Published on 7th July 2008
Updated 2 hours 32 minutes ago
Vancouver-based Platinum Group Metals (PTM) and its partners in the Western Bushveld Joint Venture (WBJV), Anglo Platinum and Wesizwe Platinum, will make a final decision in October on whether to develop what would be the JV's first platinum mine.
For PTM, at least, it will be an easy decision, president Michael Jones said on Monday.
The company, which is the operator of the ingeniously-dubbed 'project 1', published what it believes are "robust" results of a bankable feasibility study, which envisages the construction of a platinum mine and concentrator to produce between 235 000 oz to 271 000 oz a year of combined platinum, palladium, rhodium and gold (4E) at a steady state, for nine years of an estimated 22-year mine life.
At current metals prices, the mine would have a margin of 76%, or $1 335/oz, Jones said on a conference call.
“In other words, the current margin on current prices is actually more than the current gold price all together," he enthused.
Using three-year trailing average metals prices, or a blended basket price of $1 177/oz, margins are estimated at 63%, or $793/oz.
However, construction cost estimates have swollen significantly from the $300-million forecast in the January 2007 prefeasibility study, with peak funding now estimated at between $486-million at current metals prices, and $507-million using the three-year trailing averages.
(Peak funding is calculated as the amount that is required to fund the project to full production, net of revenue received while still investing capital.)
Capex was nudged upwards by two main changes from the earlier plan – the company has opted for decline mining only, and has included the capacity to generate as much as 50 MW of its own power until it plugs into the Eskom grid – hopefully in January 2013.
PTM opted for declines to access the shallow orebody, rather than vertical shafts or a combination of the two, to accelerate the production ramp up and access higher-grade ore earlier.
Input cost increases, combined with higher metal prices, had led the company to look for ways to minimise capital and maximise the ramp up period, “and that really drove us to the decline design”, Jones said.
If a decision to mine is made, the project is scheduled to produce 57 068 oz 4E in 2010/11, ramping up to 271 248 oz two years later.
An offtake agreement has yet to be reached with a smelter, but Anglo Platinum has the right of first refusal.
FUNDING
PTM will now hold talks with potential funders for its portion of the construction capital and, together with its partners, has 90 days to make a decision on whether to build a mine.
The company owns 37% in the WBJV, Anglo Platinum owns 37% and Wesizwe Platinum owns 26%.
The WBJV project area is located 40 km north of Rustenburg, in South Africa, and consists of three potential projects.
For its portion of the funding for project 1, PTM is planning internally using a tentative 50:50 debt-equity ratio, but is “looking at a broader spectrum” of funding scenarios, and would also discuss the possibility of arranging wraparound financing with the other partners for the debt segment.
The company had seen a number of proposals from banks, as well as from "potential other funders", although Jones was reluctant to go into details on the “other” part.
“There are obviously a number of people that are very interested in the platinum industry, both from a metal point of view and even from a potential use point of view,” he said in response to an analyst enquiry.
“We're looking at a broader spectrum than just the traditional debt and equity markets.”
For the debt portion of its finance, the company would likely be looking to include at least a South African bank and a North American bank in the lending syndicate, as well as possibly one other institution, CFO Frank Hallam said.
The firm is also considering listing in Johannesburg or London, in addition to its TSX and Amex listings, Hallam said.
POWER PLANS
In response to South Africa's power shortage, the company has included plans to generate the 40 MW that it will require for production, initially from light fuel oil, and then switching to lower-cost heavy fuel oil in the later part of mine development.
Diesel-power generation will continue until the end of 2012, when the company expects to be able to plug into State power utility Eskom's grid.
(The first units of Eskom's much-anticipated new coal-fired power station are scheduled to come online in 2012.)
Eskom has also committed 2 MW for the construction stage.
“If that is not available, we're capitalising all generating capacity in any event so we would being some of our capacity forward a few months, its not a large impact,” Jones added.
Including power costs, operating costs will start at $633/oz during the ramp up, and decline to $425 from 2013, for an average life of mine cost of $438/oz.
Average power costs are estimated at R31,22/t, which, when compared with average total costs of R451/t over the life of mine, “is really a minor impact”, Jones argued.