Impala’s Hand Forced as Zimbabwe Starts Nationalization

Impala Platinum Holdings Ltd., the world’s second-largest producer of the metal, is set to lose control over the unit holding 41 percent of its resources as Zimbabwe starts nationalizing foreign-owned assets.

Impala agreed in principle this week, in the face of a government ultimatum, to sell 31 percent of the unit to a state agency and 20 percent to employees and communities. Zimplats Holdings Ltd. holds 134 million ounces of platinum resources, valued at $228 billion at today’s prices.

“You are effectively losing 20 percent of your total resources,” given that Impala will be left with half the deposits owned by Zimplats, said Clinton Duncan, a resources analyst at Avior Research Ltd. “Impala’s hand was forced.”

Zimbabwe, which with South Africa holds more than three-quarters of the world’s platinum, gazetted a law two years ago that compels foreign-owned companies to cede or sell 51 percent of their shares to black Zimbabweans or state-approved agencies. Impala owns 87 percent of Zimplats.

Impala, which produces about a quarter of global platinum supplies, said this week it will sell 31 percent to the national Indigenization Fund for an “independently determined fair value.”

That transaction will happen once it’s been compensated for releasing land, containing platinum, to the value of $153 million to the government in 2006, Impala said. An employee group and one representing the community will each buy 10 percent, to be paid for with dividends.

Cars, Mugabe

Zimbabwe is home to the world’s second-largest reserves of the metal, increasingly used in devices that cut vehicle emissions as environment rules are tightened in Europe and the U.S. Its economy is recovering from collapse under President Robert Mugabe, who wants to call elections this year.

“The Zimplats transaction will set a dangerous precedent and poses a real threat to other investors,” Anne Fruhauf, an analyst with Eurasia Group, said in e-mailed comments. “The Zimplats debacle gives the impression that things are going from bad to worse.”

The government last year doubled platinum royalties to help the economy recover from a decade-long recession that ended in 2009. It may increase mining registration costs to $2.5 million from $300,000, the state-owned Herald newspaper said Jan. 25.

State Spending

Whether Impala receives appropriate value for the 31 percent stake “remains to be seen due to Zimbabwe’s limited cash flow situation,” Avior’s Duncan said.

The government’s ability to fund its share of any capital spending to develop projects “is also likely be called into question,” Justin Froneman, an analyst at SBG Securities Ltd., said in a note.

While Zimplats accounted for 10 percent of Impala’s refined platinum production last year, it generated 18 percent of profit. It’s the lowest-cost producer of Impala’s five operations.

“I don’t think we’ve lost control of the crown jewels,” David Brown, Impala’s chief executive officer, told investors on a call yesterday. “If they don’t come up with the cash, then those shares don’t get transferred,” he said. “The approach is not to stand in the stead of government to actually make available funding for the sale of those particular shares.”

Impala proposed that the current management team remains in place and reports to a board. The board would reflect the new ownership, Brown said.

‘Crown Jewels’

Zimbabwe is “very happy that the operations continue as they already are,” Brown said. “There’s a recognition that they wouldn’t necessarily want to change that or become involved in the operational aspect of it.”

Impala and Zimbabwe will thrash out details of the agreement “over the next weeks and months” Brown said. If there is a satisfactory outcome, Impala may look at building a refinery in the country, also for use by rivals, and it may consider $1 billion of expansion plans.

Impala fell for the first day in five, dropping 1.1 percent to 160.50 rand by the 5 p.m. close of trading in Johannesburg.

Zimplats’ mention of “appropriate value” is “positive” and clarity on the issue may unlock future value from the company, SBG’s Froneman said.

Separately from Zimplats, Impala owns the Mimosa mine with Aquarius Platinum Ltd. Mimosa was given 30 days starting Feb. 22 to reach an agreement with the government on ownership.

It remains to be seen whether the Zimplats agreement sets an ownership precedent for the Mimosa venture in the southern African country, Froneman said.

Anglo American Plc’s platinum unit started production in the country at the Unki mine last year.

Given its complexity, it can’t be expected that there will be “a speedy resolution to the indigenization process” in Zimbabwe, Edward Sterck, an analyst at BMO Capital Markets, said in a note.

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