MINING MARKETS & INVESTMENT NEWS – INVESTMENT COMMENTARY — Gold-weary analysts focus on Platexco

It used to be that only the powerful South African majors had any hope of holding ground in the Bushveld igneous complex of South Africa, the world’s largest repository of platinum group metals (PGMs). But the times are a-changin’ in the African nation, as evidenced by the success of Platexco’s (PTX-T) legal battle to gain control of the Winnaarshoek property from the country’s largest mining conglomerate.

Platexco’s David-versus-Goliath victory is now receiving plenty of attention from gold-weary analysts hoping to stake out the few mineral projects with genuine upside in this moribund mining market. Winnaarshoek appears to fit the bill, they say, pointing to a recent review that resulted in the first independent preliminary resource calculation for the property.

Toronto-based Micon International estimates the total resource at Winnaarshoek to be 87.4 million tonnes grading 6.8 grams per tonne 3PGM+Au in the Merensky reef and UG2 chromite layer, the two primary PGM-bearing layers of the Bushveld complex. (Reporting grades as 3PGM+Au, which refers to the cumulative content of platinum, palladium, rhodium and gold, is standard practice in South Africa).

How Platexco acquired the property is a story all its own, but suffice to say the company’s principals found legal flaws in the title of several properties held by Anglo American Platinum (Amplats).

After a lengthy and spirited legal battle, a settlement was reached in 1997 whereby Anglo awarded Platexco the rights to the Winnaarshoek property, on the eastern limb of the Bushveld, and the opportunity to bid on the Mokopane property, which is on the northern limb. To gain the full rights to the properties, Platexco must pay US$6.8 million by November of this year.

Earlier this year, Felix Freeman of Scotia Capital Markets described Platexco as a “rare opportunity in platinum development” and rated it a “speculative buy”, with a 1-year target price of $11.50. He noted that Winnaarshoek is “one of the very few properties on the Bushveld not under the control of a major producer” and, as such, would be of interest either to a senior company or one of the smaller producers seeking to expand output.

“Sale of the project is likely within 18 months,” Freeman wrote in his report, “and it is quite possible that a competitive situation will arise, boosting shareholder value. We expect an ultimate acquisition of the company at a significant premium to the current price.”

Freeman stressed that the stock should be viewed as speculative, “largely due to economic risks and the reliance of the target price on a suitable bid being made, although we believe that there is relatively little exploration risk.”

Expectation of an eventual sale also prompted analyst Gord Glenn of Griffiths McBurney Partners to make a similar recommendation, with a 1-year target price of $10. More recently, Canaccord Capital analysts Glenn Brown and Richard Gray issued a “buy” recommendation, with a target valuation of $10.25 a share.

Glenn estimates that Winnaarshoek is capable of producing 348,000 oz.

combined PGMs annually at a cash operating cost of US$238 per platinum-equivalent oz. on a toll-smelting-and-refining basis. “This is comparable to other South African operations, which currently average approximately US$268 per oz. of platinum-equivalent,” he adds.

Platexco also acquired rights to the Buffelshoek property, situated about 50 km south of Winnaarshoek, as part of the settlement with Anglo American.

Unfortunately, the PGM-bearing layer there occurs at considerable depth, unlike Winnaarshoek, where the Merensky reef outcrops on the property.

Analysts expect that Buffelshoek will not be developed “in the near future.” Platexco’s Mokopane project, a joint venture involving the local community, has not yet reached fruition. A competitor, Platreef Resources, was granted an exploration permit covering the key portions of this project, but the perceived irregularities of that transaction prompted Platexco to pursue the property through the courts. While the analysts view Mokopane as highly prospective, no value has yet been accorded to it.

Platexco has 16.7 million shares outstanding (19 million fully diluted) and is held about 28% by European institutions.

“Platexco provides investors an opportunity to participate in the upside of a platinum/palladium project at a time when the respective prices of the commodities are at a high,” Brown and Gray note in their research report.