Chinese Group Mulls South Africa Platinum Bids Amid StrikesFranz Wild
China’s Long March Capital Ltd., which partners with Citic Group Corp., is considering buying South African platinum assets after their value was depressed by strikes, the company’s Managing Partner Clement Kwong said.
The company is now reviewing a decision to hold off on purchasing South African platinum assets because of the labor issues, Kwong said in a Feb. 19 interview in Johannesburg. Long March last year partnered with Citic unit Baiyin Non-Ferrous Metal Group Co. Ltd. and China-Africa Development Fund to complete their buy-out of Perth-based Gold One International Ltd. and indirectly acquired a stake in Westonaria, South Africa-based Sibanye Gold Ltd..
“If the industry survives and makes a profit then that would be a good signal to look at investing,” said Kwong, who founded Long March Capital with a partner in 2008. “This last round has repriced these assets down so I think it would be as cheap as it gets.”
Anglo American Platinum Ltd., Impala Platinum Holdings Ltd. and Lonmin Plc say they have lost 4.4 billion rand ($399 million) of revenue because of a four-week strike by about 70,000 workers. The companies, which together produce about three quarters of the world’s platinum, suffered losses from weeks of walk-outs in 2012 and 34 protesting miners were killed by police at Lonmin’s Marikana mine on Aug. 16 that year.
The platinum workers are demanding that monthly wages for the lowest-paid underground laborers be more than doubled to 12,500 rand a month. The Association of Mineworkers and Construction Union, which represents the employees, rejected a pay-increase offer of as much as 9 percent. South Africa’s annual inflation rate is 5.8 percent.
Anglo American Platinum fell 0.8 percent in Johannesburg to 446.92 rand as of 12:36 p.m. local time, giving it a market value of 120.5 billion rand, a third of its value when it reached a record in 2008. Lonmin has declined by three quarters since its 2008 record while Impala has fallen 64 percent.
“There is a current situation that has not been resolved,” Kwong said. “But we think we are scraping the bottom now. I don’t see how much worse the demands can be.”
Long March Capital advises and manages the group of investors, which in December completed their purchase of Gold One. The mining company acquired a 17 percent stake in Sibanye in August.
Long March Capital remains “very positive” on the “phenomenal number” of investment opportunities in South Africa, although it’s wary of labor issues and discussion by the ruling African National Congress of additional taxes and nationalizing the nation’s mines, Kwong said.
The ANC in 2012 backed higher taxes for mines and rejected proposals to nationalize mines, an idea that the party’s youth wing had promoted for two years.
“Some of the challenges like organized labor, the somewhat unclear regulatory environment, these are discouraging to further investment,” Kwong said. “But the underlying economics, the underlying resources, still present huge opportunity for further investment.”
South Africa is the continent’s largest coal and gold producer and holds the world’s biggest reserves of platinum and chrome. Jinchuan Group Ltd. and the China Development Bank in 2011 bought a 45 percent stake in Wesizwe Platinum Ltd. State-owned China National Arts & Crafts Corp. Last month bought Aquarius Platinum Ltd.’s Blue Ridge and Sheba Ridge mines for $37 million. Glencore Xstrata Plc said in November it would like to sell its 24.5 percent stake in Lonmin.
While Glencore’s Lonmin stake and Anglo American Platinum’s Union mine are known to be for sale, Aquarius may also sell more mines, to repay its $298 million convertible bond, Michael Kavanagh, a senior metals and mining analyst at Noah Capital Markets, said in a phone interview from Cape Town today.
“We know that Aquarius has this bond that they need to deal with in 2015 so they’re looking at disposing some of their non-operating assets,” said Kavanagh.
As Long March Capital seeks to expand into Africa, it is also doing due diligence on mine projects in Democratic Republic of Congo and will look at assets in Zimbabwe next week, Kwong said.
“The more de-risked a project, the easier it is to get funded today so something without even a pre-feasibility report is a little difficult to swallow,” Kwong said. “But if it is near production, but requires a substantial amount of capex to take it into production in order to unlock value, that is probably our favorite type of profile. We do have access to a reasonably priced source of capital in order to provide the capex to unlock the projects.”