Takeover talk drives Eastplats

Brendan Ryan | Thu, 15 Oct 2009 14:38
[miningmx.com] -- EASTERN Platinum (Eastplats) shares have jumped more than 50% in a matter of days. This has sparked renewed speculation over a takeover deal as the next phase of consolidation in the SA platinum junior sector.

On the JSE, Eastplats shares hit 600c in early trading on Thursday from 390c last week before easing slightly.

Eastplats’ primary listing is in Toronto, where the share jumped 26% to hit a 12-month high of C$0.86 on Wednesday.

This increase has taken place in direct contrast to conditions in the rest of the platinum sector. Shares have pulled back across the board in response to the strength of the rand against the dollar, which is hitting mining revenues.

Eastplats owns the operating Crocodile River Mine (CRM) near Brits on the western limb of the platinum-bearing Bushveld Complex as well as the Spitzkop-Kennedy’s Vale projects on the eastern limb of the Bushveld Complex.

Over the past two years Eastplats has been the subject of frequent speculation concerning a takeover by two mining groups in particular: Aquarius Platinum and Xstrata.

Aquarius CEO Stuart Murray told Miningmx on Thursday that “it’s not us” when approached for comment.

Xstrata spokesperson Claire Divver said: “We don’t comment on market speculation.”

Xstrata appears the most likely of the usual suspects to be looking at Eastplats. This is because of its stated ambition to grow its platinum business, and the strategic geographical location of Eastplats in relation to Xstrata’s existing platinum investments.

CRM’s eastern boundary is contiguous with the western boundary of Eland Platinum, which Xstrata bought for R7.6bn in 2007.

CRM’s western boundary is contiguous with Lonmin's Pandora project, which, in turn, is contiguous with Lonmin's core Marikana mines. Xstrata still holds a 24.9% stake in Lonmin following its failed bid to take over the group in 2008.

Xstrata is now free to look at Lonmin again in terms of UK takeover regulations, and its decision to drop the proposed merger with Anglo American could provide a catalyst to do precisely that.

A platinum sector analyst said: “If Xstrata really wants to consolidate the stretch of the Bushveld Complex from Marikana to Pretoria, then Eastplats is an obvious target.”

In addition, the northern section of Eastplats Spitzkop-Kennedy’s Vale complex sits adjacent to the southern end of Nkwe Platinum's Tubatse and Garatau projects, in which Xstrata is a 50% joint venture partner.

The CRM mine has a long and chequered history with three previous owners – founder Loucas Pouroulis, the defunct Rand Mines and Impala Platinum – all failing to make money out of it.

This was mainly because the broken nature of the ore body in that area made mining operations difficult.

Eastplats has consistently produced about 30,000 ounces of platinum group metals (PGM) per quarter from CRM since the September quarter of 2008.

JP Morgan analyst Steve Shepherd said in a report published on September 2: “Where others have failed to tame this mine over past decades, Eastplats appears to be succeeding through a solid focus on the basics of mining.”

Shepherd highlighted the fact that Eastplats has a net cash balance of about $20m after obligations, which “should see it through to a recovery”. It also has a “massive resources inventory”.

That amounts to some 88m oz of PGM relative to its planned production rate of about 200,000oz of PGM from CRM to be reached towards the end of 2010.

Shepherd pointed out this resource base could support long-term quantum growth but that “the market, according to our model, is substantially ignoring this”.

The writer owns shares in Eastplats.