DEMERGERS should achieve three things: improve transparency, sharpen focus and satisfy not only existing shareholders but future ones. So said the Financial Times in reference to Liberty International’s demerger in 2010.Mining giant Anglo American, for which the demerger is a favoured stratagem, achieved all this with Mondi in 2007 and more recently with Thungela Resources, its South African coal assets. Valterra Platinum, the new name for Anglo American Platinum (Amplats), in which Anglo has a 67% stake, is the latest — though it may not be the last.An IPO of De Beers is in the works as Anglo pursues its dual-track sale/spin-off strategy for the diamond miner and marketer.So why should investors bother with Valterra Platinum? As Bernard Swanepoel, frontman of the Joburg Indaba circuit of conferences, indelicately articulated it recently: “What the f**k is Valterra Platinum?” After all, the assets in Amplats are the same that Valterra will manage, and the market in platinum group metals (PGMs) certainly hasn’t changed.In essence, Valterra is a bet on the intellectual capital of its executive team, led by CEO Craig Miller, to “daylight” three standout characteristics in the company. The first is the sheer scale of Valterra’s resources. Anglo has always had the best suite of PGM resources; for Valterra, this amounts to more than 600 million ounces of metal resources, the largest of any PGM miner globally. Unlike Thungela Resources, which sought to derisk its South African production by expanding offshore, Valterra has no plans for mergers & acquisitions, which investors view as risky.Eighty years of PGM resources alone are held in Mogalakwena, the jewel in the Valterra crown. Situated near Mokopane, the mine can produce one million ounces annually, half of Valterra’s total managed production, for the next decade before having to extend underground. This is Valterra’s second selling point: by accessing higher-grade ore from Mogalakwena’s Sandsloot underground resources, the company can grow production without incurring the major capital expenditure of a third concentrator.Third, as a standalone entity Valterra can aggressively chip away at costs, including some related to Anglo-subsidiary red tape that’s no longer necessary. Amplats already saved R7.3bn from a market-enforced restructuring last year. Miller reckons the demerger can result in additional annual cost savings of R1bn-R1.5bn.There are, however, some transaction costs to absorb in the short term, including an estimated R500m in so-called dis-synergies with Anglo and up to R1.9bn in demerger costs, of which R1.2bn-R1.4bn will be booked in 2025.Analysts seem to have warmed to the prospect. “As masters of their own destiny, the Amplats team should be able to unlock further value from its quality asset base,” said Arnold van Graan, an analyst at Nedbank Securities. “Being more nimble and in charge of its own capital allocation decisions, the standalone company should be able to unlock significant upside from its assets, especially at Mogalakwena,” he added.Valterra headwindsBut the demerger comes at a time of maximum uncertainty in the PGM sector and mining at large. Metal exports from South Africa escaped reciprocal tariffs implemented by US President Donald Trump’s administration, but tariffs on cars and car parts into the US threaten to slow automotive manufacturing, affecting PGMs in autocatalysts.The World Platinum Investment Council, an industry organisation, estimates an impact from tariffs of 70,000 oz in platinum — insufficient to disturb its forecast 540,000 oz supply deficit for 2025 — and a 269,000 oz impact on palladium.Nonetheless, pedestrian market prices raise questions about the feasibility of expanding Mogalakwena. “Do the projects work at spot?” Bank of America analyst Jason Fairclough asked at Amplats’s capital markets day in March.“We are still at the study phase. A decision is not due until 2027,” Miller replied. The question came up again at the Joburg PGM Industry Day conference. Miller estimated a 10%-15% increase in Mogalakwena from Sandsloot ore. “It looks good on paper,” Swanepoel observed, sceptically.Asked at the conference by Miningmx if global economic uncertainty had disrupted a central premise of Valterra — that its JSE debut on May 28 is happening in a supportive PGM market — Miller replied: “It’s going to be volatile but in the medium term I believe in the fundamental value of PGMs. That will play itself out in the price.”There are other potential headwinds for Valterra.One is that Anglo will retain a 19.9% stake. It has promised to stay in the share but it’s not known for how long, potentially creating an overhang.There’s also the issue of Miller and his team getting a tune out of Amandelbult. South of Thabazimbi on the western half of the bushveld complex, the mining and smelting complex has stuttered in the past, but Miller insisted those days are over.A version of this article was first published in the Financial Mail.The post Three things Miller has on his Valterra Platinum ‘to-do’ list appeared first on Miningmx.
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