positive minesite report

The following is from the latest online issue of Minesite:

August 13, 2010
Nkwe Platinum Moves Ever Closer To Production At Garatau

By Sally White

Production may still be well over a year away, but step by step Nkwe Platinum is starting to acquire all the characteristics of a substantial miner. Up in the top 100 by capitalisation in Australia?s resources sector, the emerging platinum group has announced that it is shortly adding to its ASX quotes with one in Johannesburg. It?s also been raising its profile in Hong Kong, pulling in Chinese as well as new Australian investors in recent placings. In all the company has succeeded in raising A$35 million this year.

Next step is the formal exercise of the development option that Xstrata holds over its South African projects. That is just waiting on completion of a bankable feasibility study (BFS) and will hopefully come in the next couple of weeks. The option allows Xstrata to acquire a 50 per cent stake in Nkwe?s major projects in return for funding all of the development costs.

The timetable for the events that look set to transform the company and speed its emergence as a producer goes something like this: the Johannesburg listing in fourth quarter 2010 or first quarter 2011, mine construction next year, and first production in the second half of 2012 or early 2013.

With that timetable in mind, and given that Nkwe has a resource potential that is up with the majors, it?s no wonder that the share price has doubled over the last year, compared to a fall of 63 per cent over the same time period for the Australian primary metals sector. The current A50 cent price may be quite a long way down from the peak of A72.3 cents hit in May, but the news flow seems likely to restore that in the not too distant future. Meanwhile, the A$313 million market cap looks pretty solid.

Nkwe has just come up with its latest quarterly report, for the period to the end of June. Reassurance that there is no letting up in the pace comes from the statement that following on from the completion of the bankable feasibility study on its Garatau mine one will then be carried out for Tubatse. This should take about 18 months to complete.

The draft bankable feasibility study for Garatau is already out, and the final version is just undergoing an independent review by SRK Consulting and DRA Mineral Projects before it too will be released. The review will focus on the major capital cost items and mine scheduling and will, hopefully, be ready within days.

In the meantime it?s worth noting that the draft feasibility study justified all the hopes the company had for the project as far as costs are concerned. Under the terms of the draft study the operating mine would mine 3.6 million tonnes per year to produce approximately 400,000 ounces per year on the basis of an 84 per cent recovery rate. Operating costs come in at between US$400 and US$430 per ounce. In local terms, cash costs come out at ZAR500 per tonne against revenue of ZAR1,100 per tonne, based on the current platinum price. That?s a robust enough margin to satisfy all but the most hardened sceptics. It puts the Garatau project in the lowest operating quartile for platinum producers in South Africa?s Bushveld region.

In addition to this projected revenue, Nkwe is expecting a ?significant contribution? to come from nickel and copper credits. Anticipated annual nickel production is projected at around 3,000 tonnes, and for copper the figure is around 1,000.

The main projects, Garatau and Tubatse, consist of five contiguous farms, with a strike length of more than 30 kilometres. The projects are located in a long-established mining district and the infrastructure is well developed. They border Anglo Platinum?s Modikwa Joint Venture to the east, Implat?s Marula mine to the north and Eastplat?s Spitzkop-Kenney Vale project to the south.

In ongoing exploration Nkwe has delineated a JORC compliant mineral resource of 68.6 million ounces of platinum elements and gold, across the Tubatse and Garatau project areas, including 14.2 million ounces of measured resource at Garatau.

Anyone who?s followed the South African platinum scene will know that?s it?s not been without its issues in recent months, as fatalities at the newly commissioned Blue Ridge mine have undermined confidence in the whole sector. The South African ministry?s confused approach to Lonmin?s right to mine the base metals associated with platinum has also muddied the waters in recent weeks. But Nkwe, at least, is able to offer reassurance in its latest quarterly report on questions as to the stability of the ground at its proposed mine site. ?It should be noted that the two large mines adjacent to Nkwe?s Garatau and Tubatse projects have not experienced similar problems?, states the report. Nkwe has done a belt-and-braces job, however, and had an extensive geotechnical evaluation carried out in order to understand the rock structure and to ensure that the mine design is appropriate.

Cash flow ought to be good in this, the third quarter, with Nkwe due to receive the US$10 million option fee from Xstrata. So, says Nkwe?s Anthony Eastman, the board is feeling pretty buoyant, even if the completion of the bankable study has come a touch later than had been hoped. ?But that is how it is?, he adds, and a late bankable study is hardly a major news item in the mining industry.

Forecasts for the platinum price continue to rise, with one of the latest, from Bank of America Merrill Lynch, predicting a 2010 year average of US$1,350 an ounce, up from US$1,250 previously. The bank cited constraints to mine supply as the cause. Barclays Capital has figures of US$1,643 for 2010 and US$1,660 for next year. At that those levels, Anthony notes, ?our margins will be looking pretty good!?