[miningmx.com] – AQUARIUS Platinum was badly beaten up last year. From R18/share in May, the stock fell to a low of R4/share. It’s now doubled in value, but analysts believe there’s a case for buying more shares in the firm – assuming you don’t mind the risks which revolve around its balance sheet.
Described as “the most difficult period in its history’, the first half of Aquarius Platinum’s 2013 financial year was a nightmare.
In six short months, Aquarius saw its inspirational leader, Stuart Murray, resign; the mothballing of two mines, and pressure on the company to sell control of its Mimosa mine in Zimbabwe to the southern Africa country’s government in terms of its indigenisation programme.
Set against the labour strife that afflicted the platinum sector throughout Spring, it was difficult to see how Aquarius was going to make it through.
The good news, however, is that the new management team, led by Jean Nel, is settled, while the Mimosa deal, in which 51% of the mine was “sold’ for $500m to the Zimbabwean government (of which half is attributable to Aquarius), has been completed.
The switch to an owner-operator model at Aquarius’ surviving mine Kroondal (the others are in mothballs) has been completed and management says the conversion away from contract mining has been a success.
It also looks like the platinum market will also be more benign in 2013, especially if Anglo American Platinum (Amplats) takes some 400,000 ounces/year of platinum productive capacity out of the market in terms of its controversial restructuring programme.
A further weakening of the rand, while stemming from worrying national issues, will also provide some short-term relief to Aquarius.
There’s some division on the share.
“The significant cost inflation experienced at Mimosa and depressed UG2 basket price are significant headwinds,’ said Macquarie Research in a note dated February 18.
SBG Securities, however, has Aquarius Platinum as its preferred platinum exposure while another bank has a buy on the stock. There are risks, however.
The elephant in the room is labour relations. A reprise of the discontent of last year, possibly triggered by annual wage negotiations, will leave Aquarius Platinum’s cash position highly vulnerable. The interim figures showed a cash outflow leaving cash in the bank at only $83m.
Analysts say the cash will be rebuilt provided Kroondal continues to improve and doesn’t suffer production interruptions.
The company is also waiting on Government to approve its bid for Booysendal South from Northam Platinum. It’s important Aquarius get access to additional ounces and the operational flexibility that will bring.
This will need financing while there’s also a potential overhang in terms of a $300m convertible bond which falls due in December 2015.
