Patrice Motsepe's ARM has lost 21% this year as analysts question his platinum bet

Patrice Motsepe's African Rainbow Minerals has shed 21% of its value this year, and the decision to spend R15.2 billion reviving a mine it mothballed two years ago is a large part of the reason.

Shares fell sharply on July 23, when the company announced it would reopen Bokoni Platinum in Limpopo with a phased hybrid mining plan and a new concentrator, targeting up to 400,000 ounces of platinum group metals a year from around 2030. The stock was down 8% over the following week.

The contrast with peers is stark. Anglo American and BHP, the other diversified miners listed in Johannesburg, are up 20% and 28% over the same period.

The reaction was less about the project than its timing. Approval had been expected but not forecast, UBS analyst Steve Friedman noted, and RMB Morgan Stanley expressed similar surprise at how quickly the decision followed the feasibility study. RMB was blunt about how it had landed with clients, saying the project is not well regarded by investors it has spoken to and that both the approval and the size of the capital commitment are likely to weigh on the stock.

Bokoni has a difficult history. Anglo American Platinum, now Valterra Platinum, ran it for more than two decades and never got costs below the top half of the industry. ARM bought it out of the Amplats and Atlatsa Resources joint venture for R3.5 billion in 2021 and brought it out of care and maintenance. Three years later it put the mine back into mothballs pending a fresh study, and wrote the asset down by R2.2 billion in the 2025 financial year.

The geology is the attraction and the problem in equal measure. The UG2 reef accounts for four-fifths of the resource and grades at 6.43 grams a tonne, exceptionally rich by South African standards. It also dips steeply, which is why the completed study points toward a smaller mine than earlier plans envisaged.

On the same day, ARM said it would reopen the Nkomati nickel mine in Mpumalanga, another operation with a troubled record, at a cost of R750 million. That decision followed an offtake agreement signed with Sweden's Boliden in April and a firmer nickel market. The sums involved are a twentieth of Bokoni's.

The concern among analysts is cumulative. Brian Morgan at RMB Morgan Stanley has warned that committing to Bokoni, and then to the Two Rivers Merensky project held in joint venture with Impala Platinum and controlled by ARM, could push the company into negative free cash flow for two to three years.

Not everyone reads it that way. One analyst called the decision prudent, on the argument that South African platinum group metal production is falling while automotive demand is recovering as electric vehicle adoption slows. Citi's Shashi Shekhar noted that the PGM segment is already generating significant cash on higher prices, and expects strong cash flow to continue if the current basket price holds.

The balance sheet supports the risk. ARM held a net cash position of R9.5 billion at the end of June. At R15.2 billion, Bokoni implies capital intensity of about R40,500 an ounce, broadly in line with the R30 billion of brownfield platinum projects Sibanye-Stillwater unveiled in June.

The broader question is about ARM's record on capital allocation, which Financial Mail describes as colourful. The company sold its 40% stake in Zambia's Lubambe copper mine in 2017 after a R1.4 billion writedown, which looks defensible in hindsight given that the Chinese buyer has since committed $300 million before earning revenue.

Otjikoto Gold looks different. ARM sold the greenfield Namibian project in 2010 on the grounds that it fell below the group's investment threshold. Canadian buyer B2Gold turned it into Namibia's largest gold producer, and the operation contributed more than $19 billion to the Namibian economy between 2015 and 2022.

Motsepe chairs ARM and built his fortune on it, having assembled the group from marginal gold shafts bought from AngloGold in the late 1990s. It remains the foundation of his wealth alongside African Rainbow Capital.

Whether Bokoni proves the exception depends on cost control that eluded its previous owner for twenty years, and on a platinum price that has to hold long enough for a mine reaching full output around 2030 to justify the spend.