‘King Rat’ ready to deal in Africa

Perth, Australia — One of the darlings of the international platinum market, Aquarius Platinum (AQP-A, AQP-L), has the corporate and technical skills to generate new projects in southern Africa, either with hopeful developers or with the entrenched three South African majors, says its CEO.

Stuart Murray, speaking at the recent Africa DownUnder Conference in Perth, also acknowledged potential difficulties for the company.

While Aquarius, preparing to list on the Johannesburg Stock Exchange, is now ranked as the world’s fourth largest platinum producer with aspirations of achieving annual platinum group metals (PGM) production of 700,000 oz. within 18 months, Murray acknowledged that South Africa’s big three — Anglo Platinum (ANP-L), Impala Platinum (IPLA-L) and Lonmin (LMI-L) — dominate the scene and run the region’s four big smelters.

Murray said the rest of the operators in southern Africa were “rats and mice,” while he saw Aquarius as “King Rat.”

In this role, he saw Aquarius not only expanding through its existing properties on South Africa’s Bushveld and its equal joint venture at Mimosa on Zimbabwe’s Great Dyke with Implats, but also through consolidations and brokering deals.

The wave of new London AIM board, Australian Stock Exchange and North American-listed companies wanting to develop PGM properties in southern Africa will have challenges, especially accessing available smelter capacity. The cost of building new smelters could render new projects uneconomic, and the big three are reluctant to deal with juniors. Moreover, the big three’s smelters are already operating at near capacity, and the Platreef deposits on the Bushveld — on which many aspirants are pinning their hopes — are low-grade concentrates unlikely to interest the established companies.

While Anglo Platinum’s big Potgietersrust open pit on the Platreef was the big money spinner in African PGM production, Murray considered the opportunity for others to ride on the company’s coat tails wasted. Observers at the conference said one company that was promoting its Platreef opportunities about three years ago, the PGM division of Robert Friedland’s Ivanhoe Capital, is quieter these days.

Murray said successful business models take in global listings for access to capital for development, have several projects for production and geological diversity, and have a lean corporate structure and a credible Black Empowerment (BEE) transaction. While the conference heard of snags with South Africa’s BEE system, Murray said Aquarius’ deal with Savannah Resources had been positive and will prove a valuable alliance. Savannah and its associates acquired a 29.5% stake in Aquarius’ South African operating entity for 860 million rand (US$134 million).

As of June 30, the company had a cash balance of US$75.3 million, a net after-tax profit and minorities of US$20.9 million, and interest-bearing debt was reduced from US$16 million to US$78 million. All planned expansions in the near future should be fully funded with no recourse to finance, Murray said.

The Kroondal mine on the Bushveld’s Western Limb is the company’s flagship, and a deal with Anglo Platinum should see this operation’s life extended to at least 2017-18.

Production for 2005 at Kroondal is projected to step up to about 270,000 oz. of PGMs (lifting to 505,000 oz. in 2006). Marikana (which provided headaches during its formative years) should continue to contribute about 130,000 oz. PGMs, while Mimosa (which has the best group operating cash costs) should give equity output of about 60,000 oz. Coming on-stream is Everest on the Bushveld’s eastern limb which, with Kroondal’s expansion, will provide a big lift in production — a projected 225,000 oz. PGMs per year, of which 135,000 oz. will be platinum.

New cash flow will also come from the chrome tailings retreatment project, with a purpose-built plant at Kroondal to treat chromite tailings from the mine and neighbouring chromite projects. The plant, 50% owned by Aquarius, is expected to produce a total of 20,000 oz. PGMs this year.

Murray, a veteran observer of the PGM metal markets, did not see any great joy in palladium prices which, at conference time, were hovering around US$186 per oz. compared with platinum’s US$917 per oz., and the rarer rhodium’s US$2,310 per oz.

Asked what he saw ahead for the aspiring PGM producers in Canada and the United States, Murray said that unless they could make their operations work on nickel content with palladium as a byproduct in the near term, they won’t get off the ground.

Murray said palladium-rich PGM deposits in North America, Australia and Scandinavia have stalled because of low palladium prices and a poor short-term prognosis for the precious metal.

He said Gold Fields (GOF-L, GFI-N) Arctic Platinum project, now in mothballs, really should be dubbed Arctic Palladium.