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Jubilee Platinum's deal could be a "company maker" 10:20 am by Ian LyallUnlike gold, which is stockpiled merely as a store of value, there is a keen industrial market for platinum led by the car manufacturers.
Jubilee Platinum’s planned all-paper merger with Platinum Australia (PLA) has the potential to be “utterly transformational”, according to Colin Bird, chairman of the AIM-quoted group.
A takeover in all bar name, the deal scores on a number of different levels and could catapult the enlarged Jubilee (LON:JLP) from the juniors to the mid-caps.
It provides the UK business with concentrator capacity close to its Dilokong tailings, which would augment the planned production from PLA’s Smokey Hills project, on the eastern limb of South Africa’s Bushveld Complex.
“Total synergies and combined cash flow are significant enough that we can start aspiring to the mid-caps. This is a place that we would want to be when there is a revival,” Bird added.
Discussions with the company have led Proactive Investors to conclude that Smokey Hills under Jubilee’s ownership will be project financeable. This would negate the requirement of a rights issue.
Jubilee shares surged 22% late Friday when details of the takeover were revealed.
Talks are at an advanced stage, with the parties having exchanged a heads of agreement defining the key elements of the proposed tie-up.
With the exception of Jubilee Platinum’s Tjate deposit in South Africa, all of the projects of the two companies are near-term with relatively low capital requirements.
Platinum Australia (LON:PLAA) holds the rights to the Rooderand platinum project on the west of the Bushveld Complex, which fits the production model and complements Smokey Hills, a shallow underground mine.
PLA appointed administrators in June, but the projects themselves remain more than viable.
In talking with management it becomes apparent that Smokey Hills can be developed at levels below the original nameplate capacity because significant tonnage will come from Jubilee’s tailings.
This then takes the pressure off and allows for a more balanced mining plan.
South Africa-focused Jubilee is structured almost on a divisional basis.
Its operations in South Africa include: the Thos Begbie smelting plant in Middelburg; a power station close to the smelter; the Tjate platinum project in the Limpopo province; and recovery rights for platinum bearing chrome tailings.
“The Thos Begbie plant was an acquisition to facilitate the building of our ConRoast facility since it had environmental permits, infrastructure and a state-of-the-art power plant,” Bird said.
“It has ended up being a very valuable asset for non-platinum smelting and the company is also selling power to the South African network.
“Having rationalised the workforce and smelter capacity the company looks forward to fully utilising the facility and Thos Beg will be an important division for the ongoing operation.”
The company, via its 2009 acquisition of Braemore Resources, owns the revolutionary ConRoast technology that allows Jubilee to process previously uneconomic platinum group elements from tailings.
It is far more robust and stable than the existing method of smelting as well as being safer, more efficient and cleaner.
The beauty of ConRoast is it is just as effective in treating most other metals as it is platinum.
The platinum story is starting to improve in the aftermath of the bloody struggle at Lonmin’s mine in South Africa, which means the fundamentals driving demand and supply are starting to move in the right direction - as is the price.
Unlike gold, which is stockpiled merely as a store of value, there is a keen industrial market for platinum led by the car manufacturers.
Here, the de-stocking phase is almost over, while on the supply side there’s a dearth of new production being developed, the Jubilee chairman pointed out.
Jubilee started life with the Tjate platinum project in South Africa. It was (indeed still is) a massive property in one of the best addresses for the precious metal in the world
It backs onto Angloplats’ Twickenham property and is a near neighbour of Implats’ Marula operation.
The company was close to concluding the feasibility when the recession hit.
Many who survived the crunch put their projects on care and maintenance and essentially hibernated.
While Jubilee recognised the timing for Tjate was unfortunate, it certainly didn’t go to ground.
Instead, it bought Braemore and with it the ConRoast technology.
The year after, it acquired the Thos Begbie smelting operations for US$10 million, which were fully permitted, giving it a ready-made base for its ConRoast furnaces.
Crucially there was also an independent source of power nearby, and in fact the company also acquired a 51% stake in the plant to secure supply (it has the option to go to 74%).
Anyone remotely familiar with South Africa will know that regular brown-outs are a major impediment to growth.
The past four or five years have seen the group battling some fairly fierce headwinds – but perversely these tough conditions have also provided Jubilee with some of its best opportunities.
This latest deal, however, promises to be a company-maker. “All in all we have a lot of hard work in front of us,” Bird said. “We are not going into this with rose coloured spectacles.”
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