Eastern Platinum

TORONTO(miningweekly.com) - Looking at Eastern Platinum’s share price movement in Toronto this year, investors may be forgiven for thinking the company is in someone else’s sights.

Eastplats reached a new year high on the TSX this week of C$1,69 a share.

Although it is still far from the C$4 a share levels reached just over two years ago, it has almost tripled in the past six months. The company’s share performance has also beaten the price rise of platinum, which has climbed 21% from $1 350/oz in October last year to $1 713/oz this week.

Vancouver-based Eastplats' CEO Ian Rozier declined to say whether the company has received any approaches.

He did, however, comment to Mining Weekly Online that the platinum world is a small one and “everyone talks to each other from time to time”.

“We have low-cost operations and no debt. Eastplats represents a very attractive acquisition target going forward.

“It’s highly probably people have approached us, but I can’t comment,” he said.

Of course, the theme is not a new one. Since Xstrata CEO Mick Davisfirst entered the platinum business through a joint venture with AngloPlatinum and its acquisition of Eland Platinum, there has beenperrenial speculation it would go after Eastplats.

Such a move would make sense, as Eastplats’ producing Crocodile River mine and Xstrata’s Elandsfontein mine fit together like a jigsaw puzzle.Eastplats' Spitzkop project in Mpumalanga also borders one of Xstrata’sproperties.

Now that Xstrata is generating good cash once againwith the recovery in metal prices, it may make a move on Eastplats before trying to buy out Lonmin once again.

Xstrata spokesperson Songezo Zibi declined to comment on “speculation”.

GROWING PRODUCTION

Rozieris not distracted by any potential action on the corporate front, however. He and his team are hard at work finalising capital costs andpeak funding requirements for Eastplats’ growth projects.

These include eastern limb ventures Kennedy’s Vale, Spitzkop and Mareesburg,as well as the potential for more than tripling production at the Crocodile river complex to 400 000 oz/y to 500 000 oz/y.

Said Rozier: “We’re very close to coming up with the capital requirements. We hope to have these numbers in the next few weeks.”

These projects have the potential to transform the company into a 400 000oz/y-plus producer in the next three years, from its current 130 000oz/y production. Development at Spitzkop and Kennedy’s Vale has been onhold since December 2008.

Spitzkop is the most advanced project, and the company has already ordered mills and started developing two decline shafts.

To boost production at Crocodile River beyond the 200 000-oz/y mark, Eastplats would need another concentrator.

There would be sense in going ahead with this, as the company owns a smelter at the mine, which requires refurbishment. The company has to send Crocodile River’s concentrate to Impala Platinum for toll-smelting – upto a level of 200 000 oz/y.

If the company could produce 250 000oz/y to 300 000 oz/y over and above this, it would almost exactly match its own smelter's capacity. But to get the smelter up and running would require an investment of around C$100-million.

PRICE FORECAST

Any such investment would need to be made in an environment of high metal prices, and Rozier is bullish on the platinum market.

He said the new platinum-group metals investment products introduced inthe US last year have been good for prices, but they only make up for a small percentage of the market.

The two major traditional buyers– the US and European car markets – have not yet recovered to any major degree from the economic collapse, and yet platinum prices have continued their climb. Why?

China, last year, replaced the US as the world's largest car market, having sold ten-million passenger vehicles – a 53% increase on 2008’sfigure.

And demand is still growing.

“The price of platinum has gone up and the industry still cannot react to dramatic increase in demand,” Rozier said.

Supplywill further be constrained by South Africa’s power problems, which are not going to go away anytime soon. When the power crisis struck in January 2008, the platinum price shot up to over $2 300/oz.

The country accounts for 75% of global production, so any significant supply interruptions there have a magnified impact on the price.

“When Eskom has its next problem – and it will – there is going to be a price spike while the global economy is moving into a recovery phase,” said Rozier. The only reason the platinum price dropped from its 2008 highs was because of the impending recession.

He believes if there was a supply hiccup now, prices would shoot up and stay up.

“If we have an Eskom problem coming into recovery, we could easily see platinum going over $2 000/oz and being sustained at that level.

“This time round, we’re going to see a different set of dynamics. I think we’re in a great space at the moment,” Rozier concluded.