JOHANNESBURG () -- Following last year's buyout of control of Canadian-listed AfriOre by Lonmin Platinum [LSE:LMI] for $440 million, African Platinum plc (Afplats) [AIM:APP] has accepted a buy-out offer of about $580 million from Impala Platinum [JSE:IMP], the number two PGM producer in the world - this has still to be approved by the Impala Board. This (consolidation) trend is likely to continue as the many projects under investigation prove up reserves and become take-over targets for already-producing companies with substantial cash flows.
The deal is at a premium of about 35% to the Afplats share price prior to the leakage of information last week that the companies were in talks. Impala was forced to conclude the deal after the share price soared and questions were asked by the LSE and the U.K. Takeover Panel.
The deal has provided Impala with the opportunity to add 36 million ounces of attributable platinum resources (60 million ounces of 4PGM resources - platinum, palladium, rhodium and gold) to its South African portfolio and has encouraged the company to go ahead with the construction of its third refinery in Rustenburg. Impala already has nearly 100 million platinum resource ounces in South Africa and a similar amount in Zimbabwe.
Afplats (prior to the Impala Takeover Offer)
Afplats is a minerals exploration and development company focused on the discovery and development of platinum group metals (PGMs) worldwide. Its major area of interest is South Africa's Bushveld Complex (BC), the world's largest known repository of these metals.
Afplats trades on the Alternate Investment Market (AIM) of the London Stock Exchange (LSE). For various reasons, the company decided not to list on the American Stock Exchange (AMEX) and was reviewing the benefits of a Johannesburg Securities Exchange (JSE) listing in the future at the time of the takeover offer.
Afplats, which is owned 26% by BEE Bakwena-Ba-Mogapa traditional community, has three South African subsidiary companies for which it holds exploration rights. These are the 'flagship' Leeukop project, and the adjoining Imbasa and Inkosi properties, which are owned 40% and 51%, respectively, by the BEE company Pfula Investment Holdings.
Collectively, these properties form the Greater Leeukop Area (GLA), which contains an estimated resource base of 92 million ounces of 4PGM - UG2 60 million ounces and Merensky 32 million ounces. Leeukop comprised about 53 million ounces, Inkosi 24 million ounces and Imbasa 15 million ounces.
Ruthenium, although accounting for about 10% of the mineral resource and currently priced at $800 to $850 per ounce, has not been included in the resource calculations Three adjoining extension areas, not included in the resource, are still under application and comprise 29% of a total contagious area of 12,500 hectares.
The GLA is located on the south-western limb of the BC near the town of Brits and about 100 kilometers from Pretoria and Johannesburg. It shares common boundaries with three Lonmin platinum mines, Eastern Plats, Western Plats and Karee.
Leeukop - Proposed Phase 1 Mine
The Leeukop project will be developed (the first mine) on the UG2 Reef, which is 1.4 meters wide, has higher grades (than the Merensky reef) and lends itself to a measure of mechanized mining in the shallower areas. It contains a 4PGM reserve of 6.9 million attributable ounces and a total resource of 53 million ounces.
Leeukop is expected to be in full production during 2010 at a steady rate of 250,000 to 300,000 ounces of 4PGMs per year and a mine life of 20 to 25 years. It also has a ten-year offtake agreement with Impala Refining Service (IRS) in place.
Afplats' total land holding has a strike length of 15 kilometers and current thinking is to develop three similar mines that will ultimately produce 900,000 to 1 million ounces of 4PGMs per year. If the GLA were developed as a stand-alone mine, it would be the fourth largest producer after the current three majors, Anglo Plats, Impala Plats and Lonmin Plats.
Construction of the access road to the proposed Leeukop mine site has already begun. Development cost is estimated as $320 million with peak funding as $264 million, net of production cash flows.
Mining/Geological Considerations
The UG2 and Merensky reefs both occur in the GLA and extension areas. The Merensky is relatively thin at less than one meter and low-grade at about 2.5 grams per ton (4PGM). By contrast, the UG2 grades at 4.7 grams per ton (4PGM) and averages about 1.4 meters in thickness, much of which lends itself to mechanized mining methods. A twin shaft system is planned with shafts about 100 meters apart. The ventilation shaft will be sunk to a depth of 1,270 meters and the main production shaft to 1,350 meters.
Mining (90%) will take place below the 1,000 meter level and will require refrigeration to bring the high ambient temperatures to a working temperature of about 27 degrees C. Because of the high temperature gradient within the Bushveld complex, cooling is generally required below the 1,000-meter depth.
The mining method will probably be a modified room and pillar method using high production mechanized equipment where applicable.
Note: This could all change once Impala take over the reins, although there is an agreement that Afplats will undertake the mining operation. Nevertheless, the experience and technical skills that Impala engineers would bring to the project will reduce technical risk, enhance its economic viability and enable easier access to future funding for mine development of the adjoining properties.
Share Price Information
Currently, Afplats shares are trading in the 54 to 55 pence range ($1.03 to $1.05), up from the 32 to 33 pence range ($0.61 to $0.63) prior to the Impala take-over bid. More than 12 million shares were trade during the one-day period.
Liability Statemen:. Paul White is employed by the U.S. State Department at the Consulate General in Johannesburg, South Africa. Opinions and views expressed in the above article are his alone and in no way reflect those of the United States Government or the U.S. Embassy and Consulates in South Africa.
