CAPITAL MARKETS

Kroondal expands, but merger under threat

SHARE market darling Aquarius Platinum has announced a scheme of arrangement by which it and two joint venture parties will lift platinum group metal (PGM) output at the Kroondal mine in South Africa to 510,000ozpa.

James Hamilton

Aquarius has entered into a three-way deal with its South African associate company Kroondal Platinum Mines and Rustenburg Platinum Mines (a wholly owned subsidiary of Anglo American Platinum Corporation) to spend $125 million expanding the mine and building a new concentrator.

The first $22 million of this expansion will be borne by KPM after which KPM and RPM will share the expense on a 50:50 basis. The existing concentrator will grow in size to be able to treat 255,000ozpa of PGM while the new process plant will be built near Kroondal’s eastern decline.

The joint venture’s objective is to produce 510,000ozpa (300,000ozpa of platinum) by feeding its newly expanded plants 5.4 million tonnes of ore feed per annum.

The Kroondal partners are able to justify the expansion expense due to an agreement signed with RPM, which will allow mining on certain parts of its UG2 reef which lie adjacent to the mine.

Under the deal RPM must ensure a mine life of 13 years effective from start-up but there is a provision to grow this by another three years.

KPM will honour its existing contract with Impala Refining Services Limited while smelting, refining and marketing of the expanded output will be carried out by Amplats. Revenues received will be shared on a 50:50 basis between KPM and RPM.

The deal comes at a time when Aquarius and KPM are trying to bed down a merger proposal.

While most analysts agree the merger makes sense given the confusion created by the existing ownership structure, information coming out of South Africa suggests KPM shareholders are likely to baulk at the current proposal as it stands.

The biggest sticking point is the share exchange ratio, which stands at 1:1. Parties aligned with KPM have suggested a fairer ratio would be closer to 2:1 given KPM’s strong financial performance, the strong outlook for PGM, and the “risk” factor in Aquarius’ so far unproven other South African projects.

In fact, one South African news service went as far as to suggest that KPM was looking to buy Aquarius out of its South African assets given the level of disquiet between the two companies.

D-day appears to be next Thursday. That’s the day KPM ordinary shareholders must be registered by in order to vote at the scheme meeting.

 

 

 

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