Messina…. From South African Business report:
(FYI: $1 CDN = Rand 4.908 or R1 = $0.203 CDN)
Messina has been the forgotten child in the platinum price boom
September 06 2000
John Spira
South African investors have either lost their flair for the intrepid or their ability to discover latent value.
Back in the late 1970s and early 1980s, they were quick to pounce on promising mining exploration ventures. While most such embryo operations failed in the wake of the declining gold price, a small number succeeded handsomely, thereby rewarding those with courage and foresight.
Today's risk takers are seldom in evidence, even in cases where the risk involved is relatively modest.
I cite Messina, a budding platinum group metals prospect, as an illustration. In the past 12 months, platinum shares have been the JSE's most prominent positive feature. Thus, East Dagga has gained 596 percent, KPM 151 percent, Northam 128 percent, Amplats 98 percent, Gencor 85 percent, Barplats 76 percent, Lonmin 58 percent and Implats 57 percent.
And Messina? A paltry 3 percent.
The only possible reason for the market's neglect of Messina is that the mine is not currently in full production. Yet perusal of what lies ahead for Messina reflects huge potential, suggesting that the market has not done the homework required to appreciate Messina's promise.
In March this year, following the completion of a bankable feasibility study, SouthernEra, a highly successful Canadian-based mining and exploration group, bought 54 percent of Messina for R70 million. It has subsequently raised its stake in the company to 70 percent.
Messina's wholly owned subsidiary, Messina Platinum Mines, is the lessee of three mineral lease areas in the Northern Province.
The feasibility study, which ignored previously spent capital of R140 million, revealed that Messina would have an internal rate of return of 36,3 percent with a net present value of R742 million at a 10 percent discount rate.
The average metal prices used in the feasibility study for the first five years of production were $448 an ounce for platinum, $498 for palladium, $1 530 for rhodium and $418 for iridium. Today's prices are $598, $715, $2 000 and $400 respectively.
The Messina platinum mine lies on the northwest portion o the eastern limb of the Bushveld Complex, an area rich in platinum group metals and one that is in close proximity to SouthernEra's Klipspringer mine.
The potential to share Klipspringer's infrastructure is expected to result in substantial cost savings from an optimised use of services and labour for the two mines.
The project area consists of two sections, Voorspoed and Doornvlei. Only the former was used in the feasibility study.
Mining of the UG2 and Merensky reefs is projected to yield 159 000 ounces of platinum group metals and gold a year, of which platinum will comprise 44 percent, palladium 34 percent, rhodium 5 percent, ruthenium 11 percent, iridium 3 percent and gold 3 percent.
The expected mine life is at least 17 years at an average operating cost of $150,47 an ounce. Site operating costs are calculated at $24,03 a ton hoisted for a typical year at full production of 84 408 tons a month. The expected average annual net cash flow, after tax, would average R206 million a year.
The mine is expected to be in full production in three years time. The life-of-mine capital estimate is R525 million and the payback period is calculated at five years.
I have given you a lot of statistics to digest. At the end of the day, though, the figures need to be related to the ruling share price with a view to assessing the nature of the value that the market has accorded to Messina for the time being.
Messina's issued capital comprises 13 million shares, which means that SouthernEra paid in the region of R70 million for its 54 percent of the company, or R9,29 a share, which is 16 percent above the ruling share price.
The average annual after tax net cash flow of R206 million translates into R16 a share. Accordingly, should mining proceed according to plan and should the assumed metal prices prove to be close to the mark, three years hence earnings at the share level would be double the ruling share price.
The estimated net present value of R742 million is equivalent to R57 a share, some seven times the ruling share price.
Yes, slips between the cup and the lip are bound to occur, especially in a high risk mining environment. Importantly, however, SouthernEra has built a considerable amount of conservatism into its estimates, assuming metal prices well below those currently in force and ignoring any future contribution from Doornvlei.
Over to you. If you have earmarked a small portion of your share portfolio for high risk, high reward counters, you might take a hard close look at Messina. __________________ |
