Platinum miner Impala Platinum (Implats), through law firm Group 621, reports that, without its proposed large-scale merger with Royal Bafokeng Platinum (RBPlat), it will not be able to continue mining at its Rustenburg mine as the mine nears the end of its life.
Implats intends to acquire a controlling stake in RBPlat by acquiring all RBPlat shares it does not already own; however, fellow platinum group metals miner Northam Platinum submitted a competing unsolicited bid for RBPlat’s shares, leading to the Competition Commission stepping in to determine the legalities of either party’s bids and influences thereof.
The commission, which investigates large mergers before referring such to the Competition Tribunal for a decision, had previously recommended that the proposed merger between Implats and RBPlat be approved with conditions.
However, Northam requested to intervene in and assist in the tribunal processes, claiming it could show the limited alternatives in the primary concentrate market, as well as the actual dynamics in the markets.
Northam intends to use these concerns to build its case for the tribunal to consider as conditions it will impose on any potential approval of transactions.
Group 621 senior counsel Jerome Wilson on August 2 told a tribunal hearing that the transaction would improve Implats’ life-of-mine (LoM) and sustain the Rustenburg complex for longer than otherwise possible.
“Implats is an entity which has been operating for many decades . . . its various shafts are reaching the latter parts of their relevant lives . . . the expense of dealing with those deep shafts is increasing over time to the extent that you now have relatively high-cost production,” he explains.
Wilson adds that Implats is facing a “very imminent end of LoM, not only in respect of particular shafts, but in respect of the business as a whole”.
He says Implats is in a scenario where its production base is declining, leaving less little room to spread the very significant fixed costs over that production base.
“At some point, all the dominoes effectively fall, because the remaining production base cannot sustain on a profitable basis, the fixed cost, which is a very significant component in Implats Rustenburg’s case of the overall costs of the business.”
Wilson notes that RBPlat’s operations are contiguous to the mining operations of Implats’ Rustenburg mine; while “there is a very direct contiguity between Impala’s Shaft 20 and the new Styldrift mine of RBPlat – they are directly adjacent to one another.”
The transaction will enable Implats to leverage operational synergies as it will have access to two mines it can operate on a combined basis.
“Perhaps the most significant of [the operational synergies], from a value perspective, is the fact that because the 20 Shaft is directly contiguous to the Styldrift resource, the . . . merged entity [will be able to] mine and get the benefit of their resource that is in the Styldrift mine without Styldrift itself having to sink new shafts to get to areas of the resource that it cannot currently access,” he said.
This gives rise to two significant categories of benefit, noted Wilson. “The one is the LoM, and secondly, operational synergies, that derive from the fact that these mines can effectively be operated on a combined basis going forward.”
Regarding the LoM extension, he said the transaction would effectively enable the merged entity to spread the fixed costs over a broader production base it is capable of operating on a combined basis.
Wilson said that, from a competition perspective, if the transaction is approved, Implats would be able to mine greater quantities of ore over a longer period than would otherwise have been possible – greater than both Implats and RBPlats could mine on a standalone basis.
With approval of the transaction, Implats will be able to mine more, on a cost-effective basis and over a longer period of time, resulting in a greater supply of product into the market. “. . . as a result of that, a lower price that will be able to be charged to customers in this particular market.
“Absent this transaction, [Implats will be faced with] a significant amount of at-risk ore in the various reserves at [its] Rustenburg [operation] which would not effectively be able to get accessed.
“What this transaction will do . . . will be to make it cost effective to derive the benefit of that ore for the overall benefit of the supply chain down to end customers,” said Wilson.
This is the essential competition benefit in permitting Implats to buy all outstanding RBPlat shares – “enabling a greater quantity of material to be produced at a lower cost than would be the case if these mines were to come to an end in the very near term future, as is estimated absent this transaction,” he added.
Further, from a public interest perspective, permitting Implats to buy out RBPlat would ensure the tens of thousands of Implats workers remain employed as a result of being able to expand operations as Implats’ LoM is essentially extended. This is “critically important for the employees of the mines and also their dependants,” said Wilson.