PLATINUM GROUP METALS
Gold junior to seize platinum opportunity
Both RBC and Great Basin Gold says it is opportune for a gold junior to move into the platinum space to create a precious metals investment opportunity.
Posted: Thursday , 13 Mar 2008
A gold junior is likely to seize an opportunity to acquire a platinum asset as platinum juniors could represent a good bargain and will boost a gold company's cash flow.
Both top platinum analyst, Leon Esterhuizen (RBC Capital) and Great Basin Gold (TSX:GBG,JSE:GBGOLD) CEO Ferdi Dippenaar said recently the climate might be good for a junior gold company to get involved in the South African platinum sector.
Esterhuizen said in a recent report that platinum mines remained bargains for gold companies as PGM junior stock prices weren't increasing as rapidly as the majors. This was unusual as the majority of platinum juniors had shallow mines and good growth profiles.
"Gold companies could grab this opportunity, especially if they can pay with shares and wait four to five years to production. Although metal prices could decrease, platinum mines generate a huge amount more cash than gold mines as they produce seven or eight metals."
Esterhuizen said RBC continued to believe that a gold mining company would shortly get involved in the PGM space - buying cash flow and margin with high P/E paper.
Meanwhile, GBG President and CEO Ferdi Dippenaar told Mineweb today it was opportune for the company to add platinum ounces to its resources in an early stage and to develop both gold and platinum projects simultaneously.
He said Great Basin should attain good trading multiples as it goes into production. The case for adding platinum was strengthened by the fact that precious metals attained good prices, platinum and gold demanded similar mining methods and platinum would expose Great Basin to the same country (SA) risk.
The company did not carry the burden of historic rivalry between gold and platinum sectors and it was in a unique position to acquire platinum, while this proposition did not even occur to gold majors.
Dippenaar said the company would consider opportunities to take a platinum exploration project on board as its gold assets grew.
"We are looking at opportunities in exploration and at the exploration projects of junior companies that could possibly fit the profile."
He said gold and platinum would be a good combination and an opportunity to offer investors a different value proposition - to invest in precious metals.
However, as far as Great Basin Gold was concerned it was still investigating opportunities to get involved in platinum mining.
Dippenaar said the reverse scenario of a platinum company acquiring gold assets or company was unlikely as the gold industry was generally struggling and in a "sunset" phase, while platinum companies were experiencing their best cycle yet.
"Why would a platinum company get involved in conventional gold mining seen as dangerous in South Africa?" he said.
Major gold companies could not afford to diversify into platinum and only a very large amount of PGM production would make a difference to a gold major's production and cash flow.
Dippenaar said ten years ago gold companies did not want to sacrifice their gold trading multiples by acquiring cheap platinum ounces, but the situation has changed with the platinum price soaring to record levels.
Kobus du Plooy, executive director of Pamodzi Gold (JSE:PZG), however, said the company would not pursue platinum projects in the near to medium term as it was focused on reaching its target of 1m gold production ounces by 2009.