platinum news article

Found this in today The Age newspaper and although GAU was not mentioned, it's positive for GAU exposure in platinum.


Unsung jewel in investor's crown
Email Printer friendly version Normal font Large font Jamie Freed
October 15, 2007

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THE DRUM

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XSTRATA recently entered the market. Anglo American dominates production. BHP Billiton and the Chinese are looking for an entry point. But this hot commodity has yet to register on the radar screen of many Australian investors. The metal is platinum.

The lack of familiarity with the white metal is understandable, given it has never been mined commercially in Australia.

The platinum price hit a record high of almost $US1400 ($1548) an ounce last week, and demand is expected to be strong over the next few years. Given that the names of locally listed companies do not roll off the tongue of the average Australian investor, let's take a look at the sector.

Drive to mine metal

If you guessed jewellery was the metal's biggest use you are probably not alone. In fact two-thirds of the world's platinum is sold to car makers for use in catalytic converters. Jewellery accounts for one-quarter of demand.
The world's platinum production - including so-called platinum group metals such as palladium and rhodium - is centred in Bushveld, South Africa, home to three-quarters of the world's output. The smelters and refineries are almost all controlled by Anglo Platinum,Impala Platinum and Lonmin, making it difficult for diversified majors such as BHP to enter the sector without making a sizable acquisition and taking on the risk of operating very deep mines.

Given the region's geology, it is not surprising that many of the locally listed platinum stocks have projects in South Africa.

Aquarius Platinum is perhaps Australia's biggest platinum success story. But it is worth noting that it took out dual listings in London and South Africa because of the lack of familiarity with its project in the local market.

Aquarius produced 530,000 ounces of platinum group metals last year. A Goldman Sachs JBWere analyst, Ian Preston, recently noted that Aquarius was in a strong financial position, had volume growth and was unhedged.

But on the downside, Aquarius's interest in the Mimosa mine in Zimbabwe accounts for 26 per cent of his valuation and has the clearest potential for expansion. Given the Zimbabwe Government is threatening to make all foreign miners give up 51 per cent of their interest in the country's mines, there are quite a few uncertainties associated with the stock until the issue is settled. Preston rates Aquarius as "hold".

He did not take a look at Zimplats, the locally listed Zimbabwe platinum subsidiary of the South African major Impala Platinum, but it is fair to say there is a lot of uncertainty surrounding that stock too. The Drum understands Zimplats appointed a local investment bank to advise it on financing options a few months back, but the situation in Zimbabwe made the exercise too difficult for now.

South African projects

Returning to South Africa, the locally listed Platinum Australia is definitely an up-and-comer on the Bushveld scene.
It could receive the mining lease for its Smokey Hills project in the Bushveld as early as today, after its directors spent last week in South Africa ironing out final terms with the Government.

Like Aquarius, and the Xstrata takeover target Eland Platinum, Platinum Australia is one of a new breed of platinum companies. They picked up ground that the majors were forced to give up, after the collapse of apartheid, under a new "use it or lose it policy".

Platinum Australia completed a feasibility study on the $US40 million Smokey Hills project last year and has already ordered long-lead time items. The company expects the mine to start producing its 100,000 ounces a year in the middle of next year. At spot prices, its capital costs would be repaid within about three months.

Platinum Australia's managing director, John Lewins, said his company wanted to expand its resource base in the area through an acquisition or a joint-venture deal with other parties in the area. His neighbours include Anglo Platinum and Impala, the country's two largest producers.

Beyond Smokey Hills, Platinum Australia is earning a 49 per cent share of the $US88 million Kalahari Platinum project, which is in South Africa, but outside the Bushveld. The Kalplats project is undergoing a bankable feasibility study and could produce 300,000 ounces a year from an open pit.

Homegrown plans

Platinum mining has not yet occured in Australia, but it is a distinct possibility in the future. Platinum Australia owns one of the most promising projects, the Panton find in Western Australia. Panton was uneconomic when the platinum price was lower a few years back but could produce up to 40,000 ounces a year if the numbers now stack up.
Another Australian explorer is Niplats, which is hunting around the Kimberley in Western Australia. It owns ground with a geological intrusion that has the potential to contain platinum. It has yet to make any big strikes, but the area has the right signatures.