LONDON () -- African Platinum [AIM:APP] occupies something of a unique position in the global PGM (platinum group metal) sector, as attendees of the European Investor Metals & Mining Forum heard when the company's CEO Roy Pitchford took to the stage there yesterday.
African Platinum, often referred to as Afplats, controls the only currently known South African PGM resource of very large scale that is not in the hands of a major, in the form of its Leeuwkop project.
Leeuwkop can currently boast a total estimated resource in all categories 53 million ounces, but this figure is expected to near double shortly. Indeed, Pitchford reported that the drilling for an updated resource estimate is complete, and that the requisite calculations are well underway.
A definitive feasibility study has already been carried out on the Leeuwkop project, and the results were positive. Nearing completion now is a bankable feasibility study that will allow the financing of a mine to begin. The total capital requirement for mine construction is likely to be around ZAR2 billion, which equates to around $328 million or lb187 million at today's exchange rates.
Pitchford feels that if all goes well, the necessary financing for a mine could be in place by December of this year, with construction commencing in January of 2007 and then taking 21 months until first ore production, 36 months until first production from the mill, and 51 months until full production from the mine as a whole. This timetable cannot be considered hard and fast at this point, but is a good guide for investors on how things should go.
Afplats is still waiting for full mining rights to be granted over the Leeuwkop project. These have been a bit slow in coming thanks to the bureaucratic backlog that has arisen as a consequence of the changing regulatory regime in South Africa, but no issues other than this are thought to exist.
Full production of the mine envisaged at Leeuwkop would be at a rate of 300,000 ounces per annum, with output being roughly 59% platinum, 30% palladium, 10% rhodium and 1% gold, with nickel and copper credits to boot. Pitchford is understandably positive on contemporary PGM price trends, and does not expect any substantial switch away from platinum and into palladium that may occur to reduce the platinum price, only to curtail its growth.
Afplats has now put on ice plans to list on the AMEX, in accordance with most advice being dispensed here in London. An AMEX listing is thought to entail too great a weight of compliance expense and to offer little benefit to the company, given that interest in PGM plays amongst retail investors in the U.S. is relatively minor, and that U.S. institutions are happy to invest on London's AIM. The decision not to go forward with an AMEX listing reflects the recommendation of Afplats' new house broker, JP Morgan Cazenove.
Lately, Afplats has been the subject of much bid speculation, and this helped propel its share price markedly higher since the beginning of the year. Pitchford says that this is not the upshot of any discussions with a potential acquirer, but just the result of natural market speculation about a small company that holds a widely covetable asset.
Potential predators include Impala Platinum, which is in danger of losing some of its PGM resources in Zimbabwe to government appropriation and may thus be in need of replacement ounces elsewhere. It is also notable that Impala acquired Pitchford's previous company, Zimbabwe Platinum.
Lonmin could also be a candidate, as it has major producing operations up dip and along strike from Leeuwkop, which could allow the company to substantially and efficiently increase its resource base in one fell swoop. Xstrata too might be interested, as it has expressed a desire to enter the PGM business and an asset like Leeuwkop could be just the start it needs.
Investment Outlook
In the near term, the enlarged resource estimate for the Leeuwkop project should give Afplats' market valuation a boost. Renewed whispers of a bidder waiting in the wings could also push the shares higher, and if an offer does emerge, then investors are likely to be able to secure a gratifying premium, given the desirability of Leeuwkop in the current PGM price environment. Even if no bidder appears from the shadows, then investors in Afplats still stand to benefit considerably from good old fashioned value addition as Leeuwkop moves closer to production.
