Commodities update: Impala buys N.A. Palladium, Hexo downgraded after CFO exit
$1-billion sales agreement announced Monday represents the culmination of a six-year turnaround for Toronto-based miner North American Palladium Inc., its president and CEO says.
On a conference call to discuss the deal to sell the company to South African miner Impala Platinum Holdings Ltd., Jim Gallagher said NAP was in severe financial distress following a poorly executed mine expansion in 2013 when financier Brookfield Capital Partners stepped in with a US$130-million loan.
In 2015, with the company still struggling, Brookfield converted its loan to equity to become the majority owner, on the understanding that it would sell its stake when the turnaround was complete.
“That day has come today. We have a sale of the company in an all-cash deal at near-record palladium prices and, except for a two-day blip in March of this year, at near-record high share prices,” said Gallagher on a conference call to discuss the deal.
“From virtual bankruptcy four years ago, we now have a sale to the tune of $1 billion.”
Impala Platinum, which uses the nickname Implats, has offered to pay $16 per share to Brookfield Business Partners LP, the majority shareholder with 81 per cent of the stock, and $19.74 per share for the remaining stake, resulting in an average price per share of $16.77.
Negotiations with Implats began in July and the companies had unofficially set a price of around $16 per share, Gallagher explained. The higher price for minority shareholders was agreed upon in recognition of the more recent rise in share prices.
North American Palladium has been producing palladium, a lustrous white material valued for its use in pollution-control devices for cars and trucks, for 25 years at its Lac des Iles Mine at Thunder Bay, Ont. It's also involved in two exploration projects.
“Implats has had an exploration presence in Canada for more than two decades and over the past three years we have developed a strong relationship with and understanding of NAP and its management team and operations,” said CEO Nico Muller in a news release.
“It is Implats' view that the palladium market will remain in a structural deficit in the medium term, which should lend considerable support to stronger-for-longer pricing.”
Implats said it was attracted to North American Palladium because of its fully mechanized mine, which means low labour costs and leading safety statistics, an estimated mine life of at least 15 years, and its future exploration opportunities. About 700 people work at the mine.
The companies have agreed to a 30-day period during which a termination fee of $24.5 million would be payable to Implats if a higher bid is accepted, with the fee increasing to $37.7 million thereafter. Implats would have the right to match any offer.
Closing of the transaction is expected in the fourth quarter, subject to North American Palladium shareholder approval and other customary conditions.