Eastern Platinum

May 18, 2010

Eastern Platinum Expects To Announce Plans For New Mines By The End Of The Month

By Charles Wyatt

According to the British refiner Johnson Matthey platinum and palladium prices could rise by anything from 20 to 30 per cent in the next six months, as stronger demand from the auto industry kicks in. Catalytic converters are the key to demand, and Johnson Matthey went as far as to specify prices in its recent annual report. It expects the price of platinum to rise to US$2,000 per ounce compared with the present US$1,680.00, and it is even more optimistic about palladium, which it reckons will rise from US$522 to US$700 per ounce. This will be good news for Ian Rozier of Eastern Platinum, a company that’s just announced some rather disappointing results for the March quarter. To be fair it was a fallback in production at the company’s Crocodile River mine rather than low prices for platinum and palladium that hit profits, but he will be encouraged by Johnson Matthey’s forecasts, given ahead of Platinum Week which is now taking place in London.

The refiner went on to say that’s its bullish stance is based on better industrial fundamentals, as well as on strong investment demand. The latter has been bolstered by the launch of new exchange traded funds backed by physical metals. Last year the new ETFs caused physical investment consumption for platinum to rise by 18.9 per cent and for palladium by no less than 48.8 per cent. These metals, however, are priced in US dollars, whereas Eastern Platinum’s costs are in South African Rands. Towards the end of last week the Rand weakened slightly, as worries surfaced about Europe as well as the downward trend in interest rates set by South Africa’s Central Bank. Even so, the Rand is still pretty strong on a historic basis.

As to Eastern Platinum’s own operations, Ian Rozier explains that it was “a very slow start back into production after the Christmas break which caused the trouble, as it affected all aspects of our operations including run-of mine tonnage processed and underground development“. Mining rates were back to normal by February, but the damage was done. On the plus side, head grade was very consistent at 4.1 grammes per tonne, and recoveries remained consistent, so there should be a marked improvement in production in the current quarter. Actual production was 30,531 ounces of platinum group metals (PGMs), as against 34,000 ounces in the December quarter and 32,969 in the same quarter of 2009. Chrome produced was also down at 103,852 tonnes, as against 109,388 tonnes in the previous quarter, but this is still a lot better than the 77,554 produced in the first quarter of 2009. It should also be noted that by the end of the quarter a surface stockpile of 12,236 tonnes of ore had been accumulated, and this is said to represent 1,247 recoverable PGM ounces.

The outcome financially was a net profit of US$824,000, against US$3.16 million in the first quarter of 2009. This drop came in spite of an average delivered PGM basket price of US$959 per ounce, 63 per cent better than in the comparable quarter of 2009. However, the strength of the Rand reduced the net effect of that increase to only 23 per cent. At the same time Rand operating cash costs net of by-product credits amounted to R5,336 per ounce, which was an increase of 23 per cent. This translates into costs of US$711 per ounce, so it is easy to see where the squeeze on profitability came from. And as background, run-of mine ore processed fell by nine per cent, while average concentrator recovery slipped from 80 per cent to 78 per cent.

That is all the bad news out of the way. The good news is that the company still had US$17.3 million in the kitty at the end of March and that development work started on the new Crocette section at Crocodile River on 4th April. The mining rights were awarded back in April 2008, but in view of the worsening conditions in financial markets and weakening metal prices, the project was put on hold and not restarted until January of this year. The concentrator at Crocodile River can handle all production from Crocette and once it has ramped up Eastern Platinum’s total production should increase from the current level of 130,000 ounces of PGMs to 200,000 ounces. There is therefore significant growth potential for production beyond 2012, when Crocette starts to contribute.

Mareesburg may be the next in line for production, not far behind Crocette. A mining permit application has been submitted for an operation running at a rate of 80,000 tonnes per month with an average grade of 4.9 grammes per tonne platinum, palladium, and gold. Then there is Spitzkop-Kennedy’s Vale, which comprises two separate projects which will be mined as one, as they are continguous. These were also put on hold in October 2008, at which time a decline was being developed at Spitzkop. Back then the engineering work had been nearing completion, but the project is now being re-visited. In fact Ian Rozier was in a long board meeting in South Africa yesterday, so this may well have been one of the main subjects on the agenda.

The production profile looking forward then changes quite dramatically. We already know that Crocette will take production up to at least 200,000 ounces, and here we have Mareesburg which could chip in another 100,000 ounces, so a target of 300,000 ounces by 2014 comes into view. The cash flow from this level of production should enable Spitzkop-Kennedy’s Vale to be developed, as it is already in an advanced state with a decline underway at Spitzkop and two 1,000 metre shafts already in existence providing access to Kennedy’s Vale. Mills are in place and other equipment reserved, and the plan would be to mine both the Merensky and the UG2 Reefs, building up to 180,000 tonnes per month. Ian Rozier expects to clarify the situation by the end of the month and his statement should mean that disappointment over the poor production in the March quarter is soon forgotten.