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Platinum jigsaw
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11th March 2005
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True to its name, which in Tswana (one of South Africa’s 11 official languages) means leopard, Australian-listed platinum hopeful Nkwe Platinum is displaying all the character- istics of that big-five predator, setting its sights firmly on becoming one of the country’s top-tier platinum producers.

The company is deliberately pursuing a jigsaw-like strategy, involving resources growth through exploration success and contiguous acquisitions, which has allowed it to triple its resource ounces over the last year.

It is also working to put behind it the disappointment of the surprise September termination, by Anglo Platinum, of negotiations in respect of the investment by NNZ Consortium into Elandsfontein and Rooderand. Nkwe Platinum led the consortium, which involved Tiego Moseneke, chairperson of New Platinum Corporation, and Mazwi Yako, chairperson of Zondwa Resources, and which was awarded a three-month period of exclusivity by Anglo Platinum to negotiate the detailed terms for the development of Elandsfontein and Rooderand.

Speaking at a recent media visit to one of the company’s project areas in the Bushveld Complex, Nkwe MD Craig Oliver said the reason why the Australian company is so interested in South Africa is the fact that the country boasts world-class platinum orebodies sitting next to world-class infrastructure.

Indeed, the Bushveld Complex, which has a platinum outcrop of some 250 km, boasts 80% of the world’s platinum resources and accounts for about 70% of the world’s total platinum production.

Oliver said that, while some of the best blocks historically have been locked up by private-ownership structures, there are now two keys unlocking access to these orebodies – one is world-class legis-lation in the form of 2004’s Mineral and Petroleum Resources Development Act (MPRDA), which effectively moves mineral ownership from private hands to the State, and the other is black economic empowerment (BEE).

“Through putting emphasis on the ‘use it or lose it’ concept, the MPRDA is very consistent with most Western minerals legislation, while BEE unlocks opportunities for companies that have structured themselves in such a manner as to deal with the unique empowerment requirements in South Africa,” he noted.

The latter is exactly what Nkwe has done.

A group of black investors, led by Moseneke, has acquired a 28% share in Nkwe, making the com-pany fully-compliant with the BEE ownership requirements of the South African Mining Charter, which prescribes that 15% of a mining project must be in black hands within five years and 26% within ten years.

Oliver says Nkwe’s strategy is to add substantial value to shareholders through the acquisition, exploration and development of platinum and associated metal projects in South Africa.

Having listed on the Australian Stock Exchange in September 2003, the company has quickly established a ‘can-do’ reputation.

Starting off with six Bushveld Complex prospects measuring over 8 000 ha and a million platinum-group metal (PGM) ounces, Nkwe now has five project areas over 25 000 ha and a 20-km outcrop, with three projects totalling, between them, a resource base of more than 15-million PGM ounces.

Oliver says that the company’s five project areas are all in a prime location and have sufficient size and scale to become producing platinum-mines within the next five years.

The main objective now is to bring the company’s most advanced project – the De Wildt project – into commercialisation by 2006. The De Wildt project has an existing 7,2-million-ounce resource base.

Having already developed the property from a thousand hectares to close to 4 500 ha, Oliver says the company continues to build and consolidate its properties in this specific project area.

The properties that make up the De Wildt prospect are located ten kilometres east of Brits and the Crocodile River platinum-mine.

Infill drilling has already started and the appointment of consultants is currently under way.

Oliver reveals that, following the granting of new-order rights for the project under the MPRDA, coupled with an expected increase in the resource to more than 10-million ounces, a R15-million bankable feasibility study on De Wildt will start this month.

“We are aiming to complete the bankable feasibility study during the second half of this year, after which we will move towards the project-finan-cing stage to be able to start construction of the mine in 2006,” Oliver notes.

The mine is expected to cost between R450-million and R500-million to construct.

Capital raising is expected to take place next year, not only to fund the development of the De Wildt mine, but also to finance feasibility studies on some of the company’s other projects, as well as further exploration work.

It is anticipated that, once completed, the plant at the De Wildt platinum-mine will process 100 000 t/m.

At this stage, it is envisaged that the company will employ contract miners to operate the mine, much as has been done by another Australian platinum company, Aquarius Platinum.

“The outsourcing model will be ideal for our oper-ations, as it will allow us to bring in specialist contractors to run the mines, allowing us to concentrate on our core competences,” Oliver notes.

As far as Nkwe’s other four projects are concerned, the Rooderand project is the next project scheduled for feasibility stage in 2006.

During the July quarter, the company increased and upgraded Rooderand’s resource classification to 3,3-million ounces along a 2-km strike.

An initial drilling programme has already been completed and an independent detailed geological model has been prepared to form the basis for future exploration.

Soil sampling and trenching of the outcrop is expected to start soon to further test the geological model, cover and sections, and also to confirm the final locations of oreblocks for openpit modelling.

At Ruighoek, which forms part of the Rooderand project area, the company has secured consent to prospect on the property from the private holders of undivided shares of mineral rights.

An application for a prospecting permit is currently being processed by the Department of Minerals and Energy and, as a result, no exploration activities have been undertaken on this property as yet.

Situated immediately north and east of the Two Rivers platinum project, on the farm Dwarsrivier, and south of the Kennedy’s Vale platinum project, Nkwe’s Ghost Mountain project, which consists of four adjoining farms – Tweefontein, Frischgewaagd, Zwakwater and Rietfontein – covering some 7 500 ha, is still in an early grassroots phase.

However, some initial soil sampling has been done.

Of real interest here has been the discovery of quite a significant platreef structure that is more than a kilometre long and more than 35 m wide.

Nkwe’s joint-venture partner, Placer Dome, meanwhile, has started drilling at the company’s Tinderbox project.

The drilling campaign follows more than six months of surface mapping and sampling programmes by Placer Dome.

In March last year, Placer Dome and Nkwe entered into an option agreement, whereby Placer Dome Exploration can earn 51% of the Tinderbox joint venture over the next four years for $5-million.

If Placer earns its interest in the joint venture, Nkwe’s interest in the Tinderbox project will reduce to 49%.

To date, no exploration has been undertaken at Nkwe’s fifth project area, as the company is still awaiting ministerial consent to prospect the Northam, Eastern Bushveld and Amandelbult prospects, where the mineral rights are held by the State.

An analysis of Nkwe’s five project areas reflects the company’s focus on surface and near-surface deposits.

Oliver says there are many in the platinum business who are focusing on much deeper deposits – down to more than a kilometre.

“Our aim, however, is to bring all our projects into production within the next five years, thus the focus on shallower projects,” he stresses.

Oliver believes that the company has the personnel to achieve this mammoth task.

He has surrounded himself with high-level advisers who all boast significant experience in the platinum industry.

Oliver himself, who is a chartered accountant by profession, has been directly involved in the mining industry for 12 years.

His experience in the Western Australia mining environment, where mining forms an important part of the economy, is assisting him to build a platinum company here in South Africa.

Oliver spent time on various gold-, coal-, iron-ore- and industrial-mineral-mines in Australia as a commercial superintendent, where he had the responsibility of conducting exploration programmes and optimisation studies, getting approvals to develop mines and bringing mines into production.

He has also been involved at a business-development level in examining mines and projects all over the world.

“For the last 12 years, I have been involved in equity raising, debt raising, structuring transactions as well as buying and selling projects,” Oliver reveals.

All the mining companies that Oliver has worked for have had market capitalisations between R150-million and R1,2-billion, putting them in the same size- and scale-frame as Nkwe.

Oliver sees himself as being very value-focused, something which, he says, enables him to structure Nkwe’s business appropriately to take advantage of any opportunities as they might arise.

Apart from Oliver as MD, Nkwe’s board includes chairperson Jack Griffen, deputy chairperson Moseneke and three nonexecutive directors – Jeff Mews, Bill Crossley and Gopolang Makokwe.

Moseneke and Makokwe, both of whom have extensive experience in the mining field and thus bring a lot of expertise to Nkwe, joined the board following the company’s BEE transaction late last year.

Moseneke is executive chairperson and cofounder of New Platinum Corporation (NPC) and New Diamond Corporation (NDC), with the latter boasting four substantial diamond projects, including the producing Schmidtsdrift diamond-mine, in Kimberley.

He was also formerly the principal director of Moseneke & Partners, a legal and corporate advisory firm that specialised in mergers, acquisitions, government policy and legislative advice.

He also served as director and member respectively of the council of the Institute of Medical Research and the council of the University of the Witwatersrand.

In addition, Moseneke is a director of the Diamond Trading Company, a De Beers subsidiary, and Siemens.

Makokwe, meanwhile, acts as a director of NPC and an executive director of NDC.

At NDC, he has been responsible for diamond sales, business development and managing oper-ations at Schmidtsdrift.

Makokwe began his mining career at AngloGold’s Vaal River operations, where he qualified for his mine overseer’s and mine manager’s certificates, while holding various line-management positions.

He completed his mining engineering degree at the University of the Witwatersrand and later moved to AngloGold’s mining economics unit, where he was involved in evaluating group operating mines, nongroup mines and potential acquisitions.

In 1998, Makokwe left AngloGold to become MD of Makokwe Mining Contractor, a joint-venture company with Grinaker Construction.

Nkwe’s empowerment focus does not, however, stop with Makokwe and Moseneke as 28% equity partners.

The company also has a strategy to have at least 10% of all its projects owned by broad-based empowerment groups with strong community involvement.

However, Oliver says that the reality is that the company is currently developing explor-ation projects.

He firmly believes that, at this stage, BEE rands should not be spent on high-risk exploration projects.

“We have given our commitment to achieve broad-based empowerment at project level and will honour those commitments once we have completed our exploration studies and have moved forward towards the financing of our projects,” he promises.

Nkwe has already met its targets from an employment-equity point of view, though.

In fact, 6 out of 11 of its employees in South Africa are from a historically-disadvantaged background.

Of these, three are women.

All six historically-disadvantaged employees are honours and masters graduates in geology and have had experience at other mining companies, such as Anglo Platinum and Gold Fields.

Overall, Nkwe is quite bullish about future platinum demand and the company’s continued existence and prosperity.

While some 40% of platinum goes into jewellery, Oliver sees platinum more as an industrial-metal business, as opposed to a precious-metal business.

He believes that the platinum industry shares many similarities with the iron-ore sector, in particular.

In both cases, Oliver says, there are three com-panies that control their respective industries.

“BHP Billiton, Rio Tinto and CVRD control the iron-ore industry, while Anglo Platinum, Impala Platinum and Lonmin control the platinum industry.” Both industries face certain barriers to entry – for iron-ore, the barriers are related to rail and port constraints, while, for platinum, they are related to base-metal and precious-metal refineries constraints.

Both industries, Oliver states, have also experienced some degree of junior-company success.

The outcropping of both commodities has been identified and both commodities offer high internal rates of return for shareholders.

However, the most revealing similarity between the two metals is their industrial application.

“Both commodities’ prices have largely been driven by demand from China and, for platinum, as is the case with iron-ore, the main applications can be found in the industrial field.” Platinum is already widely used in catalytic converters for petrol- and diesel-driven vehicles.

Oliver is particularly excited about the potential for platinum in fuel-cell technology.

“As hydrogen fuel-cells commercialise and become more readily available, demand for platinum will continue to increase,” he concludes.
Edited by: Zonika Botha


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Platinum Jigsaw

Platinum Jigsaw