Gerard Kemp, CEO, Pamodzi Resources Fund
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» Ridge exploring LionOre option


Platinum hopefuls line up
David McKay
Posted: Mon, 28 Aug 2006

[miningmx.com] -- “OF the people who walk through the door 90% are interested in a platinum deal,” says Gerard Kemp, head of resources at Rand Merchant Bank. There’s particular interest from empowerment hopefuls, he says, because investment in the gold industry is expensive and mineral rights aren’t plentiful. “They feel with gold that they can never become a mid-tier company.”

The interest in building a platinum business is obvious. A glance at the JSE shows two new listings in less than a year – Wesizwe Platinum and Eland Platinum – and the reinvention of Barplats, recently bought by Toronto-listed Eastern Platinum.

There’s also offshore listed firms with plans of various ilk seeking to dig mines, such as African Platinum and Ridge Mining in London and the Toronto-listed firms Platinum Group Metals and Anooraq.

The example set by Aquarius Platinum shows how it’s possible – helped by South Africa’s Mining Charter – to break into the formerly tightly held platinum business. Empowerment firms have immediately latched on to platinum.

Investors can already access Northam Platinum through Mvelaphanda Resources (22,5%), while its rival, African Rainbow Minerals, has investments in platinum it may yet separately list. That’s in addition to the established platinum players, led by Anglo Platinum, Impala Platinum and British-based firm Lonmin, which bought Southern Platinum’s Messina last year.

However, Ridge Mining CEO Terence Wilkinson doubts that his company will make a debut in Johannesburg as first mooted. “I personally would like to see a listing – but there are a number of disadvantages that still apply,” he says.

British shareholders lose the tax benefits of a secondary inward listing in Johannesburg. In addition, there’s still a requirement that a South African-based subsidiary must house the investment of a foreign listed firm’s local empowerment partner. Relaxation in exchange controls in South Africa have not yet travelled far enough for Ridge Mining.
I take my hat off to the guys at Afplats
Much maligned in its early years, Ridge Mining appears to have dragged itself back into contention as a feasible new platinum participant in South Africa. “Ridge Mining has had a very frustrating past, with projected economic uncertainty, lack of funds and a strong rand exchange rate,” said Mark Smith, an analyst at RBC Capital Markets in a note dated 13 March. “However, Ridge has picked itself up and has come back fighting.”

“We’ve certainly had that credibility gap to overcome,” says Wilkinson of the company’s troubles in meeting initial project and exploration promises when it was known as Cluff Mining.

Cash constraints and the requirement for empowerment on its R650m Blue Ridge project (in the south-eastern Bushveld) forced Ridge last year to prepare terms for chunky dilution in the project to around 22%. Imbani Platinum, Ridge Mining’s empowerment consortium, was to finance and control the balance of the venture.

However, Wilkinson suggested at the time of writing that the returns on Blue Ridge were good enough to prompt a financing rethink, even though Ridge Mining always had the option to claw back to 50% of the project. “We’ve got more confidence in the project and would therefore prefer to maintain a higher interest.”

There’s also potential for reducing the capital cost of Blue Ridge which, if all goes well, will produce an estimated 125,000 oz/year of platinum group metals (PGMs) for about 18 years. However, Smith at RBC says that the company-maker is Sheba’s Ridge, also in the eastern Bushveld.

Currently carrying an estimated capital cost of R4.5bn – far in excess of Blue Ridge – Sheba’s Ridge has projected production of 390,000 oz /year of PGMs as well as by-products copper (12,000 t/year) and nickel (23,900 t/year).

The project could also require the participation of major mining or industry participants. Anglo Platinum has a stake in the project, but Ridge Mining has the option to dilute it down to 12,5% – an option that Wilkinson says remains attractive. In tandem with that initial talks with the Industrial Development Corporation, a Government controlled bank, suggest it may become an investor in Sheba’s Ridge. There are other options also on the table.

Though RMB’s Kemp says there’s considerable interest in investing in new platinum ventures it’s hard to carve out a niche. Aquarius Platinum has found scarce opportunity the mother of invention. Its two “pool and share” agreements with Anglo Platinum, in which it has lumped its resources with neighbour Anglo Platinum, is a case in point. Other platinum developers have taken on orebodies not yet tackled by the majors.

African Platinum’s (Afplat’s) Leeuwkop project on the western limb of the Bushveld has come in for some criticism owing to its 1.5km depth and high capital cost. Generally, platinum mines aren’t as deep as gold operations and there’s a widespread concern that deep level mining brings too many difficulties.

For example, Northam Platinum mines a 2.2km deep, a difficult to cool mine that descends through faulted geology. The mine almost went bankrupt in the Nineties and is most vulnerable to a weakening in PGM prices.

CEO Roy Pitchford has vigorously defended his company, claiming South Africa’s platinum producers do mine deep. But he needs R2.3bn to build his mine and concentrator. Resources currently stand at 53 million oz, with hopes to double that figure. Reserves are estimated at 7 million oz. Fund-raising is expected to be in second half 2006 once new order mining rights have been granted, Pitchford told Miningmx in an interview earlier this year.

Says RMB’s Kempt concerning Pitchford: “I take my hat off to the guys at Afplats for having the cajones (balls).”

Quickest project development must go to Eland Platinum, which listed in Johannesburg in March and hopes to be producing its first concentrate in last quarter 2007 from its Elandsfontein project.

That’s around three months ahead of the schedule outlined in Eland’s listing document, says Eland MD David Salter. “Drilling is almost complete, the plant is designed, the mills have been ordered and the environmental impact assessment is also completed.” Initial production is estimated at 280,000 oz of PGMs. Funding will peak at R1bn, with about 50% of that already arranged. A further R400m to R500m is required, most of which will be debt-financed. Eland has an empowerment partner and is currently applying for mining rights to replace its prospecting licence. There’s historical reasons why Eland was quick off the mark. Its chairman, Loucas Pouroulis, has suffered the effects of the mining industry’s boom-bust tendencies before when his company Lefkochrysos Platinum, mining what’s now Barplats’ Crocodile River, began operating months before the platinum price meltdown from about 1987. It ran into financial difficulties and was forced to close. Hence, Eland Platinum’s haste.

Says Salter: “The original thinking was not to take a risk and take advantage of the short-term prices in the market. Now we believe the markets are more pronounced.” Around 11% of revenue by metal content is derived from rhodium, described by Johnson Matthey in its 2006 report to be in relative short supply as Russian stockpiles of the metal are almost depleted. “We’re seeing some extreme tightness in that market,” says Salter. In any event, Eland has built its project on a platinum price well below $900/oz and at a conversion of around $1/R6.

Salter has before raised the possibility that Eland intends to expand by consolidating with other platinum producers. He now downplays that option, as equities are expensive. But cross-border co-operation is always a possibility. “The optionality comes out of what pieces of ground we can buy. Our priority is to get key positions and leverage ourselves into corporate activity.”
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One obvious choice is to share infrastructure with Barplats’ Crocodile River neighbour Elandsfontein. There’s some history to that, as both Salter and Pouroulis helped resuscitate Barplats from about 2003 when Impala Platinum, one of its many owners, put the mine into mothballs. The two men left Barplats after failing to agree with the Platinum Consortium, North American investors that took a 67% stake in Barplats.

Salter says: “Any discussion with Barplats is currently a long way off. Their Crocodile River needs to be funded first. Once finalised we could perhaps sit down – but it’s not on our agenda at the moment.”