the bull case

- or "Why the expectation of a short term upward move in the share price is not entirely wishful thinking". Here is the chart break on the UK quoted PLAA showing how broken resistance can precede a good run:



Here is a brief story for anyone who wants to remind themselves why they are looking at PLA(A):

2 projects in South Africa, 1 in Australia - the latter (Panton) proceeding to updated BFS 2Q 2008 on what is likely to prove economic and become the largest platinum mine on the continent.

In South Africa. The first mine (Smokey Hills) is being constructed and stripping is in progress for open cast/shallow resources. First production July 2008. Offtake contract with IRS for smelting concentrate. The power question has been resolved by the purchase of diesel generating capacity of over 100% of mine requirement, even though Eskom have a contract to supply. Cost of production US$ 240 per oz with variable power cost up to a max of US$ 60 per oz if 100% own supply were necessary. Fully funded. Could pay down bank debt in a few short months at current PGM prices.

The second project (Kalplats) is proceeding to updated resource statements and BFS in 2Q 2008. Expectations high for "a doubling or possibly tripling of the resource" (quote CEO Feb 2008). This would imply attributable oz rising significantly from the current approx 1.7m oz. This is only the first 12km of a total 50km potential strike length. Grades are good and intersections much wider than typical Bushveld reefs. Thus far less excavation per oz than open cast peers. All drilling has been within about 180m below surface because of the objective to mine open cast. Nothing to suggest that reefs do not continue to lower depths so plenty of scope for increasing resources at depth and along strike. >10 years life of mine of which 4 years open cast at current resource estimates. US$ 280 per oz production cost includes "Owner Power Generation". BEE rights covered although not expecting mining rights until 2009. Production likely in 2009.

By my own calculation (DYOR) present share price is a fair reflection of current value at 103p bid (AUD 2.25). The short term upside lies in:
1. Smokey Hills first revenue from ore treated elsewhere prior to on-site production - imminent - then production in July/August
2. Kalplats resource upgrades - imminent - followed by BFS June
3. Panton BFS - June
The change of status from explorer/developer/producer will lead to a substantial re-rating of company value. My personal expectation is over 350p (AUD 7.40) when all of 1,2 and 3 above are achieved.

I don't believe there is anything currently in the price for either bid premium or upward expectations in the PGM prices. Established South African producers have generally admitted they will struggle to fulfil earlier predictions of output in 2008 due largely to power constraints. Industrial demand is unlikely to be covered by production and the ETFs are taking significant amounts of precious metals out of the market. IMHO we are looking at the high probability of a significant spike in prices just as Smokey Hills starts to produce.


Bull points:
-Management has a record of successful commissioning of mines.
-Smokey Hills - Fully funded, Low quartile cost of production; Power issues completely covered; New order BEE rights; 9% Rh kicker.
-Kalplats - Low quartile cost of production; Power issues completely covered; "Panton Process" yielding concentrate at 4000g/t 3E PGM with easy smelting characteristics. Funding of modest cost development shared with ARMPlatinum (51% partner on current resource).
-Panton - Diversifies country risk away from South Africa. If "Panton Process" works well at a commercial scale there could be licensing revenue.


Bear Points:
-Smokey Hills - Access Road a potential weakness in adverse weather.
-Kalplats - Prill split shows Pd 51% Pt 45% Au 4% approx. Thus heavy dependency on Pd. This could also be a strong bull point if Pd stays above US$400 per oz due to uncommonly low production costs.
-Company gets taken out by a consolidator - never gets to realise its full potential. (Is this actually a bear point?)
-Anglo Pacific, an institutional holder, have been selling down their stake for some months. Unknown how long the overhang will last.