Mining capital is running scared and hundreds of projects around the world are on ice, but this doesn't seem to worry Brian Gilbertson, the grizzled chief of Pallinghurst Resources.
Under Gilbertson, who brought BHP and Billiton together in 2001 to create the world's biggest miner, Pallinghurst is on a spending spree. It has just bought control of soon-to-be platinum producer Platmin for a US$175m equity investment. That gets it a significant foothold in the industry in which Gilbertson kicked off his mining career.
At C85c/share, it paid a 67% premium to Platmin's closing price on the Toronto Stock Exchange on December 8 (the day before the deal was announced).
Gilbertson appears to be using the old investment cliché of buying low - the platinum price last week dipped below gold, the first time in 10 years. Trading at $820/oz, prices are about a third of their record $2 300 levels in March.
But the continuous bad news spewing from the auto sector - platinum's biggest customer - keeps choking the price of the white metal. Platinum is probably not at the bottom. The US government is showing great hesitance in propping up the big three car makers in that country (Ford, GM and Chrysler).
This is not good for platinum mining. Already, third-biggest producer Lonmin has taken up a bed in the intensive-care ward - shedding 7 000 jobs and halting surface mining at Marikana near Brits.
According to Credit Suisse mining analyst David Davis, the writing was already on the wall for the platinum industry by the middle of the year. Increased recycling of the metal and vehicle sales falling off a cliff spelt pain in big red letters.
"The industry now has to restructure. My view is that SA will have to cut 500 000 oz/year next year at least. It may have to cut another 400 000 oz/year. So the total is between 10% and 18% of SA's production between 2009 and 2011."
Major producers will have to swing the biggest axes, Davis says.
Doesn't seem like the place investors would want to be.
But to Gilbertson platinum is old hat; he led Gencor from 1992 to 1997, which then housed Impala Platinum's mines. And he's had a healthy dose of experience leading resources companies since then, including Vedanta Resources and Sual. Chances are Gilbertson knows what he's doing.
So what's behind Pallinghurst's platinum push? CEO Arne Frandsen says the company expects a sharp price uptick in coming months. Much of his optimism lies in demand in the Far East. Because of pollution levels in Chinese cities, its government is tightening legislation for vehicle emissions. More platinum, used in exhaust systems, is required to comply with this.
The supply side will also remain under pressure. Says Frandsen: "You will see prices increasing dramatically."
Davis isn't as optimistic. He believes there will be no rapid recovery.
But it's not all doom and gloom. Davis says there's certainly space for low-cost juniors that can scrape together enough cash to get their projects into production. He notes, however, that many won't.
Platmin is one of the lucky ones. It was running dangerously low on capital when Pallinghurst gave it a hospital pass, taking 69,8% control of the company in return. The funding came at a crucial period as Platmin, which is listed in London and Toronto, moved nearer to completion of its Pilanesberg project. It will reach full production by June.
The Pilanesberg mine will produce platinum cheaper than most other mines (at around $400/oz), leaving room for profit even at low prices. Yearly production will be around 150 000 oz.
But Pallinghurst has bigger platinum designs than Platmin alone. In what it dubs "project African queen", the company envisages consolidating properties north of the Pilanesberg mine through a sequence of deals. With $500m in the bank, it has the resources to do so.
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