Platinum action afoot?

Recent stock price patterns draw attention to Aquarius and Impala, as a number of potential transactions begin to gel.

JOHANNESBURG - 

Recent stock price patterns among the global platinum group metal (PGM) sector suggest that certain smart money anticipates possible action involving Impala Platinum (JSE: IMP, R243.55 a share), and/or Aquarius Platinum (AQP.L, £18.54). Where the average platinum producer is down on average by nearly 20% from 12-month stock price highs, Aquarius is trading around record highs, and Impala approaches fresh highs.

A similar performance is noted for Russia's Norilsk (NILSY.PK, $268.90), the world's major nickel and also palladium producer, with substantial platinum output. Action in and around Norilsk has been focused on the parting of the ways of its two major shareholders, former business partners Mikhail Prokhorov and Vladimir Potanin.

Norilsk has also been active on the acquisitions front, swallowing up LionOre after a robust corporate tussle with Xstrata (XTA.L, £18.54). On Wednesday, Norilsk announced, in a 50-50 joint venture with African Rainbow Minerals (ARM, R129.45), a $456m expansion at the Nkomati nickel mine in South Africa. Like Norilsk, ARM is a diversified PGM producer.

The PGM sector has been busy enough. Earlier this month, Anglo Platinum (AMS, R1060) and its 75% parent, Anglo American (AAL.L, £32.60) announced a series of major deals, in line with black economic empowerment (BEE) legislation in South Africa. Anooraq (ARQ.T, C$3.06) is to pay R3.6bn for 51% of Lebowa (in the Anglo Platinum stable) and 1% of Ga-Pasha, such that Anooraq would then hold 51% each of Ga-Pasha, Boikgantsho, Kwando, and Lebowa. The distinguishing feature of this transaction is that Lebowa has long been in production, and plans to expand, both providing and taking cash flow from its new controlling shareholder.

In Anglo Platinum's second big deal, Mvelaphanda Resources (MVL, R53.70) is set to pay R4bn for 50% of Booysendal and 22.4% of Northam (NHM, R50.00), such that in completing transactions, Northam (63% held by Mvelaphanda Resources) would hold 100% of the established in-production Northam mine, and 100% of Booysendal.

All of this, however, has done little to detract from the apparent smart money that is running at Aquarius and Impala. In a recent disclosure to the London Stock Exchange, Lazard Asset Management LLC said it had increased its effective notifiable interest in Aquarius to 10.04%. Aquarius itself recently disclosed that its largest shareholder was Impala, with a stake of 8.34%.

While Aquarius lacks the full integration to refinery level of the three dominant South African PGM producers, it has distinguished itself with a continuous run of record results. In the year to June 30 2007, group production was a record at 530 726 PGM ounces; net profit was up 119% to $187m; net operating cash flow rose 84% to $323m, and the full year dividend was increased 75% to $0.42 a share. Aquarius, which, like Impala, also has important PGM interests in Zimbabwe, said it anticipated that its production would again increase in the 2008 fiscal year, by around 15%.

Stillwater (SWC, $10.06) has been mentioned in market talk as being on the prowl for a fresh initiative, but it may be constrained in the Aquarius arena. More likely is that Xstrata is on the prowl for expertise, given its $1bn bid for Eland Platinum (ELD, R102.30), and the challenges faced on ore bodies that are yet to be bought into production.

And then there is the new Northam. Aquarius CEO, the indomitable Stuart Murray, has hardly been shy in expressing his interest in the southern part of the substantial Booysendal property, which is adjacent to certain Aquarius interests. According to analysts, some kind of a joint venture in this area could be highly value added for both sets of parties.

Murray is highly rated by investors but is known to have reckoned that Glyn Lewis, CEO of Northam, ranks as the top PGM miner in the world. Lewis made his name constructing Ghana's Tarkwa, the biggest open cut gold mine in Africa, owned by Gold Fields (GFI, $17.80).

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