Zimbabwe Platinum Mines - Imara

EQUITY RESEARCH
17 MAY 2012
ZIMBABWE
MINING
All Sharks want a bite of the “value”…
In recent years, we have witnessed Implats going full
steam ahead with its expansion at Zimplats in the face
of looming indigenisation demands. Most analysts
(including ourselves) were of the opinion that Implats
was managing this threat through various agreements
that were entered into with the government of
Zimbabwe in yester-years. However, what seemingly
began as a threat is now being executed. Besides
demanding a 51.0% stake in foreign owned mines,
Zimbabwean authorities have also raised taxation and
royalty fees. Simply put, Zimbabwe’s indigenisation
legislations imply that its shareholders (Implats and
other minorities) must reduce their stakes to a
combined 49.0%.
• The share price has suffered significantly. Clearly,
Zimplats has been tainted by the country’s political
problems. Of course, political actors and the media
can be held accountable here. The share price has derated
to about AUD 10.00 from historic highs of AUD
13.00.
• Uncertainty persists but the stock remains
fundamentally undervalued. We have valued
Zimplats using a DCF approach which yielded a target
price of USD 15.00, indicating 46.1% potential upside.
On the other hand, our comparative analysis shows
that Zimplats is trading on a stand-out mark to market
5.7x 2013 PER. This represents a significant discount
to peers (average of 20.7x). We are still convinced
that Zimplats has the potential to create material
additional value for shareholders in the long term.
BUY
BLOOMBERG:ZIM:AU
BUY
Current price (AUD) 10.27
Current price (USD) 10.41
Target price (USD) 15.0
Upside/Downside 46.1%
Liquidity
Market Cap (USDm) 1,120.4
Shares (m) 107.6
Free float (%) 11%
Ave. daily vol ('000) 14.0
Share Price Performance
6 Months (%) 11.40 -9.9%
Relative change (%)* -6.9%
12 Months (%) 12.45 -17.5%
Relative change (%)* -0.8%
*Relative to MSCI Frontier Market Index
Financials (USDm)-FY 30 June 2011 2012F 2013F
Revenue 527.4 515.0 631.5
EBITDA 278.2 253.4 309.0
Attributable earnings 200.4 159.6 197.2
EPS (USD) 1.9 1.5 1.8
DPS (USD) - - -
NAV/share (USD) 6.9 8.7 10.2
Ratios 2011 2012F 2013F
Gearing 5.1% 4.1% 3.5%
RoaA 22.4% 14.7% 15.3%
RoaE 31.4% 19.0% 19.3%
EV/EBITDA (x) 3.1 3.1 2.3
EV/4E oz(USD) 2,351.8 2,102.3 1,531.5
PBV (x) 1.5 1.2 1.0
PER (x) 5.6 7.0 5.7
Earnings Yield 18% 14% 18%
Dividend Yield - - -
EBITDA Margin 52.8% 49.2% 48.9%
Zimplats: Price Vs Volume
18.00
300,000
STRENGTHS
Low gearing of 5.4% enables the group to fund
WEAKNESSES
Weak PGM prices directly impact revenues- Eurozone
16.00
14.00
250,000
future expansion projects through debt.
Defensive - PGMs core business
Crisis presents a stumbling block.
Low grade ore (3.4g/ tonne of ore)
12.00
200,000
Technical & strategic support from parent company,
Royalties in Zimbabwe have increased significantly
10.00
8.00
6.00
4.00
2.00
150,000
100,000
50,000
Impala Platinum eg Refining through Impala Refineries
Shallow depth of ore (100-500m max-depth)
The underground mines are operating at full capacity
OPPORTUNITIES
Ngezi Phase II and III Expansion Projects
Increased emerging markets demand for automobiles
(10.0% for Platinum and 7.0% for Gold)
THREATS
Slump in PGM prices as a result of slow global economic
recovery
-
16-Jul-09
16-Sep-09
16-Nov-09
16-Jan-10
16-Mar-10
16-May-10
16-Jul-10
16-Sep-10
16-Nov-10
Volume-RHS
16-Jan-11
16-Mar-11
16-May-11
16-Jul-11
16-Sep-11
16-Nov-11
Price-LHS
16-Jan-12
16-Mar-12
-
may drive PGM prices up.
Indigenisation issues leading to weak share price.
Regulatory environment i.e. APT
Mining rights ownership risks
High electricity tariffs could squeeze margins
Skills flight to neighbouring countries.
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