Impala Platinum, or Implats has entered into a definitive agreement to acquire 100% of the outstanding shares in Canadian PGM miner North American Palladium.
Brookfield Business Partners LP, North American Palladium’s (NAP’s) majority shareholder with 81%, has been offered C$16.00 per share in cash, while the minority shareholders will receive C$19.74 per share, in a deal worth US$758 million.
The offer will be settled via a combination of existing cash of $288 million, cash raised through a metal prepayment of excess inventory of $120 million and a loan of $350 million.
At this stage, Implats’ anticipates refinancing the loan through a combination of internally generated cash from operations, term debt and a potential placement of its treasury shares by way of a vendor consideration placing.
NAP is a Canadian-based primary PGM producer listed on the TSX, the US OTC market and the Börse Frankfurt. NAP wholly owns and operates the Lac des Iles Mine northwest of Thunder Bay, Ontario, and has a shareholding in two exploration properties, the Sunday Lake project and the Shebandowan Joint Venture.
During calendar year 2018, NAP produced 237 461 oz of palladium, generated EBITDA of c. C$147 million (US$111 million) and free cash flows of c. C$45 million (US$34 million). The operation is on track to meet its calendar year 2019 production guidance of 220 000 to 235 000 oz of palladium at an all-in sustaining cost of US$785 to US$815 per palladium ounce produced.
Says Implats CEO, Nico Muller:
“Implats has had an exploration presence in Canada for more than two decades and over the past three years we have developed a strong relationship with and understanding of NAP and its management team and operations.”
“The ability to acquire NAP and deliver on its medium-term production plans and exploration potential is an exciting development for our Group. Ownership of NAP will accelerate our progress against a number of key strategic imperatives, and it is Implats’ view that the palladium market will remain in a structural deficit in the medium term, which should lend considerable support to stronger-for-longer pricing.”
“The increase in rand PGM pricing, together with the step-change in operational momentum at Implats resulted in considerable free cash generation and a substantial strengthening of the Group’s balance sheet during FY2019. This has allowed Implats’ to pursue this transaction through a prudent and efficient financing structure.”
LEARN MORE: About Implats' focus on palladium assets
Implats’ believes the transaction provides a compelling opportunity for the Group to:
- Further reposition its portfolio and strengthen its competitive positioning in line with its stated strategy by acquiring a palladium-rich, operating asset in an established mining jurisdiction:
Lac De Iles is a low-cost PGM producer and generated cash margins of 53% in the 12 months to end June 2019;
The mine is fully mechanised with a low labour complement and leading safety statistics, which further reduces the risk profile of the asset;
Resource base supports a life-of-mine in excess of 15 years, with potential future upside; and
The operation leverages modern infrastructure and advanced underground mining technologies to capitalise on its highly prospective exploration portfolio; and
The geological setting presents highly prospective future exploration opportunities.
- Acquire a strongly cash-generative asset at a competitive price:
Accretive to Implats net asset value and cash flows;
Conservatively financed to optimise returns for shareholders and maintain comfortable levels of gearing; and
Strengthens cash flow generation to advance the Group's journey towards delivering sustainable shareholder returns.
- Develop a competitive global portfolio of producing, processing and exploration assets:
Diversifies Implats’ production base geographically and operationally with assets on the Western and Eastern limbs of the Bushveld Complex in South Africa, on the north and south of the Great Dyke in Zimbabwe and now North America;
Enhances the mix of Implats’ attributable mine production which is sourced from a diverse range of PGM-bearing reef types; and
Reduces dependence on any single mining complex.
LEARN MORE: About the value of palladium
The plan will see NAP delisted and then transitioning into a wholly owned subsidiary of Implats.