Platinum Group Metals Signs Life of Mine Concentrate Off-take Agreement with Anglo American Platinum (WBJV Project 1)
Platinum Group Metals WBJV Project 1 Platinum Mine Signs Life of Mine Concentrate Off-take Agreement with Anglo American Platinum
April 24, 2013
(Vancouver/Johannesburg) Platinum Group Metals Ltd. (PTM-TSX; PLG-NYSE MKT) (“Platinum Group”) or the (“Company”) announces that its 74% owned operating company, Maseve Investments 11 Pty Ltd (“Maseve”), has executed a binding life of mine concentrate off-take agreement for the WBJV Project 1 Platinum Mine (“Project 1”), with Rustenburg Platinum Mines (“RPM”), a wholly owned operating subsidiary of Anglo American Platinum Limited (“Amplats”).
R. Michael Jones, P.Eng, President and CEO of Platinum Group Metals said “We are pleased to continue our long term positive relationship with Amplats, the largest producer of platinum in the world. This is an important material contract for Project 1. It is fitting that we have concluded this contract as we start our surface stockpile of Merensky ore for our mill and concentrator planned for start-up at the end of 2014.”
The Off-Take Agreement (“Agreement”) will commence on the initial delivery of concentrate from Project 1 and covers Merensky and UG-2 ores. It is planned that the concentrate will be delivered to the smelter nearby, about 40 kilometers to the southeast, in the city of Rustenburg. Maseve shall sell all of its concentrate to RPM for the life of mine and RPM shall be required to purchase and take delivery of all concentrate in accordance with the Agreement. The Agreement provides, as is customary, for a certain stipulated quality of concentrate to be maintained and for concentrate to be delivered to other locations in the case of smelter maintenance.
The Agreement follows a competitive tender process for the off-take and the exercise of a first right of refusal by RPM.
The Agreement provides for a standard discount to metal pay-ability and customary penalties for unwanted elements.
I found a post in a message board saying that 40% is the roughly the standard discount for metals concentrate. For example at today's spot price now at $1426 oz we would be getting $855 per ounce of platinum (in unsmelted concentrate). At $1600 we'd be getting $960 per ounce and at $2000 we'd be getting $1200 an ounce. IMO the stock should swing with the price of platinum more than anything else aside from what I expect to be a rise in stock price as a 'time risk' premium is slowly removed between now and 2015. So if Platinum stays at $1426 which is just coming off its lowest strong support level going back to 2011. Selling $275,000 ounces at $855, and assume costs from operating Bushveld are about $500 an ounce (I have heard between $300 and up to $700 an ounce), we would make about $96 million in gross profit in 2016 (assuming it takes a year to ramp to full capacity). If Platinum goes to $1600 we'd rake in $123 million, and at $2000 we'd make about $330 million gross profit. So a big price increase in Platinum by 2016 would be very nice for PLG's bottom line. This doesn't count anything from Waterberg. They stated they will be in the lowest quartile in the industry which puts them below $700 oz and speaking to someone I heard possibly as low as $300 (shallow strike with a highly mechanized process). Right now that future cash flow is discounted to almost nothing but I can only say that even if we were more reasonably priced we would be subject to price of platinum. With PLG at about 1.16 (without speculating on undeclared resources) you are essentially buying their Platinum at less than $25 an ounce and they will be selling it, in my worst case, at about $855 an ounce. It sounds like a very good investment to me with very good growth prospects given not only their declared resources but that most of Waterberg hasn't even been fully assessed, and I assume by 2020 or sooner they will have an operation up and running at Waterberg and the price of Platinum is more likely to rise than fall from here. I once asked why don['t they get their own smelter. There is a high startup cost and smelting is a slow process and smelting would be a substantial bottleneck timewise between mining and turning it into cash.