Mackie Research: Waterberg Impresses But Dilution Coming
Waterberg Impresses But Dilution Coming
EVENT – Strike Length Doubled
Monday, Platinum Group Metals Ltd. announced that drilling at the Company’s 49.9%-owned Waterberg Project has expanded the new discovery area of layered mineralization further to the northeast well beyond the initial 6.6 million ounce 3E (Platinum, Palladium and Gold) inferred resource estimate.
IMPACT – Waterberg Getting Bigger and Better But $$ Needed
New Holes: The latest results from Waterberg drilling include results from three holes extending the F-layer to the northern boundary of the property (See Figure 1 for detailed drill results, Figure 3 for map). Results announced on Monday include 24.00 meters grading 4.32 g/t 2E +Au within a larger intercept of 58.00 meters of 2.98 g/t 2E+Au (Hole WB027). Results also include 11.5 meters grading 7.18 g/t 2E + Au (Hole WB031) and 8.5 meters of 4.8 g/t (WB-034).
Growing Resource: The current inferred resource at Waterberg totals 6.6 million 3E ounces in two zones; the 1.8 km T-layer and 2.8 km F-layer both starting from the southern boundary of the property position. The increase in strike, improving grade thicknesses and exploration potential suggest the resource could increase to 20 million ounces over the next 12-months. Results continue to support our thesis that Waterberg is a significant new discovery with low-cost mechanized mining potential.
Revised Valuation: We have updated our model for PTM increasing our valuation for Waterberg to $200 million for PTM’s 49.9% interest. Given ongoing labour issues in South Africa, we have also factored in higher anticipated operating costs at its WBJVP1 project of 760 rand per tonne up from 650 rand per tonne previously. Completion of the $260 million debt financing for the project and an equity top-up in the $120 million range is expected before year end. At current prices, the sizeable equity issue would be highly dilutive offsetting the gains from the Waterberg. As a result, our target drops slightly to $2.30 from $2.60 per share. We continue to apply a 0.8x discount multiple to NAV for execution and jurisdictional risk.
ACTION – BUY
The results from Waterberg continue to demonstrate the significant expansion potential at PTM’s secondary project and support an increased valuation for the asset which may still prove to be conservative. Completion financing for PTM’s core project, the Western Bushveld Joint Venture P1, in the form of debt and equity is expected to close before year end and will allow PTM to finish construction and start production in 2014. It will also allow it to continue exploration on the Waterberg Discovery. Anticipated share dilution drives our target price to $2.30 from $2.60 previously but the stock remains compelling at these levels trading at 0.34x NAV and 0.43x our target. We maintain our BUY rating.
It seems like all 12 month price targets are around 2.00, already discounting any added debt and dilution. Why is there any selling pressure here at 1.00-ish. Why is the market applying a 50% discount to NAV where analysts apply generally 80%? A financing deal should be built in already like 95%. It doesn't look like insiders are selling. Is it just cheap because it still classed as a junior miner?
The analysts do seem to cite the Waterberg discovery. If you think about it, it probably has a future valus of about $5,000,000,000.00 to PLG assuming they can obtain a gross profit of $500 an ounce after costs of extraction (and I am assuming the new 2.7 km they discussed has at least 4 million ounces so this is a bit oin the conservative side). The market has added about $0.15 to PLG as a result, valuing what is known about the Waterberg discovery at about $25,000,000.00 that is a steep discount to 1/2 of one percent of its projected future value. And this assumes they value at zero what lies to the north and east of their recent exploratory drilling which they speculate may extend their Waterberg strike another 25 kilometers. Maybe the market needs a calculator?
Uncertainty is always hated by investors much better to get the Financing Completed and one point missing is the interest rates are at historical lows so PLG should take advantage and get as much funding as possible at low rates.If inflation rises in 2014 metal prices will also probably rise and with a possible supply shortage means very little that the labor cost is expected to climb in the big picture.Thanks for the news hockeyguy548 much appreciated.Dilution can always change around later if PLG buys back its shares.Come on get the financing done so we can take away the uncertainty and pps will rebound upwards.