TORONTO-listed Platinum Group Metals (PTM) toyed with selling by-product credits in gold as a way of paying for part of its Limpopo project Waterberg Joint Venture.
There’s no shame in that. Upfront cash in return for revenue in a noncore metal is a stock-standard funding mechanism for mineral development firms. Luckily for PTM, it stepped back from the proposal well before the gold price rallied to record highs. In a new study of Waterberg JV, which focuses on a smaller mineral zone requiring less upfront capital, it’s now gold credits that help make the project feasible.
Waterberg JV’s “T-Zone” project has a smaller footprint but yields nearly 19% gold from production, compared with 5% in a previous study that assumed a more ambitious footprint, while its exposure to palladium also falls significantly. Long-term price assumptions aren’t provided as yet, but according to PTM CEO Frank Hallam, the higher gold component helps contribute towards a 70% higher revenue per ton than in an earlier project concept. In essence, PTM has now opted for a staged approach to the Waterberg orebody, placing less demand on capital development, which stands at R6bn.
“We think gold has rebased,” says Hallam, who adds that a definitive study of the new project scope will be published in December or January, when updated capex numbers will also be disclosed. Despite a 12% correction in the gold price in the past six months, the market is positive about the metal. “The trend is very much your friend,” said BlackRock mining fund head Evy Hambro at the FT Metals & Mining Summit in October. US debt will continue to debase the dollar, he added.
Gold’s rise is also a reflection of geopolitical distress, a shake-up in the world order of which multipolarity is a feature. Supply chains are consequently disturbed for nearly all metals, which has resulted in a near-synchronous commodity bull run. What that means for specialist metal producers, such as the platinum group metals (PGM) companies in South Africa, is that by-product credits have become part of the investment base case. In fact, some metals traditionally sold as by-products are now becoming “co-products”.
Southern Palladium has, like PTM, also upgraded its project. A change in milling technology at Bengwenyama, its project on the eastern limb of the Bushveld Complex, could result in chrome production of 1Mt annually compared with 350,000t in a previous study. The outcome is a $1bn lift in post-tax net present value of Bengwenyama to $1.96bn.
What a difference prices make. In November, Southern Palladium withdrew a resolution for a company name change. It had feared that its association with palladium, the least favoured of the PGM family of metals, would diminish its ability to market Bengwenyama. It should have done it. “If you look at the revenue swing, chrome goes from about 12% of our revenue to 19%. So, it’s even bigger than palladium,” says executive chair Roger Baxter. The biggest contributor to the project is rhodium, at about 26%, followed by platinum at 25%. That makes palladium, at about 18% of total output, one of the smallest contributors.
Assuming that both the adjusted Waterberg JV and Bengwenyama projects progress, the miners will have to secure concentrate offtake agreements. Accessing refining capacity presents a different type of challenge, but the PGM miners that have the capacity are keen to take the material. “A refinery needs to be full,” says Agit Singh, head of processing for Valterra Platinum. In late October Valterra agreed to buy half of Tharisa’s PGM concentrate for the next five years.
Vulnerable to a buy-out?
Hallam, though picking his words carefully, notes the change in tone minority partner Impala Platinum (Implats) has taken in respect of the Waterberg JV. Previously a project doubter, Implats CEO Nico Muller says Waterberg has “a very likely future”. Implats has first dibs on Waterberg JV’s offtake, but the miner turned down an option to increase its 14% stake in the project to 50.01% in 2020. It might be regretting that decision. Implats has previously sought to acquire equity in smaller operators seeking offtake; a discussion was had in this vein with Tharisa regarding its Karo Platinum project in Zimbabwe.
As it turned out, Tharisa agreed to sell concentrate to Valterra. But it raises the question of whether a company like Southern Palladium is vulnerable to a buy-out.
Baxter says there have been no such discussions, and he isn’t keen to discuss the possibility, especially as shares in the company have a major rerating ahead of them — if Bengwenyama is eventually developed. But Southern Palladium MD Johan Odendaal acknowledges: “We are vulnerable.” Interestingly, Bengwenyama borders Implats operations. Food for thought.
This article first appeared in the FM.