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 James Allan, CEO, Sable Platinum

Sable Pt backers say market will turn

David McKay | Tue, 31 Jul 2012 15:38
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[] – INVESTORS disillusioned with the complete hammering the South African platinum industry has taken in the past few years can take heart perhaps from the derring-do of former analyst James Allan and his Allan Hochreiter counterpart, René Hochreiter. The two are behind the proposed listing in September of Sable Platinum.

Allan will effectively relinquish his day-to-day duties at Allan Hochreither, a private equity and consulting firm, in order to become the full-time CEO of Sable Platinum, retaining non-executive involvement as its chairman. Hochreiter, for years a top- rated platinum analyst, will be Sable’s part time technical director.

But why the leap into actual platinum exploration, and why now? It seems risky at best to be raising capital for platinum exploration at a time when there are calls for supply discipline. Not all of the Sable Platinum properties are shallow either; one farm has resources at 2.1km, although another has reef outcropping at surface. Allan says, however, a desire to actually get his hands dirty has been six years in the making, while the actual listing of Sable – via a reverse listing in cash shell New Corpcapital – has been underway for eight months.

Says Allan: “We obviously have a positive view on the medium to long-term prospects for platinum. The global car pool is still growing.” This refers to the demand for platinum and palladium in autocatalysis. Presently, the Eurozone, which accounts for about half the autocatalyst market in diesel applications, has been flat- lining, especially as manufacturers have been thrifting to palladium.

However, Allan thinks Russian stockpiles of palladium are nearly exhausted, which will exert upward pressure on the metal’s price when exogenous supply disappears. This will trigger an inevitable return to platinum and perhaps give it a much-needed price bump. Of the 400,000 oz surplus in platinum, meanwhile, half is recycled metal and the balance in divestment from ETFs. For all the gloom about the market, it’s temporary.

Well, that’s the hope. Calling the bottom of the market can be a perilous business, especially for an exploration company with no cash flow, such as Sable Platinum. Key, always, is good guidance, balance sheet discipline and effective cash deployment.

Given the track-record of South Africa’s platinum junior mining firms, you don’t want to return to the market too soon, as pessimists will already be tarring you with the same brush that daubed Ridge Mining, Jubilee Platinum, SoutherEra Platinum (and perhaps even Platfields). It’s also worth considering that not even the fabled mining entrepreneur Robert Friedland was tempted to list his platinum start-up IvanPlats in recent months, although in February this year he touted it as a “new discovery” and was ramping it up in preparation for a listing.

Sable raised R65m privately over the last two years and has been spending this money on drilling four of the five properties. There’s also about R45m in Corpcapital, although in terms of Sable’s reverse takeover offer, its shareholders can extract half their cash. If this happens, Sable Platinum will still have nearly R25m and with cash likely raised from the listing, scheduled for September 17, Sable will be well on its way to being fully-funded for exploration. In terms of previous statements, total drilling costs will be R186m.

Two of the properties in question are contiguous with the farms Xstrata bought from Eland Platinum. Remember that company? Eland turned into a complete treasure chest for the Pouroulis mining family after Xstrata bid $1bn. Allan says there are no immediate plans to sell Sable Platinum, but he’s quite clear on the point that he’s not the person to be CEO as and when Sable Platinum starts building platinum mines. (Allan has interests in an underground drilling business operating in South Africa and in a surface drilling business operating in the Republic of Congo, so he understands the exploration game.)

The key Sable Platinum asset, the 47 million ounce Klipfontein property, is adjacent to the properties of Toronto-listed Platinum Group Metals (PTM). Sable has a 51% interest and PTM a 23% stake, so there’s obvious ‘flip up’ value. Allan says that’s not the intention but repeats the dictum of PTM’s CEO Mike Jones who allegedly commented: “Every morning I wake up, my company is for sale”. Says Allan: “We’re not about to sell the company; of course, if someone gives us an eye-watering offer, we’ll have to consider it”.

But that’s unlikely right now. These are dog days for platinum, which makes Allan and Hochreiter particularly bold in their plans. Or mad.

Allan’s convinced, however, he’ll have content shareholders in two years time. Sable is well financed so isn’t looking for squillions post listing to make the thing work, and the capital appreciation in the stock may be considerable if you think the platinum market’s current troubles are but a particularly chilly but temporal, winter. Says Hochreiter: “We’ve seen this type of PGM market before and no, it’s not different this time”.

This article first appeared in Finweek.

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