A cool $100-million vote of confidence in SA platinum

Jim Jones
Times Live

Singapore takes long view on miner Platmin

For the CEO of a junior platinum miner that has just won a ground-breaking $100-million investment from a foreign sovereign wealth fund, Platmin’s Tom Dale is remarkably relaxed. He is a busy man, fully focused on bringing his company’s developing Pilanesberg mine up to full production well before this year is out.

So while Dale does not dismiss the importance of this past week’s $100-million investment by Singaporean sovereign wealth fund Temasek, his focus remains on mine development not incidental aspects of the investment.

The fact is Temasek – which at last count had an investment portfolio worth $119-billion – completed a due diligence on South Africa and platinum in general and on Platmin in particular before paying $100-million for Platmin’s debentures, which are convertible into ordinary shares at the end of this year.

While other investors might be spooked by nationalisation calls from Julius Malema or calls for further or deeper bites at the platinum ownership cherry from BEE activist organisations, the Singaporeans are convinced that they have a long-term investment future in South Africa. To underscore the importance the government places on foreign investment, and particularly on the long-term security of that investment, deputy finance minister Nhlanhla Nene flew especially to Singapore to attend the signing.

Platmin is selling another $30-million convertible debentures to its largest single shareholder, Pallinghurst Investment Consortium, an arm of Pallinghurst Resources. And it is looking at a $250-million equity issue later his year, largely in London and Toronto.

On past performance, Platmin might have seemed an unlikely candidate for investment. Earlier promises of a nine-month period between setting up opencast mining operations and hitting the annual production target of 250000 ounces of platinum group metals (platinum, palladium and rhodium) and gold (3PGM+Au) were missed.

Dale is not judgmental of previous management. He points out that management skills and approaches needed to explore and prove a mining prospect are greatly different from those needed to design and run a mine. The first phase involves spending shareholders’ money, the second generating revenues and cash flows.

That difference is clear to Brian Gilbertson, whose Pallinghurst holds almost two-thirds of Platmin’s equity. Last December, Gilbertson replaced Platmin’s top management with Dale, who has 30-plus years of successful hands-on mining production and managerial experience. Together they introduced management structures and tighter controls that are appropriate to a mine operator.

The speed and efficiency of the changes were standard Gilbertson and Dale.

Gilbertson proved his decisiveness almost 20 years ago by turning Gencor, a diversified South African mining and industrial group, into BHP Billiton, now the world’s largest mining group. Now he is creating a new mainstream international mining player, Pallinghurst.

Dale, a mining engineer from the north of England, has shown his mettle in running mines, the Gold Fields group and, on a smaller scale, the Sallies fluorspar miner during its tiring price battle with Honeywell.

In 10 months to end-December 2009 Platmin’s Pilanesberg mine produced only 27871 3PGM+Au ounces, way below the amount promised. But Dale is confident that 2010 will see annualised production of 160000oz, rising to the plant’s 250000oz full design capacity next year.

An extra $16-million capital expenditure will be spent this year to complete the Pilanesberg mine, taking the total to $424-million or R3.1-billion. So why the need for $100-million from Singapore, $30-million from Pallinghurst and maybe $250-million in new equity before the year is out?

Unlike platinum miners that have been raising equity capital to repay debt, Platmin boasts a balance sheet that is virtually debt free. The new money can be used for real developments.

The current Pilanesberg operation is on the farm Tuschenkomst on the Western Limb of the Bushveld Igneous Complex. But further north and separated by another property there is Pallinghurst’s partially owned Magazynskraal property. The way things look, the properties all contain extensions of the Merensky and UG2 reefs mined by opencast on Tuschenkomst.

As Dale tells it, surface mining is generally less costly in terms of labour and power than underground. Keeping operations in the lower part of the industry cost curve is important and he emphasises it with an old mining joke: “Many a fine mine has been ruined by sinking a shaft.”

Platmin is preparing a Magazynskraal bankable feasibility study for Pallinghurst, which is likely to look at consolidating the properties. Dale says the processing plant is designed for expansion. Expansion by using cash flows tax efficiently can be a better strategy for increasing the present value of mining investment than extending the life of operations.

Over on the Eastern Limb are Platmin’s widely-scattered and variably owned Mphahlele, Grootboom and Loskop prospects. While they are being explored, they are not high on Dale’s agenda.

Mphahlele is on steeply-dipping Merensky and UG2 platinum reefs that extend kilometres beyond the property’s boundaries. But, as Platmin stated in its last filing to the Toronto Stock Exchange, Mphahlele is on a “reduced work programme”. It can wait.


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