PLATINUM GROUP METALS
COMMENTARY
From Lefko to eternity – a platinum cautionary tale
The dark (very dark) side of platinum juniors, and the venality of silly investors – putting the current junior platinum boom into perspective.
Author: Barry Sergeant
Posted: Thursday , 07 Jun 2007
JOHANNESBURG -
Investors who were around in 1987 will no doubt remember ?e??????s??, or Lefkochrysos, which means "white gold". The stock listed in sensational glory on the JSE, climbed in no time to more than R1bn in market value (a lot of money in those days), and then came crashing down like Icarus.
A battered Lefkochrysos Platinum was bought by the erstwhile Rand Mines, and renamed. After it hit the skids once again, Barplats (housing both the Crocodile River Mine and the Kennedy's Vale Mine) was taken over by Impala Platinum (JSE: IMP, R224 a share), which mothballed the operations for more than ten years. There was another reopening in 2001 and another closure in 2003.
Loucas Pouroulis, the original Lefkochrysos promoter, was part of a consortium that bought Barplats in 2003. Crocodile River Mine was reopened, once again, and this time, Barplats (recently delisted from the JSE) was sold to Eastern Platinum (TSX: ELR, C$2.40). It would not be a stretch of the truth to say that Crocodile River Mine is largely being rebuilt.
The mining of platinum ores in South Africa's Bushveld Igneous Complex, which dominates world deposits of platinum group metals (PGMs), is one of the toughest tasks in resources anywhere in the world.
he three types of ore - Merensky, UG2 and Platreef - yield up not only platinum, but also palladium, rhodium, ruthenium, osmium, iridium, and, further, co-products in the form of gold, copper and nickel. The crushing and concentrating of the ores is one thing, but the refining process can take months. So far, no junior has had the expertise or the capital to even attempt building a refinery. Back to the basic task at hand, history has also shown that mining platinum ores can prove desperately difficult, even for the majors that have been around for decades.
Juniors have very little chance of getting a platinum mine right. Take Messina's Voorspoed mine, mothballed by Impala Platinum in 1992 when PGM prices were traversing something of a dull spot, and after Impala had already spent R136m on shaft sinking, infrastructure and development. In mid-1999 Impala sold its 54% Messina stake for R65m to what was then SouthernEra; Messina was then held under Southern Platinum and the mine was, of course, reopened. In the six months to June 30 2005, Messina's accumulated loss registered R484m, against R185m for the previous comparable period.
It was good luck for Messina's erstwhile CEO Patrick Evans that Messina was bought out by Lonmin, which took effective control of the company and its operations on June 15 2005. Lonmin had immediately poured in R148m in cash just to get things to stand still. Lonmin also took the unusual step, given that Messina was an operating entity, of booting out all the standing directors, with the exception of Ratua Ray Mphahlele. It would not be stretching the truth to say that Voorspoed has since been largely rebuilt.
There are other legends, such as Northam (NHM, R58.50) in its early days. The mine was developed by Gold Fields (GFI, R117), and absorbed billions of rands before it was finally moved into profit under its incumbent CEO, Glyn Lewis. Platinum mining is one tough game, but when PGM prices run, platinum hopefuls will spring up, sure as night will follow day. The names from the previous era - Lefkochrysos, Northam, Messina, Rhodium Reefs, Severin Platinum and Karee - have made it, normally in different manifestations, and inevitably after huge rescue operations.
The new era is characterised by a spew of new names, spurred on by PGMs that have made all-time record dollar prices in the past year or so. Pouroulis has re-emerged as the chairman of Eland Platinum (ELA, R118.65), which currently trades at one of the frothiest valuation levels in resources markets. To survive, froth needs froth; referring to properties bought as announced on Thursday, Eland Platinum MD David Salter exclaimed: "These acquisitions form part of our strategy to grow Eland Platinum into a global top five PGM producer. We intend to develop the greater Elandsfontein Mine complex into a one million ounce per year operation".
It may be of note that even after decades, Lonmin only anticipates first producing more than 1m ounces of platinum next year. On Thursday, Salter did not hesitate to add that "our objective is to establish a resource base of an additional 20m inferred ounces of PGMs to add to the 21.6m total ounces already defined on Elandsfontein."
It may be permissible to make this kind of statement in South Africa, but it could well be that it would attract regulatory attention if made in the US, Canada, UK or Australia. The stock is only listed in Johannesburg, which has a different kind of appetite, and different rules, for such statements. Salter could have added that the ores on Elandsfontein are faulted, and likely to prove very difficult in the mining. The grades on the new properties quickly fall away, which may be of interest to investors.
The bottom line is that developing platinum miners are once again set to teach a new generation of investors about how it's possible to burn ten fingers, ten toes and one nose, all at once.
Platinum developer mania
Stock price 12-month move
Anooraq C$2.42 29%
Benton C$1.05 377%
Caledonia Mining C$0.15 61%
Eland Platinum R118.65 606%
Franconia C$3.86 642%
Jubilee Platinum £1.18 135%
Nkwe A$1.10 90%
Marathon PGM C$6.75 125%
Pacific NW Capital C$0.70 159%
Pan Palladium A$0.23 142%
Platinum Australia A$1.91 177%
PMC of India £0.13 42%
Platmin C$8.60 115%
Pt Group Metals C$3.97 165%
Ridge £1.25 347%
Sylvania Resources £0.93 210%
Wesizwe R13.14 557%
Wallbridge C$0.45 125%
Outliers
Beartooth Platinum C$0.12 44%
AIM Resources £0.13 213%
Braemore Resources £0.12 153%
Cons Puma Minerals C$1.93 91%
Johnson Matthey £16.06 31%
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