article from uk bulletin board

February 09, 2009

Platinum Australia Takes Advantage Of Its New Status As A Profitable Producer To Strengthen Its Financial Position


By Charles Wyatt

It’s not been easy lately to get hold of John Lewins, managing director of ASX-listed and Aim-traded Platinum Australia, but there are a number of good reasons why. First he has been wrapping up a fundraising; second he’s been at the Livingstone conference, preparing for Indaba, where he is bound to be a focus of attention now his company is in production; third he has about 20 investors and analysts coming on a site visit after Indaba; fourth he probably feels some lingering antipathy towards the UK, as he felt let down last year by major UK shareholder Anglo Pacific Group which sold a big block of stock without allowing him to place any of it. This investment group has been a shareholder for some time and hadn’t blocked his move to focus on platinum projects in South Africa as an alternative to Australia. But when markets are in panic mode all loyalties are lost.
Good thing John didn’t panic or his company wouldn’t be where it is today, generating cash flow as it is, with some money in the bank, and poised to move further ahead when platinum prices improve. The first sign that things had really fallen into place came right at the end of January when the company announced that the first flotation concentrates had been produced at the Smokey Hills platinum mine, following commissioning of the crushing and milling sections of the processing plant. These first concentrates have now been transported to the Impala platinum smelter which is about 300 kilometres from Smokey Hills, at Rustenburg and, as a result, Platinum Australia can now claim promotion from explorer to producer. Doubtless this new status will start to be recognised in the share price during Indaba, as the shares have been pretty static at around the 25p (A55 cents) level since last October.

John Lewins goes on to point out that, “Smokey Hills will be among the lowest cost producers in the industry. At the current Rand to US dollar exchange rate of ZAR10 to US$1.00, the average on site production costs are estimated to be less than US$200 per ounce of four Platinum Group Metals (4E PGM), i.e. platinum and palladium, plus rhodium and gold. This cost is net of credits and gives a total cost, including smelting and refining charges, of approximately US$300 per ounce 4E PGM. Thus, Smokey Hills has a margin of over US$300 per ounce at the current metal prices of US$955 per ounce platinum, US$210 per ounce palladium, US$910 gold and US$1,100 per ounce rhodium. Taking into account the current level of hedging, this margin increases to approximately US$350 per ounce 4E PGM.” The on-site treatment plant has a design capacity of 720,000 tonnes per year and at this rate will produce approximately 95,000 ounces of 4E PGMs per year, in a flotation concentrate for which a life of mine off-take contract has been agreed with Impala.

John doesn’t shy away from the fact that it is the continuing weakness of the Rand that makes the operation so profitable, as operating costs are calculated in Rand while metal prices are in US dollars. It helps also that all the debt component of the money raised to develop Smokey Hills was also in Rands, so this has reduced the debt in terms of the US dollar. And when the prices of PGMs improve, as they are doing to a marginal extent at the moment, the benefit will come straight through to the bottom line - unless the Rand also strengthens. In the meantime, the mining operation at Smokey Hills will continue as an open cut until June, when the stockpile should have doubled to 200,000 tonnes. At this point production from the shallow underground mine, currently being developed, will start to replace that from the open pit. In 12 months time this changeover will have been completed.

The interesting thing about Smokey Hill is that it actually came into production under budget. The initial capital cost of the project in the bankable feasibility study that was delivered in July 2006 was estimated at US$40million and this, plus an overrun facility, gave a total cost of up to US$49 million. At the current Rand to US Dollar exchange rate the initial capital cost will be come in at approximately US$44 million, including an additional cost of some US$3 million for the installation of 8MVA of standby generating capacity, which was not allowed in the original budget. This standby generating capacity will allow the Smokey Hills mine and processing plant to operate fully independently of Eskom grid power in the event of any supply problems.

John Lewins, however, is aware that there can always be a slip between lip and cup so he followed up the news of production at Smokey Hills with a placement of 27 million shares at A$0.54, which was bang in line with the prevailing share price. Not for him the whinge about dilution on the basis that the share price is well below the level of six months ago, as he lives in the present. Anyway the offer was oversubscribed by some useful institutions and the proceeds will be used to reduce the debt incurred by Smokey Hills.

These institutions will not have overlooked the fact that a bankable feasibility study is also in progress at the Kalahari platinum project (Kalplats). Changes are being made to this in the light of prevailing metals prices, but it seems likely that a robust study will be published during the second quarter of this year. Drilling has come up with further evidence of wide zones of good grade mineralization at several deposits at Kalplats so John could have another PGM string to his bow in the not too distant future.