PLATINUM group metals developer Southern Palladium acknowledged it could become prey for predators following a $1.1bn upgrade in the value of its Bengwenyama project, at a time when the industry is desperate for growth.
“I think we are probably vulnerable at the moment, especially now that we have the mining right granted,” said Johan Odendaal, CEO of the ASX- and JSE-listed company. “We are preparing for that; we have to because we might just get a major (mining group) that looks over our shoulder, and the share price is still too cheap.”
Earlier this month, Southern Palladium increased the net present value of Bengwenyama to $1.96bn from $857m following improvements to its planned processing circuits. The project would now co-produce a million tons of chrome a year, up from 350,000 tons in a previous study.
The value estimate is based on an updated prefeasibility study. While that level of report doesn’t provide the certainty Southern Palladium can take to project lenders, Odendaal believes the improvement in PGM prices alone has changed the game.
Commenting on the prefeasibility study, he said the project’s original basket price assumption of about $1,500 per ounce for the metals “had gone a bit stale”, and that his firm “needed to bring it in line with what’s been happening in the market”. The platinum price has risen 83% over the past three years, while rhodium has more than doubled in that time.
“If you look at supply, the general view out there is that we’re going to see a decline and that we are sitting in a structural deficit,” said Odendaal. Demand was “ticking over” despite higher energy prices, which were weighing on the global economy. “So overall it looks good. The industry as it stands now is fairly limited in terms of supply output.”
According to Metals Focus, a UK-based metals consultancy, platinum is forecast to record a fifth consecutive deficit next year, with the metal’s price averaging $2,060/oz, a 7% year-on-year increase. This year, platinum is expected to average $1,930/oz, up 51% year-on-year. It added, however, that prices would vary across the basket and remain volatile.
“Platinum remains supported by a further market deficit, although physical tightness has eased,” said Philip Newman, MD of Metals Focus. “Palladium faces softer automotive demand and improving supply, bringing its market closer to balance. Prospects for the minor PGMs also differ, with a widening deficit supporting iridium, while increased supply and weaker demand weigh on rhodium.”
Shares in Southern Palladium have risen 70% over the past 12 months, but Odendaal said they remained relatively cheap. “We’ve also come off a low base. We’re making good progress and everything is falling into place. We’ve so far had a good, positive outcome on a number of things,” he said.
Bengwenyama will be developed in two phases: the first producing 200,000 ounces of PGMs a year, increasing to 420,000 oz a year in the second. First-stage chrome production will be 450,000 tons a year, while life-of-mine chrome output has increased to 17.2 million tons from six million tons previously.