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Moneyweb special report podcast: Tom Dale, CEO of Platmin Limited

Barry Sergeant speaks to Tom Dale, CEO of Platmin Limited

BARRY SERGEANT:  We are talking to Tom Dale, chief executive of Platmin, which is listed in Toronto and Johannesburg – a developing platinum producer that in about a year’s time would have been fully commissioned.  Tom you’ve only been there for a couple of months at the most, but you very quicklygot a handle on things, and you’ve moved to site – not too far away from the Sun City complex in the Pilanesberg and of course your mine is a Pilanesberg mine.  Do you want to take us through how the mine is roughly a year behind commissioning and how you’re going to match the expectations of the market in getting it there.

TOM DALE:  One of the key issues is that we suffered during August from a month-long strike, and leading up to that before August, there was industrial unrest, which is a problem of a similar magnitude.  So we’ve had a volume issue related to industrial unrest, and in addition to that, the western corridor of the pit area where we’ve mined to date, has proved problematical from the point of view of the chemistry of the oxidised ore and the structure of the geology of the deposit there – in combination those factors have set the build up back.  But having said that, if you look at the quarter-on-quarter results, there were some very useful improvements.  The metal produced from a small base went up 60% quarter-on-quarter, and the ore delivered to the ROM (run of mine) pad was up to 24% on the previous quarter.  So we are making – there’s no doubt about the fact that we are about a year behind the original planning, but we are making substantial progress towards the targets.

BARRY SERGEANT:  OK, now your reference is to PGMs, which is platinum, palladium, rhodium and gold, and in the 10 months or so to December 2009 you produced about 28,000 ounces in concentrate.  You’re aiming in about a year’s time from now, to be producing an annualised rate of about 250,000 ounces of PGMs in concentrate.

TOM DALE:  That’s correct.

BARRY SERGEANT:  That puts you – just to give some sort of scope there – the major platinum producers, of course the tier one companies – Anglo Platinum, Impala Platinum and Lonmin and what might be called tier two – Aquarius, Northam and East Plats with the odd man out, Norilsk which produces substantial PGMs as a by-product.  Platinum would be coming in – Aquarius is about 500,000 ounces a year – Northam is close to 200,000 but could build up a lot more if it goes ahead with the Booysendal project – you’re therefore looking at being a substantial tier two company…

TOM DALE:  We’ve got to get our operation sorted out and we’ve got to achieve our 250,000 ounces.  After that – what that does for us – we’ve got a world-class platinum concentrator that has been designed for expansion, which is sitting in the middle of the Pilanesberg.  The closest concentrator to us is approximately 50km away – we’re in the middle of some platinum deposits.  We have designed this plant for expansion and provided we are successful in this initial operation to get to 250,000 ounces a year, we will generate cash which will enable us to cost effectively expand capacity and then we’re in a position to move forward.

BARRY SERGEANT:  Now looking at some of the financing – over the past few years or so Platmin has placed equity and raised, according to published numbers, round about US$324 million.  Capital expenditure over that period has been in the order of US$345 million or so – latest financials to 30 November 2009 – sitting with cash of about US$42 million and a little bit of debt but nothing to speak about, with net cash of about US$38 million.  You have referred, and this is quite an important factor to the fact that you’re looking to raising some additional short term and possibly longer term funding which is understandable given that we’re about a year from running at full production.  But probably most interestingly you refer to the fact that the international capital markets might be perceptive to an equity raising.  Just before going on to that, what is the structure of your shareholding at the moment – your two biggest shareholders in Platmin are Pallinghurst and the Bakgatla tribe – what are the numbers looking like – percentage wise?

TOM DALE:  The entity is called the Pallinghurst Investor Consortium and as far as I’m concerned, they’ve got well over 50% of the equity in this company – well over 50%.

BARRY SERGEANT:  If you go to the international capital markets to raise additional funding, what sort of number might you be looking at, bearing in mind that Platmin’s current market capitalisation of value is a very impressive US$688 million.  The Toronto stock price over the past 12 months is up by 340% so that is indicating that the market is looking very favourably at the stock…

TOM DALE:  To quantify this at the moment is difficult because the key element of the short-term funding, working capital requirement is dependent upon the rate at which we are successful in improving our output, but there are two legs to the funding requirement.  As you say, one is the short-term leg of it.  The other one is the funding required to cope with the consolidation of the region.  We believe that the capital markets are in good shape to access and that our company is debt free, is unhedged and during its development phase, has maintained a conservative funding structure – so we’re looking a the moment at several alternatives for short-term and medium-term funding, related to working capital requirements and the initiation of consolidation in the region.  But the quantum of that is just not available at the moment.

BARRY SERGEANT:  Alright – looking at the broader picture – the platinum price at the moment is about $1,567 an ounce that about 75% up on the low over the past 12 months which is just over $900.  Palladium is up 137% to $417 an ounce.  And of course, gold is – we all know what gold has done – that is in the headlines just about every day.  Rhodium has also been on the rise along with the base metals that you produce on the side.  What is your reading of the macro environment – the global structure in the economic demand for platinum and related metals as industrial and jewellery metals?

TOM DALE:  Look, I think point number one if you deal with the industrial side of it – what you’ve seen during the past – I’m not a platinum specialist but of course I’ve made some enquiries with people who know the market and there have been very substantial cutbacks in production during the past 24 to 36 months – mostly in South Africa – relating to uneconomical production because of cost escalation.  So, the impact of that on the supply-demand fundamentals has been camouflaged to some degree, perhaps a large degree by the global economic crisis.  Because since October 2008 the international demand for motor vehicles has collapsed, and that is the biggest source of the industrial demand for platinum.  Now if and as and when the world economy recovers and the demand for motor vehicles recovers, then that demand is going to strengthen and we’ve seen a major cutback in supply from underground South Africa mines.  I see that that part of the demand supply fundamentals is quite strong.  Then if we look at the emergence of exchange traded funds in platinum that gives investors direct price exposure to physical platinum and price movements.  This is something that will increase investment demand.  So I think those are the issues that mean that demand supply fundamentals are improving.

BARRY SERGEANT:  Forecasting metal prices is always a mug’s game, but do you have any sort of numbers that you’ve put into your budgets.

TOM DALE:  I agree with you that it’s very difficult – I like to put into the budget something around about prevailing prices, so because there’s been a sharp rise in recent times, we’re putting in prices for platinum of $100 or so below the prevailing price.  We’re on the conservative side but conservative assessment of prevailing prices is probably the most practical price to use.

BARRY SERGEANT:  Any specific comments on number one, the depth of your mining that is well known to be shallow, leveraging into what might be coming out of Eskom.  What is the impact on your bottom line given the cost equation that you manage at Platmin?

TOM DALE:  The difference – and I pulled this information out the other day -but I have information overload at the moment and there is a substantial difference in the exposure of a surface mine to electricity costs compared to an underground mine.  We don’t have the water pumping costs, we don’t have the hoisting costs, we don’t have the refrigeration costs, and we don’t have the compressed air costs.  I’m just trying to recollect – about less than 10% of our costs of the non-people costs is electricity and between 2.5 to three times, depending on the depth of the cost of an underground producer is related to electricity.

BARRY SERGEANT:  Thanks Tom Dale, CEO of Platmin.

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