trending Market Intelligence /marketintelligence/en/news-insights/trending/glQklUFNBDlEvhFnA0n1eQ2 content esgSubNav
In This List

Analysts back Platinum Group Metals' Waterberg to drive recovery from Maseve

Blog

Insight Weekly: US stock performance; banks' M&A risk; COVID-19 vaccine makers' earnings

Blog

Insight Weekly: LNG exports surge; investors unfazed by inflation; neobanks drive VC funding

Blog

Essential Metals Mining Insights November 2021

Blog

[Infographic]: 2021 World Exploration Trends


Analysts back Platinum Group Metals' Waterberg to drive recovery from Maseve

SNL Image
Platinum Group Metals' Waterberg platinum project in South Africa.
Source: Platinum Group Metals.

Analysts are positive on Platinum Group Metals Ltd.'s claim that its new flagship Waterberg platinum project in South Africa will be able to recover the value from its disastrous Maseve project.

The company is now aiming for first production from Waterberg in 2023, after having targeted US$49.6 million in funding in August to repay US$43 million in debt owed to Liberty Metals & Mining Holdings LLC related to Maseve, then finalized its definitive feasibility study in September which valued the project at US$982 million.

Maseve had been mothballed in July 2017, after having piled up debt amid continuing ramp-up issues and cost issues that led to the company restructuring the mine to slash costs. It was eventually sold to Royal Bafokeng Platinum Ltd. to help Platinum Group Metals pay off its US$100 million debt for the project.

SNL Image
Platinum Group Metals CEO
Michael Jones.
Source: Platinum Group Metals Ltd.

Platinum Group Metals co-founder and CEO Michael Jones conceded to S&P Global Market Intelligence in an email interview that the company had been "caught with the erosion of margin" during Maseve's ramp-up and debt.

However, after having stuck with its "largest, strongest asset" in Waterberg and paying off the US$100 million debt from Maseve, the company is moving forward with several of its largest shareholders who have stayed faithful, while also attracting a new one in Hosken Consolidated Investment of South Africa.

"Looking forward Waterberg is powerful enough that in the DFS estimates, it can recover all the value from our previous challenges and more," Jones said.

Waterberg is "completely different" than a conventional platinum mine, he said, as it is a "massive" deposit with 100 meter-thick stopes as opposed to the more conventional 1-meter-thick seams where any movement in reef position causes significant mining ramp-up issues.

"Small changes in reef position or attitude have no material impact on ramp up for a 40-meter panel in a 100-meter-thick stope," Jones said.

While its primary decline access rate assumptions are also more conservative than have been achieved in Platinum Group Metals' experience and other projects, Jones said the biggest point of difference is the operating margin.

Waterberg's margin is estimated to be 45%, and Jones said the project is much more able to withstand declines in prices.

"A conventional platinum mine is much more sensitive to declining prices. The lesson learned is that big and thick is best," he said.

SNL Image

Analyst attraction

Johannesburg-based Sieberana Research director Rene Hochreiter, who covers the stock, agreed about the strength of Waterberg's margin, noting it is slightly below what he calculated as the "simple averages" of producing mines at current platinum group metals prices.

UK-based Arlington Group analyst Roger Breuer, who also covers the stock, said in an email interview that the best defense against the industry's cyclical nature is to operate a mine at the lower end of the cost curve to ensure solid returns during the peaks and be financially sheltered during the down cycles.

Crucially, such assets can become strategically important cash-generating assets during these down-cycles when capital is scarce, which makes them attractive to serious long-term investors.

Jones said Platinum Group Metals' independent engineers have considerable international experience in the selected mining method, while training people from local communities in modern mechanized mining as part of the early planning will be a large part of its initial investment.

Breuer said Waterberg's ore body grade and the ability to mechanize means it "makes economic sense" at three-year trailing metal prices, and places the project firmly in the first quartile of the cost curve.

The analysts added that the 19.5 million ounces of platinum group metals reserves delineated in Waterberg's definitive feasibility study are "extraordinary," when considering Barrick Gold Corp.'s 2018 gold reserves were 62.3 million ounces.

Jones also cited the substantial involvement in the definitive feasibility study from partners including Impala Platinum Holdings Ltd., or Implats, which has significant successful mechanized mining experience in the eastern limb of South Africa's Bushveld Complex where Waterberg is, and in Zimbabwe.

Breuer called Implats' involvement in the Waterberg joint venture is "encouraging" given it has been mining PGMs in Africa for over five decades, and "understand the challenges of deep-shaft un-mechanized mining better than most."

Implats' recent plans to rationalize infrastructure at its Impala Rustenburg operations will see the number of deep shafts reduce from 11 in 2018 to seven by 2021. Impala's stated strategy is to "grow exposure to low-cost, shallow, palladium-rich mechanized assets."