Jubilee Platinum bids for Braemore

Allan Seccombe | Fri, 03 Jul 2009 12:25
[miningmx.com] -- JUBILEE Platinum has proposed an all-share offer to buy Braemore, which has licensed technology to treat high chrome content platinum group metal and nickel concentrate.

The plan is to make Braemore a wholly owned Jubilee subsidiary and delist it from the JSE and AIM. Jubilee will offer one new share for every 15.818 Braemore shares, which is a discount to the current market price and the five-day volume weighted average price.

The shares in both companies tumbled. Braemore shed nearly 30% of its value and Jubilee nearly 10%. Braemore chief executive Leon Coetzer said it was a lot of froth coming out of the shares built up by market rumour over recent months.

"We've been asked why we are doing this transaction when the values of the companies have been hit hard. The transaction is perfect timing in the life cycles of both companies," Coetzer told Miningmx.

Braemore is advancing from proving the ConRoast technology to deploying it commercially, while Jubilee is advancing its Tjate exploration project for exploitation in the longer term and has tailings dumps to treat in the short term to generate cash, something both companies need.

ConRoast is arguably one of the more important technologies developed in the platinum industry. The smelter has a very high recovery of PGMS from concentrate rich in chrome, an issue that widely deployed technology in the South African platinum industry battles to address.

A platinum analyst regarded the deal a little differently to Coetzer. "If you look at the details of the deal, it's clear Braemore was in dire straits. It had a lot of debt and very little income. Jubilee is coming to the rescue of Braemore to some extent," the analyst said.

The lack of a premium for Braemore was a factor in that share's performance, the analyst said. Coetzer explained the discounted offer as related to Braemore being difficult to value and not generating positive cash flows, which made it difficult to access capital to grow the company.

"The Jubilee guys will have to issue paper and their shareholders are taking a big dilution to save Braemore from trying to raise money itself or going belly up," the analyst said.

Jubilee will issue nearly 50 million shares if the transaction goes ahead. It will provide Braemore up to R7m towards operating costs and it will pay R25m towards settling the technology company's debt.

Jubilee will also stump up R18m that Braemore has to pay Mintek by 30 September.

The conclusion of the transaction will be immediately followed by a capital raising exercise for the combined entity to fund the building of a concentrator and refinery to separate base metals from platinum group metals in a project to treat chrome and PGM tailings dumps owned by Jubilee.

The base metals will comprise nickel, copper and cobalt and the PGM portion will be a high-grade, very saleable concentrate, Coetzer said.

The existing 3.8 megawatt smelter at Mintek's facilities will be used in the process.

Coetzer declined to give an amount the group would need or how the funds would be raised apart from saying there was likely to be an equity portion.

The merged entity would continue talks Braemore has already initiated with unnamed junior companies to set up joint ventures or offtake agreements to process high-chrome content concentrate, which the major platinum groups are reluctant to treat.

"This transaction will not stop this technology from being offered to other junior companies," Coetzer said. "We are still very much in discussion with a few of them."

The additional concentrate will go towards ensuring the plants are operating at full capacity.

The analyst was cautious that this might be flag-waving and wanted more concrete details on offtake agreements or joint ventures before factoring it into a view of the merged entity. "In order to be successful in raising capital you're going to have to tell the market who these so-called partners will be."

A condition of the deal is that it secures 75% approval from shareholders for the transaction. Jubilee has secured irrevocable undertakings of support from shareholders of about 50% of Braemore, including some directors.

Braemore shareholders will effectively own 30% of the new entity ahead of a pre-capital raising exercise.

Braemore not only brings with it the ConRoast smelter technology it has under licence from South African mineral researcher Mintek, but exposure to nickel in Australia.

Braemore holds tailings supply agreements with BHP Billiton on three nickel surface dumps in Leinster, Kambalda and Mt Keith containing a combined estimated total of some 500,000 tonnes of nickel.

The technology is unlikely to be deployed at the Tjate prospect any time soon, the analyst said. Tjate, with its SAMREC-compliant 25 million oz of six platinum group elements in the indicated and inferred categories, will not be built at current metal prices, the analyst said.