Platinum Group Metals Takes Advantage Of Current Conditions To Bring In New US Shareholders And A New Japanese Partner
By Charles Wyatt
minesite.com
The suitably named Canadian company Platinum Group Metals spends most of its time with its head deep in the dark world of South African platinum mining, but it emerges at intervals to give a bit of news that is both surprising and encouraging. Last October, for instance, when banks were starting to appreciate the problems of toxic debt, Mike Jones, the chief executive of Platinum Group Metals, was able to announce that that his company had raised C$7.6 million via a non-brokered private placement at C$1.55 per share. It was a narrow squeak, though, as at the end of August the company had C$1.8 million in the bank. And at the end of November the amount was C$7.65 million. In other words if the placing had failed the company would have run out of money and the door to placings was shut very firmly by then. Mike makes the point, however, that the door was already shut, so the company did the placing itself and brought in a new long term shareholder Franklin Templeton to join a very powerful bunch of existing institutions.
One has to reflect that it was rough for the new investors that they were subject to a four-month hold period in compliance with NI 45-102 on these shares. This means that they have only just been allowed to sell any and the market is a rather different place now. Interestingly, however, the price of Platinum Group Metals’ shares is now C$1.77, having been as low as C$1.00 last November. A look at the chart also shows that early in January the share price bounced as high as C$2.70 so it is worth looking to see what excitement Mike Jones produced for investors at that time. In fact the only news at that time was the quarterly result to end December and it is hard to find anything exciting in that - “Good solid stuff” would be the description - with confirmation of the cash position and the fact that spending on the Western Bushveld joint venture is very much under control. He explains, however, that he did a deliberate programme of marketing in the States at that time as US investors have few options in platinum and the shares advanced as a result.
This joint venture is very much the flagship project as far as Mike Jones is concerned and it is divided into 3 separate phases. The partners are Anglo American and Wisezwe Platinum and last September the arrangement was rejigged so that Platinum Group Metals increased its interest in Phases 1 and 3 to 74 per cent and Anglo Platinum converted its interest in the Western Bushveld JV into a 26.5 per interest in Wesizwe which clearly suited it from a Black Empowerment angle. Earlier in the year the results of an independent feasibility study were announced and at that time Anglo Platinum had a 37 per cent direct interest in the JV.
In essence the study concluded that an underground mine and concentrator producing between 235,000 and 270,000 ounces per year of 4Es – platinum , palladium, gold and rhodium - in the form of concentrate for a 22 year mine life. Revenue was calculated in two ways. The first used recent prices which now look too high, but the second was based on 3 year trailing prices of US$1,295/oz for platinum, US$334/oz palladium, US$663/oz for gold and US$5,386/oz rhodium. These look more reasonable, even conservative in the case of gold, and an average selling price of US$1,138/oz selling price for the basket of metals can be compared with an average cash cost of production of US$438 per 4E ounce in the form of concentrate. The capex requirement at peak is estimated to be US$507 million though this could be reduced if the project gets access to grid power.
Such an amount of money would not be easy to find so Mike Jones is considering other ways to maximise value for shareholders. These include raising the money in a conventional manner and he is talking to several banks who have expressed interest, but there is also the possibility of bringing in another partner, possibly with a metal price instrument or hedge, or simply selling out. While he has been mulling over these options Japan Oil, Gas and Metals (JOGMEC), which is owned by the government of Japan has agreed to spend US$10 million over 5 years to earn a 35 per cent interest in the War Springs project where Platinum Group Metals has a 70 per cent interest and Taung Platinum and Africa Wide Holdings each have a 15 per cent interest carried through to feasibility. A minimum of US$500,000 will be spent in the first year and this will boost exploration at War Springs where it is taking place along strike and at depth from the current deposit.
This is another near surface project, this time on the northern limb of the Bushveld Complex and it is only 24 kms south of Anglo Platinum’s PPRust mine. In March 2008 the resource estimate was updated to 47 million tonnes in the inferred category grading 1.11 g/t 3E (no rhodium) to give 1.67 million ounces of these metals. It is low grade near surface but is much thicker than most platinum mines at 6.5 to 8 metres and it is interesting to note that nearby deposits improve in grade at depth. Platinum Group Metals has done no deep mining to date. There is therefore the possibility that this could prove to be an open pit mining target which would reduce mining and capex costs considerably.
This may be one of the main reasons why JOGMEC wants to become involved, but investors should not overlook the fact that the current financial crisis gives Far Eastern companies a unique opportunity to get involved in primary production and the PGM industry of the world is in the hands of very few companies at the moment. Mike Jones says he has been talking to the Japanese for six years so this is no spur of the moment deal. This new relationship leads to a lot of possibilities in the future. Not only could it ensure that War Springs comes into production, JOGMEC could also become involved in the Western Bushveld JV or in some of the other projects that Mike Jones has been quietly assembling. All of these conform to the basic premise of near surface production of platinum which clearly appeals to the Japanese as well as the new US investors. |
