[miningmx.com] – IT’S hard to justify buying the shares of exploration companies listed on the JSE right now, no matter how visionary such a decision might turn out to be. It’s equally hard for these companies to attract capital.
Just ask James Allan, CEO of Sable Platinum, an exploration outfit soon to change its name to Sable Metals and shift sectors from platinum to general mining.
“Has it been harder than I thought? Yes, definitely,’ he says of the company’s listing just over a year ago. Back then, in the wake of the Marikana atrocity, it was easy to suppose the platinum sector was about to bottom out. Given all the negative newsflow on labour relations and civil strife, how more difficult could it become for platinum counters?
Allan concedes he got the call wrong. The platinum market hasn’t much improved – although labour relations have become calmer notwithstanding the pall of strikes hanging over the sector – while the metals prices have remained determindly sluggish. Part of the reason seems to be South Africa’s supply troubles aren’t nearly as influential as commentators supposed they would be given the availability of investment stocks and growth in recycling.
The effect has been to make it extremely difficult to raise the capital for platinum exploration that Sable Platinum needs for its properties. Traditional bank lending appears doesn’t seem to be much available.
In the last year, Sable Platinum has issued equity, and looks like doing so again. An issue is due before its year-end in February, and another in its new financial year where as much as 15% of its share capital can be issued – about R20m at the current share price – per financial year.
As a result, the company has shifted into vanadian, iron ore and pig iron exploration – the latter a consequence of buying control of the nickel dumps produced from the Selebi Phikwe mine in Botswana. Producing iron from the dumps is low cost – a mere 2.5% royalty is paid to the mine from revenue generated.
According to Allan, dump retreatment from an operation in investment friendly Botswana is $100m to $150m per year in relatively quick cash flow – funds Sable Platinum sorely needs. The company may have derisked the exploration portfolio but cash burn of about R500,000 per month means the Allan’s firm could run dry by January.
He thinks that won’t happen, but Allan and colleagues have been run close. He hasn’t drawn a salary since January while other board members have taken salary cuts of between 20% and 50%. Allan has even loaned R1m of personal cash to the company he hopes will be transferred to shares at some future point.
“I’ve got a vision for this company. I don’t think the platinum sector will improve much for the next year, but we will keep moving on and I think we’ve made huge progress in one year,’ he says.
