The fortunes of a platinum nation

When Royal Bafokeng Holdings (RBH) did not declare a dividend last year, there was speculation about the company’s financial health and whether the community the investment company ultimately serves would begin to crumble.

RBH is the moneymaker for its sole shareholder, the Royal Bafokeng Nation Development Trust, which disburses dividends received from investments for socioeconomic development in the Bafokeng community.

The Royal Bafokeng nation is based in North West.

It is a Setswana-speaking monarchy that owns about 1?400km² (140?000 hectares) of land.

Mining companies pay the Bafokeng royalties to mine on its land.

Although times have been tough on the platinum belt, RBH remains in good health.

Its chief executive Albertinah Kekana says: “We are not going down the tubes; we have a very strong balance sheet.”

Kekana has been at the helm of RBH for almost two years. Before that, she was the chief operating officer at the Public Investment Corporation for eight years.

But RBH knows what it means to be broke. In 1998, it ran out of funds due to the mismanagement of the mining royalties and had to go cap in hand to FNB for a loan on the back of expected royalties from the mines.

Ironically, it now owns 15% of FNB’s holding company, RMB Holdings.

In the past 10 years, RBH has paid more than R10?billion in dividends to the community, largely facilitated by its investment in Impala Platinum and Royal Bafokeng Platinum, which have been under significant strain more recently.

“If you go into our [RBH] portfolio, historically we have been very reliant on our platinum assets for dividends, and because of the challenges in the platinum sector, our platinum assets are not able to sustain the level of dividends they have paid in the past,” says Kekana.

“We are relooking the portfolio just to make sure we are able to pay dividends in a way that is not overly reliant on just one or two assets.”

Some of RBH’s biggest nonmining assets include a 14% interest in property company Attacq and 9.4% of industrial company Metair Investments, as well as the 15% interest in RMB Holdings.

But the bulk of its investment, about 40%, is still in mining. Here, RBH holds a 56% interest in Royal Bafokeng Platinum, 13% of Impala Platinum and 29% of Merafe Resources.

The platinum sector has been plagued by a five-month-long strike and the metal’s price has also come under pressure, but Kekana says RBH remains committed to mining.

“I think there are challenges that have to do with the commodity’s cycle and challenges that are structural in their nature,” she says.

“There are issues of oversupply in the [platinum] market, which is evidenced by the fact that even though we have gone through a five-month strike period, the platinum price has not recovered.

“But we also have geological changes in terms of the quality of the minerals and mines going deeper and becoming more expensive to mine, [we have challenges with] our ability to contain costs and the need to build a more stable labour environment, and there are also wider socioeconomic issues around mining towns.”

RBH’s net asset value has grown from R8.8?billion in 2005 to R31?billion at the end of last year.

Perhaps learning from the financial crisis in 1998, Obakeng Phetwe, the chief executive of the Royal Bafokeng Nation Development Trust, says the nation uses cash very conservatively and only spends about

a third of its cash reserves.

“One of the things the nation adopted was a cash policy. If they have R3 in the bank, they can only spend R1 so that if things are bad, you have about two years as a cushion while you rethink the strategy and rebalance the portfolio and things like that, so it’s

been fairly uninterrupted,” says Phetwe.

Kekana says RBH did take on some debt to fund its diversification strategy.

“We used some of those dividends [that were not paid out] to invest in new assets and when we got to a phase when that was not possible, we geared up our portfolio and took on debt to take on the financial services investment, for example.”

According to Kekana, RBH wants to ring-fence its debt a lot more so the entire portfolio is not exposed to debt. Its debt currently sits at R9.38?billion.

“If we find an attractive opportunity, we will look to raise money specifically against that asset and ring-fence whatever debt we raise to that asset and put some equity on to it.”

Sectors she finds attractive are infrastructure, consumer-facing industries, industrials and property.

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