Aquarius Platinum Ltd. (AQP), the world’s fourth-largest producer of the metal, said it may idle the Blue Ridge mine and instead expand its Everest operation in South Africa at a cost of about 850 million rand ($125 million).
Blue Ridge, shut for redevelopment since August, “could not be operated economically” at prevailing South African- currency prices for platinum group metals, London-based Aquarius said in a statement today. Platinum has dropped 7.6 percent in rand terms from its 2011 high.
“A write down now looks likely” on Blue Ridge, which Aquarius bought for $113 million in 2009, at the June 30 fiscal year end, Liberum Capital Ltd. said in a note today.
Aquarius and larger rivals Anglo American Platinum Ltd., Impala Platinum Holdings Ltd. and Lonmin Plc mine chiefly in South Africa. They are grappling with rising labor, power and diesel costs along with gains in the rand against the U.S. currency that curb the benefit of advancing dollar metal prices.
Aquarius plans to accelerate investment at its more- efficient Everest venture, with the goal of increasing output to about 250,000 ounces a year starting 2017, from about 190,000 ounces. The proposal would prolong the life of the mine to more than 30 years from six, the platinum miner said.
Aquarius fell 1.8 pence, or 0.5 percent, to 341 pence at the 4:30 p.m. close in London, bringing its gain in the last six months to 3.3 percent. Lonmin, the world’s third-largest platinum producer, declined 8.9 percent to 1,595 pence over the past six months.
Everest’s expansion “should now offset disappointment in the Blue Ridge department,” Louise Collinge, an analyst at Evolution Securities Ltd. in London, said in a note, describing Blue Ridge as a “poor asset.”
Everest is a “better,” and “lower-cost” mine than Blue Ridge, Gavin Mackay, Aquarius’s business development executive said by phone from London today.
“I wouldn’t say it was a bad buy,” Mackay said of Blue Ridge. It’s too early to say whether the mine will be written down, he said. “Platinum assets come up for sale infrequently and you need to be opportunistic, and you can’t tell what the platinum price is going to be.”
Aquarius is the only company among platinum group metal suppliers “that does not hesitate to shut production if it fails to deliver acceptable returns,” Leon Esterhuizen, an analyst at RBC Capital Markets in London, said in a note. Aquarius is “agile,” London-based Liberum Capital said.
Aquarius raised its stake in Platinum Mile Resources Ltd. to 91.7 percent from 50 percent for 115.5 million rand, it said today. That adds to the company’s May agreement to acquire the Booysendal South mining properties, on land next to the Everest mine in the Bushveld complex in northern South Africa, which contains the world’s richest platinum reserves.
The company “continues to find avenues for growth at very competitive prices,” Esterhuizen said.
The estimated cost of including Booysendal South in the Everest mine plan will be confirmed by further technical study, Aquarius said in its statement. The initial estimated cost is “very low” compared with what other producers are spending, Credit Suisse Group AG analyst Liam Fitzpatrick said in a note.
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