Northam - acting in shareholders' worst interests
WHEN does the phrase "acting in the interests of shareholders" ever mean what it says? This year has produced two glaring examples of what happens to a company's market rating when the executive rejects the terms of a proposal.
Liberty Life fell out of bed when chairman Donald Gordon scolded the market as a whole, and Stanbic in particular, for underpricing Liberty, which is now even more underpriced.
This week Northam shed nearly half its price to 235c after the management of its major shareholder, GFSA, rejected Anglo American Platinum's offer.
Northam chairman and GFSA executive director Peter Janisch is believed to have taken eight months' leave ahead of retirement. But, for Northam's shareholders, the misery lingers on. They have not been told what the offer was, so they cannot complain about yet another diminution in value.
Says Mike Tagg, the GFSA man in charge of the bidding process for all of GFSA's assets: "I am disappointed we couldn't agree on a price because there are synergies between the two companies and Amplats is in the best position to extract those synergies. But we have to act in the interests of shareholders."
However, based on share price, Tagg has not. Northam is worth half what it was a week ago.
"That said, Northam is not a particularly well traded share and the higher price no doubt reflected the expected offer by Amplats," Tagg says, adding that Northam's turnaround was already under way in the June quarter and is set to continue.
It has taken time: the project was announced in 1986, since when some R1.7-billion of capital has been sunk and about R300-million of operating losses incurred.
It is believed that Amplats had won approval to utilise the entire R2-billion against its own income. Oh, and for the record, Northam shares are easily tradeable.
But is Tagg missing the point? GFSA has 82% of Northam, so the paper loss from last week's high of 450c amounts to some R320-million. On GFSA's R8.2-billion market capitalisation it is not that big. But the other Northam shareholders might not take the same view.
So whither Northam? Tagg says it will continue to operate with the support of GFSA and its unbundling to shareholders is a possibility. In that event, Anglo American would come by 17% of Northam for free anyway as it has about 21% of GFSA. But Gencor has a stake in both GFSA Holdings and a direct 11% in GFSA itself, and would become the largest shareholder in Northam. Rembrandt is a shareholder in GFSA and Gencor, and the other large GFSA shareholder is Liberty Life, well known for its lack of interest in SA mining.
The most likely outcome of Northam's unbundling is further share-price weakness. The chances of its meeting Janisch's wish of hitting 750c by year-end, at which price new capital could be raised through the exercise of listed Northam options, are looking remote.
As a stand-alone mine Northam has few places to go. Capital expenditure to extend its life beyond the next six years' ore reserve was stopped ahead of an expected merger and the chances of raising new capital without the blindly dedicated support given by GFSA are nil. The worth of Northam is purely what someone is prepared to pay for it, not what the seller believes in.
Platinum-share analysts are unhappy. Fleming Martin's Steve Shepherd believes Amplats was prepared to pay up to 450c a share and is "amazed that GFSA did not accept". "It now seems that GFSA will unbundle its holding, which is likely to result in selling pressure, giving Amplats another less expensive opportunity," he says.
Fleming Martin values a stand-alone Northam at 260c. Unbundling could lead to lower prices.
G O'Flaherty's Mark Madeyski says it is a disgrace, whoever is to blame. "Technically, the deal made sense. Why weren't shareholders told what the offer price was? We should be shown the figures."
Amplats MD Barry Davison agrees there was a difference in valuations between buyer and seller, but cannot disclose what the terms were as the parties decided not to. Davison has always maintained Amplats will do nothing that doesn't take it down the cost curve or isn't a better bet than something already in the Amplats portfolio. Amplats is already developing a new mine, Bafokeng-Rasimone, and expanding the Potgietersrust plant.