Is Platmin South Africas next independent PGM producer?

"South Africa's next independent PGM producer" is the title Platmin gave to its last corporate presentation just a couple of months ago at the Africa Down Under conference.  That's an attention-grabbing assertion; you might even call it flirtatious.  Yet Platmin seems to attract a remarkably low level of interest from private investors both in Canada and the UK, certainly if silent bulletin boards are anything to go by.  This odd mismatch begs for closer inspection. 

History and overview

Platmin listed simultaneously in Toronto and London in August 2006, but the genesis of the company harks back to 2003 when the nascent Platmin acquired Boynton, a South African company with a handy Bushveld-based PGM portfolio.  Further projects were added throughout the next two years.  Boynton remains Platmin's 72.4% owned South African operating subsidiary, with various Black Empowerment partners holding the balance.  Of these, by far the most important is Moepi Platinum.

Boynton controls four PGM properties, of which two are well advanced.  Before we detail these below, to help the reader get first bearings, the flagship project Pilanesberg is on the Western limb. M'Phatlele, Grootboom and Loskop are strung out across the full semicircle of the Eastern limb, starting at the top with the most advanced project (M'Phatlele).

All told, Platmin owns 16.3 Moz of attributable PGM resource and anticipates producing 500,000oz of PGMs annually by 2012.

The Board.

The Board is an interesting mix of Aussies, Brits and South Africans, led by Rupert Pardoe (Chairman), Keith Liddell (Deputy Executive Chairman) and Ian Watson (CEO).  Together, these three and the other Directors have many decades of experience across the globe, with skills covering finance, company building, and mining engineering at the highest level, including companies like Anglo, Aquarius and Northam Platinum.  They are well equipped to bring projects through to production and are unlikely to need to recruit outside help.

Pilanesberg.

Platmin's lead project is Pilanesberg, a 14.5km2 chunk of land on the Western limb of the Bushveld some 60km northwest of Rustenburg, the epicentre of South Africa's platinum mining industry. 

So far the company has delineated two discrete ore bodies, known as Tuschenkomst and Ruighoek.  Taken together, proven and probable resources total a healthy 4.4 Moz of 3PGEs and gold, of which 3.2 Moz is attributable to Platmin).

In July this year, SRK Consulting finished a full feasibility study covering both mineral reserve areas.  Criteria for a thumbs-up from SRK were an IRR of 15% or greater, and project payback with five years.  In the event, the base case IRR was 22% with estimated payback in 2.5 years.  Initial life of mine starts at 16 years.

The plan is to exploit both ore bodies simultaneously, to the tune of 250,000 PGM ounces per annum, starting in Q1 2009.  Since receipt of SRK's feasibility report, Platmin has stepped on the accelerator and has already ordered items of mining equipment with long lead times ? mills, concentrators etc.

There are a number of interesting features to the Pilanesburg project.  Firstly, infrastructure is good.  The presence of mines nearby has ensured good surfaced roads that link the project to Rustenburg, water supply is not an issue and high capacity power lines already supply local chrome and platinum mines.

Another Pilanesberg feature is that both ore bodies are very shallow and easily open-pittable ? neither pit will exceed 150m in depth, and stripping ratios are more than acceptable.  This compensates generously for a fairly modest PGE grade of between 2.1 and 3.1g/t.  Both Merensky and UG2 reefs are present at normal grades, as are several lower grade narrow silicified pseudoreefs which also carry PGE mineralization and will be mined anyway, so are put through the mill to recover additional oz.  There are also helpful base metal credits.  The deeper chrome-rich UG2 reef will also be mined, but selectively so, to achieve a low-chrome, high-sulphide material from the planned on-site concentrator.  This high quality concentrate should allow Platmin to build their own smelter without the need for alternative technologies such as Conroast, or any risk of calamitous chrome-mediated smelter breakdowns.  

Prill splits are similar across the Pilanesberg properties, and very favourable.  For the uninitiated, the term 'prill split' is a synonym for the platinum group metal ratios.  For Tuschenkomst, the largest of the deposits, Pt:Pd:Rh:Au is 60:28:10:2.  The significance of this is the relatively low proportion of Palladium, which is far less valuable than platinum or the other metals.

The sharp-eyed will have noticed the lack of mention of the other PGE, Ruthenium and Iridium.  These are frequently omitted from estimations but didn't entirely bypass SRK, who have teasingly left them out of the economic assessment, save to comment that they should 'positively affect the IRR and NPV of the project'.  Just to complete the set, the sixth PGE, Osmium, is never assayed and happens to be highly toxic.  Fortunately quantities are generally miniscule and unimportant.

Engineering firm Dowding Reynard and Associates, who have built many of the platinum plants in South Africa, has been appointed to optimise and implement mine design and construction.  It would be surprising if IRR did not improve further in coming months.

M'Phatlele.

It is always good to see a second project coming up hard of the heels of the company flagship.  M'Phatlele fits precisely this bill.

Located in the northern part of the eastern limb of the Bushveld, M'Phatlele lies approximately 50km south of Polokwane, the capital city of Limpopo Province.  The property is large, in fact several times the size of Pilanesberg.  Strike length is known to be 8km long and resources are again shallow, lying between 30 and 500m from surface.

As at Pilanesberg, infrastructure is excellent.  The reason for that is simple and significant: it is contiguous with Lonmin's Limpopo mine, of which more anon.  Moepi and other BEE's own 46% of M'Phatlele, which sets it apart from Platmin's other projects.

M'Phatlele is presently in the throes of a feasibility study set to report in Q1 2008, and further drilling is underway to increase the size of the resource.  This should incorporate an upgrade of the known 12.6 Moz of mineral resource; Platmin provisionally sees this as supporting another 250,000oz of annual production. 

Grootboom

Grootboom is located on the eastern limb of the Bushveld Complex, close to Eastplats' Spitzkop project.  Once again, Platmin has a pre-feasibility study in process with results in Q1 2008. 

Platmin presents Grootboom as a smaller project capable of producing 80,000oz PGM per annum, but there is potential to expand by consolidating neighbouring tenements and a stand-alone concentrator may be justified at Grootboom, particularly if the neighbouring "Annex Grootboom" property adds worthwhile ounces.

Loskop

Loskop is the fourth Platmin property, again on the eastern limb of the Bushveld.  It is thought to host an extension to the so-called 'pseudo-Platreef' at Sheba's Ridge.  The particular significance of this is the significant base metal mineralisation. 

Lonmin are interested enough in Loskop to have negotiated a 50% earn-in.  To date the resource stands at 1.8 Moz.

Valuation.

All told, 77% of shares are held by four institutions, leaving just 23% float for retail investors.  Options and warrants make up less than 10% of those already issued so shareholders will not be heavily diluted by historic commitments.

In fact, Platmin has just completed a fundraising of C$80.75m by issuing 9.5m shares at C$8.50, plus a 15% over-allotment facility should the placement be over-subscribed.  No warrants are involved.  This should remove uncertainty and help put a strong floor under the share price.

At present, Platmin is valued in the order of US$50 per attributable 3PGE ounce, fully diluted.  That is a not ungenerous valuation but is admittedly crude.  An ounce of metal at 150m depth is worth more than an ounce at 1000m, the depth at which many of their competitors will be digging.  By way of comparison, out of all the Bushveld acquisitions, the most expensive was Xstrata's October buyout of Eland, which fetched US$47 per ounce in all categories.

Apart from the obvious dramatic capex reductions in such shallow projects, there are real safety benefits.  Being purely mercenary for a minute, shafts will not be shut down and production halted, because there won't be any ? at least not for the foreseeable future.

Just a month ago, Haywood Securities wrote a comprehensive broker's note and came up with a 12-month price target of $11.50 based on Net Asset Value, rating the company 'Outperform'.  Current NAV was reckoned to be worth $8.68 per share.

So where will the kickers come from to add value?  First and foremost, early next year there should be feasibility results from M'Phatlele and Grootboom.  We should also hear of permitting for Pilanesberg.

The other price driver could be the takeover potential.  Envious eyes could size up Platmin's near-surface, favourable metallurgy and nice prill splits and decide they would sit elegantly within their company portfolio.  However, Lonmin's 22% holding in Platmin means that a bid from (say) Aquarius or Anglo would be unlikely to succeed without Lonmin's blessing.

The big question is, how does Lonmin itself now view Platmin?  Remember, that apart from its substantial shareholding, it owns mines contiguous with Platmin properties and has a 50% joint venture on Loskop.  Furthermore, in 2005, before Platmin listed, Lonmin lodged a bid which was rejected.  To put Platmin in perspective, once its three projects are in production the output will be equivalent to 1/3 that of Lonmin's this year.

It is improbable that Lonmin has lost interest, but a few senior companies are waking up to the idea simple predation is not the only way of tapping into juniors.  Lately there have been heartening examples of majors harnessing their skills rather than gobbling the golden goose.  Such is the case with Barrick, who last year handed over numerous promising Argentinean exploration properties to Patagonia Gold in return for a stake, and Metorex who appear to be employing Pan African Gold as their exploration arm after vending in a gold mine.

Time will tell.  For the patient investor wanting more PGM exposure, Platmin looks a respectable proposition.