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Competing bid likely for Wesizwe Platinum

Brendan Ryan | Wed, 03 Nov 2010 17:27

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[] -- THE bid for Wesizwe Platinum by the Chinese consortium led by Jinchuan Mining could be “knocked out” by competing bids from other platinum groups according to RBC Capital Markets analyst Leon Esterhuizen.

In a major report on the SA platinum sector published recently Esterhuizen pointed out that Wesizwe and neighbouring junior Platinum Group Metals (PTM) occupied key strategic positions on the “best piece of real estate available on the Western Limb”.

Esterhuizen was referring to the best remaining unmined ground on the Western Limb of the Bushveld Complex which is the geological formation hosting the platinum-bearing Merensky and UG2 reefs.

Key attraction of the Western Limb is that it contains large volumes of Merensky Reef which is higher grade than the UG2 reef which dominates on the Eastern Limb and can also be mined at lower cost than UG2.

Esterhuizen expressed surprise that Lonmin – the world’s third largest platinum group – had not already gotten involved in merger and acquisition (M&A) activity on the Western Limb.

He commented, “if any of the majors needs to get access to high grade, low cost Merensky, in our opinion this is one that must. If we were running Lonmin, we’d be out there with the checkbook today.”

Reason is his calculation that the mines to be developed at both PTM and Wesizwe at current platinum prices “should comfortably deliver all-in cost margins of over $600/oz or some 40%. This compares to the current industry average all-in cost margin of just over 20%.

Esterhuizen commented that bids for ownership of PTM or Wesizwe would not be cheap but acquiring such assets was central to any long-term, cost-competitive strategy.

“In our view it will buy a significant competitive advantage in a sector where the medium-term future is almost guaranteed to see massive cost escalation.”

Referring to Impala Platinum’s (Implats) bid for the Bafokeng Rasimone Platinum Mine - which was vetoed by Anglo Platinum (AngloPlat) - Esterhuizen said a key factor behind Implats’ bid was the position of its newly-developed 20 shaft.

This shaft is right on the border of the entire block of ground which is he describes as being “effectively shared” by PTM, Wesizwe, the Bafokeng Tribe and Angloplat.

He commented, “getting access into the neighbouring mining blocks should be a breeze – quick and at low capital cost, significantly improving the economics of the major 20 shaft capital project.

“The likelihood of Implats coming back with a bid shortly after the listing (of Royal Bafokeng Platinum) is, therefore, significant. “

Esterhuizen suggested that if Angloplat continued to frustrate Implats’ plans then “Implats will likely have to regroup and come back for either PTM or Wesizwe or both.

“The ‘nice’ thing about the PTM and Wesizwe blocks is that they are both shallower than the average depth of the Bafokeng block.

“The important point is that Wesizwe and PTM are both central pieces of this puzzle and we believe they will likely end up attracting bids as a result.

“Wesizwe has already attracted a bid from a powerful Chinese consortium. If we assume that the Chinese will be successful in gaining 51% control over Wesizwe then we believe it makes sense the same Chinese bidders would very likely attempt to also get PTM.

“This makes sense for the same reason that Implats tried to bid for the Bafokeng block – synergy and critical mass.

“The Chinese players are new to the space. This means they do not have the smelting and refining infrastructure that the existing players have.

“In order to justify such meaningful expense, a much bigger mine than the Wesizwe mine will be needed – it will not just be beneficial, it will be crucial in our opinion.”

Esterhuizen noted that PTM’s orebody was much shallower than that at Wesizwe which meant the initial capital cost of developing a mine would be about $500m lower and it would take about four years less for PTM to hit full production.

In a recent interview with Miningmx, PTM CEO Mike Jones pointedly referred to PTM’s position “at the shallow end of all this activity” adding that “nobody has really connected all the dots”.

He said PTM’s corporate strategy at this point was to “go it alone” on the development of its proposed platinum mine following the successful raising of C$126m.

But he added, “we don’t rule anything out. Our business plan is open for revision every morning.”

Summing it all up, Esterhuizen rated Wesizwe as the top takeover target in the SA platinum sector followed by Eastern Platinum and Northam Platinum with PTM in fourth position.

The writer owns shares in Wesizwe Platinum

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