nkwe platinum completes final bfs for garatau, page-65

My understanding is that part of the BFS is to examine the use of existing Xstrata operations as part of the project's ramp-up and the additional treatment of UG2 ore at Xstrata's chrome operations (RBC research). The puzzle to date configures an image that Xstrata have been strategically and closely involved in the BFS for a long time. I believe NKP management is not to be blamed for the delays, but rather, Xstrata. For the man with the money call the shots. NKP does not have 5-7b rand to give the project life.

The first major delay in April 2010 was caused by the need to optimise the BFS and to reduce cost. This entailed to a reduction of around 1b+ Rand and the introduction of nickel and copper credits. Why the interest? My understanding is the need for Xstrata to exceed their internal hurdle rate. To date, the BFS have already proven this with significant profit margins, but, will this be enough to satisfy Xstrata�s IRR? Or will ownership percentages require further negotiation to meet Xstrata�s internal hurdle rate?

The second major delay, as of October 2010 is the need for alternative production plans at the Garatouw project. Either to mine at a shallow depth or to proceed to both shallow and deeper depths. Why the interest? Xstrata, and only Xstrata. Take a look at recent events, where Xstrata is committing $710m to expand its South African ferrochrome operations, including in this investment will be the developing its own power generation with a 600 Megawatt Thermal Power Generation Plant. What does this tell you? Xstrata unveiling their long term plans? 600MW will be able to supplement further power requirements, and this power could be diverted towards Garatouw, or more likely Tubatse after 2013.

Their alternative plan to mine shallow could be wiser not only on the cost front, but on the basis that shallow mines will require less mining power consumption. This shallow production alternative will allow Xstrata and NKP to reach production stages faster whilst completing the BFS on Tubatse and possible production stages in time for 2013. Not only will Xstrata Thermal Power Plant be operational by 2013, but water supply from the dams will be ready for use. All in the meantime of steady cash flows from Garatouw at a smaller capital investment risk.

Putting the pieces of the puzzle together. Would love to see NKP being more proactive in obtaining more outside interest. However, from the way I see it, NKP projects could play an extremely important strategic fit for Xstrata's chrome operations, Eland's platinum projects and in meeting their PGM ambitions. This could pose a threat to new entrants i.e. China with no PGM mining experience, no connections, no water access and electricity access within the area.

I am looking forward to accumulate on further weakness together with the top 40 holders.

All the best to all holders!
LM