Hunt for Palladium Riches Sends South African Miners Abroad

Hunt for Palladium Riches Sends South African Miners Abroad

Southern Africa is home to the world’s richest platinum deposits, but when Impala Platinum Holdings Ltd. pondered how to invest its windfall profits it chose North America instead.

The acquisition of North American Palladium Ltd. is partly a bet on platinum’s sister metal palladium continuing to rally, while Implats Chief Executive Officer Nico Muller has also stressed the appeal of a relatively quick payback from low-cost, mechanized assets. However, the deal is also a geopolitical play as the Johannesburg-based miner seeks to balance exposure to its more volatile home region.

The transaction comes three years after Sibanye Gold Ltd. bought Montana-based Stillwater Mining Co., but Implats’s first deal outside southern Africa also echoes trends in the country’s gold industry. AngloGold Ashanti Ltd. is selling its last remaining South African assets as it turns its back on deep-level mines in favor of more profitable deposits in West Africa, Australia and South America.

While South Africa’s platinum operations are far more robust than the nation’s gold mines, and Implats returned to profit this year on the back of record palladium prices and a weaker rand, its decision highlights some of the wider industry challenges.

Anglo American Plc CEO Mark Cutifani last week said there are no shortage of geological opportunities in South Africa, but to attract investment requires political stability and regulatory clarity. The “parlous state” of public finances also remains a challenge, he said, adding that miners must work with the government to tackle unresolved issues in the nation’s Mining Charter, which seeks to address inequalities resulting from apartheid.

“There are many other factors besides mineral endowment that influence where investors decide to put their money, all of which drive reassurance to investors about the security of their investment over time,” Cutifani said.

While Implats had investment options in South Africa, the longer payback period involved in building a new mine was a deterrent.

“If you want exposure to a producing asset, you would have to look at North America or Russia,” said Mandi Dungwa, an analyst at Kagiso Asset Management in Cape Town. “If you are trying to reduce risk, Canada is a very attractive mining jurisdiction compared to some of the issues we have here.”

Sibanye, which became the largest platinum miner after acquiring Lonmin Plc earlier this year, may move its primary listing from South Africa because of increasing uncertainty, CEO Neal Froneman said in March.

Despite the challenges in southern Africa, not everyone is convinced by Implats’s overseas venture.

The deal could prove costly should palladium prices fall, according to Johann Steyn, an analyst at Citigroup Inc. Steyn said Implats could have bought Royal Bafokeng Platinum Ltd. to exploit synergies from mines adjacent to its own Rustenburg operations.

“If we are correct in our forecast that palladium will revert back to a long-term average of $850 an ounce, then this deal could turn out to be value destructive,” Steyn said. “If it holds, then a lot of value will be created.”

Palladium traded at about $1,645 an ounce as of 2:11 p.m. in London, after climbing to a record of $1,701.93 last week. Implats has almost tripled in value this year, making it the best performer on the Johannesburg stock exchange. The shares were up 0.2% on Tuesday.

Reporter, Felix Njini 

Editors,  Lynn Thomasson, Dylan Griffiths and Liezel Hill

Sourced From, © 2019 Bloomberg L.P.