nkwe platinum: between the jse and xstrata

A strange silence falls over 68.5m ounces of precious metal in the ground.
JOHANNESBURG - For a company with 68.5m ounces of platinum, palladium, rhodium and gold held in deposits in South Africa's Bushveld igneous complex, the most prolific platinum basin in the world, Australia-listed Nkwe Platinum seems to be a strangely unenthusiastic company.

For some time Nkwe has been saying that it planned to list in Johannesburg during the fourth quarter of this year, but that seems to have gone quiet. Market conditions are probably not the reason; Royal Bafokeng Platinum listed earlier this week.

Nkwe has been flirting with the possibility of a big financing from transnational miner Xstrata, which in August 2008 took up an exclusive option to acquire a 50% interest in five Nkwe PGM (platinum group metal) properties.

The option is exercisable within 90 days after completion of a bankable feasibility study (BFS) for Nkwe's Garantau project. A crucial part of the deal is that Xstrata "will fund the total development costs of the properties from mining through to concentrating". The BFS for Garantau, expected in April 2010, has been delayed, and was "expected to be completed" in the fourth quarter of 2010.

Exercising of Xstrata's option is subject (of course) to Nkwe obtaining the necessary regulatory approvals, but Nkwe seems to be "well behind", as one analyst puts it, the likes of other PGM developers such as Johannesburg-listed Wesizwe and Canada-listed PGM.

It seems that "deadlines" for Nkwe come and go. Most of the Garantau resource is below or down-dip of existing mines. This implies a capital cost for building a mine of at least R12bn (US 1.7bn). The ounces available go on and on, but these are deep ounces.

Strategically, Nkwe has a cool land situation, down-dip of Impala Platinum's Marula Mine and the Modikwa Mine (ARM and Anglo Platinum). Pt Australia's Smokey Hills (small and somewhat disappointing) is also in the area, as is Jubilee's (deep) Tjate project.

The other project within Nkwe is known as Tubatse (where Xstrata also has an option) and while development here is not as advanced as Garantau, Tubatse offers surface access to shallow ounces.

Xstrata ranks as the world's biggest ferrochrome miner, mainly from its operations in South Africa, located in and around the platinum basin (PGM miners consider ferrochrome to be a nuisance, and prefer to run it out with waste, providing dumps and tailings for possibly retreatment specialists). Xstrata also has its own PGM operations, not least Eland, which was purchased for an astonishing $1.1bn in cash in 2007.

It seems that, unofficially at least, Xstrata would regard PGM mines as part of its ferrochrome division. Xstrata's PGM ambitions are well flagged: after the Eland acquisition, Xstrata made a bid for South Africa's No 3 PGM miner, Lonmin, but abandoned the chase after the bottom fell out of PGM markets in 2008, leaving Xstrata with 25% of Lonmin. Xstrata also attempted a "merger" with Anglo American, which owns 80% of Anglo Platinum, the world's No 1 name in PGMs. The merger did not work out.

There are a number of possible outcomes for Nkwe; an analyst says that "the often spoke about and recently commented on option agreement between Nkwe Platinum and Xstrata could well see a bigger deal taking place there. The biggest benefit for Nkwe is the fact that the Tubatse block has surface access and, crucially, is located very close to the Xstrata ferrochrome smelting facilities".

Genorah Resources, a black economic empowerment (BEE) entity, holds 63% of Nkwe. Nkwe director Peter Landau, who seems to move mainly between Australia and London, has for many months declined to provide a see-through list of individual shareholders in Genorah. Landau has been very quiet of late. Nkwe Managing Director Maredi Mphahlele is not replying to e-mails or returning telephone calls.

Among the options available, Nkwe has but scant chance of making it alone. One big reason is the company's market value, which computes at $322m. Even a massive one-for-one rights issue at prevailing stock prices would only raise $322m, far from what is needed to build even a Phase I mine. And the BEE partner, Genorah, would be diluted, which creates any number of complications in terms of recent stringent changes to BEE rules, regulations and laws.

Selected platinum stocks




Stock
From
From
Value

Tier I platinum
price
high*
low*
USD bn

Anglo Platinum
ZAR 709.93
-14.6%
17.5%
27.206

Impala Platinum
ZAR 213.80
-6.5%
29.9%
19.651

Lonmin
GBP 18.41
-16.2%
37.0%
5.992

Averages/total

-12.4%
28.1%
52.850

Weighted averages

-11.9%
23.9%


Diversified





Anglo American
GBP 29.69
-2.3%
34.3%
64.154

Mvela Resources
ZAR 46.60
-19.0%
22.7%
1.470

Norilsk
USD 20.60
-3.1%
61.8%
39.269

Camec
Now at ENRC




ARM
ZAR 197.00
-4.4%
34.7%
6.099

Xstrata
GBP 13.82
-2.5%
65.9%
65.901

Averages/total

-7.2%
38.4%
110.993

Weighted averages

-3.0%
42.8%


Tier II platinum





Stillwater
USD 19.92
-8.3%
168.5%
1.950

Aquarius
GBP 3.90
-20.3%
84.6%
2.910

Northam
ZAR 49.05
-15.0%
32.3%
2.574

NA Palladium
CAD 5.25
-10.6%
91.6%
0.779

Zimplats
AUD 14.46
-0.3%
52.2%
1.559

Eastplats
CAD 1.84
-4.7%
135.9%
1.257

Anooraq
CAD 1.33
-26.1%
70.5%
0.267

Royal Bafokeng
ZAR 69.00
0.0%
0.0%
1.647

Averages/total

-12.2%
90.8%
11.297

Weighted averages

-22.5%
40.9%


* 12-month





Source: market data; table compiled by Barry Sergeant



Developers and explorers




Platmin
CAD 0.95
-51.0%
33.8%
0.616

Wesizwe
ZAR 1.93
-26.9%
35.9%
0.224

Noront Resources
CAD 1.06
-60.3%
3.9%
0.186

Goldbrook Ventures
CAD 0.21
-51.2%
16.7%
0.038

Pt Australia
AUD 0.66
-48.8%
30.7%
0.212

Chromex
GBP 0.36
-0.7%
145.8%
0.052

Sylvania
GBP 0.52
-25.7%
35.9%
0.149

Starfield
CAD 0.06
-53.8%
71.4%
0.033

Ridge
Now at Aquarius




PGM
CAD 2.25
-22.9%
37.2%
0.355

Solitario
CAD 2.39
-12.5%
32.8%
0.071

Colossus Minerals
CAD 8.27
-9.6%
106.8%
0.708

Jubilee
GBP 0.31
-30.1%
18.3%
0.126

Nkwe
AUD 0.58
-20.7%
74.2%
0.322

Braemore
Now at Jubilee




Marathon PGM
CAD 4.33
-4.2%
341.8%
0.148

Caledonia
CAD 0.13
-3.8%
150.0%
0.062

Duluth Metals
CAD 2.95
-26.1%
195.0%
0.303

Franconia Minerals
CAD 0.62
-21.5%
163.8%
0.051

Great Australian
Now at Sylvania




Avalon Rare Metals
CAD 3.59
-28.2%
89.9%
0.330

Eurasia Mining
GBP 0.01
-36.4%
68.0%
0.010

Largo Resources
CAD 0.30
-21.1%
122.2%
0.087

Macdonald Mines
CAD 0.18
-40.7%
59.1%
0.034

Hard Creek
CAD 0.33
-49.2%
106.3%
0.022

Polymet
CAD 2.13
-45.2%
60.2%
0.317

MetalCORP
CAD 0.15
-44.4%
87.5%
0.009

Wallbridge
CAD 0.24
-38.5%
84.6%
0.030

Benton Resources
CAD 0.76
-9.5%
105.4%
0.057

Mustang Minerals
CAD 0.15
-6.5%
107.1%
0.014

Northern Shield
CAD 0.19
-24.0%
90.0%
0.016

Platina
AUD 0.34
-12.8%
78.9%
0.029

Darnley Bay
CAD 0.18
-71.9%
44.0%
0.019

Pacific NW Cap.
CAD 0.15
-38.8%
87.5%
0.010

Starcore
CAD 0.10
-60.0%
33.3%
0.008

Huston Lake
CAD 0.17
-41.1%
43.5%
0.007

Goldplat
GBP 0.13
-14.8%
57.6%
0.023

Village Main
ZAR 2.20
-38.9%
168.3%
0.083

Premium Exp.
CAD 0.47
-30.6%
116.3%
0.053

Blackthorn Resources
CAD 0.66
-35.6%
73.7%
0.114

Silvermet
CAD 0.15
-19.4%
163.6%
0.022

Andulela
ZAR 0.40
-20.0%
566.7%
0.024

Developer averages/total

-29.9%
97.7%
4.975

Weighted averages

-33.7%
66.8%








Overall averages/total

-24.4%
88.3%
69.121

Overall weighted averages

-14.1%
32.9%


* 12-month





Source: market data; table compiled by Barry Sergeant











Write to Barry Sergeant: [email protected]