ENRC acquires a slice of South Africa platinum miner Northam

By Barry Sergeant, Mineweb.com

Johannesburg-listed Mvelaphanda Resources has announced the sale of part of 62.8%-held Johannesburg-listed Northam, a leading Tier II platinum group metal (PGM) miner, to Kazakhstan-based, London-listed ENRC, one of the world's Top 20 miners, by market value.

Mvela Resources will sell 44m shares in Northam, equal to 12.2% of Northam's issued shares, at ZAR 50.00 a share, equal to ZAR 2.2bn (about USD 296m), leaving Mvela Resources with 50.5% of Northam.

The deal will facilitate the paying down of debt at Mvela Resources, and pave the way to collapsing its pyramid structure, and the unbundling of its Northam shares to shareholders. For ENRC, the deal marks a foothold in a story that represents the development of Northam's Booysendal, one of the world's more significant PGM (platinum group metal) deposits.

Strategically, the deal is significant to ENRC, enhancing its status as the one of the world's leading miners of chrome, treated as a waste product for decades by PGM miners in southern Africa, which hosts around three quarters of the world's PGM reserves.

In February 2010 Northam announced its intention to go ahead with the build up to phase I mining of Booysendal, but remained constrained by the debt position at Mvela Resources, a black economic empowerment company which had accumulated relatively significant debt in acquiring its stake in Northam, and also a material stake in Johannesburg-based global Tier I gold miner Gold Fields.

The bridging loan applicable to the Gold Fields transaction was payable by the end of this month. The deal with ENRC will leave Mvela Resources essentially debt free, and with more than ZAR 3bn worth of Gold Fields stock, which could be monetized as part of the recapitalisation of Northam, which may yet also entail a rights issue.

Felix J Vulis, CEO of ENRC, said that the purchase of the interest in Northam "is in line with our stated strategy of diversifying ENRC's commodity portfolio and its geographic exposure. The interest in Northam is a strategic opportunity to invest in one of the largest PGM miners in the world at a time when platinum is expected to benefit from increased demand and to face supply constraints".

ENRC recently paid USD 1bn in cash for Camec, which was listed in London, not least for its holding of the Bougai platinum deposit in Zimbabwe. Northam has approved an early works programme of ZAR 340m for Booysendal, part of a mine build budget of some ZAR 3bn (about USD 400m) aimed at producing an annualised 130,000 ounces of PGMs by 2013.

A second module at Northam, which may only be considered in several years, would also cost about ZAR 3bn in today's money, with an additional ZAR 1bn needed to expand Northam's existing smelter capacity.  Outside the Big Three, Northam stands along in its ownership of a working smelter. Module I mining at Booysendal would be shallow for at least 30 years, over an initial target area measuring some 7.5km by 2km, on an overall resource that contains 103m ounces of 4Es (platinum, palladium, rhodium and gold).

PGM miners have rebounded strongly as metal prices for the group troughed out early in 2009. At the Tier I level, only Impala Platinum has managed a "continuous", albeit lower, flow of dividends, since PGM prices peaked out in March 2008. Anglo Platinum, the world's No 1 name in PGM mining, recently announced a USD 1.6bn rights issue, mainly to repair a traumatized balance sheet. Fellow Tier I PGM miner Lonmin last year was forced into a dilutive rights issue to raise around USD 500m.

Northam has continued to pay dividends, not least in reflection of a strong management team. The return of the PGM sector to profitability has also re-fuelled consolidation themes, which perked up strongly in early 2008. Impala Platinum made and then dropped a bid for Mvela Resources and its subsidiary Northam; global diversified stock Xstrata abandoned a full bid for Lonmin, but held onto 25% acquired.

Other entities that previously expressed an interest in Northam/Booysendal include Xstrata, Lonmin, Alisher Usmanov, and ENRC, which has now secured a leading position in the queue to the bridal suite.

Tier II miner Aquarius was last year forced into a dilutive rights issue, and Anooraq was given substantially easier conditions and financing for assets it acquired from Anglo Platinum. Some full-ready developments have been unable to raise cash from capital or debt markets, as seen in the case of WeSizwe.

The only notable mine build in the past few years has come by way of the Pilanesburg mine, north of Sun City, held by Toronto- and London- and Johannesburg-listed Platmin, with significant support from Pallinghurst Resources.