Arne Frandsen, CEO Pallinghurst Resources
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» Pallinghurst buys into Platmin
» A chance to ride along with Gilbertson
» Pallinghurst tries again in Australia
» Keep a close watch on Pallinghurst
» Pallinghurst debut marks Gilbertson's SA return

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Gilbertson climbs into platinum
Brendan Ryan
Posted: Wed, 10 Dec 2008

[miningmx.com] -- PLATMIN will be Pallinghurst Resources’ vehicle for future consolidation moves in the South African (SA) platinum sector but management’s sole focus at present is to bring its Pilanesberg mine into production.

Pallinghurst will control Platmin, holding 69,8% of the company with its partner - the Bakgatla Pallinghurst Joint Venture (BPJV) – after agreeing to pump in US$175m of which $125m is being provided immediately.

Significantly, the deal was done at a premium of 67% to Platmin’s closing share price on the TSX on December 8 and at a premium of 36% to the company’s 30 day volume weighted average price .

The deal amounts to a shot-in-the-arm for the entire platinum junior sector and not just Platmin because it proves funds can be found for worthwhile projects despite the current deathly state of the world’s financial markets.

Platmin was fast running into a brick wall because it needed another US$150m (about R1,5bn) to complete construction of the mine and metallurgical processing plant.

The funding from Pallinghurst will cover the full remaining costs of bringing the mine into operation and ramping it up to its full output rate of 250,000oz/year of platinum group metals (pgm) from July next year.

Platmin CEO Ian Watson said, “We could have borrowed the money from the banks but those funds would have come with the onerous conditions that we sell a large portion of our production forward as security for the loans.

“With platinum prices sitting currently around $800/oz that meant we would have ended up working for the banks for the next six years. ”

Pallinghurst CEO Arne Frandsen – who will be appointed to the Platmin board along with Pallinghurst chairman Brian Gilbertson – said, “We have funded Platmin in the most robust way possible which is equity.”

Pallinghurst had invested in Platmin for a number of reasons, including the mine’s anticipated low production costs and its strategic position in relation to other platinum assets which Pallinghurst was interested in, Frandsen said.

Pallinghurst already held a substantial stake in the mine through Platmin’s unlisted operating subsidiary Boynton.

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“We start mining from surface. I stood on the outcrop of the reef two weeks ago. As a listed company, Platmin will have the lowest cash costs of any platinum producer at around US$400 per PGM ounce,” Frandsen added.

Frandsen emphasised his belief in the sound, longer-term fundamentals for the platinum sector. He described Pallinghurst’s investment as similar to the action taken by Gilbertson when he took over Billiton at a time of a depressed aluminium market.

“At that time aluminium was selling for around $800/t, which meant that just one smelter in Norway could make any money. It was not a sustainable situation. The PGM space is very similar to that right now.

“I see a lot of contraction on the supply side because all the producers are suffering and cutting back on production while the juniors have had their legs chopped off and, in some cases, their heads as well.

“We believe the market will like Platmin as a company situated in the lowest quartile of the cost curve and with very limited debt.

“The most important thing now is to bring the Pilanesberg mine into production on tine and within budget. Once we have shown we can produce metal and generate cash flows then Platmin will no longer be viewed as a ‘wannabe’ platinum company.

“We will have proved ourselves and that means the likelihood of being successful in the next phase of consolidation is much higher.”

Watson said he believed 2009 would be a tough year for the platinum industry but felt that PGM prices were “bouncing along the bottom” at current levels and that a platinum price of $1,250 to $1,450 was realistic in the longer term.

A condition of the transaction is that TSX-listed Platmin become dual-listed on the JSE before the end of 2009.