Aquarius Platinum cans Blue Ridge

[] — AQUARIUS Platinum (Aquarius) is putting its Blue Ridge mine on care and maintenance because of low rand platinum group metals (pgm) prices.

Aquarius will focus on developing low operating and capital cost projects instead, such as the expansion of its Everest mine into the adjacent Booysendal South property it has just bought for R1.2bn.

The company has also increased its stake in tailings retreatment operation Platinum Mile Resources from 50% to 91.7%, at a cost of R115.5m payable either in cash or Aquarius equity.

Aquarius CEO Stuart Murray said the Platinum Mile investment was based on the plant’s expected profitability at current rand pgm prices before any expansion initiatives.

He said this would also allow Aquarius to develop a “dedicated tailings division’, adding that Aquarius and Platinum Mile were “currently assessing a number of growth opportunities”.

Said Murray: “An expanded tailings retreatment arm for Aquarius could become an important source of low cost pgm ounces in an environment of ever-increasing mining costs.’

Turning to Blue Ridge, Murray said the decision to stop funding the mine was “based on the firm belief that it is in the interests of all stakeholders in the mine that it be placed on care and maintenance with immediate effect”.

He said: “The findings of Blue Ridge management during the redevelopment project – coupled with the current economic realities of the platinum industry in South Africa – strongly suggest the mine would be loss-making for some time to come.

“Under these circumstances, any other course of action would be financially irresponsible for the wider group.’

Murray said the rand basket price for pgm had continued to deteriorate while on-mine cost inflation in South Africa continued “unabated’, with rises in the price of electricity, diesel and wages.

The mining contractor at Blue Ridge has started the required redundancy processes, while management had initiated discussions with the Industrial Development Corporation and the Development Bank of Southern Africa over “asset level debt restructuring’ of R370m owed to them.

Murray said the initial assessment on developing Booysendal South was that it would cost about R850m ($120m) to extend the mine life of Everest from the current six years to more than 30 years.

For that investment, Everest would be able to increase its planned “steady state production’ of around 190,000 ounces of pgm annually by 25% to around 250,000 oz from 2017 for the extended life of the mine.

Murray said Aquarius had decided to accelerate the development of the Booysendal project because of indications that Everest could be expanded “with industry-leading capital efficiency’.

Aquarius is the second platinum group in a week to announce cutbacks in production and staff levels, following Impala Platinum’s decision to delay the planned expansion of its Marula mine and retrench workers as a result.

By contrast, Lonmin has taken a far more positive outlook on platinum prices. CEO Ian Farmer stated in the group’s interim results published on May 9 that Lonmin had decided to push its production targets from 850,000oz/year of platinum by 2013 to 950,000oz/year by 2015.

This production would all come from Lonmin’s Marikana mine, which had previously produced at these levels before running into mining and metallurgical problems which knocked output back.

The cost of this will be about $2bn, judging by Farmer’s guidance that Lonmin’s capital expenditure will run at around $400m annually up to 2015.

He said: “We would expect to cover this expenditure from existing debt headroom and cash flows generated through the years, and it would not be at the expense of good balance sheet management.’

– The writer owns shares in Aquarius.