For anyone interested in Southern Platinum (SPC.TO), I've assembled a bit of information that might be of use.
Market cap (latest trade - $1.84 Cdn * 85 million shares)
= $156.4 million Cdn or $121 million US
Resources: 30 million ounces+ PGM equivalent under control, or which 23 million+ accrues to Southern Platinum (with a ratio of about 2:1 of platinum to palladium, with nickel 20% of revenue, if their Messina phase 1 operations are representative)
* 8.5 million ounces probable
* 5.3 million ounces measured
* 9.5 million ounces indicated
* 9.6 million ounces inferred
- currently in production on 5.35 million ounces @ 6.31 g/t PGM equivalent in Messina phase 1
- feasibility studies complete on 17.9 million ounces @ 5.08 - 5.49 g/t PGM equivalent
debt - 64 million cash vs 72 million in long term loans as of the last annual report (net 8 million long term debt + additional liability provisions for taxes and reclamation)
Their production plan for phase 1 of Messina expects margin of $185/oz at exchange rate ZAR 7.44 = $1 US -- I calculate that at the current high rand exchange rate of ZAR 6.458, adjusting for cost, this is a margin of $116/ounce.
One of the larger negatives for the company is that they hedged 80% of the platinum at $600/ounce (and 100% of the palladium at $370/ounce) through 2004-2006, which nets out to them currently losing out on about $50/ounce PGM equivalent margin overall at current prices -- it would be worse, but 20% revenue is nickel and 5% rhodium, and the hedged palladium price is much higher than market.
Still, in spite of Rand cost challenges and the hedging, it looks like they could very well generate positive cash flow of close to $500 million from Messina phase 1 -- $100/oz margin * 5 million ounces, after which time they would still have about 18 million ounces of PGM left. The company is trading at much less than the value of its property, plant and equipment. Two major financings were done last year at $7.75 and $6.40 for the parent (which included diamond properties worth about 15% of the total market cap), whereas the stock is now trading at about $1.84.
Also, if we do a comparison on probable and proven ounces alone (8.5 million ounces) the ratio is $14 market cap per ounce. I was unable to do any meaningful comparison to platinum companies because there are only a few very large companies competitors that it is difficult to get the appropriate information on (Anglo Platinum division of Anglo American, Implats, and Lonmin). If we compare to South African gold companies, the value comparison seems extremely favourable. Much as I like gold, I would rate platinum group metals as better -- they are currently worth more, and are exceedingly more scarce, with huge demand for industrial purposes. Harmony, which is known to have very marginal gold mines, many very deep and making no money at current rand exchange rates, trades at $88/ounce probable and proven. Durban Deep, the even more notoriously marginal South African gold miner, trades at $29/ounce probable and proven.
So, there you have some information on whether the stock is cheap. It think that it is very cheap by most measures. This may largely be due to the fact that they split the company and did not relist the platinum portion on the London AIM exchange, causing London followers to sell out faster than anyone would buy. The main risk appears to be of any major problem with production that might cause them have to buy platinum at the market to meet their hedges at the lower hedged price in the 2004-2006 timeframe. Best case scenario for them would be stable platinum prices over the next few years, followed by higher prices from 2006 onwards. Given the industrial demand and price-sensitive, market-stabilizing jewelry demand for platinum, prices should remain high for a very long time. |
