It is difficult not to write about the political developments in southern Africa at a time when South Africa is embroiled in a titanic struggle to rid itself of the Zuma factor. Over the next few months, there will be more clarity about the political direction the country will take. All indications are, however, that a government without Zuma will be more business friendly, and that a Department of Mineral Resources without Minister Mosebenzi Zwane, will do its utmost best to accommodate all the interest in the mining industry. Zwane has been under enormous pressure, and not just from investors, the Chamber of Mines and big mining companies. Despite the perceptions of the twitterati, social media users and abusers, big business and the mainstream media that their view is the only view, there are people out there who think differently, and they must be given airtime.
There is a big percentage of young black business people and junior mining companies that supports at least some of the the amendments proposed in Mining Charter III. In fact, this group has been pressurising Zwane to implement the Charter, not only that, but they are pushing for a 51% black ownership, nationalisation or more government control of the mining industry. This is a reality, and these voices must be heard. They might not be affiliated with the Chamber of Mines, but they have a big stake in the welfare of the country, and in its future. The mining industry in South Africa, and in fact, in Africa, will be driven by junior mining companies, especially in the exploration sector. Wouldn’t it be great if they are 100% African owned?
This is not to say, of course, that major’s and foreign junior mining companies do not have a role to play, in fact, they have an even bigger role to play. They are integral to the development of skills and education, and to empower young, local African’s to develop the self-confidence that will help them start their own mining companies. But in the end, the goal should be to have more homegrown African exploration and mining companies active on the continent than Australian, Canadian and UK based companies. It is the only way to prevent copious amounts of capital finding its way to global tax haven’s.
Despite the optimism, which was once again prevalent at the Mining Indaba in Cape Town in February, South African’s, Zimbabweans and Angolan’s should now be more vigilant and vocal as ever before. Besides having enormous economic potential these countries have a few other common denominators – bad governance, corruption and kleptocracy. Civil society and the general populace can never let this happen again in the future. Despite offering better governance, there are questions about all three new presidents (if Ramaphosa has been appointed as president when this is read).
Their slates are not clean. João Lourenço, president of Angola, was handpicked by, and is a close ally of José Eduardo dos Santos, one of the longest serving dictators in Africa. Zimbabwean president Emmerson Mnangagwa has been accused of having interests in the notorious Marange diamond fields just too many times for it not to be true. But the real albatross around his neck is his alleged involvement in the Gukurahundi massacre in Bulawayo in the 1980’s, and it might come back to haunt him. As the Marikana killings might haunt Cyril Ramaphosa in South Africa, who served on the Lonmin board when 34 miners were shot by the South African Police.
Ramaphosa has a long history in the mining industry and owned several mining companies during his career as a business man. He helped establish the National Union of Mineworkers (NUM) and the Congress of South African Trade Unions (COSATU) and was one of the first Black Economic Empowerment (BEE) beneficiaries. But the Ramaphosa tentacles runs more than just skin deep in the South African mining industry. He is married to Tshepo Motsepe, younger sister of mining magnate Patrice Motsepe (owner of African Rainbow Minerals). Patrice’s older sister, and thus Ramaphosa’s sister-in-law, Bridgette Radebe, is a mining mogul in her own right, and is the owner of Mmakau Mining, a company that produces platinum, gold, uranium, coal and chrome. Radebe is also the president of the South African Mining Development Association, or the Junior Mining Chamber, and has, on numerous occasions, called for a 51% black ownership in mining companies. Radebe is the wife of South Africa Minister in the Presidency Jeff Radebe. A family affair if there ever was one. The hope of Zimbabwe, Angola and South Africa rests on the shoulders of these three men, let’s hope they live up to expectations.
About Leon Louw:
Leon specializes in African affairs and doing business in Africa, and has been writing about mining in Africa for 8 years. He was born in Johannesburg, South Africa, and has traveled Africa extensively, especially southern Africa. He has a BA degree with a specialization in African studies and an honours degree in Africa Politics. He also have a national diploma in Nature Conservation and an honours degree in Environmental Management. It is is passion to promote business in Africa and I can assist companies that are interested in doing business in African countries.
You can see his work at African Mining and Mining Mirror and online at http://www.miningafricaonline.co.za/.
Last year, political strategist and monetary economist Cedric Muhammad said, “At 29-years old and a base of support among the youth and business class, Julius Malema could not be a more important figure to watch as the political and financial marketplaces determine how the nation’s (South Africa) wealth should be distributed and allocated.” Mr. Muhammad is currently a Member of the African Union’s First Congress of African Economists. Evidently, Mr. Muhammad knew what he was talking about.
In a surprising move last September, the ruling African National Congress party decided to study nationalization in response to the repeated requests of Julius Malema, the controversial leader of the party’s Youth League. The decision cast a dark cloud over South Africa’s mining industry.
Citibank analysts estimate that South Africa has more than $2.5 trillion in mineral reserves ranking it the world’s richest nation by commodity wealth, followed by Russia and Australia. According to the Mines Ministry, mining generates 30 percent of South Africa’s export revenue, 18 percent of its corporate taxes and a half a million direct jobs. The country is the world’s biggest producer of platinum and chrome, and the third largest gold producer. Mining companies comprise roughly 43 percent of the value of the Johannesburg Stock Exchange. One would think that given the current resource boom South Africa should be thriving, but frequent labor problems and prolonged power outages have affected the profitability of the mining industry. And Johannesburg’s gold fields, the source of 40 percent of all the gold ever mined, are in decline. Over the last decade, output has shrunk by more than 7 percent a year.
Today, South Africa’s former Reserve Bank governor, Tito Mboweni, stated that he felt the mining nationalization debate was being handled recklessly. Mr. Mboweni said, “The manner in which the issue has been raised has lacked an appreciation for the consensus-building spirit that has informed the construction of new and ongoing agreement in our society.” And last week, Mark Cutifani, CEO of South African major AngloGold Ashanti Ltd. (NYSE:AU) and Vice President of South Africa’s Chamber of Mines, said in a written editorial, “We will not deal with these issues through business simply by shouting louder than the African National Congress Youth League. Young people are justified in calling for broad social change. The logic behind the call for nationalization needs to be sensibly debated rather than angrily dismissed.”
Bridgette Radebe, Chairman of Mmakau Mining and the wife of South Africa’s justice minister, stated at a recent conference that a failure to address the ongoing economic imbalances in South Africa could lead to a “situation like Zimbabwe.” Under Zimbabwe’s Empowerment Act, enacted in 2008, foreign-owned miners must cede or sell 51 percent of their shares to black citizens or state-approved agencies.
Given the ongoing geopolitical instability in South Africa, we look at three high-profile TSX listed mining stocks that are doing business in Africa’s largest economy.
Platinum Group Metals Ltd. (TSX: PTM)
Platinum Group Metals holds significant mineral rights in the Bushveld Complex in South Africa which, from the perspective of platinum, is the place to be. The Bushveld Complex is the world’s largest primary reserve of platinum and South Africa produce’s 80% of the world’s annual platinum production. Platinum, among the rarest and costliest of metals, is also one of the most green. Platinum is so rare that all of the metal ever mined would fill a room measuring less than 25 feet on each side. The metal has many critical commercial uses, but the primary demand driver today is the automotive industry. Catalytic converters that control harmful automobile emissions now account for 60% of the annual demand for platinum.
Shares of Platinum Group Metals have not performed well since the move by the African National Congress party to open the debate on nationalization last September. At the time, the company’s shares were trading up hitting the $2.40 range but have since fallen to under $1.80.
Frontier Rare Earths Ltd. (TSX: FRO)
The nationalization debate didn’t stop the $60 million IPO of Frontier Rare Earths late last year. Frontier is one of many new exploration and development stage companies listed on the TSX trying to stake a future on the red-hot rare earths scene. Frontier’s flagship project is the Zandkopsdrift rare earth element deposit in the Northern Cape province of South Africa. The company’s NI 43-101 technical report states that Zandkopsdrift is one of the largest known undeveloped rare earth deposits outside China. On July 13th, 2011, Frontier signed a heads of agreement with Korea Resources Corporation, the Korean government-owned mining and natural resource investment company, to form a strategic partnership around the company’s Zandkopsdrift project. Terms of the agreement are expected to be finalized in the fourth quarter of 2011.
Frontier Rare Earths was featured by MiningFeeds.com in 5 Most Interesting Rare Earth Stocks – CLICK HERE – for the article. And with South Africa’s nationalization debate heating up of late, things are certainly getting more interesting by the day.
Uranium One Inc. (TSX: UUU)
Uranium One is a mining and exploration company with interests in in South Africa and Australia. Unfortunately for shareholders it appears business hasn’t been going much better in Australia. Sort through Uranium One’s financial statements and you’ll find a $113.5 million writedown at its Honeymoon Uranium project in Australia late last year. But with the Japanese disaster now four months past, the company appears to be making a modest comeback. Shares of the embattled uranium miner are currently trading at $3.16 up nicely from its $2.50 lows reached last month.
For last month’s related article entitled – “Is it time for a uranium sector rebound?” – CLICK HERE.
The completion of an IPO earlier in late 2010 marked the arrival of a new late-stage player on the Canadian listed rare earths scene, Frontier Rare Earths. Frontier began trading on the TSX exchange on November 17th, 2010 after the completion of a $60 million unit financing at $3.40 concurrent with the company’s IPO. The unit offering consisted of 1 share and 1/2 share purchase warrant at $4.60 expiring after 2 years. Since then, the company’s shares have been trending down hitting a low of $1.86 earlier this month and are now trading at $1.97.
Frontier’s flagship project is the Zandkopsdrift rare earth element deposit in the Northern Cape province of South Africa. The company’s NI 43-101 technical report states that Zandkopsdrift is one of the largest known undeveloped rare earth deposits outside China. The independent report, prepared by South African consultants MSA Group in October, 2010, identifies an indicated resource of approximately 23 million tonnes at an average grade of 2.32 percent TREO, representing 532,000 tonnes of contained TREO. In addition, the report identifies an additional inferred resource of approximately 21 million tonnes at an average grade of 1.99 percent TREO, representing 415,000 tonnes of contained TREO. Frontier hopes to supply up to 20,000 tonnes per year of REO and is working on validating the production potential from the ongoing prefeasibility study projected to be completed towards the end of this year. The company is quick to point out that their Zandkopsdrift B Zone, which is contained within the overall Zandkopsdrift resource estimate, is the third highest grade rare earth deposit outside of China after Lynas and Molycorp.
Jacob Securities Analyst Luisa Moreno likes Frontier Rare Earths, she has a price target of $9.83 on the stock. In a report from June 8th, 2011, she states, “Although Molycorp’s grade at Mountain Pass deposit is 8.28% compared to Frontier’s with 2.16% TREO, Frontier’s critical heavy element grades (dysprosium, europium and terbium) are higher, which means that Frontier will be able to produce more of these critical materials (circa 370 tonnes) and generate higher sales for these elements than Molycorp (circa 80 tonnes) despite Molycorp’s overall production target being twice that of Frontier.”
The Prospecting Right for Zandkopsdrift is held by Sedex Minerals, a South African company that is 74% owned by Frontier while the remaining 26% of Sedex is held by South Africa’s Black Economic Empowerment (BEE) through which 21% ownership is extended to Namaqualand Empowerment Trust (NET). NET is a broad-based community trust established for the benefit of historically disadvantaged South Africans principally in the Namaqualand region of the Northern and Western Cape Provinces of South Africa. From the BEE Commission Report in 2002, the post-apartheid program is aimed at redressing the imbalances of the past by seeking to substantially and equitably transfer and confer ownership, management and control of South Africa’s financial and economic resources to the majority of the citizens. It seeks to ensure broader and meaningful participation in the economy by black people to achieve sustainable development and prosperity. An interesting approach that has proven to be somewhat successful in South Africa.
Although Frontier has a direct 74% interest in Zandkopsdrift, company Chief Executive James Kenny noted that the provisions of Sedex’s shareholder agreement in fact gives Frontier an effective 95% economic interest in Zandkopsdrift when he connected with MiningFeeds.com.
Frontier recently completed an IPO on the TSX raising $60 million via a unit offering at $3.40 per unit on the strength of your rare earth project in South Africa. Could you talk about the genesis of the project prior to your IPO?
I have been involved in the natural resource earth sector for many years as have other members of my family. In 1994 I travelled to South Africa for the first time, shortly after the first democratic elections which followed Nelson’s Mandela’s release from prison. Although South Africa is a country abundant in natural resources, it had virtually no junior mining industry due to the apartheid regime. With the country opening up to foreign investment I travelled to South Africa with my brother, Philip, and my father. On an early visit we were very fortunate to meet a renowned diamond exploration geologist by the name of Hugh Jenner-Clarke who had, at that time, spent over 40 years in the diamond exploration sector in South Africa and elsewhere and had some important discoveries to his name. On a handshake we formed a partnership with Hugh and established Firestone Diamonds plc, an emerging diamond producer now with operating diamond mines in Botswana and Lesotho. Firestone Diamonds is listed on the AIM market in UK and continues to be run by my brother Philip Kenny. In 2004 we decided to look at other mineral opportunities and identified the rare earth sector as one having very significant promise due to the now very evident trends of Chinese production dominance and the anticipated growth in demand for rare earths. We strongly believed that the west coast of South Africa and, in particular, the Namaqualand region was highly prospective for rare earths. The Zandkopsdrift Project area which hosts the Zandkopsdrift rare earth deposit which we are developing was at the time ‘open ground’ and we applied for and were granted a Prospecting Right covering 60,000 hectares in the area in 2006. Between this time and our IPO in November 2010 we advanced Zandkopsdrift to the point that the NI 43-101 report confirmed it as one of the largest, highest grade code-compliant resources in the world outside of China.
The deposit is a carbonatite complex and the rare earth mineralization is principally contained in a monazite complex. What sort of challenge do you expect to face cracking the minerals in your deposit and describe the availability of the associated technologies?
Rare earths do not occur in free form and are bound up in host minerals from which they must be cracked or liberated. Up to 200 different types of mineral can host rare earths, the very large majority of which have never had a process, let alone a commercial process, for the extraction of the contained rare earths. The two most ‘conventional’ rare earth host minerals are bastnaesite and monazite with the flow sheet for the monazite having been established for decades and is widely available. The primary host mineral at Zandkopsdrift is monazite and so the challenge for Frontier will be to adapt and optimise this established flow sheet for the recovery of rare earths from the Zandkopsdrift deposit.
Which rare earth elements, in your opinion, are key to Frontier’s economic model and why?
I think that one has to look at the ‘balance’ in any rare earth deposit as all rare earth elements will be recovered together and then sequentially separated and sold. Clearly some rare earths such as cerium and lanthanum are relatively plentiful and as such I think that the medium term price is likely to be considerably below current price levels. Similarly we believe that five of the ten heavy rare earths are of very low or limited value due to the small size of the global market. We are very fortunate in that the Zandkopsdrift deposit has elevated levels of what we call the ‘Big Five’ namely neodymium and praseodymium of the light rare earths and europium, terbium and dysprosium of the heavy rare earths. I think that these five elements exhibit the most attractive supply/demand price outlook and will be key to Frontier’s economic model
Infrastructure is always a key component when putting a mine into production, please tell our readers about what is available in the area?
Our Zandkopsdrift development is located approximately 450km north of Cape Town, just off the N7 Highway in the Namaqualand region. Namaqualand is South Africa’s oldest mining province with over 150 years of gold, copper, base metals and diamond mining history. Although certain of these mines are no longer operational, there remains very good infrastructure, qualified staff and mining support services in the area. Of particular significance is the town of Bitterfontein which lies 30km from Zandkopsdrift and is the site of the nearest railhead and Saldahna Bay some 250km to the south and which is one of Southern Africa’s deepest water ports. The most capital intensive and complex part of the rare earth recovery process will be the separation stage and Frontier plans to construct a 20,000 tonne rare earth separation plant at Saldahna Bay proximate to other comparable plants and facilities. This is expected to significantly reduce Frontier capital expenditure requirement and development lead time.
What is the environmental permitting process like in South Africa and can you speak to the environmental part of the equation?
South Africa has a well-developed exploration, development and mine permitting regime. As part of the advancement of Zandkopsdrift Frontier will be required to do extensive assessment of the impacts of our current and proposed activities on, for example, the flora, fauna, wildlife, water resources of the area. Zandkopsdrift is not an area of particular environmental or other sensitivity and Frontier expects that the findings of its environmental studies will not impede the permitting and development of Zandkopsdrift. Of particular importance in the rare earth sector is the presence of the radioactive elements, specifically, of thorium (178 ppm at Zandkopsdrift) and uranium (56ppm at Zandkopsdrift) which fortunately are considered to be at very low levels in both absolute and relative terms at Zandkopsdrift.
Having completed your IPO, now that the dust has settled, what is on the horizon for Frontier Rare Earth and what key milestones do you hope to accomplish with the money you just raised?
We have a very busy 18 month program which will involve the completion of a Preliminary Economic Assessment due at the end Q3/early Q4 2011, with a Prefeasibility Study scheduled to follow 3-4 months thereafter and a Definitive Feasibility Study in Q4 2012. This work is fully funded with the proceeds of our IPO competed late last year. In addition we expect to investigate the some 30 satellite intrusions we have identified around Zandkopsdrift as well as initiating a regional scale exploration elsewhere in the Zandkopsdrift permit area.
This interview appeared in 5 Most Interesting Rare Earth Stocks – Part 1 – CLICK HERE for the article.
Platinum, among the rarest and costliest of metals, is also one of the most green. Platinum is so rare that all of the metal ever mined would fill a room measuring less than 25 feet on each side. The metal has many critical commercial uses, but the primary demand driver today is the automotive industry. Catalytic converters that control harmful automobile emissions now account for 60% of the annual demand for platinum. What makes platinum greener still is that its use as a catalyst is, in theory, all reclaimable and recyclable.
Catalytic converter legislation is spreading quickly. In the past five years both Brazil and Chile passed legislation mandating their use. Hong Kong, Malaysia, Singapore, Taiwan and Thailand are already on board. Higher North American, European, and Asian automobile emission standards are also expected to add pressure to automotive manufacturers to increase the use of platinum in catalytic converters.
Adam Collins, an analyst at Liberum Capital, estimates that the gradual roll-out of heavy duty diesel vehicle legislation alone could result in a 20 per cent boost to existing levels of platinum demand by as early as 2015.
Platinum catalysts are also a core component for fuel cells, a power generation technology that combines oxygen and hydrogen to form water and electricity. Fuel cells are an environmentally friendly power generation source and are viewed to be yet another key green source of future platinum demand.
Today, 75% of the world’s production of platinum comes from South Africa. It’s estimated that as much as 90% of all platinum deposits in the world are located there or in Russia. But output from South Africa has been relatively flat of late, for a variety of reasons. Closure of platinum mines, cutbacks on capital expenditures, inflation and cost pressures, ever-deepening depths of mining operations and lower grades of the ore produced have put a squeeze on the supply side of the equation. Industrial action by the labour unions has also had a negative effect on the level of production from South African producers. Platinum Australia (ASX: PLA) Managing Director John Lewins recently noted, “South Africa will obviously still dominate this area, but electricity, inflation, safety, depths and industrial unrest remaining as big issues.”
For all these reasons, the past decade has been very good for platinum, the price of the metal has increased from $588 to $1773 per troy ounce. And that premium has clearly spilled over into the equity markets.
Eastern Platinum (TSX:ELR), whose shares could be had for as little as $0.25 in 2008 have rebounded to the $1.40 mark. Late last year the company closed a massive $348 million financing and early returns suggest the money was invested wisely; Eastern Platinum recently announced a a net profit of $5,041,000 in the fourth quarter of 2010. Platinum Group Metals (TSX:PTM) closed a $125 million equity financing in late 2010 and is currently working towards putting their Western Bushveld Joint Venture platinum deposit into production. Anooraq Resources (TSXV:ARQ) is in the middle of an operational turnaround at their 51-per-cent-owned Bokoni platinum group mine in South Africa. The company reported sales of $148 million in 2010, up from $63 million in 2009. Although shares of Anooraq are trading well above 2008 lows the company’s stock has not fared well recently; it’s down roughly $0.75 from its 2010 high of $1.80. But some think Anooraq may, ultimately, shine bright. In October, 2010 Peter Grandich called the company a “sleeping giant” with “many of the ingredients needed to benefit greatly in a sector that looks like it has lots of upside.”
As society looks at better choices for the environment, long term, tighter emission regulations appear to be fueling momentum for catalytic converters. But bullish calls from equity analysts, which are appearing with increased frequency, have investors in platinum stocks thinking of a different kind of green.
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