[miningmx.com] – ONE of the happy consequences of the unhappy
shakedown in the platinum group metal (PGM) sector is that it may provide
opportunity to new entrants.
There is a major risk that shafts will be closed, which may precipitate a shift in
ownership or sow the seeds for a long-term supply deficit that creates openings for
prospectors with high hopes.
Chrometco is among the hopeful, although it’s not quite a new entrant.
Since 2005, it has owned the Rooderand chrome deposit in the Bushveld complex, a
prospect that hasn’t achieved the kind of scale for which its original shareholders may
have first hoped.
New management led by CEO Petrus Cilliers, who has worked in the DRC, Zambia, the
UK and Australia, and backed by Chrometco’s founding shareholder, Edward Bramley,
are hoping to change Chrometco’s track-record and simultaneously diversify the
company’s business.
The plan is to buy the non-chrome prospecting rights (platinum and base metals) over
Rooderand owned by Nkwe Platinum, a share-based transaction it hopes to have
approved on November 2 by shareholders. If approved, Chrometco will offer 90
million shares to Nkwe Platinum on a value-weighted average price basis.
In so doing, incidentally, it avoids the uncomfortable situation Lonmin faced when Sivi
Gounden’s Holgoun Group (or its subsidiary Keysha Investments) owned prospecting
rights to non-PGM minerals on the same property.
Shares in Chrometco have ranged between 20c to 30c/share for the last month and
are currently trading at 27c. Based on a price of 25c/share, Chrometco will pay
R22.5m for a prospect it believes will double the intrinsic value of its current chrome
resources to R370m.
Currently, the market isn’t giving much value to Chrometco’s chrome resources, so it’s
questionable whether the proposed deal with Nkwe Platinum will provide the share
price much of a kicker until there’s further resource confidence.
At a market capitalisation of R50m and cash of R30m, the market thinks the current
chrome resources are worth, at most, R20m against Chrometco’s intrinsic valuation of
R186m. So there’s much work to do.
Nonetheless, Cilliers says the company doesn’t have to spring into action
immediately; it can hunker down with its cash, although the long-term plan is to do
other deals in the PGM space, possibly with neighbours.
Platinum Australia, currently going through business rescue proceedings, has a
property that neighbours Rooderand, while Brian Gilbertson’s Platmin also has a
prospect adjacent.
Platinum consolidation has frustratingly alluded South Africa’s mining industry much
as it did the gold companies throughout the nineties. Perhaps the current pain in the
sector will lead to some fruitful deal-making in the future.
Cilliers talks of “extracting value’ for shareholders rather than building a mid-tier
mining company, so one senses the first choice game plan is to build a position in the
market and exit.
