanking everybody in joining us in such short notice. To the extent that you were not able to forward questions or have additional questions to the team, please reach out to us. We will avail ourselves over the next couple of days, weeks to make sure that we get back to you on all of those unanswered questions. And then maybe just a final word in closing, we are still conducting a search and rescue operation at our Rustenburg operation. And if I could just ask for all of your prayers in that regard. Thank you very much.