Note: This article was first published for Ticker Trax subscribers on Tuesday April 14.
VANCOUVER – The head of Platinum Group Metals says large companies are stepping up their search for mines with “shallow ounces” of precious metal.
R. Michael Jones, a 45-year-old geological engineer and chief, says the “search for shallow” extends to platinum in South Africa, silver in Mexico and select locations in North America that offer projected low mining costs and high grades of metal that start within 100 meters of surface.
“In platinum, as with other metals, there has been lots of speculation about companies with shallow ounces ... easily mined resources,” Jones said Monday from his Vancouver office. Platinum Group Metals (AMEX: PLG; TSX: T.PTM) is cultivating a 10-million-ounce platinum resource on South Africa’s Western Limb.
Mr. Jones, who started Platinum Group Metals in 2000, has brought in Anglo Platinum, the world’s largest platinum miner and processor, as a partner. He also helped to start MAG Silver (AMEX: MVG; TSX: T.MAG) and sits on the board of the Mexico miner, which is the object of a takeover attempt.
His thesis is that large miners want decent grades of precious metal at depths that start at 75 meters to 100 meters, thus making any purchase of another company’s resource “bankable,” as in easily financed or accepted by shareholders. The one unknown is the volatile price of platinum, which sank recently below $800 an ounce and now is up smartly – to $1,230 per ounce.
Mr. Jones's platinum company and its partners have spent about $30 million developing a mining strategy for their platinum resource on South Africa's Western Limb of the Bushveld Complex.
Mike Jones told ThomWatch and Ticker Trax that his small company is within three months of reaching a “decision point” about its future.
“I think we have three paths to go: build it; hedge it (by doing a venture with an end user partner -- diluting the asset level and not the public stock level); or sell the whole company,” he said. Platinum Group Metals has about $5 million of cash and also has the backing of a South Africa platinum explorer and an agency of the Japanese government.
“We think in 60 to 90 days we will be at decision path and a path will emerge rapidly. We have one of the best deposits going in grade and depth and if we do not make a return, then no one else will either. As for the metal itself, we see $1,295-ounce platinum in our long-term view. “
The Bushveld mine is projected at 185,000 ounces a year for Platinum Group Metals’ 74% share of the mine, with 22 years of life. Cap-ex cost, total, would be $566 an ounce.
Mr. Jones’ baby starts 80 meters from surface and runs as deep as 650 meters with 11 kilometers of strike length and a projected 7.5 grams per tonne. Anglo Platinum and its nearby smelter have right of first refusal for concentrate and ore.
Mr. Jones also has a vested interest in MAG Silver Corp., a Mexico exploration company that recently received a $180 million takeover offer. He sits on the board of MAG Silver, which is engaged in its takeover parry-and-thrust with Mexico’s largest silver miner, Fresnillo (FRES in London).
“Fresnillo owns 20% and wants the other 80% for roughly $180 million. Whether this is undervaluing MAG or not remains to be seen, but this is a case in point for Mexico, which is a great place to mine silver,” Jones says. “MAG comes along. The Fresnillo region has been mined for 450 years and MAG comes in with a little exploration and wham, a little technology, and MAG finds a resource with a grade thickness that is simply astonishing. Plus, the peso, Mexican peso, is cheap right now.”
It is platinum that intrigues Mike Jones. “Probably 70% of the world's platinum production comes from that area (of South Africa). There is that one place in the world that has it, has the platinum, and we have it right there,” he says.
Not that life is a platinum walk. There are South Africa’s labor rules, its indigenous tribes, the ability to convince Anglo Platinum that its smelter, in the Bushveld area, will make hefty profits processing Platinum Group’s ore or concentrate. Platinum Group Metals, Jones points out, has the backing of the only Johannesburg-listed and majority-black owned platinum explorer.
Still, Platinum Group Metals’ shares are rocky – trading sharply up and down in recent months – NEAR US$2 A SHARE, THEN BACK TO $1.20 and so on. Market cap: a measly $80 million.
“We are shocked and appalled at the marketplace. What can we say?” Jones related. “The market has just started recovering for producing companies ... and when we look at our position we think we are extraordinary in terms of tonnes, grade and depth. We have a large tonnage deposit near surface and 7.5 grams per tonne platinum. It is very special. Not much chromium in the mix, which is very good.”
As for platinum dynamics, Jones says 10% of the platinum market is recycled for catalytic converters.
“People ask me all the time about that. What does the platinum do? Is it used up in the process of cleaning automobile exhaust? So, the platinum sits there as a surface for a chemical reaction to occur on. It reminds me of a Mike Myers movie …when Mike Myers’ character Fat Bastard says, ‘Damn sexy!’ It is that damn sexy process the molecules cannot resist. The platinum pulls the carbon monoxide or the sulfur oxide or the nitrous oxide molecule and allows more oxygen into the combustion, oxidizes it all.”
Jones says numerous applications these days rely on that damn sexy process; fuel cells for instance. “This makes platinum an absolute essential metal in our economy. Did you know, jewelry now is only 20% of yearly platinum use vs. 40% just five years ago? The car industry probably accounts for 50% of all platinum use,” he says.
Jones sees the car market going crazy in India and China. “The story for platinum and platinum group metals – for zinc and copper and nickel and stainless steel – is what we can call The Henry Ford Revolution. In North America there is something like 900 cars for every 1,000 people of driving age. That was in a November issue of The Economist. But in India it is something less than 30 vehicles for every 1,000 drivers. In China, fewer than 10 vehicles per 1,000 drivers.”
Thus, “Now we have expanding mobility of the labor pool. These workers in India, in China, can compare wages at different factories because now they can drive from one to another and look-see for themselves. There is a power that comes with mobility.”
Jones also discussed Exchange Traded Funds for platinum, which is seeing rapidly increasing demand as an investment vehicle. A couple trade in London and in Zurich.
Whether those “vehicles” have catalytic converters remains to be seen.
That is all for now.
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THOM’S STORY: Thom Calandra during 27 years of road work has helped his audience find value in a quagmire of investment choices. Thom co-founded CBS MarketWatch, MarketWatch.com and FT MarketWatch in Europe. As the voice of Thom Calandra's StockWatch and The Calandra Report, Thom fancied $300-ounce gold as a long-term hold. Thom visited bioscience companies, metals mines and energy companies in a search for reliable sources. Thom's novel PABLO BY NUMBERS was completed in 2008.
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