[miningmx.com] — THE South African junior platinum industry lost one of its more colourful characters when Algy Cluff, who made his first fortune in North Sea oil, quit the then Cluff Mining.
But investors have hardly suffered, as the renamed Ridge Mining has been one of the best performers on London’s AIM in the past year, with a share price that’s almost quintupled as it moves up the value chain.
Development of its Blue Ridge property at the southern edge of the eastern limb of the Bushveld complex started in January, with the first production expected in the second half of 2008. A resource base of 14.4 million oz of platinum equivalent metals has been established, with 6.4 million oz proven and probable reserves.
According to a corporate presentation last month, this values Ridge at $16/oz of measured and indicated resources, and $34/oz of proven and probable reserves.
Ridge has also been busy raising finance. Last year a consortium including the IDC, Development Bank of SA and Standard Bank agreed to provide loans of $92m, including a $13m over-run facility, and in November Ridge raised $15.3m by issuing shares to a subsidiary of the major Chinese resource group Zijn Mining, which now has an 20% stake.
IDC-backed BEE partner Imbani has agreed to invest $42m for a 50% equity interest, and as Ridge has raised a further $40.4m this year by asset sales and share issues, providing its own equity commitment of $14m should be no problem. Total capital cost (before any over-run) is put at $145m.
In 2005, a prefeasibility study valued the project at $388m. Thanks to higher metal prices, the latest presentation gives a net present value of $411m, against a recent market cap equivalent to $265m: in sterling, £134m, with 90.7 million shares in issue at a price of 148p.
The feasibility study is based on annual mill throughput of 1.44 million tonnes for 18 years. Annual production will be 75,000 oz platinum, with virtually the same again in gold and other PGM. With a cash operating cost of $623/oz, the real internal rate of return is 20.3%, with a payback (the time in which capex is recouped from profits) of five years.
Key assumptions are a basket price of $909/oz and a Rand/$ exchange rate of 6.62, both of which now look conservative.
Cluff’s departure may have made headlines, but didn’t affect the running of the business. The MD since inception has been Terence Wilkinson, who for decades ran Lonrho’s southern African business and was first exposed to platinum via what is now Lonmin.
In London last month, Wilkinson told me that the main (north) shaft is now down to 160 metres, and the south shaft to 50 metres. Production should come in ahead of schedule, and will be drawn entirely from the UG2 reef. He’s confident that the roof problems experienced on the UG2 in the western limb of the complex, as at Union Platinum, won’t be encountered, and says there should be a “sweet cut” with minimal waste.
While he concedes that ground conditions are more tricky on the eastern limb, he gains confidence from the drilling of 100 boreholes, with 150 deviations, and bulk sampling of 100,000 tonnes ore. Wilkinson also says he’s also attracted a number of the Lonmin old guard in consulting and monitoring capacities “We don’t want another learning curve like we had at Lonmin.” And there’s been a considerable technical input by Zijn.
Concentrate will be refined by Impala, under what Wilkinson claims is a favourable contract. However, he envisages in the longer term the possible establishment of an independent smelter financed by the IDC, which could process the output from a number of mines, drawing an analogy with the way the Richards Bay Coal Terminal works.
Wilkinson shares the general view that lack of skills and finance will force consolidation in the platinum industry. He’s not on the takeover trail, but will be happy to participate. Philosophically, he says the object is to maximise shareholder value, and if that means being swallowed up, so what? But that probably wouldn’t be his first choice.
Ridge itself is looking at another nearby prospect, Sheba’s Ridge, where a prefeasibility study in 2005 indicated there might be a large-scale open pit mine, also with a 18-year life, treating 18 million tonnes ore a year. This would be a much bigger venture, with a capital cost of $690m, but with the attraction of a significant nickel component. It would be a joint venture with the IDC and Anglo Platinum.
However, it lost out on ground east of Eland, when rights it thought it had been granted were “suddenly taken away” by the Government Mining Engineer.
One of Cluff’s reasons for quitting was anger that the South African authorities refused to let him list on the JSE, making it impossible for him to give the local geologists who brought the property to him the long-term equity he’d agreed to.
But now several AIM-listed companies have acquired secondary listings in South Africa, ironically Wilkinson says this is no longer a priority.
“Of course we’d love to give South African investors the opportunity to invest in us, and we need to do something, so that we can incentivise our staff in South Africa. The problem is that UK investors in AIM-listed companies don’t incur inheritance tax, but that exemption falls away if you get a secondary listing elsewhere. There are other problems, too, and it’s not clear how we can get around them.”
It’s a pity, as Ridge looks one of the better quality junior platinum stocks. But South African investors will have to reconcile themselves to just looking on from the sidelines for some time yet.
