PTM impairs Maseve, fires contractor, but looks to better 2017

PTM's Maseve mine

PLATINUM Group Metals (PTM) reported a less than smooth start to its Maeseve mine in its 2016 financial year impairing the asset for $41.4m and replacing its contractor for poor delivery of production ramp up.

But it promised to improve performance in the current year saying that mining of Merensky Reef was due to improve which would lift the delivered average grade and generate more cash flow.

The mine is expected to reach production of 250,000 ounces a year (4E). Output was forecast to be 110,000 oz in its first year rising to 180,000 oz, but the company in October put output in the first 12 months at 91,500 oz.

In line with reports from other operating mining firms in South Africa, especially platinum mining firms, the company said it had suffered the effects of “intermittent section 54 work stoppages at the Maseve Mine”.

Section 54 refers to a part of the Mine Health and Safety Act which entitles the Department of Mineral Affairs (DMR) to stop mining where safety and health infractions have been identified.

The issuances, described by PTM has an industry blitz, have caused a storm in the sector with many mining firms saying the application of the less strenuous Section 54 notices might be more appropriate given the economic impacts.

“Concerns raised by the DMR have been addressed and the company is focused on safely increasing mined tonnage at grade from planned blocks while at the same time reducing costs,” it said.

PTM was commenting in its full-year results announcement in which it posted a net loss of $36.65m (2015 -$3.97m). The $41.4m write-down on Maeseve’s carrying value was offset by a $7.49m deferred income tax recovery.

It said that difficulties and delays were caused “in part by poor contractor performance” and late completion of underground infrastructure at the project which led to bottlenecks in waste movement and ore from the mine”. The mine was first commissioned in February.

As with any mine moving towards commercial start-up following a long lead-time, PTM’s Maeseve mine needs rapid build up of cash flow, especially as the platinum group metal prices have been disappointing again this year.

“The delays in development and stoping have delayed production, which will have a negative impact on working capital requirements until sufficient mined material is produced to allow mine operations to generate positive cash flow,” it said.

The company issued shares for a total of $143m, or some R2bn, of which $73m worth was in public offerings during the 2016 financial year. It also amended facilities with shareholders were draw-downs were attached to production targets.

Some $143m was spent on the development, construction, equipment and other costs at the Maseve Mine while some $7.3m was also spent progressing its Waterberg platinum prospect.

Current cash on hand totalled $28.5m compared to $16.45m as of August 31.

“The company’s key business objectives for fiscal 2017 will be to safely ramp-up the Maseve Mine and to advance the Waterberg Project through feasibility and into preparations for a mining right application,” said PTM.

Shares in the company at $1.70/share have returned to levels last seen in February. The company’s shares hit an all-time low of $1.10/share in January.