Platinum Group Pares Losses on Higher Demand

Mining firm to focus on underground development and production ramp up at Maseve mine

Source: Company's Website
Source: Company’s Website

Platinum Group Metals Ltd (NYSE: PLG) announced its financial results for the nine months ended May 31st, 2016, on July 14th, 2016. Based in Johannesburg, South Africa, and Vancouver, Canada, the Company is involved in exploration, mine discovery, mine construction, and mine operations of the platinum group metals including palladium, platinum, and rhodium. Platinum Group has mineral rights in the Bushveld Igneous Complex of South Africa, which is host to over 70% of the world’s primary platinum production. The Company is currently ramping up the Maseve platinum mine for commercial production. Platinum Group has expanded its exploration efforts on the North Limb of the Bushveld Complex in the Waterberg Project, which represents a new bulk type of platinum, palladium, and gold deposits for mechanized mining. Read more about Platinum Group’s financial results below.

Financial highlights for the first nine months of FY16

A2For the nine months ended May 31st, 2016, Platinum Group’s amounts receivable totaled $9.5 million, while accounts payable and accrued liabilities amounted to $8.0 million. Amounts receivable mainly comprised of value added taxes repayable to the Company in South Africa, amounts receivable on concentrate sales, and amounts receivable from partners.

General and administrative expenses during the period were also lower at $4.5 million as compared to $5.4 million in the year-ago period. However, gains on foreign exchange came in lower at $2.2 million during the nine-month period as compared to $7.5 million during the year-ago period. Platinum Group’s finance income consisting of interest earned and property rental fees amounted to $0.8 million versus $3.0 million in the year-ago period.

During the period ended May 31st, 2016, total expenditures by the Company for development, construction, equipment, and other costs for Maseve were approximately $90 million. Expenditures on the Waterberg Project, currently being funded by the Japan Oil, Gas and Metals National Corporation (JOGMEC), were approximately $5.5 million. Cost recoveries as of May 31st, 2016, from concentrate sales totaled approximately $4.6 million. As a result, net losses contracted significantly to $1.6 million, or a loss of $0.02 per share, from net losses of $3.8 million, or a loss of $0.04 per share, during the nine months ended May 31st, 2015. As of May 31st, 2016, the Company held a cash balance of $45 million.

Other highlights

On May 31st, 2016, Platinum Group announced it had completed new high grade platinum, palladium, and gold assay results for recent drill intercepts on the Waterberg Project subsequent to the updated independent resource estimate announced on April 19th, 2016. Earlier on May 26th, 2016, the Company announced the closure of a public offering of common shares. The Company issued 11,000,000 common shares at a price of $3.00 per share, for aggregate gross proceeds of $33,000,000.

Effective May 3rd, 2016, Platinum Group amended the Sprott and the Liberty credit facilities to extend the provision such that Maseve mine must reach and maintain a three-month rolling average of up to 60% of the planned production to commence six months post construction completion. Construction at the Maseve mine was completed on March 31st, 2016. As a result of these amendments, the Company issued 131,654 common shares to both Sprott and Liberty.

Source: Company's Presentation
Source: Company’s Presentation

On April 19th, 2016, Platinum Group reported an increased grade and a significant increase in indicated ounces in an updated independent resource estimate for platinum, palladium, rhodium, and gold at the Waterberg project.

The Company also completed the hot commissioning, final checks, and testing of the Maseve conveyors, primary jaw crusher and mill during February-March 2016. The throughput capacity and floatation recovery rates were found to be at or exceeding design ratings, a positive for Platinum Group.

Guidance for FY16

Platinum Group will focus on continuing with the underground development and production ramp up at the Maseve mine and to advance the Waterberg project. The Company plans to increase its management effort to increase production at the Maseve mine, in line with the mine plan, in order to achieve positive cash flow by the end of calendar 2016.

Industry outlook

Platinum Group and other miners are expected to lock in significant gains since global palladium demand for use in automobiles is expected to rise to a record high of 3% in 2016, on growing Chinese demand for small cars and light trucks, according to CPM Group and as reported by Reuters on June 21st, 2016. However, the demand for platinum for use in automobiles would mostly remain unchanged, CPM said in its Platinum Group Metals Yearbook 2016.

In recent months, the use of platinum and palladium in the automotive industry is shifting away from technologies that use platinum and moving towards technologies that use more palladium and non-platinum group metals. Platinum is used to reduce emissions in diesel-powered engines whereas palladium is used in gasoline-powered engines.

A4A5While palladium fabrication demand was expected to grow at a slower pace in 2016, it was forecast to rise to 9.4 million ounce, up 1.7% from a record in 2015. In automobiles, palladium fabrication demand was seen rising to 6.3 million ounces, up 2.9% from 2015, with gains in North America, Japan, Western Europe, and China. CPM pegged platinum use in automobiles at 3.14 million ounces in 2016, unchanged from 2015. While small decreases are expected in the U.S., Japan and China, Europe is expected see a rise in demand for platinum due to tightening emission standards and healthy demand for commercial and passenger vehicles. European platinum demand for auto catalysts is projected to reach a five-year high of 1.14 million ounces in 2016.

Lastly, the Brexit issue has resulted in a shake-up of the global financial markets, and precious metals are no exception to the resulting turmoil since June 23rd, 2016. Industrial metal prices in general have surged in the past few weeks on expectations that the Bank of England will channel more money into the British economy following the country’s vote to leave the E.U. Also, a possibility that the Bank of Japan and European Central Bank might take similar actions has boosted industrial metal prices. Gold and silver prices have surged after the slowing global economic growth and the resulting market turmoil have boosted their demand as a safe haven investment. Hence, precious metal miners could reap the benefits of higher metal prices in 2016.

Stock Performance

A6Platinum Group’s stock stood at $3.17, rising 1.60%, at the close on Tuesday, July 18th, 2016, having vacillated between an intraday high of $3.18 and a low of $3.04 during the session. The stock’s trading volume was at 325,420 for the day. The Company’s market cap was at $275.44 million as of Tuesday’s close.

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