David Salter, MD, Eland Platinum
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» We actually preferred shares - James Allan, founder, Allan Hochreiter
» Eland would look at Eastplats assets - David Salter, CEO
» Eland received takeover calls
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Xstrata's link to Eland Platinum questioned
Allan Seccombe
Posted: Mon, 11 Jun 2007

[miningmx.com] -- It is difficult to see why a major global mining group would want to buy a relatively small company like Eland Platinum that has the immediate prospect of producing 160,000 ounces of platinum group metals (PGMs) in South Africa when there are bigger and better targets available.

Junior JSE-listed platinum company Eland Platinum is trading under a cautionary note to shareholders that it involved in something that could affect its share price. Speculation is rife in the industry that Eland is a takeover target.

South Africa’s Business Report newspaper on Monday cited a source close to talks being held with Eland Platinum as saying that Xstrata is close to a deal to acquire the company, which will produce its first PGM concentrate in October. An announcement could be made in two weeks.
so much hope, faith and glory built into that
Predictably, none of those linked to the transaction are offering any insights, preferring to say: “We don’t comment on speculation.”

It might very well be Xstrata that is talking to Eland, but Eland CEO David Salter says there have been many expressions of interest in the company and the list of groups linked to the junior is long.

Mick Davis, CEO of Xstrata, told Miningmx in an interview in May: "There will be a time when we look at the platinum market. At the moment, we’ve just been doing other things.”

However, the question has to be asked why would one of the world’s largest resources companies want a mine that will initially produce 160,000 ounces of PGMs a year from an opencast mine for four years and then step up to 270,000 steady-state ounces from an underground mine.

“What difference does 160,000 ounces of PGMS make in the life of a big company? Not a lot,” said an analyst. “To mess around with this small projects, adding one to another, is that something you’d really want to go for?”

It would surely make more sense for Xstrata or BHP Billiton, who is also said to have taken a look at Eland’s project on the southern tip of the Western Limb of the Bushveld Igneous Complex, to wait for platinum prices to settle and then make a bid for Impala Platinum or Lonmin.

Impala produces 3.5 million ounces of PGMs a year and Lonmin about two million ounces. Admittedly, they are far more expensive than Eland, but they are mature operations that extract the full value from PGMs through mining, smelting and refining of its products.

These two companies have suites of producing assets that would make a better fit for these global resources giants rather than buying smaller projects scattered around the Bushveld Complex, some of which are years away from production, others which have deposits of questionable quality and yet others have complicated ownership structures.

Comparing Eland to those other juniors, it is by far the least complicated in ownership structures and it’s the closest to production. It has recently agreed a concentrate offtake contract with Anglo Platinum, but this is for a limited period and for a certain portion of land it now owns.

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This would make it an attractive takeover target, but again, in the bigger scheme of things, would it suit a large company to have such a relatively small PGM output?

Eland’s shares have increased nearly six fold since it listed in March last year, with the bulk of the price gain coming in the past month.

“Whichever number you crunch, it’s very difficult to justify a premium on that share price because there is already so much hope, faith and glory built into that share price,” an analyst said.

“You almost have to do it at market level or below that to make sense for longer term shareholders unless you have some incredibly bullish outlook on platinum and rhodium,” the analyst said.

If the mystery buyer pays less than the current share price there are going to be unhappy Eland shareholders. If the buyer matches the share price, which gives Eland a market capitalisation of R8.45bn ($1.17bn), it will need PGM prices to remain as strong as they are and have slick project management to meet production targets to keep its shareholders happy.

Eland has PGM resources of 22 million ounces. It reckons this month’s acquisition of neighbouring land could add another 20 million ounces and it will begin an exploration programme to find them.

The analyst called Eland management’s comments on the 20 million ounces as “highly speculative” and said the quality of ounces in land to the east is less than wonderful.

Not only that, but the rhodium price at $6,000/oz made Eland’s project look that much better because it is focussing on the rhodium-rich UG2 reef.

“If rhodium price falls off, Eland's project becomes so-so. It looks great on paper now because it is a UG2 project and all UG2 projects look fantastic at rhodium at $6,000, but it won’t stay at that level,” the analyst said.