Palllinghurst pins hope on chrome to stem Sedibelo cash drain

Arne Frandsen, CEO Pallinghurst Resources

PALLINGHURST Resources will produce chrome at Sedibelo Platinum Mines (SPM) from November which would help it restore the operation to profitability after two years of losses in its 2015 and 2016 financial years totalling $150m.

Arne Frandsen, CEO of Pallinghurst Resources, said some 10,000 tonnes in chrome production a month was anticipated from the mine following commissioning of a plant, due to ramp up in November. The expectation is that net cash of R600m a year would be generated based on a conservative chrome price of $180 to $185 per tonne.

Frandsen said Sedibelo had also cut overall costs by a fifth and had reduced production about 23% in Pallinghurst’s last financial year to about 62,000 ounces 4E. There were no plans to return production to former levels in order to conserve cash which fell to just over $22m in Sedibelo’s half-year down from $50m a year earlier.

Sedibelo reported in August a second quarter loss of $19.5m (2016 Q2: 18.8m) which takes losses for the current financial year to $40.6m. However, Frandsen was upbeat regarding prospects for Sedibelo. The second quarter loss was largely owing to currency exchange differences and was therefore a non-cash item.

Asked if there was a risk Pallinghurst might tap shareholders for funds to keep Sedibelo liquid, especially given the poor prospects for the platinum price, he said: “We are debt free and have not returned to shareholders in the past. We don’t plan on it in the future. Given the size of the business and the fact that we have no debt means that we are actually in quite a good position. You can’t assume that we are running out of cash”.

There has been some disquiet regarding Pallinghurst’s $1.75bn valuation of Sedibelo, equal to about R23bn. This puts the mine on a par with the market value placed on Northam Platinum which is approaching production of 400,000 oz/year. The criticism is that Pallinghurst previously linked management fees to the size of their investment’s net asset value which may have clouded the judgement of its executives.

Said Frandsen: “The valuation of Sedibelo in the competent persons report, which is done by SRK, is about $3bn, but we took the valuation of half of that.

“The fact is that Sedibelo has 100 million oz in shallow resources that have not gone sour; maybe there is the value and the fact that we have 4.5 million fatality-free shifts which makes Sedibelo a very different proposition,” he said. Fees are also no longer charged by management since Pallinghurst changed its business model to become a mining company. It was previously an investment house.

Pallinghurst bought out minority shareholders in another of its investments, Gemfields, earlier this year for 32 pence per share despite having a rival offer of 45p/share. The company wrote down its Gemfields investment for $64m which accounted for 79% of the $81m loss Pallinghurst suffered in its 2017 financial year. The balance of the loss consisted of a write-down of Sedibelo of some $16m.

“We have a new beginning at Gemfields and Pallinghurst,” said Frandsen. “We have cut overhead costs in London and the team is fully accountable. Anyone can call me if they have issues with what we are doing. Anyone who wants to do this can talk to me,” he said.