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Here is an article from mining weekly: miningweekly.co.za
Dramatic surge of interest in revived platinum play
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“We are looking at something that is probably going to be mined for the balance of the century” – Evans
The dramatic progress made in the last 12 months by the Canadian-listed South African-operated diamond-platinum company SouthernEra Resources is reflected in the number of high-profile analysts who are now researching its every move.
Twelve months ago, hardly any research attention was being paid to Toronto and London-listed SouthernEra, whereas today, second-tier and first-tier brokerages are doting over the company’s prospects in general and its newly-commissioned Messina operation in particular, Mining Weekly can today report.
Eight different brokerages have now published research on SouthernEra, six of them in the past 12 months.
As a consequence, SouthernEra has traded 60-million shares in that period, three times more than the volume traded in the previous 12 months.
Moreover, its price had risen 140% at the time of going to press, from C$2,80 to C$6,80 SouthernEra, the first mining company to invest in South Africa after the democratic elections of 1994, is the second-largest foreign mining investor after Placer Dome, the Canadian co-owner of the large new South Deep gold-mine in Gauteng, which is due to be commissioned in August.
The doubling of the value of the shares of SouthernEra has coincided with the appointment of CEO Patrick Evans, who tells Mining Weekly in an exclusive interview in Johannesburg: “There has been a dramatic rise of interest in the company”.
When one looks at the long-life, large-orebody Messina, one realises exactly why.
The Canadian company’s faith in this South African discard is being well rewarded.
But it has not been all beer and skittles for the SouthernEra, which suffered the initial setback of losing 60% of the Marsfontein diamond-mine to De Beers.
As a result, shareholder expectations were dashed, the loss of confidence in management then eroding the share price from its peak of C$20, all the way down to 90c in early 2000.
But achievements around Messina have been the main reason for the return of broker interest.
By May 2000, SouthernEra had obtained 70% of Messina.
It went on site for the first time a month later, initially dewatering the mine, recommissioned the winders and taking bulk samples.
As SouthernEra progressed at Messina, it sought to manage expectations, making a point of understating potential and opting to exceed rather than merely meet targets.
As a consequence, the market has re-rated the company, which is in turn taking full advantage of the general upturn in the resources sector.
When the tide comes in, all boats in the harbour rise, “and ours has risen as well”, says Evans, a former South African diplomatic representative to Canada and senior executive with Placer Dome.
He is full of praise for the work that SouthernEra COO Mike Eksteen and his operating team have achieved at Messina, against the background of many negative market myths, including fears of adverse hangingwall conditions, talk of the absence of a chrome marker in the reef with which to manage dilution, comments around the level of faulting and potholing and suggestions that the steep-dipping reef, unconventional in South Africa, could not be mined economically.
As the operating team opened up more reef, the level of understanding of the orebody improved and it became more and more apparent that many of the concerns surrounding Messina were misplaced, Now the penny is dropping about Messina being a very large orebody, consisting of 20 km continuous Merensky and Upper Group Two (UG2) reefs and a 24-million-ounce resource to a depth of 1 000 m.
Because of the steeply-dipping nature of the orebody, the reef remains within the lease area way below 3 000 m.
Eksteen has operated successfully at 2 100 m at Northam, so the prospect of mining below 2 000 m at Messina is realistic.
The deepest 1 550 m borehole shows uniformity of width, angle and grade and there is confidence that the resource could well be doubled to 50-million ounces to 2 000 m, and remain in the lease area.
Even so, all that has been declared as a resource to date is 24-million ounces to 1 000 m.
“We are looking at something that is probably going to be mined for the balance of this century,” says Evans.
That realisation was driven home when Eksteen took top analysts from Canada, the US, the UK and South Africa to a lookout point on a hill close to Messina, so that they would be able to appreciate fully just how extensive the 20 km mineable resource is.
“People are beginning to realise that this asset can support one of the world’s great PGM mines,” Evans enthuses.
Because of its low chrome content and the nature of the orebody, it is also expected to be one of the lowest-cost mines in South Africa.
Cash costs are forecast at $151 of platinum-group metal (PGM) an ounce, inclusive of base-metal credits.
Messina’s nickel grade will be at least 50% higher than average nickel grade on the Western Limb of the Bushveld Complex, where most of South Africa’s platinum has been mined.
In fact, nickel will be Messina’s third-largest earner after platinum and palladium, with rhodium in fourth position.
Messina’s strike distance has the capacity to support not only the just-commissioned 120 000-t-a-month twin-shaft system at Voorspoed, referred to as Messina One, but for three more twin-decline systems at Messina Two and Three of the same capacity to enable the mine to eventually produce a total of 240 000 t of ore a month, which could yield something like $90-million in free cash a year.
In a move to create certainty, Southern Era has entered into a five-year metal-supply agreement with one of the big three automotive consumers of PGMs, in respect of Messina One.
Through this agreement, the company is thus assured of an average floor price of $400/oz for all of its platinum production and an average floor price of $370/oz for all of its palladium.
In turn, SouthernEra has given the company ceiling protection of $600/oz on 80% of its platinum production and $650/oz on all of its palladium production.
It is expected is that the metal prices will trade between those limits.
However, if the metal price falls below the floor price – as has happened with palladium – then SouthernEra is guaranteed the floor price of $370/oz.
So, while palladium trades at $280/oz, SouthernEra continues to receive $370/oz.
Similarly, if the metal price were to rise above the ceiling, automotive company would pay only the ceiling.
Because of the extraordinary competition between the automotive manufacturers, SouthernEra has a choice of either revealing the identity of the automotive company in question or give the terms of the deal, without revealing the identity of the company – and it has opted for revealing the terms and not the name. Meanwhile, the capital outlay to create Messina One has been less than $100-million, with another $10-million earmarked for deepening to 730 m.
This is because, Impala Platinum had already invested some $25-million into sinking the main shaft to 350 m and the secondary shaft to 280 m.
Southern Era then deepened the main shaft to 430 m, where it is at present, to support 90 000 t/m of production.
This will be deepened to 730 m to support the 120 000 t/m production target.
In addition to the Impala investment, Southern Era invested another $60-million, committing another $10-million to mine deepening.
By the 120 000 t/m production generating free cash of $30-million a year, payback of the investment will be less than four years.
Southern Era currently has two operational assets, Klipspringer diamond-mine and Messina One, which will be in full production at the beginning of 2004.
It has thus now turned its focus towards building Messina Two and Three.
The company owns the Messina Two property, called Doornvlei, and Messina Four property, Zebediela.
One of the 12 PGM properties Anglo Platinum ceded to the State at the end of 2000 in exchange for mineral rights close to its current operations was an intervening block between SouthernEra’s current Messina assets.
To close the 20 km strike, SouthernEra applied for this eight-million-ounce resource in joint venture with Mvelaphanda and was awarded it on August 7 last year.
Now Evans anticipates developing Messina Two and Messina Three – the newly-acquired properties – concurrently.
A bankable feasibility study has been completed on Messina Two and a scoping study is under way at Messina Three.
Conceptually, Southern Era anticipates having three twin-declines to 500 m over the 10,6 km strike of Messina Two-Three and then two twin-shaft systems to 1 000 m.
Each of the declines will produce 80 000 t/m, giving a combined production of 240 000 t/m.
A stand-alone concentrator plant will have a capacity of 240 000 t a month, which will be three times the size of the existing main plant.
Since the entry of SouthernEra into the South African market this $250-million capital company has built three mines in the past seven years, and Evans believes that no other company in the same league as SouthernEra has been able to achieve the same results.
His corporate philosophy of providing the company with people who have credible experience has enabled the company to move forward at a rate faster than its competitors.
He commends Eksteen as one of the most competent and experienced miners in South Africa, if not in the world, and he and his crew have now been mandated to build Messina Two and Three and a vertical shaft system at Messina Four, in the next seven years.
SouthernEra has strong PGM and diamond exploration programmes.
The PGM exploration project, Millennium Platinum, is poised to support another PGM mine complex, as will its gems project another diamond complex. Millennium is expected to be brought into production within the next ten years, along with one or two more diamond-mines.
Evans sees South Africa as being rich in mineral opportunities and praises the effort of government to simplify the minerals regime by having State control of mineral rights.
However, the debate surrounding the mining charter and the participation in the industry by historically disadvantaged South Africans has SouthernEra in two minds.
While SouthernEra supports the charter wholeheartedly, he regrets that investors in countries like Canada find uncertainty to be unsettling. |
