The initial objective of this Australian company, dual-listed on AIM, was to establish the country’s first platinum group metals (PGM) mine. Although it found, and still holds, Australia’s largest and highest grade PGM deposit, this is in a remote location and was uneconomic at metal prices prevailing in 2003-04 when the feasibility study was undertaken.
Undaunted by this setback, the company re-focussed its efforts on South Africa which has the majority of the world’s PGM reserves and is by far the largest producer.
Whilst most of the mid-cap companies exploring and developing PGM projects in South Africa set out to find or acquire ounces of metal in the ground in quantities to match those of the well-established producers like AngloPlats and Impala, with less attention to the cost of mining such ounces, Platinum Australia set out to find cheap ounces that can be mined profitably at much lower PGM prices than those of today. This meant finding shallow deposits amenable to low cost open pit mining as against the ever-deeper underground reefs sought by its peer group and mined by the major producers, several of whose mines are barely profitable at current PGM prices. And the company has succeeded.
Earlier this month, PLAA made the all-important transition from explorer/developer into PGM producer when it started commissioning the Smokey Hills project, the company’s first, and the world’s newest, PGM mine. This will produce around 95,000oz/y when it reaches full production next year, generating a cash margin of around US$350/oz at current metal prices. PLA has a 69.75% interest in Smokey Hills but is entitled to 85% of the 7-year project’s cashflow.
A development decision on the company’s much larger Kalahari Platinum (Kalplats) project, also in South Africa, is due early next year. The 49% owned project is expected to produce 250,000-300,000oz/y of PGMs from a series of open pits for at least 10 years, and this could be followed by a similar-sized underground mine that would more than double total project life.
In each case, PLAA itself will not produce PGMs. Instead, it has chosen to take the less capital intensive option of producing a concentrate (an intermediate product) that it will sell on to a major South African group for smelting and refining into finished metal.
The company’s philosophy has certainly paid off as PLA starts production as a low-cost, long-life producer at a time when many other producers are struggling with the current platinum price of around US$1,000/oz. Whilst this is over 60% below the peak reached earlier this year, Platinum Australia could prove to be profitable at this price level.