Platmin
Platmin (PPN:TSX, AIM) is incorporated in Canada as a mineral exploration company focused on the exploration and development platinum group metal (PGM) deposits in South Africa. Platmin is admitted to trading on the AIM Market of the London Stock Exchange Plc and the TSX.
Platmin aims to be a significant producer of PGMs through the development and operation of four key projects in South Africaís renowned Bushveld Complex - Pilanesberg, MíPhatlele, Grootboom and Loskop.
The potent combination of Platmin's experienced team and its high-quality PGM projects, which present near-term production, development and growth potential, position the company to become an important independent producer of PGMs over the next few years.
Platmin’s labour pains begin!
A week is said to be a long time in politics. If so, four months – that’s the interval since Proactive last covered Platmin – is half a lifetime. Different business, same sentiment. It’s been hard work keeping track of Platmin’s newsflow.
By way of reminder, here are the company headline facts. All told, Platmin owns 16.3 Moz (attributable) PGM resource and anticipates producing 500,000oz of PGMs annually across their four PGM properties by 2012. To avoid boring repetition, we won’t regurgitate the full details of grade and tonnage blow by blow, but interested readers can find the original article here.
The Pilanesberg flagship project is the only one on the Western limb and is the most advanced. The other three projects, Mphalele, Grootboom and Loskop, are strung out across the full semicircle of the Eastern limb, starting at the top with the most advanced project (Mphalele). All are coming along nicely, but most people’s binoculars are trained on Pilanesberg – a big mine which will make Platmin “South Africa’s next independent PGM producer”.
Pilanesberg.
Platmin has now been awarded full mining rights, and all is on track for a Q1 2009 start. That news is especially welcome as it is a month or two ahead of the game, as predicted in the July 2007 feasibility study. Long lead-time items were ordered a year ago.
Readers will doubtless be interested in the power situation. Eskom are tightening the last bolts on two dedicated 20 MVA transformers, which they will store until connection to the grid later this year. To cover any power outages, additional diesel generator power will be bought in, but only enough to supply around 10% of Pilanesberg’s needs. Open-pit mines are a very different kettle of fish to underground ones. Meantime, Platmin has 1.5 MVA of power on location for site construction, pumping of borehole water etc. Speaking of water, supplies are now secured.
Rather than engage and train its own workforce, which would involve delays, Platmin has gone the simpler route of employing contractors to run the mine. Different sets of contractors will install the plant, operate it and oversee all the mining. At first sight this is an expensive way of running Pilanesberg, and perhaps surprising to the uninitiated since the Board is vastly experienced and easily capable of tackling it themselves.
Why? Well, it avoids the capex of purchasing a mining fleet, and cuts out the delays of staff training and induction. Just as importantly – potential investors should note the intent – is that this releases time for the Board to drive ahead aggressively with the rest of their promising portfolio.
Initial waste stripping at the Tuschenkomst open pit is already underway with first blast a fortnight ago. Ore will be exposed and mining commenced by Q4 2008, to be stockpiled for processing the following quarter when the plant comes on stream.
Mines are hungry beasts when it comes to capex, even opencast ones like Tuschenkomst and Ruighoek (Ruighoek is close by and is next in line for development). As expected, finance has involved a combination of debt and equity, in roughly 2:1 ratio. Standard Bank of South Africa handed over US$200m last November, while in December, Platmin closed an over-subscribed placing to raise approximately C$92.8m in equity.
Bank finance is generally conditional upon offtake agreements and hedged prices. Of SBSA’s $200m, $76m has come as a mezzanine facility, but the rest is contingent upon offtake agreements. These need to be finalised in the next three weeks and will involve trucking ore to a nearby smelter. Happily, Pilanesberg ore will contain less than 1% of the dreaded chrome and Platmin is not short of takers.
The July 2007 feasibility study has cash costs at $US511 per oz with basket price at $941. Terry Holihan reckons that these will increase modestly, mainly because Eskom is set to announce increases of (at a guess) 70%. Roughly 15% of the $511 cash cost was for power, so we are looking at an extra $50-60 per oz. Since the PGM basket price is now nearer $2,000, that is less than a crisis! Payback was supposedly in 2.5 years with a ‘real terms’ Internal Rate of Return of 21.71%, but this now looks ridiculously conservative.
Calendar 2009 should see production of 125,000oz of 3PGE plus gold with steady state production of 250,000 oz in the following years. If prices hold, Platmin may never need to return to market to fund their Eastern Limb projects.
Mphahlele.
This brings us neatly to Mphahlele. Within the last few days, South Africa’s Department of
Minerals and Energy (DME) has accepted Platmin's Mining Right application. Although grant won’t come before December 2008, official acceptance allows the Board to ‘green light’ a definitive feasibility study, reporting in Q3 2008. SRK Consulting has been involved for some time and Platmin’s Board are confident enough to be fast tracking Mphahlele. The plan is to commence decline development as soon as Mining Rights are granted. A mining contractor has already been appointed to advise on pit design.
Readers might remember that Mphahlele is several times the size of Pilanesberg. Strike length is known to be 8km long and resources lie between 30 and 500m from surface. Lonmin’s Limpopo mine is contiguous so the regional infrastructure is there. Platmin reckons it will support another 250,000oz pa operation.
Mphahlele will be an underground mine, albeit a shallow one, so power will be an issue. Eskom have yet to come back to Platmin with costings. Water supply has been agreed, but one of the more interesting facts is that Platmin have been busy sinking multiple boreholes to identify underground aquifers. They have met with some success, to the tune of almost 30% of Mphahlele’s project requirements. Water so sourced will be some 75% cheaper.
Grootboom.
Further south, the DME has also just accepted the Mining Right application for Grootboom. Like Mphahlele, the official grant won’t come before December 2008, and a definitive feasibility study should report in Q3 2008. Grootboom isn’t as far advanced as Mphahlele but according to the company Grootboom, could provide some of the cheapest ounces in Platmin's portfolio.
Although an application for 10MVA is already with Eskom, Platmin is following most of Grootboom’s neighbours in looking at alternative power sources. Indeed, neighbours, of whom there are many, are a bit of a theme at Grootboom. Platmin's Chief Operating Officer is already on record as mooting pool & share arrangements with neighbours “as a natural first step toward consolidation”, there being a number of development projects in the vicinity. Interesting.
Valuation.
Essentially, Platmin’s market cap remains the same as when Proactive last reviewed the company in November. The difference is that funding is now sorted, the three projects described above are gathering momentum and serious cashflow is just a year away. Far from suffering the malaise of industry delays due to shortage of personnel and equipment, Platmin is actually ahead of schedule. In the present climate that’s impressive.
Platmin remains valued at roughly US$50 per attributable 3PGE ounce, fully diluted. In 18 months’ time this will be an obvious nonsense. Given that Lonmin holds 21% of Platmin, owns mines contiguous with Platmin properties and has a 50% joint venture on Loskop (which we haven’t even mentioned), what odds on a bid?
Other Platmin articles
Other Platmin news
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11/11/08 Platmin names Minopex treatment plant manager for Pilanesberg open-cast project
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07/05/08 Platmin secures power supply for PGM mine
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04/03/08 Platmin fast tracks Mphahlele feasibility study
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19/02/08 Platmin secures mining right for Pilanesberg
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22/01/08 Platmin appoints Manager of Mining