platinum australia article

Two Platinum Picks: Eland Platinum and Platinum Australia

By Jackie Steinitz
26 May 2006 at 05:58 PM EDT


LONDON (ResourceInvestor.com) -- Platinum has taken less of a hit than most commodities in the recent correction. At $1,298/oz it is down just 3% from its peak of $1,331 on 17 May. But shares in PGM companies have fallen 17% in local currency (21% in dollars) in the last fortnight (many of the companies peaked on 10th May). At the current level they are close to end-March prices, still 33% above the level of January 2006.

Have mining shares got further to fall? Ben Abelson argues yes in a Resource Investor article published yesterday. But if you want to plan your purchases for when the market reaches sale prices then consider tracking two PGM developers, Eland Platinum and Platinum Australia.

Both aim to become PGM producers within the next year and both presented a positive case at last week’s 20:20 Platinum Day conference in London, sponsored by Mining Journal and MSA Mineral Exploration.



Eland Platinum

Eland Platinum’s [JSE:ELD] operation was reviewed by Resource Investor on 22 May. In short the company’s primary asset is a 65% holding in the Elandsfontein PGM project which was acquired with accompanying exploration results from Anglo Platinum in October 2005. A bankable feasibility study will be completed shortly, construction is planned for 2006Q4 and the first ore from the 3 million tonne, 280,000 ounces per annum 4PGE mine (platinum, palladium, rhodium, gold) should be milled in 2007Q4.

Bull points for the project include:

Favourable location: The property is on the Western limb of the Bushveld Igneous Complex which hosts 70% of the world’s platinum supply. It is next to the successful Maroelabult section of the Crocodile River mine. The mine is just 12 kilometres from the nearest town Brits and within 70 kilometres from Johannesburg and Pretoria
Large and high grade resource: Both the UG2 and Merensky reefs occur at the project along a 9 kilometres strike, though so far only the UG2 resource has been quantified (107.5 million tonnes at 4.34 g/t after 20% geological losses). Eland have acquired further UG2 and Merensky resources on the neighbouring Zilkaatsnek property though these have not yet been quantified.
Near the surface: There is just 1 metre of soil overburden. It will take 8 years to reach a depth of 550 metres and 20 years before vertical shafts are required.
Platinum rich: The split of the UG2 reef has been determined at 63.9% platinum, 25.3% palladium, 10.1% rhodium and 0.7% gold. A recent survey by Nedcor showed that on recent metals prices the Elandsfontein platinum project will have the highest PGM basket price of all the UG2 mines.
Low capital costs: The project will require funding of R1bn ($150m) over three years to reach full production, R500m less than would normally be required because of the contribution of the cash flow from early open-pit mining. It has been estimated that 4.9 million tonnes of the UG2 resource can be mined quickly and inexpensively from open-pit mining
Short production/development time: By acquiring a property which had already been extensively explored Eland will be able to fast-track to production.
33 year+ life of mine
Meets requirements of South African new minerals legislation: Eland is fully BEE (Black Economic Empowerment) compliant and has obtained new order mineral rights.
Experienced management team: The team are experienced in both building and operating PGM mines on the Bushveld.
The company listed on the JSE on 29 March at R21 and shares rose 9% on the first day of trading. A private placement of 25 million shares just before the listing was more than four times oversubscribed. The price peaked at R25 and has since fallen to R19.50, 7% below its listing price, but may be worth watching for signs of a turnaround and a buying opportunity. As David Salter, the Managing Director, said in the London presentation, “Not all [PGM] ounces are created equal or placed conveniently on the surface!”




The share price for Platinum Australia [ASX:PLA; AIM:PLAA] has enjoyed a strong run for the last six months, outperforming the average for the platinum companies listed in the table above. The company, which has been ASX-listed since 2000, listed on AIM at the end of November 2005 at 15 pence. Since then the share price trebled to peak at 45 pence on 10 May though it has since fallen 16% to 38 pence.

Like Eland, Platinum Australia has an experienced management team (the Chairman and Managing Director have clocked up over 65 years in the industry). And like Eland Platinum Australia seeks to move from developer to producer in a relatively short time frame. It is developing three diverse deposits in South Africa and Australia, and plans to begin production later this year with production rising to 230,000 ounces of the four PGEs (platinum, palladium, rhodium, gold) by 2009. The company has also developed and patented the Panton process, a new metallurgical process for the recovery of PGMs.

The Smokey Hills project (80% PLA owned) should be the first of Platinum Australia’s projects to begin production. It is a 6 kilometres long outcrop of the UG2 reef on the eastern limb of the Bushveld with a measured and indicated resource of 5.3 million tonnes at a grade of 5.61g/t of 4E PGMs (Pt+Pd+Rh+Au). The feasibility study is scheduled to finish in June, construction and open cast mining will begin later this year. Full production at an annual rate of 95,000 ounces should be achieved by the end of 2007 though there is a possibility of expanding this to 150,000 ounces through a joint venture with Anglo Platinum and ARM Mining Consortium.
If all goes according to plan the Panton project could be the second of Platinum Australia’s projects to come on stream and Australia’s first platinum mine. Situated on the Great Northern Highway in the Kimberley region of Western Australia it has a resource of 14.3million tonnes at 5.2 g/t of 7E PGM (platinum, palladium, rhodium, ruthenium. iridium, osmium and gold) containing 2.4 million ounces of the metals. The company, with Lonmin [LSE:LMI] have developed a new metallurgical process, the Panton Process, to improve metal recoveries which it claims has a number of benefits including reduced transport costs, a shorter pipeline and reduced environmental impact.
The Kalahari Platinum project, Kalplats, a JV with African Rainbow Minerals (ARM) [JSE:ARI], situated 330 kilometres west of Johannesburg, could be the biggest and the best of the projects, and also geologically-speaking the oldest at a billion years older than the Bushveld. The project is based on a 12 kilometres strike and has an established resource of 3.4 million ounces 3E PGM (Pt+Pd+Au) at a grade of 3.6 g/t. PLA believes that there is significant potential to increase the size of the resource. Under current plans the Bankable Feasibility Study will be completed in mid-2007 and production, which has the potential to rise to 275,000 ounces per annum could begin during 2008.
Under conservative assumptions (platinum $750/oz, palladium $275/oz, rhodium $800/oz, gold $450/oz, exchange rate R7/$) the internal rate of return was estimated at 90% on Smokey Hills and 45% for Kalplats. At current prices the figures are considerably higher.

Conclusion

The outlook for platinum remains good with strong end-user demand, only modest growth in supply and low stocks. Both Eland Platinum and Platinum Australia offer advanced projects and the potential to be PGM producers with experienced management teams from relatively low cost open-cast mines within a year. They could be worth keeping on your radar!



We should expect to get a spike up next week.