JOHANNESBURG (Business Day) -- Developing platinum miner Platmin [TSX:PPN; AIM:PPN] will decide late next year whether to proceed with building its own 20MW furnace for R250-R300 million (C$36.5-C$43.8 million) to process ore from its three planned mines on the Bushveld complex.
Several junior mining companies, accelerating the building of platinum mines to take advantage of high prices, have considered building their own smelters, individually or in co-operation with other juniors to share costs.
Without their own refining facilities, junior platinum producers have to enter offtake agreements with one of the four big platinum producers - Anglo Platinum [JSE:AMS], Impala Platinum [JSE:IMP], Lonmin [LSE:LMI] or Northam Platinum [JSE:NHM] - to refine their concentrate for a fee.
Platmin is raising C$92.9 million through a share issue to advance construction of its R1.6 billion (C$232.6 million) Pilanesburg platinum mine. It has also appointed Standard Bank to raise C$200 million in project finance.
Asked if Platmin would take a secondary listing on the JSE as other offshore-listed South African platinum operators have, CEO Ian Watson said it would create tax problems for the original Canadian investors. While not ruling it out, he said there were no definite plans to do so.
The company was negotiating a short-term offtake deal for its targeted production of 250,000 ounces of platinum group metals a year from Pilanesburg.
By the time the bankable feasibility study on its second project (the 250,000 ounce-a-year M'Phatlele mine in Limpopo) was completed late next year, a decision would be made on whether to build a furnace.
The third project, Grootboom, was expected to produce about 86,000 ounces of platinum group metals a year.
By 2012, Platmin's annual production would be about 586,000 ounces. Chief operating officer Terry Holohan said output of at least 500,000 ounces of platinum group metals a year was needed to justify a smelter.
Platmin's advantage over other platinum producers was that its chrome content from all three projects would average only about 1%, he said. High proportions of chrome in the blend of platinum group metals in a furnace raises the temperature, and can cause costly breakdowns.
Holohan said Platmin was in talks with a big producer about the possibility of building its smelter on an existing smelter site, which would cut capital costs by a third. This arrangement would help to provide flexibility and reduce the overall chrome content in its mix.
Platmin, who has four projects in South Africa, was not positioning itself to be taken over by a major producer, CEO Ian Watson said yesterday. Management's aim is to develop the company's mining properties.
Two years ago, before it went public, Platmin rejected a takeover offer from Lonmin. Lonmin, which now owns 22% of Platmin, also initiated legal action last year to buy another million Platmin shares from the Commonwealth Development Corporation (CDC)/Actis Group.
It didn't get those shares and, oddly, as CDC has sold down its holding to about 7.5% from 32%, those shares were not taken up by Lonmin but by other investors, including Mineral Securities.
The most likely reason for Lonmin losing its appetite for Platmin was its $429 million takeover of AfriOre last year, combined with the furnace problems that cut its production below forecast last year.
Commentary by The Bottom Line, Business Day.