For most of its corporate history, Aberdeen International (TSX: AAB) has taken minority, non-controlling equity stakes in mostly public junior mining companies, along with a small contingent of private companies.
But over the last year or so, president and CEO David Stein has restructured the company and focused on projects where Aberdeen is the controlling shareholder, and new investors can only get a piece of the action on a particular asset by buying Aberdeen stock.
As part of that transition, Stein and his management team struck a deal in September 2014 with Landmark Equity Advisors to sell some of Aberdeen’s equity stakes and debt interests to a new partnership funded by Landmark (Ore Acquisition Partners LP), in a deal worth $12 million. Under the arrangement, which closed last month, Aberdeen will also manage the fund for a fee and receive a small minority interest in the partnership’s net profits.
With that transaction behind it, Aberdeen can focus on two assets that it has acquired over the last year: a platinum-producing mine and a platinum group metals (PGM) exploration project in South Africa, and a lithium-potash project in Argentina.
“There’s a lot of value we want to create with these first two deals,” Stein says. “We’ll still have a significant amount of cash, so we’re still open for business — but we’d have to see pretty extraordinary opportunities to distract us from our focus on these two opportunities, because they’re both exceptional, and we want to focus our limited management time to them.”
Aberdeen acquired a 42.5% stake in African Thunder Platinum — a privately held Mauritius company — for $7 million late last year. Switzerland-based Pala Investments purchased an equal stake, and the remaining 15.5% interest is held by Platinum Australia Ltd. and an Australian bank.
“African Thunder is a private company, so it’s exclusive to us,” Stein says. “If you want to own a piece of it, you’d have to own Aberdeen.”
African Thunder has two assets, Smokey Hills, a PGM mine and processing plant on the Eastern Limb of South Africa’s Bushveld, and Kalplats, a prospective PGM property in the country’s Kraaipan Greenstone belt. Since the acquisition closed in the first quarter of this year, Smokey Hills has been put back into production and produces platinum and palladium, which are commodities that Stein argues are in supply deficits, with longer-term demand fundamentals.
Stein says the mine — on care and maintenance before the acquisition — is being run by a South Africa-based management team. The mine is still ramping up to full production and could turn a profit in the next few quarters. “Once it’s going at full speed, it should be one of the lowest-cost operations in the country,” Stein says.
“Smokey Hills is shallow and it’s mining into the sides of a hill, so there’s no shaft. It’s all ramps … we drive into the side of the hill and we have a plant on-site to produce concentrate.”
Aberdeen forecasts that Smokey Hills will produce 60,000 oz. a year of combined platinum and palladium once it reaches full production by the end of March 2016. “We’re focusing a lot of our corporate energy on getting Smokey Hills right,” Stein says.
Kalplats, which is probably one of the few remaining open-pittable platinum and palladium projects in the world, or at least in South Africa, Stein says, can also be a low-cost producer once it is developed over the next few years. Production is at least three years away.
“It’s a stand-alone project and is not related to the Northern, Eastern or Western Bushveld, where all the platinum producers are. It’s in a greenstone belt that is further west in the country, so it’s more akin to a Zimbabwe-style mine geologically, with vertical reefs or layers of platinum-rich mineralization,” he says. “It will be spread over a few open pits with lots of exploration potential along strike to find new pits, and also at depth.”
Stein notes that “having a second mine in the stable would be fantastic from a creation of value perspective, and reducing risk for shareholders like us,” adding that Aberdeen is buying at a sweet spot in the cycle for PGMs, and capitalizing on low prices and hard markets.
“We’re in a strong position vis-à-vis corporate consolidation in the platinum sector,” he says. “There’s weakness in the sector because of the low metal prices, poor capital markets and the capital raising environment for mining, and it’s been probably as bad or worse in South Africa for local companies that are listed on local stock markets, as it has been here in Canada. We’re definitely seeing plenty of deal flow, and that could fuel growth down the road.”
The other asset that excites Stein and his team is the Diablillos lithium-potash project in Argentina’s Salta province. Aberdeen has agreed to buy 100% of the project from Rodinia Lithium for $5 million. Under the deal, Rodinia will keep a 2% net smelter royalty on the project, but Aberdeen has the right to buy half the royalty for $2 million, within two years of closing.
“We think we can do a lot more with it as a private company than Rodinia did owning it in the context of a public company,” Stein says, noting that by privatizing the asset, the company can build it at the right scale and with the right partners. The mining executive also likes that Diablillos is a straightforward or conventional lithium brine project not unlike similar lithium operations owned by FMC (NYSE-MKT: FMC) and Sociedad Quimica y Minera de Chile (NYSE: SQM), which have produced lithium since the 1960s.
Aberdeen has monitored Diablillos for more than four years, and says it is one of the largest and highest-quality undeveloped lithium brine projects in the world. But like most projects owned by junior resource companies, it has suffered from a lack of capital.
The project covers more than 95% of the Salar de Diablillos at an average 4,050 metres above sea level, and holds 32 mining claims over 81.6 sq. km.
The last resource, published in December 2011, estimated a recoverable inferred brine resource of 2.8 million tonnes lithium carbonate equivalent from an in-situ inferred brine resource of 4.9 million tonnes lithium carbonate equivalent. Diablillos also has a recoverable brine resource of 11.2 million tonnes potassium chloride equivalent from an in-situ inferred brine resource of 19.8 million tonnes potassium chloride equivalent.
A preliminary economic assessment released the same year estimated that the project would produce 15,000 tonnes of lithium carbonate a year and 51,000 tonnes of potash per year.
“The growth in the electric car market is perhaps slower than forecast a few years ago, but it is happening, and more and more vehicle-makers are using lithium ion batteries in their new cars,” Stein says. “As drivers get more comfortable with the technology, the vehicles will sell, so beyond 2020 there’s a huge gap in production for lithium, and we’ve got a nice project with Diablillos.”
While there has been a negative perception of the geopolitical environment in Argentina, Stein says Diablillos “is located in what I’d call the ‘Nevada of Argentina,’” where the local government “has been supportive through bull and bear markets.”
He notes that although Salta province doesn’t have a lot of large mines, it has lots of smaller ones, and there hasn’t been much change there. “It seems to be stable, and that speaks to the recognition of a mining culture and its need and importance within the province’s economy,” he says.
At the federal level — while Argentina been a hard place to do business and invest on a large-scale, because of a number of policies enacted by the current government, Stein says — there are indications that this might change next year, after the presidential and congressional elections on Oct. 25.
“A lot of smart money, not just in mining, is putting bets on Argentina for 2016,” he says. Cristina Fernandez Kirchner, Argentina’s left-leaning president, and widow of former president Nestor Kirchner, will step down on Dec. 2 due to term limits. She took power in 2007.
Aberdeen was founded in 2005, when it transformed from a shell to a mining investment business. The name was kept from a prior public company engaged in a completely different business — oil and gas.
Stein joined the company in 2009 as its president and chief operating officer, after a nine-year stint as a mining equities analyst at Cormark Securities.
He took the reins as CEO in June 2012.