Platinum Australia Ltd (PLA $2.35) – Buy...

Platinum Australia Ltd (PLA $2.35) – Buy




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Price Target: $3.30/sh



Reason For Update:

Qtrly report and more Kalplats results



Comment:

· Smokey Hills remains on track for commissioning in August’08 with first concentrate in Spept’08. All major contracts have been let including the open pit to Sentula Mining and the underground mining to Redpath Mining.

· Due to the continued power issues in Sth Africa PLA has placed an order for 5 x 1.6 MW diesel generators which are scheduled to arrive on site in June’08. This is sufficient power to operate the whole mining and processing operations independent of grid power if necessary.

· In April PLA started to draw down the R$260m debt facility with an initial draw down of R$114m.

· At Kaplats 4 rigs continue to drill out the various orebodies are part of the resource definition work required for the BFS study. Drilling continues to interesect good width of med-high grade mineralisation and importantly fill in some the previous ‘gaps’ in mineralisation – ie at Serpens/Crux Gap.

· Results include 22m @ 2.45 g/t 3E PGM from 140m, and 18m @ 3.93 g/t 3E PGM from 20m and 6m @ 4.13 g/t 3E PGM from 98m.

· Due to assay delays and the drilling success in discovering more mineralisation than expected has resulted in the BFS originally scheduled for completion in mid CY’08 is now likely to be finished by the end of Sept Q.

· GR Engineering has been awarded the Panton feasibility study. The focus will be on a 4 yr open pit operation producing ~ 40-50koz PGM pa with underground potential.



Investment Case:

We are pleased to see that Smokey Hill remains more or less on track for initial production in August’08 – which remains similar to the guidance given on our Feb’08 site trip.



The decision to purchase the diesel generators is a sensible move and alleviates the major risk we see at Smokey Hills. PLA hopes to have some temporary power installed shortly (2MW) but now is not reliant on grid power to operate at full capacity. We estimate if Smokey Hill runs on 100% diesel power this will add ~ US$80-90/oz to the operating costs, increasing to the low US$300/oz.



Smokey Hills will still generate excellent returns and at current prices will generate margins of ~ US$1,200/oz – assuming payability of 81% and operating costs of ~ US$320/oz.



With the initial debt drawn PLA will be required to hedge seom 15% of reserves and is likely to be progessively put in place over the next few months. At these record high prices we view this as a positive, underpinning revenue during the ramp up phase whilst still retaining exposure to the spot prices.



Whilst the delay in the Kaplats feasibility is a little disappointing it is understandable with assay turnaround of up to 8 weeks and the significant exploration success that PLA is having. Whilst we wait for the results to be quantified into resource it appears that PLA is on track to achieve its BFS target of 3moz of high grade ore defined. This would be sufficient to justify a 10 yr operation of 3mtpa production ~ 280koz pa @ US$280-300/oz.



The recent price weakness can be attributed to some profit taking after spiking to $3.00/sh after the record Platinum prices, a major shareholder ceased to be substantial and concern over the Sth African power situation. Over the next six months we see numerous short term price catalysts including the Smokey Hills commissioning, updated resource estimates from the 7-8 Kaplats prospects followed by the Kaplats BFS in Sept’08. Buy.