In the media

2010

A new face among the top five global platinum miners

31 Mar 2010

Source: Mineweb

Author: Barry Sergeant

Anooraq muscles up to move into the global top five platinum miners within ten years.

Anooraq, listed in Toronto, in Johannesburg, and on AMEX, represents a relatively calm story, among South African miners, with a suddenly-surprising growth profile matched by few platinum miners, heavily concentrated in southern Africa.

Anooraq controls an eye-popping 200m+ ounces of platinum group metals (PGMs), but from a cash generating viewpoint, achieved the important milestone in 2009 of acquiring 51% of the Bokoni mine from Anglo Platinum, for CAD 120m, which looks like a song, given the quality and status of the assets purchased.

Under new management, Bokoni has been radically restructured, focusing on modernizing mining methods in and around a mine that has been in operation since 1973. So far the results indicate, not for the first time, that allowing a young group of entrepreneurial miners to unleash their talents on a great asset previously wallowing under the flanks of a big mining group can soon lead to explosive results.

Bokoni produced cash in the positive during the fourth quarter of 2009, and at the current ramp up rate, now around 80,000 tonnes a month, would be capable of producing an annualised 150,000 ounces of "4E" (platinum, palladium, rhodium and gold) a year.

The actual tonnage production for the fourth quarter of 2009 was just short of 250,000 tonnes. With relatively modest capital expenditure going forward, the profile is set to increase to 160,000tpm by 2014, producing 270,000 ounces a year, and to 375,000tpm, after a heavy further ramp scheduled to commence in 2016 and complete in 2020, producing 570,000 ounces a year. Mining is currently conducted at depths of up to 300 meters. The mining sequence for the next century eventually descends to nearly 2,000 meters below surface.

All being well, Anooraq's production would place it third in southern Africa, after the giants Anglo Platinum and Impala Platinum, and likely fourth globally after Russia's Norilsk, where PGMs are cranked out as a byproduct to nickel.

The ongoing Bokoni "turnaround" is premised on 35 years of mining above 650 meters; all being well, sufficient cash could be generated, and the balance sheet sufficiently strengthened; there is for the meantime good wads of debt that need to be paid down.

Anooraq could then look at internal project, and processing, growth. The other alternative to consider ahead of new mine development would be the building of a smelter, exclusive now to only Anglo Platinum, Impala, and Lonmin, (and also Tier II producer Northam, which is busy embarking on a big new build at Booysendal), which also rank as the only owners of refineries.

Platinum miners such as Anooraq pay fairly stiff fees for smelting and also refining, a business that remains jealously guarded by the "Big Three".

For Anooraq, the potential build up to 570,000 ounces a year by 2020 (on a 100% basis) relates to Bokoni only, and excludes potential additional production from Ga Phasha or Boikgantsho. Anooraq is revisiting its approach at Ga Phasha, and will now be looking to access the western side of Ga Phasha (the Klipfontein mineral property) from the Bokoni decline shaft infrastructure.

That, according to an Anooraq executive, "is one of the big potential advantages we saw in the Bokoni acquisition, i.e., exploiting synergies between Bokoni and Ga Phasha. Between Bokoni and Ga Phasha we now have 26km of continuous strike length over two reef horizons (Merensky and UG2), with 200m PGM resource ounces, on a 100% basis", equal to the third largest PGM inventory in southern Africa.

The size is comparable to Impala's Rustenburg lease area, and as Anooraq puts it, "positions Anooraq as one of the largest potential growth plays in the PGM space going forward."

While Anooraq's balance sheet may look at first glance like a bomb waiting to go pop, Anooraq has created a flexible and forgiving financing structure, which includes Pelawan, the black economic empowerment group, and which has the blessing and support of Anglo Platinum.

All being well, after a series of conversions and other maturities, Pelawan is on its way to being debt free, and sitting with 227m shares (51%) of Anooraq, on a fully diluted basis. Pelawan, says one Anooraq executive, "must be the only BEE mining investment company that can claim to be in such a strong financial position nine years after it entered the arena in 2001.

"Unlike many other BEE entities it has avoided being lured into debt financings which are predicated upon ever-increasing underlying stock prices and dividend flows, which invariably come unstuck when we see a commodity and/or financial market pull back as we saw from mid 2008 and in the late 1990s".

Anooraq is fully funded via access to facilities to meet all of its financial obligations at Bokoni during the high growth phase over the next three years, with capital expenditure around CAD 120m, by which time production will double, mainly through the new Brakfontein Merensky decline system. This was started in 2004 by Anglo Platinum; some ZAR 2bn in capital has been sunk to date.

Anooraq enjoys a three-year repayment "holiday" on all its facilities, while the Bokoni operations ramp up to Phase I steady state growth production of 160,000tpm (270,000 ounces a year) by 2014. Debt repayment obligations to senior lenders only commence on 1 January 2013, and to Anglo Platinum on 1 July 2015, with a final debt repayment date on all facilities at 1 July 2018.