Platinum Group Metals faces cash shortfall at WBJV1 project

Platinum Group Metals (TSX: PTM; NYSE-MKT: PLG) suffered a major blow late last week when Africa Wide Mineral Prospecting and Exploration announced that it would not be funding a US$21.8 million cash call for its 26% share of the WBJV1 platinum project.

Platinum Group Metals, which owns 74% of the low-cost, high-grade project in the Western Limb of the Bushveld complex, said that there had been no prior indication that Africa Wide, a subsidiary of Wesizwe Platinum, would not be funding its share of a six-month forward budget for the project.

The Vancouver-based company said it will evaluate its options and update investors accordingly, and confirmed that it holds about $90 million in cash “which is sufficient to cover the costs of any stoppage at the project.”

The news on Oct. 18 sent the shares of Platinum Group Metals down 18.60%, or 24¢, to $1.05 per share, before rebounding on Oct. 21 to $1.20 per share, a jump of 14.29%, or 15¢. The stock closed at $1.24 today, up 3.3%, or 4¢ per share.

CIBC mining analyst Leon Esterhuizen said the move by Africa Wide “has implications not only on the ownership structure of the WBJV1 asset but also on the timing and funding of the outstanding capital expenditure of about $400 million, especially given that the unsigned $260 million debt facility requires BEE participation.”

Esterhuizen outlined three potential funding scenarios. The worst case, he said, would be that all of the outstanding capital—between $376 million and $400 million—is funded with an equity raise. A second scenario might be that Platinum Group Metals funds Wesizwe’s $37 million equity portion. In his view, the best case scenario would be if Platinum Group Metals meets Wesizwe’s $21.8 million cash call obligation to “buy time while a new BEE partner and financing structure is secured.” He estimates that the potential shortfall could be covered by an additional $22 million near-term equity raise.