IMPALA Platinum (Implats) gave its biggest signal yet that it was having second thoughts about investing in the Waterberg Joint Venture, a large palladium resource currently under the development of Platinum Group Metals (PTM).
Implats said in February that it had extended an option to invest in the project in 90 days from grant of a mining right and other licences from the South African government. The option – in which Implats must choose whether to extend its 15% stake to 50.01% and carry development costs – was to have matured on April 17.
Nico Muller, CEO of Implats, said at the time there were “… specific technical project issues that we would like to work on,” adding that the company’s R10.9bn purchase of North American Palladium (NAP) last year was “… a cash generative business, but Waterberg is a multi-year, long-term investment”. He said the company “needed confidence”.
Muller today amped up those comments when asked at a breakfast presentation if investing in a project scoped at $874m in pre-production capital was the wise choice given the likely volatility in the market in the long-term.
“There’s a reason why we pulled the trigger on Canada (NAP) and not PTM and it is to your point,” he said in response to the question. “When we make a decision, it needs to be from a position of strength,” he said.
“We can’t make a big cash flow decision with an uncertain outcome. It cannot be a life altering decision … We do favour near cash flow which is why we are treading cautiously,” he said of the Waterberg Joint Venture.
Muller previously said Waterberg had its attractions, however: “The Waterberg project is attractive in that it is a shallow, mechanised bulk mine similar to NAP which is the kind of asset where we want to re-balance the portfolio.”
A banker attending the presentation said Implats had some thinking to do. “The Waterberg internal rates of return are okay, but that’s if you put in spot market prices which are high at the moment. That project needs 30% IRRs.
“It is capital intensive and you are only getting cash after several years investment and payback many years after that,” he said.
First production from Waterberg Joint Venture is estimated in late 2023 with ramp-up to steady state by 2027. It would take about three-and-a-half years to build the mine from investment decision. Production would be through two sets of twin decline tunnels with mining by fully mechanised long hole stoping methods, according to a definitive feasibility study (DFS). Embarking on the Waterberg Joint Venture could see Implats take total palladium production to about 827,000 ounces per year by 2022
Hanré Rossouw, CFO of Royal Bafokeng Platinum, told Miningmx last week that the days of large, capital-intensive projects were a thing of the past as far as his company is concerned. He said the balance sheet would be deleveraged in order to capitalise on bolt-on, organic growth projects.
“We have Styldrift II project that we could look at. But that is about 10 years from now,” said Rossouw.