Wesizwe halts mine development plans

Allan Seccombe | Wed, 30 Sep 2009 11:28
[miningmx.com] -- WESIZWE Platinum has suspended all work on developing a mine until it has sufficient funding, CEO Mike Solomon said on Wednesday.

This marks the departure from the bit-by-bit approach that the platinum company had proposed in November last year, where it would incrementally build a mine as it secured finance. It’s clear that the capital markets are not yet favourable for junior companies wishing to build mines over a relatively long time frame.

“On 21 September 2009, the board resolved that commencement of the project be deferred until such time the company has obtained sufficient funding for project construction,” Solomon said in a note accompanying the group’s interim results to end-June.

The decision to abandon the piece-meal approach came as no surprise and, in fact, it opens Wesizwe to some sort of consolidation play, said Leon Esterhuizen, a precious metals analyst at RBC Capital Markets in London.

"That approach was never going to work. Early investors giving Wesizwe some money didn't know if and when they would get their money back because it depends on other people coming in later," he said.

"As soon as you increase the risk profile, people just don't bite," he said.

Wesizwe has R120m in cash, which at the current burn rate for corporate and other overheads of R5m a month, will give it sufficient time of nearly two years to raise the necessary funding.

“Currently Wesizwe is in negotiations with various funders and some of these negotiations are at advanced stages,” Solomon said.

Work was due to have started on the 980 metre deep mine capable of producing 350,000 oz of platinum group metals a year, during the first half of 2009. Wesizwe has twice revised its bankable feasibility study to account for highly volatile moves in the platinum prices and rand as well as contractor terms.

A board decision in November as the effects of the global economic meltdown were felt around the globe was that the development of the R5.6bn mine at Frischgewaagd be done in a modular fashion and that agreements with contractors be re-negotiated.

The first phase would have been the sinking of a R1.8bn shaft over two years and financed in stages.

The collapse of financial markets last September made raising debt prohibitively expensive with far too onerous terms. Wesizwe's share price also tumbled, in line with nearly all exploration and mine development companies, making a rights issue far too dilutive for existing shareholders.

"With this conundrum of wishing to advance the project on the one hand but to conserve cash resources and shareholder value on the other, management was forced to review the entire approach to funding the project," Solomon said.

Esterhuizen said Wesizwe and the neighbouring property owned by TSX-listed PTM would make an ideal target for consolidation. It would be unlikely to be a major company like Anglo Platinum, but a smaller company like Aquarius, Platinum Australia or even Platmin or Eastern Platinum, which have cash flow, meaning they can raise debt more cheaply than Wesizwe could.

"Aquarius is the best positioned to my mind," Esterhuizen said.