Required reading.....
busrep.co.za
Messina left in blocks during PGM price race
John Spira
February 21 2001 at 12:06AM
If you are finding life dull, try following the stock market as a diversion. For there you will encounter surprises and conundrums more than sufficient to generate the heightened flow of adrenaline. Matters you might have found predictable become otherwise; what you see is what you get metamorphoses into that which you see is seldom what you perceive it to be.
Need a for instance?
On February 8, Messina, a platinum group metals (PGMs) prospect 70.4 percent owned by Canada's SouthernEra Resources, announced that, following an independent audit, its Bushveld Complex resource had grown 60 percent to 15,9million ounces, compared with previous estimates. The news broke when the prices for PGMs were soaring, as were the prices of listed platinum shares. Given this background, the observer could have been forgiven for concluding that Messina's share price would rocket in the wake of the new disclosures, especially since the enhanced resource was conservatively estimated.
You'd have been wrong. The price barely budged. And it has remained lethargic, despite continuing buoyancy in PGMs andplatinum counters. Your alert response would be to suggest that the market has already discounted Messina's heightened potential; that its share price ran way ahead of its peers prior to the announcement.
Not so. Over the past 12 months, Messina has added 26,2 percent, admittedly a satisfactory performance in the context ofthe JSE's behaviour during this period.
But Messina's 26,2 percent is derisory relative to a platinum sector where, over the same period, East Dagga has gained 500 percent, KPM 110 percent, Northam 96 percent, Angloplat 85 percent, Lonmin 76 percent, Gencor 73 percent, Barplat64 percent, and Implats 43 percent.
Why, then, has Messina lagged?
Perhaps the market does not accord SouthernEra, a foreign company, the same brownie points it awards to the domestic groups with which it is familiar. And maybe it does not trust the PGM findings of the independent audit. Whatever the reason, it is becoming increasingly obvious that those who should have done their homework have either not done so or have failed to tackle the task as thoroughly as they should have done.
Some of the key aspects of the February 8 report are well worthy of careful consideration.
· The independent audit, based on drilling by Impala Platinum, was verified by an expert with more than 50 years'experience in mine evaluation;
· Messina comprises four separate project areas, all of which host the Merensky and UG2 Chromitite reefs, the world'smost prolific PGM-producing reefs;
· The five PGMs account for more than 95 percent of the contained precious metal content of the resource;
· The mine is currently under construction, with a planned commercial start-up in early 2003;
· The UG2 and Merensky reefs have recently been exposed on two levels. The reefs dip at 60 degrees, which means thatrelatively little waste development is required for access to the orebodies;
· A minimum life of 17 years is projected.
· Two months ago, Messina announced that Rand Merchant Bank would arrange and structure a non-recourse loan for theconstruction and start-up of the project.
· Peak funding requirements were estimated at $64 million.
· To supplement its debt financing requirements, Messina has been in discussions with several multinational PGM end-usersinterested in securing long-term sources of supply.
"Obviously, the recent increase in PGM prices is proving helpful to us in our effort to make these arrangements," Chris Jennings, chairman of Messina and SouthernEra, pointedly remarked at the time.
When, in February last year, Messina completed a bankable feasibility study, it projected a net present value of $121,7million, equivalent to $9.4 or R72 a share, assuming a platinum price of $448 an ounce and a palladium price of $498 anounce.
Platinum and palladium prices are currently 32 percent and 96 percent respectively above the prices assumed by the study.
What we are looking at, therefore, is a net present value, calculated at a time when PGM prices were well below current levels, that is 5.4 times the ruling share price.
Surprised? No doubt.
Should you be buying the shares? Yes, unless you are risk averse, bearing in mind that mining is a high risk activity.
Will the market eventually get round to doing its homework?
Yes, especially as production time approaches. Early 2003 is not a long time off for those who are investing with a view to ultimately reaping well above average appreciation. |
