Measured on current pricing, and using global mining portfolio flows over many months as a guide, there is no distinct subsector more unwanted or unloved than platinum (except perhaps aluminium). The most basic problem is found in the rotten metal prices that rule the lives of platinum group metal (PGM) miners, including quotes for platinum, palladium, rhodium and nickel; only gold, a small byproduct, has offered any kind of respite.METAL PRICES

Low*

High*

Current

From low

From high

Precious, USD/oz

Gold

682.41

1006.29

949.71

39.2%

-5.6%

Platinum

744.25

2126.00

1129.75

51.8%

-46.9%

Palladium

160.75

478.50

223.00

38.7%

-53.4%

Silver

8.46

19.48

14.82

75.1%

-23.9%

Industrial, USD/lb

Copper

1.28

4.06

2.12

65.6%

-47.8%

Aluminium

0.58

1.53

0.64

9.9%

-58.4%

Lead

0.39

1.04

0.66

69.8%

-37.0%

Tin

4.40

11.02

6.17

40.2%

-44.0%

Nickel

4.01

11.32

6.08

51.4%

-46.3%

Zinc

0.47

0.98

0.66

40.7%

-32.7%

* 12-month

If that were not enough, the rand, which rules where two-thirds of global platinum output is sourced, South Africa, is further undermining the little that's left in the profitability across the sector. Measured over practically any timeframe up to around 12 months ago, the rand ranks as the world's best performing currency against the dollar, the functional currency for the revenue line of PGM miners. The majority of PGM mining costs are paid for in rands.While platinum prices have most certainly bounced from lows seen late in 2008, by just over 50%, prevailing prices are still a monumental USD 1,000 an ounce below the highs seen in the early parts of 2008. Profitability across the sector has been decimated. An increasing number of specialised analysts are voicing concern that the PGM sector has done nowhere near enough to tailor supply to global PGM demand that's been re-engineered for the meantime by well known forces.In global mining subsectors such as diamonds and ferrochrome, by contrast, miners have cut back production on a colossal scale, in attempts to preserve whatever is left of possible profit margins. Even Brazil's Vale, the world's No 2 miner, by value, has been seen to slash production in its iron ore division, by far and away the most profitable sector in the diversified miner's portfolio.

Global platinum supply, 2008, Koz

South Africa

4767

66.3%

North America

345

4.8%

Russia & other

775

10.8%

Zimbabwe & other

331

4.6%

Scrap

970

13.5%

Total

7188

100.0%

Of which:

Anglo Platinum

2387

33.2%

Impala

1907

26.5%

Norilsk

880

12.2%

Lonmin

732

10.2%

Aquarius

500

7.0%

Eastern Platinum

59

0.8%

Northam

180

2.5%

In the beleaguered platinum sector, on the contrary, there are new platinum mines coming on stream; Platmin, for instance, is well advanced in its mission to grow from zero currently to 250,000 ounces of PGMs a year. By its own projections, No 1 in global PGMs, Anglo Platinum, is set to increase platinum output from 2.4m ounces in 2008 to as much as 2.7m ounces in 2011. PGM miners have, however, taken a number of drastic steps to adapt to the new realities, including sharp cutbacks in labour forces at a number of mines.The destruction of value in the PGM sector has been of an industrial nature. In October 2008, Anglo-Swiss diversified miner Xstrata effectively delayed its acquisition of Lonmin, a Tier I PGM name. On 6 August 2008, Xstrata had announced intention of a hostile GBP 33 a share cash bid for Lonmin, effectively valuing Lonmin at around USD 10bn. Lonmin's market value would subsequently fall to as low as USD 1.3bn, before recovering to current levels around USD 3.2bn. Xstrata itself was involved in one of the most dilutive issues of 2009, when it issued 1960m new shares to raise the equivalent of USD 6.6bn. During the so-called commodities supercycle, Xstrata was exceptionally acquisitive, and prepared to pay top cash dollar, as seen in the USD 1bn cash splashed out in 2007 on Eland Platinum.On 2 October 2008 Impala Platinum announced its intention to acquire Northam, but as PGM prices rapidly headed south Impala moved to a cold feet announcement of 17 October 2008, finally terminating in a full exit in January this year. Others have expressed an interest in Northam (and Booysendal, a prize asset acquired during 2008 by Northam from Anglo Platinum in a black economic empowerment deal), not least Xstrata, Lonmin, Alisher Usmanov, and ENRC.

While stubborn levels of production continue to hamper positive price developments for platinum, an increasing number of players are being forced into capital markets.

So far, the biggest raising has come from Lonmin, which sold 35.07m new shares to raise the equivalent of USD 503m, followed by Aquarius, which sold 46.33m new shares to raise the equivalent of USD 132m, and also issued convertibles with an injurious coupon to raise the equivalent of USD 80m. There have also been recent raisings by Pt Australia, for the equivalent of USD 27m, PGM, raising the equivalent of USD 31m, and yet to be completed, and also Jubilee, plus Platmin, raising in sterling the equivalent of USD 62m.SELECTED RECENT PLATINUM CAPITAL RAISINGS

EQUITY ISSUES

Current

Market

New

Price

To

stock

value

shares

per

raise

price

USD bn

sold (m)

share

USD m*

Jubilee

GBP 0.23

0.042

19.80

ZAR 1.53

4.30

Pt Australia

AUD 1.10

0.212

69.00

AUD 1.02

27.30

PGM

CAD 1.60

0.097

NA

31.21

Lonmin

GBP 12.78

3.211

35.07

GBP 9.00

502.50

Aquarius

GBP 2.85

1.879

46.33

GBP 1.80

132.76

Platmin

CAD 1.05

0.346

75.02

CAD 0.92

61.53

Platmin

CAD 1.05

0.346

184.89

CAD 0.85

140.12

Platmin

CAD 1.05

0.346

73.53

CAD 0.85

55.72

OTHER

Aquarius

GBP 2.85

1.879

Convertibles

N/A

79.81

PGM

CAD 1.60

0.097

Part option

N/A

10.00

Anooraq

CAD 1.25

0.207

Bail out

N/A

122.79

Ridge

GBP 1.00

0.147

Debt finance

N/A

64.71

WeSizwe

ZAR 1.69

0.121

NA

N/A

67.54

1300.28

* Underlying currencies vary.

Platmin has been heavily backed by Pallinghurst Resources, including its involvement in injections into Platmin equal to USD 56m and USD 140m. Where debt has been available, interest rates applicable appear to be aiming for world records (outside Zimbabwe). Thus Ridge (subject of a friendly takeover by Aquarius) secured loans on 26 May equal to about USD 65m. This includes an amount of ZAR 200m from Rand Merchant Bank, where the interest is based on the Jibar (Johannesburg inter bank rate), effectively around 8.5% at this point. Jubilee must pay Jibar plus 6% (i.e., 14.5%) on the bridging finance until 30 June, and then Jibar plus 7% (i.e., 15.5%, all else being equal) after that.There are some creative deals that have gone through the markets; Anooraq, mainly a creature of black economic empowerment under the tutelage of Anglo Platinum, was recently given a discount of ZAR 1bn on its big deal signed in September 2007 for ZAR 3.6bn. In the new deal, Anglo Platinum also provided a wad of endless letters of credit comfort.MARKET VALUATION OF OUNCES

Market

PGM

Tier I

Value, USD bn

Resources, Moz

USD/oz

Anglo Platinum

15.686

725.10

21.63

Impala

13.730

325.00

42.25

Lonmin

3.211

158.00

20.32

Tier II

Aquarius

1.879

107.00

17.56

Northam

1.427

120.40

11.85

Eastplats

0.313

74.20

4.22

Anooraq

0.207

110.10

1.88

WeSizwe, an advanced stage PGM developer, has announced a ZAR 550m three year equity standby distribution facility with a division of Jersey City, NJ, Yorkville Advisors. The dilemma for WeSizwe is largely told, as in the case of practically all PGM miners, in its stock pricing: 80% or so off its highs, and a market value of just USD 121m.WeSizwe has current cash reserves of ZAR 244m; YA Global Investments, L.P. will subscribe for up to ZAR 550m, in minimum tranches of about ZAR 50m, in respect of ordinary shares of WeSizwe. The bankable feasibility study on WeSizwe's core Frischgewaagd-Ledig project was successfully completed in March 2008, well ahead of initial schedule: WeSizwe needs about ZAR 6bn to build a mine, including a concentrator. WeSizwe's new partner in New Jersey is no stranger to the mining arena, having previously invested in names such as Admiralty Resources, EMED Mining, Fortescue, and Petra Diamonds.In contrast to the lowly valuation for PGM names, the global gold sector, where operational profitability remains widespread, illustrates heavy backing from investors. Thus, for example, Osisko, busy building a mine for around USD 798m at its Canadian Malarctic project, remains well funded and carries a market valuation of USD 1.5bn. Osisko recently raised the equivalent of some USD 360m by selling 88.55m new shares.Selected platinum stocks

Stock

From

From

Value

Tier I platinum

price

high*

low*

USD bn

Anglo Platinum

ZAR 536.50

-62.9%

53.3%

15.686

Impala Platinum

ZAR 184.82

-46.7%

113.5%

13.730

Lonmin

GBP 12.78

-61.9%

149.6%

3.211

Averages/total

 

-57.2%

105.5%

32.627

Weighted averages

 

-57.3%

81.8%

Diversified

Anglo American

GBP 16.47

-54.0%

81.8%

35.211

Mvela Resources

ZAR 29.83

-56.8%

92.5%

0.784

Norilsk

USD 10.82

-63.9%

208.3%

20.626

ARM

ZAR 127.50

-58.5%

67.8%

3.318

Averages/total

 

-58.3%

112.6%

59.939

Weighted averages

 

-58.2%

110.7%

Tier II platinum

Stillwater

USD 6.47

-57.0%

267.6%

0.609

Aquarius

GBP 2.85

-66.5%

272.0%

1.879

Northam

ZAR 32.30

-57.2%

95.8%

1.427

NA Palladium

CAD 2.65

-55.6%

132.5%

0.205

Zimplats

AUD 8.00

-44.4%

128.6%

0.672

Eastplats

CAD 0.46

-83.9%

148.6%

0.313

Anooraq

CAD 1.25

-64.9%

468.2%

0.207

Averages/total

 

-61.4%

216.2%

5.312

Weighted averages

 

-63.5%

173.2%

Developers and explorers

Platmin

CAD 1.05

-86.1%

228.1%

0.346

WeSizwe

ZAR 1.69

-80.1%

67.3%

0.121

Noront Resources

CAD 0.72

-83.3%

65.5%

0.099

Aquiline

CAD 2.30

-72.9%

219.4%

0.140

Pt Australia

AUD 1.10

-65.1%

205.6%

0.212

Chromex

GBP 0.19

-58.7%

26.7%

0.025

Sylvania

GBP 0.59

-51.4%

144.8%

0.166

Starfield

CAD 0.20

-85.5%

185.7%

0.059

Ridge

GBP 1.00

-21.6%

376.2%

0.147

PGM

CAD 1.60

-51.2%

125.4%

0.097

Solitario

CAD 2.11

-62.0%

64.8%

0.056

Colossus Minerals

CAD 3.35

-16.3%

679.1%

0.165

Jubilee

GBP 0.23

-70.0%

215.8%

0.042

Nkwe

AUD 0.31

-70.8%

210.0%

0.123

Braemore

GBP 0.06

-40.5%

525.0%

0.079

Marathon

CAD 0.57

-85.0%

128.0%

0.015

Caledonia

CAD 0.08

-55.6%

220.0%

0.036

Freegold Venture

CAD 0.13

-89.1%

23.8%

0.008

Magma Metals

AUD 0.40

-36.5%

90.5%

0.040

Franconia

CAD 0.26

-84.0%

160.0%

0.014

Cons. Puma

CAD 0.07

-95.5%

85.7%

0.003

Avalon Ventures

CAD 1.15

-41.0%

289.8%

0.070

Rusina

AUD 0.07

-72.4%

109.1%

0.013

Largo Resources

CAD 0.10

-94.0%

111.1%

0.016

Macdonald Mines

CAD 0.10

-73.6%

280.0%

0.012

Hard Creek

CAD 0.18

-76.0%

118.8%

0.009

Polymet

CAD 1.40

-66.8%

133.3%

0.172

MetalCORP

CAD 0.17

-82.6%

175.0%

0.007

Wallbridge

CAD 0.10

-71.4%

185.7%

0.009

Benton Resources

CAD 0.41

-24.1%

272.7%

0.025

Mustang Minerals

CAD 0.13

-74.0%

160.0%

0.009

Northern Shield

CAD 0.19

-72.5%

245.5%

0.010

Platina

AUD 0.27

-62.0%

92.9%

0.012

Darnley Bay

CAD 0.11

-73.2%

120.0%

0.005

Pacific NW Cap.

CAD 0.13

-60.6%

160.0%

0.007

Niplats

AUD 0.24

-58.6%

300.0%

0.014

Starcore

CAD 0.12

-57.4%

130.0%

0.006

Huston Lake

CAD 0.19

-73.2%

5.6%

0.006

Goldplat

GBP 0.12

-14.8%

41.5%

0.020

Hinterland Metals

CAD 0.04

-86.7%

300.0%

0.002

SA Metals

AUD 0.31

-1.6%

1966.7%

0.075

Premium Exp.

CAD 0.11

-71.8%

144.4%

0.004

Eurasia Mining

GBP 0.02

-48.1%

75.0%

0.004

Silvermet

CAD 0.17

-17.5%

1000.0%

0.015

Andulela

ZAR 0.09

-91.0%

125.0%

0.005

Developer averages/total

-70.7%

264.7%

2.520

Weighted averages

 

-72.2%

184.4%

Overall averages/total

-64.3%

234.4%

40.459

Overall weighted averages

-59.6%

94.7%

* 12-month

Source: market data; table compiled by Barry Sergeant