[miningmx.com] — EASTERN Platinum (Eastplats) shares dropped 4% to 900c in trading on the JSE on Monday morning following the release of production results for the March quarter, reporting a 22.5% fall in platinum output.
Platinum group metal (pgm) production fell to 25,387 oz (December quarter – 32,752 oz) which CEO Ian Rozier attributed to “the traditional slow start in January combined with the introduction of revised support methods.”
Rozier added that a comprehensive internal safety review had been carried out in line with the new department of mineral tesources (DMR) general safety recommendations on roof support requirements.
He commented: “This review also accelerated the previously planned progressive introduction of cement grout support packs into working panels as mining operations at CRM (Crocodile River Mine) get deeper and where support requirements are projected to increase.
“This increase in support standards necessitated the retraining of underground personnel with a consequent temporary reduction in the number of working panels during the quarter that impacted on mine production.”
According to JP Morgan Cazenove analysts Steve Shepherd and Allan Cooke “the slow start is a feature across the industry but the production loss due to a change in support standards is unusual”.
Eastplats also reported a drop in head grade for the quarter to 3.93g/t (3.97g/t) which is the lowest in a year and compares with a headgrade of 4.11g/t in the March 2010 quarter.
According to Rozier “the increase in on-reef development has impacted slightly on the head grade delivered to the plant”.
The JP Morgan analysts commented: “Notable in the production report was a materially higher development rate during the March quarter. This rate is similar to that reported during the pre-recession numbers.
“It occurs to us that perhaps the slower rates achieved in an attempt to conserve cash during the depressed metal prices of the recession may have been overdone.
“We wonder if the weak March reef production may not in part have been attributable to inadequate mining flexibility resulting from the earlier reduced rate of development. Management did not make any comment that hints at this, though.”
Overall, the JP Morgan analysts remain bullish on Eastplats’ prospects expecting production to double over the next three years as the Crocette brownfields expansion at CRM and the Mareesburg greenfields project in Limpopo kick in.
“At the current share price and based on spot metal prices our models have the group trading at a 12% discount to our DCF (discount cash flow) valuation.
“Eastplats – along with higher risk Anooraq – is the only platinum counter we cover that is trading at a discount.”