www.eastplats.com
Eastern Platinumis Canada's leading platinum group metals producer. Eastplats is currently engaged in the acquisition, development and mining of platinum group metal deposits in South Africa. Eastplats, South Africa's sixth largest platinum group metals producer has assets on both the western and eastern limbs of the Bushveld Complex which holds 80% of the world’s platinum supply.
Is Eastern Platinum a Second Aquarius in the making?
Joining these giants is a growing list of exploration hopefuls, in various stages of development. Very few are producing anything shinier than beads of sweat but some, Wesizwe for example, still manage to attract handsome ? some would say extravagant ? valuations.
Enter Eastern Platinum, otherwise know as Eastplats. A fusion of the tadpoles Elgin Resources and Jonpol in April 2005, the only legacy of those bygone days is the ticker ELR. Since then, in the hands of CEO Ian Rozier, Eastern Platinum has metamorphosed into something barely recognisable. Whether it now resembles frog or princess, you decide.
The initial merger gave Eastplats a majority stake in two properties on the eastern limb of the Bushveld. Remember the names Spitzkop and Mareesburg, because we?ll be visiting them later. However, the company-making jump came in May 2006 when Rozier acquired 69% of JSE-listed Barplats for $28m cash plus Eastplats shares. That worked out at roughly $7/oz of PGMs. For comparison, Impala acquired Afplats for $10/oz for a totally undeveloped 60m oz resource over a kilometre underground, with all the inherent cash implications.
On the other hand, Barplats came with a producing mine, truckloads of resource ounces and approximately $650m of existing infrastructure including expensive shafts and a DMS plant. Perhaps best of all, at a stroke Eastplats acquired a hugely experienced team of mining men. No wonder Rozier calls it a ?steal?.
The big snag with Barplats was that their flagship 13m ounce Crocodile River Mine (CRM) on the western limb wasn?t making money and needed a hefty cash injection. Since the takeover, they have largely refurbished the mine, which is now producing at an annualised rate of 125,000 opa. A new chromite tailings retreatment plant is being commissioned next month and a substantial on-site smelter is 80% complete. A second mine section is now contributing production too.
Costs remain very high, partly because Eastplats is purposely building an ore reserve of 18-24 months, but Rozier reckons cash costs should eventually approach $400/oz. That figure is still distant. In Q1 2007, operating costs were around $880/oz. Around $240 of this was attributable to industrial unrest, which has simultaneously afflicted Aquarius, Northam Platinum and Lonmin. Even so, before adjustments operations yielded $8.8m on turnover of $35m.
Returning to the smelter for a moment, Eastplats has just announced plans to expand capacity to 600,000 opa. This facility gives Eastplats huge prominence ? the three other smelters on the Bushveld are run by Impala, Lonmin and Northam. If Eastplats arranges off-take agreements with other developing juniors for 20%, it could give the company another 120,000 PGM opa. Not to be sneezed at.
Elsewhere, the Mareesburg property is next up for development. The fascination of Mareesburg is its similarity to Aquarius Platinum?s Everest South, both of which are reef outcrops. Sylvania (AIM:SLV) owns the other side of this hill and the two companies have a pool-and-share agreement. Being a hill, much of the 2m oz resource is virtually mineable with a trowel and first production is tabled for 2008. A full feasibility study has been long delayed while Sylvania drills and defines its own resource, which will probably be incorporated into the overdue BFS report.
Spitzkop contains 13m near-surface ounces and will be third in line. When Eastplats acquired Barplats, part of the rationale was to pick up Kennedy?s Vale, a large and highly synergistic tenement next door to Spitzkop housing 57m oz PGM resource. Or did do, until someone pointed out technical anomalies that disqualified the portion within the Merensky reef from NI 43-101 compliance. The data was inherited from Impala via Barplats but wherever the wagging finger points, Eastplats had to swallow the indignity of lopping 20m oz from its resource statements. However, the metal hasn?t run away and subject to feasibility studies in 2008, Spitzkop / Kennedy?s Vale will be mined, probably at the turn of the decade.
Eastplats is already listed on AIM and TSX (full list, TSX 300) but is shortly to acquire its third listing on the JSE, coincident with the delisting of Barplats, which becomes a subsidiary company. Eastplats ticks all the black empowerment boxes and via increased government-approved stakes will effectively own 85% of Barplats. Relations with BEE partners have been amiable ? Eastplats boasts a zero serious accident rate ? so the recent sacking of 305 employees over the industrial unrest was disappointing.
Eastplats doesn?t exactly struggle for cash. At the time of the Barplats takeover, the company raised $150m. It has just closed another financing, this time for C$201m, which was oversubscribed and has swelled the coffers to C$250m. Interestingly, this placing comes minus a half-warrant and despite the placing price of C$1.90, the share price has romped away to C$2.60 even before closure. Is someone betting on a bid? Cannacord?s $3.42 lower price target for a successful bid is worth noting.
?Acquisitions? figured amongst the reasons proffered for this placing, and in the present environment, it may well be a case of eat or be eaten. What Rozier might be lining up in his sights he isn?t saying, but as a wild thought, Eland Platinum, which is on the cusp of production, is directly over the fence from CRM and might make an interesting target. However its market valuation is over $70/oz which is probably too steep. Alternatively, he could look at Sylvania. One would not bet against him doing a deal with his long-time friend Ed Nealon.
Valuation is interesting. With 622m shares in issue, Eastplats is currently capitalised pre-placing at £734m. Most of the Bushveld juniors are currently assigned an enterprise price somewhere in the region of $15 per oz in-ground ? just over 1% of the average PGM basket price. The logic for the huge disparity between PGMs and standard gold valuation is unclear. Eastplats is still being valued as a non-producer, but the gap is definitely closing. So, has the train left?
Eastplats? progress in the last year has given those already aboard an exhilarating ride, and to date seems to remain broadly on track. Striking workforces and unhedged PGM prices are obvious risk factors, but if Rozier manages to achieve his 500,000 opa target by 2012, decent upside should remain.
David Rowland the author owns shares in Eastern Platinum
