[miningmx.com] — EASTERN Platinum (Eastplats) broke even in the March quarter, as rising platinum and palladium prices compensated for drops in production.
Platinum group metals (PGM) production from the Crocodile River mine near Brits dropped 10% to 30,531 ounces ( December quarter – 34,000oz), but revenues stayed flat at $34.7m ($34.3m).
Eastplats CEO Ian Rozier said the main reason for the lower production was that 2010’s first-quarter mine start-up was much slower than anticipated following the Christmas break.
“Subsequently, mining rates have picked up to more normal levels and the head grade and PGM recoveries have remained consistent,’ he said.
Differing opinions make markets, and there are strongly contrasting views in the market on Eastplats’ performance.
Libertas Capital analyst Roger Bade described the March quarter results as “poor’, with the rise in dollar operating costs being “particularly unimpressive’.
He said: “It is difficult to see why a company that consistently breaks even has a market value of ₤577.5m.’
JP Morgan Cazenove analysts Steve Shepherd and Allan Cooke take a far more optimistic view.
They said: “We remain overweight on Eastern Platinum based on the group’s growth outlook, unstressed balance sheet, strong management and substantial, readily accessible PGM inventory (relative to current production).
“Eastplats is not a “bear market’ share in our view, but we have little doubt that considering the option value inherent in its large minerals inventory (91 million oz) the group’s shares are strongly geared to a global recovery.’
Eastplats shares were knocked down around 90% of their all-time high of R33 in 2008, because of the global financial meltdown.
Over the past 12 months the shares have recovered from a low of 330c to a high of R12.28, before pulling back to current levels of around 970c.
Eastplats put its Spitzkop/Kennedy’s Vale expansion project in Limpopo Province on hold in December 2008, but is now revisiting the project because of the recovery in PGM prices.
Rozier said: “The new order mining right for Spitzkop was executed in October 2009. With the higher trend in PGM prices, the company is currently evaluating development alternatives for the Spitzkop project in conjunction with the Mareesburg project.
“A development decision is expected to be finalised in 2010.’
The JP Morgan analysts commented that Eastplats may need to raise funds for Spitzkop/Mareesburg because it may not be able to generate sufficient cash internally for the capital expenditure bill, which they estimated at $400m.
The analysts said: ” Management has cautioned that external funding may be required, and that all options would be considered in this regard.
“The group behaviour through the past downcycle demonstrated a sound and prudent approach to growth investment and we remain comfortable that it is unlikely to stretch the balance sheet or dilute shareholder value going forward.
“We note that our models show the group’s shares trading at a 13% discount to our DCF-based valuation at current spot, rand metal prices. – not a great time then, to embark on an equity raising.’