Bafokeng diversifies its assets
The investment company insulates its shareholders against platinum’s price swings while seeking a more sustainable future
In a surprise move, Royal Bafokeng Holdings (RBH) shunned an Impala Platinum (Implats) takeover and has cut a R17-billion deal with Northam Platinum to buy part of its mining assets. The transaction keeps RBH firmly rooted in platinum — the source of the Royal Bafokeng nation’s wealth — but still allows the community’s investment arm to make good on its promise to insulate its shareholders from the sector’s wild swings.
On Tuesday morning, RBH announced it had accepted an unsolicited offer from Northam for up to 33.3% of its shareholding in Royal Bafokeng Platinum (Rbplats). RBH currently holds a 36.1% interest in the mining company. The deal will also result in RBH holding an 8.7% strategic interest in Northam.
The transaction was announced less than two weeks after Implats made clear its intention to buy out RBH and consolidate South Africa’s platinum group metals (PGMS) sector, which has cashed in on a two-year rip-roaring commodity cycle.
“By any measure, we remain a significant player in the platinum space. So we are able to honour our roots in that sense,” RBH chief executive Albertinah Kekana said in an interview with the Mail & Guardian this week.
Prior to the transaction, Kekana explained, RBH’S exposure to platinum was about R12-billion. After the deal, the firm’s exposure will be whittled down to about R8-billion.
“But,” Kekana continued, “we are able to plant that in a much more diversified portfolio of platinum assets, a high quality portfolio of platinum assets, which allows us to have a very long-term view about our hold in the platinum space.”
Diversifying
In 2012, when Kekana took the reins at RBH, the investment company reduced its exposure to mining to approximately half of its portfolio — setting the tone for the firm’s diversifying efforts under her leadership.
The Royal Bafokeng nation owns more than 1 200 square kilometres of platinum-rich land in the Rustenburg Valley. The Bafokeng made legal history when it took on and won against the mining houses excavating their land. In 1999 it reached a settlement with Implats, receiving one million shares in the company as a result.
In 2006, when RBH was established through a merger of Royal Bafokeng Resources and Royal Bafokeng Finance, its net asset base was almost entirely in platinum mining.
Now RBH’S portfolio consists of investments in infrastructure, financial services, property, oil and gas services and telecoms. Most recently, RBH bought an almost 7% stake in pharmaceutical retailer Dis-chem.
Referring to the Northam Platinum transaction, Kekana noted RBH’S efforts to diversify. “And also to try and address some of our vulnerabilities from a concentration risk point of view,” she said.
“As you know, the platinum industry went through a very severe and prolonged downturn. And with the markets having improved over the last two years or so, we started thinking about ways of optimising value.”
The deal with Northam does just that, Kekana said. “Yes, we did engage with Implats, however in the recent past we were approached by Northam and felt their proposal was strong on all fronts and was in the best interest of the RBN [the Royal Bafokeng nation].”
Though RBH cannot rule out a flight from platinum completely in the future, Kekana said “this is not what is on the table now”.
“We remain one of the big investors in platinum in the country now and we believe, in doing this transaction, we have a more risk-mitigated approach. As opposed to a single mine, we are part of a portfolio of high quality mines in a company with a growing production profile.”
Despite a more than 9% hit to his company’s share price in the wake of the announcement, Northam’s chief executive, Paul Dunne, was similarly resolute about the positive upshots of the deal for the mining company’s diversification strategy. “It is a very deliberate, considered strategic move,” he told the M&G.
The deal gives Northam access to Rbplats’ shallow ore bodies, of which 65% comprises platinum, Dunne explained. “So we like the risk profile of the assets.”
Northam is banking on platinum prices gaining momentum with an upswing in demand for green hydrogen as countries cut back on fossil fuels. “We have a very strong view on platinum. Platinum has been a laggard. It hasn’t done particularly well over the last decade. But we are developing a much stronger view on platinum from here.”
The deal also gives Northam a strong empowerment partner, Dunne added. “It’s obviously, for Northam, very, very strategic. And it is also very strategic for the Royal Bafokeng nation.”
Transformation
Kekana also noted the empowerment aspect of the transaction, as well as the broader mandate of RBH to advocate for the community it represents. As part of the deal, RBH and the Royal Bafokeng nation are partnering with Northam to develop and deliver low-cost renewable energy to the surrounding communities.
“We get an opportunity, from an insider’s perspective, to essentially agitate for transformation,” she said.
“This is, for us, why, when we looked at the transaction around Rbplats, the issues around social impact … were not something we were willing to trade away. ”
As RBH looks ahead, the company is fairly agnostic about the sectors it chooses to invest in, Kekana said.
“We are seeking to back management teams and businesses that are really top performers in the sectors they’re in — and hopefully who are in sectors that are resilient.”
Kekana had long admired Transaction Capital, the Jse-listed taxi financier that RBH bought a 3.7% stake in last year. “When you look at them you think they are in difficult sectors. But we really were impressed by how, through the use of technology and entrepreneurial flair, they have had consistent growth.”
The same goes for Dis-chem: “We admired them long before they were listed ... this opportunity presented itself and we were quite excited.”
Another factor playing into RBH’S investment decisions is sustainability, which has motivated its renewable energy partnership with Northam. “Mining is a depleting asset. Everything you dig out, you have less of as you go on,” she explained.
“One day, not in my lifetime, all the platinum will have been mined from the Bafokeng land. So it is important that we reposition, but we reposition in a way that is sustainable.”