The unsung jewel in the mining investor's crown
By JAMIE FREED - SMH | Wednesday, 17 October 2007
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It's the hot commodity of the moment. Xstrata recently entered the market, and BHP Billiton and the Chinese are looking for an entry point.
The metal is platinum, but it has yet to register on the radar screen of many Australian investors.
The lack of familiarity with the white metal is understandable, given that it has never been mined commercially in Australia.
The platinum price hit a record high of almost NZ$1800 an ounce last week, and demand is expected to be strong over the next few years.
Given that the names of locally listed companies do not roll off the tongue of the average Australian investor, let's take a look at the sector.
If you guessed jewellery was the metal's biggest use, you are probably not alone. In fact two- thirds of the world's platinum is sold to car makers for use in catalytic converters. Jewellery accounts for one-quarter of demand.
The world's platinum production – including so-called platinum group metals such as palladium and rhodium – is centred in Bushveld, South Africa, home to three-quarters of the world's output. Production is dominated by Anglo American.
The smelters and refineries are almost all controlled by Anglo Platinum, Impala Platinum and Lonmin, making it difficult for diversified majors such as BHP to enter the sector without making a sizeable acquisition and taking on the risk of operating very deep mines.
Given the region's geology, it is not surprising that many of the Australian listed platinum stocks have projects in South Africa.
Aquarius Platinum is perhaps Australia's biggest platinum success story. But it is worth noting that it took out dual listings in London and South Africa because of the lack of familiarity with its project in the local market.
Aquarius produced 530,000 ounces of platinum group metals last year. Goldman Sachs JBWere analyst Ian Preston recently noted that Aquarius was in a strong financial position, had volume growth and was unhedged.
But on the downside, Aquarius' interest in the Mimosa mine in Zimbabwe accounts for 26 per cent of his valuation and has the clearest potential for expansion. Given that the Zimbabwe Government is threatening to make all foreign miners give up 51 per cent of their interest in Zimbabwe's mines, there are quite a few uncertainties associated with the stock till the issue is settled. Mr Preston rates Aquarius as "hold".
He did not look at Zimplats, the Australian listed Zimbabwe platinum subsidiary of the South African major Impala Platinum, but it is fair to say there is a lot of uncertainty surrounding that stock too.
Zimplats appointed a local investment bank to advise it on financing options a few months back, but the situation in Zimbabwe made the exercise too difficult for now.
Returning to South Africa, the Australian listed Platinum Australia is definitely an up-and-comer on the Bushveld scene. It could receive the mining lease for its Smokey Hills project in the Bushveld any time now, after its directors spent last week in South Africa ironing out final terms with the government.
Like Aquarius, and the Xstrata takeover target Eland Platinum, Platinum Australia is one of a new breed of platinum companies.
They picked up ground that the majors were forced to give up, after the collapse of apartheid, under a new "use it or lose it" policy.
Platinum Australia completed a feasibility study on the NZ$51.5 million Smokey Hills project last year and has already ordered long- lead time items.
The company expects the mine to start producing its 100,000 ounces a year in the middle of next year. At spot prices, its capital costs would be repaid within about three months.
Platinum Australia managing director John Lewins said his company wanted to expand its resource base in the area through an acquisition or a joint-venture deal with other parties. His neighbours include Anglo Platinum and Impala, the two largest producers.
Beyond Smokey Hills, Platinum Australia is earning a 49 per cent share of the NZ$113 million Kalahari Platinum project, which is in South Africa but outside the Bushveld. The Kalplats project is undergoing a bankable feasibility study and could produce 300,000 ounces a year from an open pit.
Platinum mining has not yet occurred in Australia, but it is a distinct possibility in the future. Platinum Australia owns one of the most promising projects, the Panton find in Western Australia. Panton was uneconomic when the platinum price was lower a few years back, but could produce up to 40,000 ounces a year if the numbers now stack up.
Another Australian explorer is Niplats, which is hunting around the Kimberley in Western Australia. It owns ground with a geological intrusion that has the potential to contain platinum. It has yet to make any big strikes, but the area has the right signatures.
