Platinum. Picture: REUTERS
None Platinum. Picture: REUTERS

New York and Toronto-listed Platinum Group Metals’ (PTM) financial squeeze, after years of calling on shareholders and bankers for more funds to build its Maseve platinum mine, represents an opportunity for Impala Platinum and Royal Bafokeng Platinum.

This month, Implats paid US$30m for a 15% stake in PTM and an option to buy more of the Waterberg project, while RBPlat agreed to pay $74m in cash and shares for 82.9% of the Maseve mine, including a concentrator.

The question is, however, if PTM could not make these projects work, how can RBPlat and Implats do any better?

The answer for RBPlat is that in Maseve it is getting a near-completed mine and infrastructure for a good price, which complements its existing operations. Implats is getting an inexpensive entry into a potentially enormous project, which is still at the definitive feasibility study stage.

PTM CEO Michael Jones was typically enthusiastic about its potential, describing it as "our amazing Waterberg platinum discovery" in the 2013 annual report. Time will tell.

Missed targets for greenfields mining projects like Maseve are common — but this makes for painful reading.

Maseve’s production in the three months to end-May averaged about 2,200 platinum group metals ounces a month, some distance short of the planned 9,000-10,000oz/month by 2016. At the end of July, staff were retrenched and the mining method was changed to part-mechanised and part-conventional stoping.

Mechanised mining, combined with underperforming contractors and labour, was blamed for the mine failing to reach its targets.

In the nine months to May, when it last reported its financial position, PTM made a net loss of $287m, of which $280m represented a write-down on Maseve. In those nine months, however, it had also raised $89m in equity.

Over five years, PTM’s share price in New York has fallen from US1.01c to US0.43c.

Fed-up shareholders believe that PTM is selling its stake in the Waterberg project for well below its true value.

Commenting on the Stockhouse forum, one investor said: "I don’t think its funny at all that when the company should be showing some value, Jones does his best to undermine it by doing something stupid."

RBPlat said the Maseve deal would give it immediate access to a completed concentrator, which could process ore from Styldrift, and give the mining company the flexibility to increase production from its south shaft.

René Hochreiter, analyst at Noah Capital Markets, says RBPlat got a good deal. Maseve is geologically faulted and grades only improve at deeper levels. As a result, it was producing about half the planned production.

But it is only 600m from the mining stopes of Styldrift Mine, allowing RBPlat to drill a short tunnel from its existing infrastructure to access the ore. For a mere $74m, RBPlat is buying accelerated cash flow and a concentrator which would cost more than that to build from scratch.

Kobus Nell, portfolio manager at Stanlib, says the purchase of 15% in the Waterberg project and an option to increase to a majority stake could provide Implats with much-needed optionality and processing synergies in time, given constraints at the Impala lease area and some of its other mines. The Waterberg project is shallow and lends itself to mechanised mining, which could, if successful, provide a stable to lower-cost profile.

Partly because of strikes and safety issues, Implats’ new shafts at the lease area that are intended to replace operations reaching the end of their lives are coming on stream later than planned.

As a result, Implats’ production and costs have been under pressure and its processing capacity isn’t fully utilised.

Nell says the depletion of the platinum deposits around Rustenburg probably means that at some point the three large mining firms in the area — Implats, Sibanye-Stillwater and Lonmin — may have to consolidate their mines there to create a single, better-quality mining operation.

Hochreiter, however, believes there is little merit in PTM’s Waterberg deposit. It is a difficult area to mine, with 35°-40° dips, capital intensive and the grades are too low, at 1.9-2.7g/t for underground mining, to make money with the rand at R13/$. However, at the current level of R14.20/$, it does look slightly more attractive.

Meanwhile, Ivanhoe Mines’ huge Platreef mine, which is between Maseve and Waterberg on the western limb of the Bushveld complex, is well under way, with Shaft 1 now half a kilometre from the surface and early earthworks having begun at Shaft 2.

Platreef says it has appointed five lead financiers to raise the US$1bn project financing needed, and they have received expressions of interest for about $900m of that.

That’s a surprisingly positive sign in such a poor environment for platinum mining, but it may have a lot to do with the reputation of Ivanhoe CEO Robert Friedland.

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