Impala launches Afplats bid (February 26, 2007)

Impala Platinum (IMPUY-O, IPLA-L, IMPO-J) has made a takeover bid for junior platinum developer African Platinum (AFRPF-O, APP-L), valuing the company at 297 million (US$579 million).

Implats is offering 0.55 per share, which is a premium of 52% over Afplats’s 30-day average price up to Feb. 13, when the two companies announced they were in discussions.

The deal is a friendly one with the board of Afplats locking up 1.3 million shares in the Implats offer. With three large institutional holders of Afplats shares — CGT Management, North Sound Legacy International, and North Sound Legacy Institutional — also locking up holdings, Implats has support from holders of 21% of Afplats shares. The funds have escape clauses if a superior bid appears, and Implats gets a break fee of 2.8 million (US$5.5 million) if the deal falls through.

In bidding for Afplats, Impala is seeking the Leeuwkop platinum project, on the western limb of the Bushveld igneous intrusion in South Africa. The two companies had already concluded an agreement that would have given Implats a 29.5% interest in Leeuwkop and Afplats’s other interests for US$148 million. Implats has said it will go through with that deal regardless of the outcome of the takeover bid.

The additional prize is a possible expansion of resources at two neighbouring projects, Inkosi and Imbasa, which cover the two principal mineralized reefs of the Bushveld complex, UG2 and Merensky.

Both companies said discussions over a possible bid were ongoing.

Leeuwkop has a measured and indicated resource of 64 million tonnes grading 3 grams platinum, 1.4 grams palladium and 0.5 gram rhodium per tonne on the UG2 reef. Another 151 million tonnes grading 2.9 grams platinum, 1.3 grams palladium and 0.5 gram rhodium are inferred.

On the Merensky reef, Leeuwkop has 34 million tonnes in indicated resources, at grades of 1.8 grams platinum, 0.9 gram palladium, 0.1 gram rhodium and 0.3 gram gold per tonne. The inferred resource on the Merensky reef is 178 million tonnes at 1.7 grams platinum, 0.9 gram palladium, 0.1 gram rhodium and 0.3 gram gold.

There are comparable inferred resources on both Inkosi and Imbasa. At Inkosi, 111 million tonnes at grades of 2.9 grams platinum, 1.3 grams palladium and 0.5 gram rhodium per tonne has been blocked out on the UG2, plus 107 million tonnes grading 1.1 grams platinum, 0.7 gram palladium, 0.1 gram rhodium and 0.2 gram gold per tonne on the Merensky. Imbasa’s UG2 resource is 70 million tonnes at 2.8 grams platinum, 1.2 grams palladium and 0.5 gram rhodium, and its Merensky Reef resource is 69 million tonnes at the same grades as Inkosi. The Merensky resources on both projects have nickel and copper credits.

Feasibility work on the Leeuwkop project put the size of the reserve, all on the UG2 reef, at 54 million tonnes with equivalent grades to the measured and indicated resource. The project could produce at 300,000 oz. total precious metals annually, with a cash cost near US$244 per oz. if each metal is taken as a co-product.

Cash flow models of the project put its internal rate of return at 21% with a net present value of US$400 million at a 5% discount rate and US$179 million at a 10% discount rate.

Implats made a profit of R4.4 billion (US$608 million) on revenue of R14.9 billion (US$2.1 billion) in the six months ended Dec. 31. In the last half of 2005, it made US$280 million on revenue of US$1.2 billion. Higher realized prices for all its major products was the main reason for the increase in revenue, but production was up 9%. Group-wide cash production costs rose about 20%, to US$781 per oz.