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Aquarius Platinum shows mettle

While capital issues for platinum names may be premature, given metal and stock price levels, this is one outfit that always catches the imagination.

Author: Barry Sergeant
Posted: Thursday , 26 Mar 2009

JOHANNESBURG -

Aquarius Platinum has announced its intention to issue 46.33m shares to raise around $183m, followed, if successful, by a convertible bond to raise between R500 and 650m, and, if successful, in turn, Aquarius will implement its takeover plans for acquiring Ridge Mining. Aquarius has indicated one of its shares for every 2.75 Ridge shares, valuing Ridge at $102m, against its current market value of $86m.

While listed platinum stocks have attracted positive investment inflows, in line with the global resources sectors generally, over the past month or so, the platinum group metal (PGM) sector continues to trail leaders such as gold and copper. Over the past two months or so, gold stocks, supported by the world's best-performing commodity, relatively speaking, have been fairly prolific in raising fresh capital, mainly by way of rights issues.

There have also been a number of raisings from companies in the silver, uranium and copper spaces, but few indeed in the platinum space. Platmin, which will be in production later this year, sold shares to entities controlled by Brian Gilbertson's Pallinghurst in December 2008, and again two months later, but these were essentially legacy deals. The Platmin stock price currently sits 89% off its highs, strongly indicating that capital issues by platinum stocks would not yet be swallowed up by investors. Aquarius has been quick to point out that its proposed equity raising, excluding the proposed convertibles, is equal to only 14% of existing issued shares.

Aquarius has come under increasing pressure from necessary debt refinancing, the (now) temporary closure of its Everest mine in South Africa due to dubious ground conditions, the continued disintegration of Zimbabwe where Aquarius also mines, and uncertainty over the mine life remaining at its Marikana operation.

In January Aquarius gave a chill warning over the extent to which its profits had transformed into losses during the second half of 2008. In its latest announcements, Aquarius reports significant production increases at both its Marikana and Kroondal divisions. There is good news also for the Everest division, which closed on 8 December 2008, owing to instability as a result of subsidence occurring over an upper area of the mine.

Aquarius management now believes that the subsidence event does not jeopardise the sustainability of the Everest mine on a long-term basis and that technically acceptable alternatives exist to re-open the mine. The capital expenditure associated with the potential restart of the Everest mine is currently estimated to be R200 to 250m, to be funded, by part of the proposed raisings, if successful.

There is one particular bank exposure, arising from Aquarius buying out Impala Platinum's 20% interest in Aquarius Platinum South Africa AQPSA for $790m in April 2008. That was partly financed through a bridge loan facility from Rand Merchant Bank, and is due on 30 June 2009. On 25 March 2009 the facility had an outstanding balance of some R1.6bn, and sits as a prime target for elimination should the Aquarius fund raisings work out. Likewise, bridge funds of R150m would be directed from Aquarius to Ridge Mining, currently moving from platinum developer to producer.

Ridge recently announced that the unwinding of platinum, palladium and rhodium hedges owned by its 50% Blue Ridge subsidiary realised surpluses of R541m (about $54m). Blue Ridge is currently ramping up production, anticipated this year at 75,000 PGM (platinum, palladium, rhodium and gold) ounces-in-concentrate, of which 50% is attributable to Ridge, and building up to 150,000 ounces-in-concentrate, half attributable to Ridge, in 2011. The projected life-of-mine is 18 years.

According to recent news from Ridge, "the delay in commissioning the concentrator plant at the Blue Ridge Mine as previously reported has given rise to a requirement for further working capital. This situation has been compounded by the project lenders withholding drawdown of the remaining facilities until Ridge and its partner, Imbani Platinum, contribute additional funding".

Given that the Ridge hedge book "contained considerable locked-up value", in light of the severe contraction in PGM prices, Ridge had for some months sought a value release. The hedges were taken out at literally the top of the PGM cycle; dollar prices have since halved, and more. Now that the hedged metals have been repurchased, Blue Ridge Platinum aims to repay most of the so-called senior facility (including interest) of R487m ($49m), with so-called mezzanine debt of R137m ($13.7m) (including interest) remaining in place.

But additional funding of up to R400m ($40m) for working capital was indicated, "until the project reaches steady state and generates positive cashflow". This is planned to be met, the announcement continues, "by a combination of debt and equity from the project partners". Blue Ridge Platinum is in advanced discussions with its bankers regarding new facilities "and will make a further announcement once these have been concluded".

Ridge also owns a potential 62% of the Sheba's Ridge project, where the PGM resource is around 22m ounces. The deposit also holds significant resources of both nickel and copper. Sheba's Ridge, which could cost about $1bn to build, could produce about 350,000 ounces a year of PGMs in concentrate, plus 23,000 tons of nickel and 11,000 tons of copper.