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Stuart Murray, CEO, Aquarius Platinum

Aquarius' Blue Ridge may be up for sale

Brendan Ryan | Mon, 17 Oct 2011 12:48

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[miningmx.com] -- AQUARIUS Platinum may be considering the sale of its Blue Ridge mine, according to platinum industry sources, who say various potential bidders have approached Aquarius about this.

The interested parties are said to be mainly South African-based operators, but it seems a Russian-based company may also be getting interested in the mine.

Aquarius CEO Stuart Murray declined to comment when approached.

Blue Ridge is currently closed. Aquarius acquired the mine when it took over Ridge Mining Plc in July 2009. Blue Ridge was then in its start-up phase and the reason Aquarius bought it was to increase the group’s production profile.

Aquarius mothballed Blue Ridge in June this year, citing low rand platinum group metals (PAGM) prices.

Murray said at the time the group would instead focus on developing "low operating and capital cost projects" such as the expansion of the Everest South mine into the adjacent Booysendal South property, which Aquarius bought in May from Northam Platinum for R1.2bn.

Murray added the decision to stop funding Blue Ridge was "based on the firm belief that it is in the best interests of all stakeholders in the mine that it be placed on care and maintenance with immediate effect".

"The findings of Blue Ridge management during the redevelopment project coupled with the current economic realities of the platinum industry in South Africa strongly suggest the mine would loss-making for some time to come.

"Under these circumstances, any other course of action would be financially irresponsible for the wider group."

Following the purchase of Ridge in 2009, Murray pulled off deals through which he acquired far more attractive PGM assets in the form of Afarak in April followed by Booysendal South in May.

Afarak’s projects near Rustenburg are likely to be used to extend the economic lives of Kroondal and Marikana through new "pool and share" agreements with existing partners in the region, such as Impala Platinum and Anglo American Platinum.

Booysendal South will greatly extend the life and size of Aquarius’ Everest South mine which sits adjacent the deposit.

The overall result is that Aquarius has dealt with a criticism long voiced by analysts about the group, which was that it lacked sufficient long-term mining reserves.

Following the Afarak and Booysendal deals RBC Capital Markets analyst Leon Esterhuizen summed up the new situation as "short life? What short life?”

MAKING SENSE

Given the higher quality acquisitions made by Aquarius since it bought Ridge Mining it could well make sense for the group to sell Blue Ridge if the price was good enough.

Management would have to decide if the price offered made it worthwhile selling Blue Ridge as opposed to holding onto the asset waiting for platinum market fundamentals to improve to the point where the mine could be re-opened profitably.

That raises the key issue of who would want to buy Blue Ridge at this stage given that market conditions are now worse than when Aquarius decided to shut it down.

In June, Murray said the rand basket price for PGM was deteriorating while on-mine cost inflation in South Africa continued "unabated".

Since then the rand basket price has fallen further while power costs are up 25% - following the latest Eskom hike - and wages are up 10% after the latest round of mining industry pay negotiations.

Before it actually decided to close Blue Ridge, Aquarius management had put it on care and maintenance in August 2010 in order "to rectify some inherited design flaws".

These included installing extra underground infrastructure, including the construction of a third decline shaft.

Imbani may be actively looking for a third party to buy out Aquarius.

The revamped mine was planned to be larger than the original operation and would be able to produce 140,000/year of PGM compared with the originally planned 120,000oz .

It would've achieve "steady state" production schedule by the end of the 2013 financial year and would have an expected mine life of 18 years.

The total attributable mineral resource at Blue Ridge is some 4.19m oz of PGM and the total attributable mineral reserve is some 1.2m oz.

Aquarius owns Blue Ridge through a 50/50 joint venture with black empowerment partner Imbani Platinum, and the suggestion from one source is that Imbani may be actively looking for a third party to buy out Aquarius.

- The writer owns shares in Aquarius Platinum.

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