JOHANNESBURG (miningweekly.com) – Black-owned and black-managed platinum group metals mining company Royal Bafokeng Platinum (RBPlat) on Tuesday announced a capital raise of R1 029-million through a rights offer that represents the key final building block to secure the company's path to 500 000 oz of platinum group element (4E) production.

On offer are 46 777 694 new ordinary RBPlat shares at R22 a share in the ratio of one right share for every 4.5 RBPlat ordinary share, with the price representing a 33.3% discount to last Friday’s JSE closing price.

Irrevocable take-up of close to 75% of the rights worth R768.8-million has been undertaken by right followers Royal Bafokeng Holdings, Allan Gray, Coronation and Investec. (Also watch attached Creamer Media video.)

The net proceeds will fund the Maseve acquisition, which was bridged through cash and loan facilities, and also clear the ramp-up of the company’s Styldrift project into the new buoyant market environment through virtually any downside scenario.

In response to RMB Morgan Stanley mining analyst Chris Nicholson on why more capital was not raised to also settle the company’s deferred payment commitment to Anglo American Platinum (Amplats), new RBPlat CFO Hanré Rossouw said the company’s preference would be to pay Amplats back in cash when those financial commitments fell due. With the option to pay Amplats back in either cash or equity, the company would rather await market conditions. Rossouw said.

RBPlat used internal cash resources, as well as facilities meant for the Styldrift project, to pay for Maseve and opted to await the right time for a rights issue, which is seen to be now.. The facilities were provided by banks on condition that capital would be raised when market conditions improved and redirected to the Styldrift project.

“That money was meant for Styldrift and we used it for Maseve. Therefore, the capital raise is replacing money that we used. So, we’re not raising capital because we’re short of funds. It’s to cover the acquisition of Maseve,” RBPlat CEO Steve Phiri explained to Mining Weekly Online.

Noah Capital mining analyst René Hochreiter queried why, in this buoyant basket price period of more than R600 000/kg with base metals included, RBPlat would not have found cash to pay for the Maseve and the Styldrift expansion instead of going for a rights issue.

“The one question is why didn’t we raise more and now we have the question why did we raise so much. There’s always going to be a debate on what’s the right number. I think for us, the departure point is that the balance sheet should not constrain the delivery of the strategy of the business,” said Rossouw.

“In term of value creation, the strategy comes first and the balance sheet that has appropriate gearing of your financial returns, should be in place. That, to me, is the departure point. We’ve seen previously in 2017 we had to pull the handbrake up quite dramatically on Styldrift and there is significant value destruction when you’ve got to stop a project. You’ve got to get contractors off site and then get them back on site, so that in itself adds to cost, but also the opportunity cost of just timing of cash flows needs to be considered.

“In this buoyant environment, we want Styldrift ramped up as quickly as possible, which gives our business significant flexibility, both in terms of Merensky and UG2. But we want to do that without any risk so we can accelerate that last bit, getting into fifth gear for Styldrift without a potential knee jerk.

“We’ve got the May elections coming up, we’ve got significant wage negotiations coming up in June in Rustenburg - we’re not directly exposed to that. And then globally it remains an unsteady environment. Certainly prices are buoyant, but we want to secure it, we want to get that last bit done without any risk,” Rossouw said.

RBPlat, which has facilities of R1-billion and R800-million in cash, will be needing R1.7-billion for capital expenditure (capex) in 2020.

“Your question next year will be on the dividend and I want to be in a position next year to give a definitive view on the dividend policy after we’ve delivered Styldrift,” Rossouw added at the company’s presentation of results for the 12 months to December 31, during which it achieved a before-tax profit of R316-million.

The Maseve acquisition provided an additional 110 000 t of concentrating capacity a month, which may now be increased to 160 000 t a month.

It acquired the 33% participating interest held by Amplats in the Bafokeng Rasimone Platinum Mine (BPRM) Joint Venture and reached the targeted 150 000 t a month at Styldrift.

The production of 4E metals in concentrate increased 12.2% to 368 000 oz, sales revenues reached a 3.7% higher R3.6-billion and the cost increase was contained at 4.7%

Improved market conditions from the middle of the financial year resulted in normalised headline earnings growing by 25.8% to R166.5-million. Earnings per share were impacted by the scrapping of feasibility study costs, which were previously capitalised, as well as R40.8-million which was spent on care and maintenance on the newly acquired Maseve concentrator and mine.

Headline earnings per share amounted to 25c, a 55.7% decline year-on-year. In line with 2017, earnings only reflect BRPM’s contribution. Earnings from Styldrift will be included in operating profit from this year.

Reflecting the group’s strategy of delivery, capex increased by 60%  to R3 459-million. RBPlat was able to fund 37.3% of its capex from cash generated by its operations and Styldrift on-reef development revenue receipts.

In the period it increased its investment in social and labour plans by 56% year-on-year to R63.2-million.

A weak demand in the platinum sector weighed on operational flexibility, in spite of a modest increase in the average basket price. The low platinum market prices also posed challenges to the delivery of margin-bearing ounces from BRPM.

The commissioning of the Maseve concentrator in August  provided the capacity for mining operations to continue on the Merensky reef at the BRPM South shaft until the middle of 2020.

The decline in BRPM stoping square metres year-on-year resulted mainly from the suspension of upper group two (UG2) mining activities at South shaft, which is now being reopened to capitalise on the palladium, rhodium and chrome that the UG2 reef contains.

Overall production is forecast to increase to between four-million tonnes and 4.4-million tonnes at a 4E built-up head grade of 3.91 g/t to 4.02 g/t, yielding 450 000 oz to 480 000 oz of 4E metals in concentrate.