Eastern Platinum Looks Like An Ideal Target For Any Chinese Company Seeking Primary Platinum Group Metals Production
By Charles Wyatt
minesite.com
There are two aspects of mining over which management has no control whatsoever. The first is the price of the metal or mineral being produced. The second is the politics of the country in which operations take place. With that in mind and taking prices first, Ian Rozier, chief executive of Eastern Platinum, is happy that platinum is higher than it was towards the end of last year. Around 50 per cent higher, in fact, as at the end of last week platinum rose a further US$11.00 to US$1,270 per ounce on news that the threat of a strike at South Africa’s main power producer Eskom had been withdrawn. This compares with a price of US$800 per ounce at the end of last year when the world’s mining industry was in complete confusion. Ian would like to see the prices of platinum, palladium and rhodium a bit higher still, but there is nothing he can do except watch, wait and continue to cut the costs of Eastern Platinum’s production.
The matter of politics is a very sore point, however, as far as Eastern Platinum is concerned. In July there was an illegal ‘sit-in’ by contract miners at the Crocodile River platinum mine. It only lasted two days but as these miners have now learned, Ian is not a man to be trifled with. He immediately served notice on the contractors whose employees were involved. He also brought charges against the individual miners, on the grounds of safety and health transgressions and holding other underground personnel against their will. Eastplats is now going to use its own people on all core mining activities and may have to take on some to add to the 1,500 people already currently employed at Crocodile River. Obviously this will impact production in the third quarter, but Ian Rozier has moved fast to mitigate the situation so the effect on the September quarter may not be as great as some analysts seem to think.
He is not a man to brood, but on the telephone from Vancouver he says that he got a sharp reminder of the way politics is moving in South Africa when he was sitting across the table from leaders of the Mining Union. These addressed him as ‘comrade’. Presumably their confidence has been boosted by the swearing in of Jacob Zuma, head of the ANC, as President earlier this year. Zuma has strong support among trade unionists and the communist party - which is an ANC ally - as members believe he will redistribute South Africa's wealth in favour of the poor.
All well and good, but mining companies cannot be held to ransom or the unemployment figures will rocket. It might also be as well for the government and unions to remember that the Chinese are still seeking primary production of PGMs as they have virtually none of their own. The only noteworthy Chinese presence on the South African PGM scene at the moment is Zijin Mining Group, China’s leading producer of gold and base metals, which took a stake in Ridge Mining back in 2006. This has since been diluted by Ridge’s merger with Aquarius Platinum, and it is not easy to envisage an easy relationship evolving between the Chinese and Aquarius Platinum, which also has a very autocratic style of management.
Eastplats, which has a very different ethos, already sells its chrome to Chinese interests who have been monitoring the integration of the company’s chrome recovery unit. Deals with the Chinese take a long time as they like to build confidence, but in the meantime results from the company for the June quarter should certainly have given them encouragement. The net profit attributable to shareholders amounted to only US$317,000 compared with US$12.15 million in the second quarter last year, but the comparison is not quite fair as everything, particularly metal prices, was swinging along in the first half of 2008.
It is more pertinent that earnings fell from US$7.02 million in the first quarter of this year to US$6.53 million in the most recent quarter. At the same time production from Crocodile River actually rose by 10 per cent when compared with the same quarter in 2008, to 33,383 PGM ounces. The average delivered basket price per PGM ounce, however, was US$679, a decrease of 59 per cent over the US$1,679 per ounce realized in the second quarter or 2008. However, it was still an increase of 15 per cent over the basket price for the first quarter.
Canadian broker RBC Capital Markets admits that this break-even performance is better than expected, given the strength of the rand. But rand operating cash costs per ounce have actually decreased by 25 per cent since the fourth quarter of 2008, reflecting the impact of the cost cutting measures implemented since then. In fact costs decreased from ZAR6,231 per ounce in the fourth quarter of 2008 to ZAR5,326 per ounce in the first quarter of 2009, and further to ZAR4,673 per ounce in the second quarter of 2009. It is not clear how much further this cost cutting can go, but this is a good performance by management. Anyone looking closely at Eastplats will also note that it has a strong cash position. Including cash equivalents and short term investments the US$21.9 million in the bank is virtually the same amount as the company held at the end of the March quarter. Ian Rozier also confirms that Eastplats’ resources now top 80 million PGM ounces in the Merensky and UG2 reefs across Crocodile River, Spitzkop-Kennedys Vale and Mareesburg.
Top of the list for any Chinese acquisitor would be a company not requiring an injection of cash to top up finances and which had significant production, with more projects on the way to boost the production profile in the years ahead. Eastern Platinum fits the bill with the cash in its kitty, its other two projects, which are also in the Bushveld Complex, and its resource estimate. It also has one of the lowest costs of production in the PGM sector, a proven management team and a chief executive who knows his way around the capital markets of the world when project funding is the name of the game. There are few such opportunities around and if a bid materialised it would be interesting to monitor the relationship between Chinese management and South African mining unions. |
