Jinchuan Group Co., a producer of industrial and precious metals, and the China-Africa Development Fund plan to make the biggest investment by Chinese companies in Africa’s platinum industry.
The investors proposed to pay $227.5 million for a 51 percent stake in South African explorer Wesizwe Platinum Ltd. and provide $650 million in loans to finance the Frischgewaagd-Ledig mine, Wesizwe’s first, the Johannesburg-based company said today in a statement. There’s not yet a “firm intention” on the part of Jinchuan and CAD Fund to make an offer, it said.
“It’s certainly the largest investment in Africa’s platinum sector by a Chinese company,” Martyn Davies, chief executive officer of Frontier Advisory, which brokered the deal, said by telephone from Johannesburg. It’s the second-biggest foreign direct investment by a Chinese company in South Africa, after Industrial & Commercial Bank of China bought 20 percent of Standard Bank Group Ltd. for 36.7 billion rand ($4.65 billion) in 2008, he said.
Wesizwe jumped the most in eight months in Johannesburg after backing the proposal. The shares rose 10 percent to 2.20 rand, the biggest closing gain since Sept. 22.
Wesizwe shelved a plan to start digging its mine northwest of Johannesburg last year after the global recession eroded demand for platinum, slashing prices of the metal by two-thirds from a record $2,250.50 an ounce in 2008. The mine could produce 350,000 ounces of platinum and related metals a year, according to the company’s website.
“They didn’t have the necessary capital to develop the project,” Odette Smith, an analyst at Avior Research Ltd., said today by telephone from Johannesburg. “Now it looks like they’ll have it.”
Prices for platinum, used in cars to reduce harmful emissions and in jewellery, have dropped this month on concern Europe’s debt crisis will slow economic growth and curb consumption of raw materials. The metal traded at $1,528.95 an ounce as of 4:32 p.m. London time.
Declining prices may lead to a weakening of the South African currency against the dollar and may not hurt Wesizwe’s project, Smith said.
The agreement “will provide Wesizwe with the financial muscle to enable it to examine future growth opportunities,” Michael Solomon, the company’s CEO, said in the statement.