Can ARM extract some life out of Bokoni Platinum?

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Can ARM extract some life out of Bokoni Platinum?
Credit: © Reuters.

African Rainbow Minerals (JO: ARIJ ) (ARM) has announced a deal to acquire all the shares in Bokoni Platinum Mines (Pty) Ltd, which is 49% owned by a subsidiary of Anglo American (JO: AMSJ ) Platinum (Amplats) and 51% owned by a subsidiary of Atlatsa Resources Corporation.

It's a very risky deal in my opinion. This asset commenced operations in 1969 but has been under care and maintenance since October 2017 due to "unfavourable market conditions" (the wording in the ARM announcement) or "several years of significant cash losses under difficult market conditions" if you read the Amplats announcement which doesn't sugar-coat it.ARM will need to develop the asset in coming years and only expects to achieve steady-state production by 2028, which is perilously close to when some people believe the internal combustion vehicle will die off. I don't share that view, as I think the electric vehicle play is very overdone, especially for emerging markets.

Bokoni has the second largest PGM resource in South Africa. It has a measured, indicated and inferred resource of 153 million 4E PGM ounces. The measured resource is 55 million ounces. 64% of the resource is UG2 grade, which has a split of 49% palladium, 41% platinum and 8% rhodium. This is where ARM will focus its attention.

There is significant infrastructure in place, which ARM plans to use as part of its business plan for the asset. The development of Bokoni will create 5,000 jobs, of which 2,500 are expected to be permanent. Local communities, employees and Black industrialists will own 15% of the mine.

The deal ticket is R3.5 billion, payable in cash. ARM has sufficient existing cash resources to fund the transaction and expects to invest another R5.3 billion over three years to mechanise the mine and move ARM down the PGM cost curve.A Sale of Concentrate Agreement has been entered into between Bokoni and the Amplats subsidiary, covering a contractual period of 23 years.

Mining operations will only commence in 2023, as a Definitive Feasibility Study is required along with the extensive regulatory approvals for the mine to transfer.

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