[miningmx.com] — WESIZWE Platinum’s new management is on a road show presenting to South African fund managers – a development which is long overdue given the collapse in the company’s share price.
Let me reveal my colours upfront. I, sadly, own Wesizwe shares.
Wesizwe was one of my five Finweek stock picks for both 2010 and 2011. In January 2010 the share stood at 214c and it had moved up to 240c by January this year.
Instead of getting out I opted to hang in there for another year looking for a more decisive turnaround.
The reason I gave was: “I don’t think the market has priced in the fundamental change in the company’s circumstances given it has guaranteed funding in the bag to build its mine – including a proviso that any cost overruns are for the account of the Chinese – not Wesizwe minorities.’
Wrong! Wesizwe has just hit a new 12-month low of 132c a share despite all the mentioned favourable factors plus the fact that it is now a fully-paid up 26% partner in the neighbouring Maseve project, run by Platinum Group Metals (PTM).
According to the presentation posted on the Wesizwe website, the company’s current cash holdings are equivalent to 70c a share. The stake in Maseve is worth another 40c a share – based on PTM’s share price on the Toronto Stock Exchange – which makes a total of 110c.
So, with tears in my eyes, I ask you whether everything else at Wesizwe is only worth 22c a share?
“Everything else” includes the attributable resource of 13.5m oz of platinum group metals at the proposed Frischgewaagd-Ledig mine situated at relatively shallow depths of 650m to 850m.
Then there’s the full funding package put in place to bring the mine into production by 2018 and the commitment from the Jinchuan Mining consortium to meet any shortfall without diluting shareholders.
But, the market always gets it right and there are various reasons that can be put forward to explain the slump in share price.
On the macro-economic front these are tough times for South Africa’s platinum industry. The shares have taken pain across the board and the junior producers have been particularly hard hit.
Wesizwe peaked at R16.50 in 2007 so the share has lost 92% of its value since then. But Eastern Platinum at its current share price of 530c is 83% down on its peak of R32 reached in 2008 and Anooraq Resources at 408c is 88% below its 2007 peak of R35.9.
Even former high-flier Aquarius Platinum (Aquarius) – currently sitting around R23 a share – is 83% down on its 2008 high of R138.27.
That makes the least sense of all given that Aquarius stands head and shoulders above the juniors and has almost attained “major’ status after the deals to acquire Booysendal South and Afarak earlier this year.
Reasons for this sad state of affairs include operational underperformance by the South African mines and investor caution over a global “double dip” recession.
The main use of platinum and palladium is in the autocatalyst needed by the vehicle manufacturing industry to clean up engine exhaust emissions.
When the global automobile sector collapsed in 2008/2009 it took the prices of both metals down with it, as well as the share prices of the platinum producers.
Nobody wants to go through that again and gold’s prospects look far brighter, which is why the platinum price is trading at a discount to gold for the first time in decades.
Production from the South African platinum mines over the past year has been hit by a number of issues including unprecedented levels of safety stoppages; poor productivity and a worrying level of illegal and sometimes violent industrial action on some mines.
Wesizwe did not escape this negative investor sentiment despite the fact that it is still years from getting into production.
STANLIB SALES
At the micro-level market sources indicate Wesizwe has been hit by one important shareholder – Stanlib – deciding to get out of the stock. A Stanlib spokesperson confirms this, telling me “we have reduced our weighting in Wesizwe because we see better opportunities elsewhere in the sector”.
He won’t specify the volume of sales but points out that Wesizwe is a thinly traded stock.
Then there’s the Jinchuan factor. Nobody really knows at this stage what to make of the new owner/managers which is why the success of the current road show could be crucial. The presentation stresses that the project is now “effectively derisked” and that Jinchuan is a “balance sheet partner with the financial muscle to be able to grow the company”.
But, realistically, any improvement in the share price will probably not happen until market sentiment towards the platinum sector in general starts to improve.
– The writer owns shares in Wesizwe Platinum and Aquarius Platinum.
