AQP 0.00% 25.0¢ aquarius platinum limited

prospects for aqp?

  1. 17,460 Posts.
    lightbulb Created with Sketch. 1
    What follows is based on what I think is important and on my own opinions and in no way intended to be a recommendation to buy or sell the stock (or any other platinum stock for that matter)

    Some general background.

    Platinum Mining
    Mining platinum is far from a trivial exercise. It requires a great deal of expertise and experience to run a profitable platinum mine. For underground operations, the extraction of ore is not too dissimilar from mining gold in South Africa. I worked for a company that owned both gold and platinum mines in South Africa, and while underground it was difficult to tell whether I was in a gold or platinum mine. On the surface things changed considerably. The process to extract the platinum group metals from the ore is rather more complex that it is in the case of gold.

    Costs and Prices
    Costs are high. The ore exists in seems of 30 to 90cm tick, and 7gms per ton is a very good grade. Prices in South African currency are subject to the uncertainties associated with the exchange rate with the US dollar.

    Platinum Group Metals (PGMs)
    In South Africa about 60% of the PGMs is platinum. 29% Palladium and 10% Rhodium. Note that although Rhodium makes up only 10% of the mix, its price has been about 5 times that of platinum (in 2008). Platinum mining is about more than just platinum.

    The spread of operations.
    AQP has interests in the Western and Eastern lobes of the Bushveld complex as well as in Zimbabwe. The Chromite Tailings Re-treatment Plant (CTRP) is another string in the Bow.

    Important Factors
    Price.
    The obvious one is the price of PGMs. Platinum is much rarer than gold. Please refer to: http://www.gold-eagle.com/analysis/platinum.html The viability of platinum mines relies on prices being above their break-even costs (obviously!)
    The inflation rate of mining costs.
    A stable workforce
    Stable supply of utilities (electricity etc).
    Future growth potential
    Expertise in Mining Platinum

    (Here I stress again the 'my opinion bit).

    Price
    If we believe that investors will be looking at ways of protecting their assets against the ill effects inflation, platinum is a rare commodity and is very likely to gain in popularity. If there is an upsurge in its use in jewellery, then demand could push the price higher. I have read that this is happening. If you look at the history of the price of platinum its been rather erratic. I feel that miming companies need to build cash reserves to tide them over future downturns. I know that this may not excite short term traders, but that's life, not so?

    The inflation rate of mining costs.
    I feel that the operating cost inflation rate will exceed the normal inflation rate. On the positive side I feel that over time the rate of increase in the platinum price should more than compensate for this. As always, time will tell! Why do I feel this way about inflation. Well... labour costs and the costs of utilities are part of this, and covered below.

    A stable workforce
    During the apartheid era in South Africa most workers got a raw deal. Since the introduction of democracy workers are far more empowered which means that they have much more say over being fairly treated through instruments like Labour Unions. The South African government has introduced a concept called BEE (Black Economic Empowerment) in an attempt to address the wrongs of the past. BEE involves a raft of issues including skills and equity. Any company wishing to work in South Africa needs to take BEE very seriously or it cannot expect to keep its workforce happy. I believe that AQP is playing its part. However to redress the ills of the past demand for increase in wages will probably exceed the inflation rate.
    Her is a BEE link: http://en.wikipedia.org/wiki/Black_Economic_Empowerment

    Stable supply of utilities (electricity etc).
    The unprecedented increase in industrialisation and the provision of electricity to those previously disadvantaged by apartheid has resulted in a huge increase in demand for power in South Africa. The power shortages indicate that planners have been caught short. The increased capacity will need to be paid for resulting in likely tariff increases that are above the inflation rate.

    Future growth potential
    AQP appear to have resolved problems with the Everest Mine, and production should commence there by Q2 2010. The acquisition of Ridge should prove to be a useful addition to grow production. In addition to reserves at existing operations, if exploration at Chieftain plain and Walhala meets or largely meets expectations then AQP holders can look forward to a long life operation. The growth potential in extracting platinum from Chromite tailings is interesting because South Africa produces about 44% of the world's Chrome. This topic requires more research.

    Expertise in Mining Platinum
    AQP have built up experience and expertise to run a successful mine. The ability to solve problems is a good indicator of competence. Problems experienced at the Everest Mine appear to have been addressed. This is good sign that personnel have the required skills and experience to run a successful mine.

    In summary, I feel that costs will escalate at a greater rate than inflation, but also feel confident enough to invest in AQP as the price escalation of platinum (and other PGMs )could more than compensate for these increases. Acquisition and exploration initiatives should result in a growing company for some time to come.

    At last I've got there. In my opinion AQP is a good long term investment, but don't expect a nice smooth ride. Platinum mining isn't the easiest industry to keep sane in.
 
arrow-down-2 Created with Sketch. arrow-down-2 Created with Sketch.