Vancouver-based developer Platinum Group Metals (PTM-T, PLG-X) is looking to fill a gap in mid-term platinum group metals (PGM) supply. And with a mining permit in hand for its Western Bushveld platinum joint venture in South Africa, the company is aiming for production in the third quarter of 2013.
Platinum Group’s flagship Western Bushveld property occupies 200 sq. km on the Western Limb of the prolific Bushveld igneous complex, which accounts for 70% of global platinum production and hosts major producers such as Anglo American Platinum and Impala Platinum.
Platinum Group maintains a 74% stake in the project, with joint-venture partner Wesizwe Platinum owning the remainder. Chinese state-owned company Jinchuan acquired a controlling stake in Wesizwe in 2010 for US$900 million.
"We’re sort of a microcosm of the platinum industry in so much as we’re a Canadian company operating in South Africa that is listed in Toronto and New York, and has partnerships with two Asian governments," said R. Michael Jones, Platinum Group’s president and CEO, during a presentation at the BMO Global Metals and Mining Conference in late February. "I think that’s a hint on the global situation with platinum, that our partners have a particularly long-term view and see the essential nature of platinum in their growing economies."
Jones explained that the Bushveld area has been heavily mined because of the geographic specificity of PGM production, and that production costs are rising as producers are forced to dig deeper to meet global demand.
"You may be familiar with Impala Platinum and the strain they’re under with their workforce, and Anglo Platinum has made comments in the last few weeks about changing their operating methodologies," Jones commented. "Some of these older shafts are two kilometres deep, have capital costs of US$2 billion and lead times of ten or eleven years. We’re fortunate as our assets are shallow, our main Western Bushveld joint-venture is right near surface, and we’re looking at about a two-and-a-half-year build-out period."
The first phase of the Western Bushveld project contains a measured resource totalling 14 million tonnes grading 6.19 grams 4E (platinum, palladium, rhodium and gold) per tonne for 2.8 million contained oz. 4E. Indicated resources are a further 300 million tonnes carrying 5.5 grams 4E for 5.4 million contained oz. 4E.
According to a feasibility study the project has a 19% after-tax internal rate of return with a net present value of US$583 million at an 8% discount rate, and carries an initial capital expenditure of US$443 million. The mine is expected to ramp-up in 2014 and have a steady-state production totalling 275,000 oz. 4E per year, with operating costs of US$526 per oz.
Platinum Group is in the midst of a US$100-million equity investment at the project level, with central decline and preliminary development construction already underway. The company is hoping to finalize a US$260-million loan with Barclays Capital later this year.
"That leaves an equity requirement of about US$83 million, so the equity top-up of our share is US$61 million — the additional US$21 million of our partner’s share is pre-arranged," Jones explained. "The last condition precedent will be our additional equity top-up. We’re confident in the support of our shareholders."
The development schedule has a second phase anticipated in the next three months, and Platinum Group is in the midst of negotiating a series of offtake agreements.
"We focus the hedging on the palladium, gold and base metals," Jones said. "We have kept the platinum almost completely unhedged, and that accounts for around 70% of our project revenue, so we offer that exposure to the platinum market."
Platinum Group is hoping that further exploration at a new discovery in the northern portion of the Bushveld complex will help drive future market financing. Located in the North Limb, the Waterberg discovery is part of an ongoing trend that may change the outlook on South African geology.
"It’s an exciting new development," Jones said. "By comparison, a lot of the current platinum mining is effectively around a metre thick and a thousand metres deep at about five-gram grades. To be globally competitive you need to meet those specs. The sort of things we’re talking about on the North Limb, for example at Ivanhoe Nickel and Platinum’s project, is five metres to forty metres thick, and we’re developing these five-metre reefs in an entirely new area."
Platinum Group holds an effective 49.97% stake in the Waterberg project.
Japan Oil and Gas Mineral Exploration (Jogmec) can earn 37% by spending US$3.2 million at Waterberg through 2013. Mnombo Wethu, an indigenous economic empowerment group that is 49% owned by Platinum Group, owns 26% of Waterburg.
New results from the Waterberg exploration drill program were released in February, and highlights include: 5 metres grading 1.59 grams platinum per tonne, 2.27 grams palladium per tonne and 0.91 gram gold per tonne, or 4.77 grams 3E (platinum, palladium and gold) starting from 605 metres in the T2 Reef in hole 5; and 5 metres of 2.22 grams platinum, 3.63 grams palladium and 1.43 gold, or 7.28 grams 3E from 474 metres in the T2 Reef in hole 8.
Jogmec is financing five drill rigs at the Waterberg site, and Platinum Group is looking to increase that number to 10 operational drills by mid-April.
"We think the find has regional implications," Jones said. "We’ve now added to our initial land tenure, and will have an interest in an additional eight hundred fifty square kilometres in the area going forward."
Platinum Group’s shares have surged this year, with prices jumping 49%, or 47¢, to a $1.42 presstime close. The company’s rebound has coincided with a similar jump in platinum prices, which leapt from the US$1,360-per-oz. range to US$1,650 in early April.
"If you look long term, let’s say over a twenty-five-year period, you see a fairly steady increase in the platinum price," Jones said. "We’ve been in a unique situation with platinum trading below gold, and we think that’s an opportunity for our investors."
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