[miningmx.com] – TORONTO-listed Platinum Group Metals (PTM) could become a takeover target on the basis of its 17.5 million platinum group metal (PGM) Waterberg deposit over which the firm was recently granted an exploration right.
In a report by Leon Esterhuizen, an analyst for CIBC Capital Markets in London, the Waterberg deposit is wide and relatively shallow and could result in a mine producing up to 450,000 oz/year of platinum group metals (3E).
Esterhuizen emphasises in the report that the potential economics of the project are based on a conceptual study of the resource which was ‘discovered’ in 2011. The resources identified in the Waterberg deposit are inferred at this stage. An application to explore the deposit, submitted a year ago, was granted recently, he said.
“The Waterberg discovery has really changed the value dynamics in PTM considerably,” said Esterhuizen in his report. He added that PTM would become a target for South Africa’s major platinum producers if only so they could control the introduction of low-cost supply from the market into a sensitive market.
“With so much good news about the Waterberg discovery already known and with
clear potential to be expanded significantly over the next year, we believe the market may well be missing a trick,” said Esterhuizen.
“Whatever the value of this find, one thing that stands out very clearly, even at this very early stage, is that this deposit will lend itself to low – cost, mechanized mining.”
Shares in PTM gained about 24% to about C$1.29/share soon after publication of the report which is dated October 3. The share has since eased to C$1.20/share.
Esterhuizen calculates that the mine could compete with the Platreef prospect owned by another Canadian-listed platinum firm, Ivanhoe Mines, but that it would require PTM to raise capital with start-up expenses of a mine on the Waterberg resource estimated at between $600m and $800m. The hefty capital bill is owing to a requirement for a larger concentrator to be built.
The Waterberg deposit is situated in the northern limb of the Bushveld Complex north of Ivanhoe Mines’ Platreef project and Mogalakwena, the proposed 600,000 oz/year mine owned by Anglo American Platinum.
Setendra Naidoo, an analyst for Standard Bank Group Securities in Johannesburg acknowledges the prospectivity of the Northern bushveld region but says he would be unprepared to place a value on Waterberg’s inferred resources.
“Companies like Amplats and Implats have vast amounts of Inferred resources, should we put a value on its resources these companies could trade at multiples of where they trade today,” he said in an e-mailed response to questions.
“We also find it difficult to attach material value to the Northern Limb given the lack of power and water networks which are still in construction and in the case of water is in deliberation with mining companies and municipalities,” he said.
Esterhuizen, however, was impressed with the quality of the Waterberg orebody. Owing to the relatively shallow deposit – 124m at its shallowest – the deposit could deliver a mine producing platinum at a combined cash cost and sustaining capital cost of about $500 per PGM oz generating free cash flow of about $400m a year. This is competitive with expectations for annual cash flow generation of $420m and $490m from the Platreef and Mogalakwena mines respectively.
“We estimate a possible increase in company value of ~US$1.6bn. Even discounting this for 100% equity dilution still brings the number to ~US$1bn from the current US$400m or so,” said Esterhuizen. He raised CIBC’s target price on PTM to C$2/share from C$1,50/share.
Notwithstanding his reservations, Naidoo said the Waterberg prospect could increase the firm’s target price on PTM between 20 Canadian cents and 64 cents, adding that PTM traded differently to Johannesburg listed securities.
“An example is Wesizwe, currently in construction with a similar sized project contiguous to that of PTM on the Western Limb, and trades at a quarter of the value of PTM although Wesizwe is fully funded by its Chinese partners,” he said.
PTM is building the $443m Western Bushveld Joint Venture (Maseve) in joint venture development with Johannesburg-listed platinum development firm, Wesizwe Platinum. PTM owns about 74% of the project.
