Pan African Resources to take 25% stake in RK1 Consortium for access to low cost PGM

Pan African Resources (AIM: PAF, JSE: PAN) has agreed to acquire a 25% stake in RK1 Consortium, which operates a PGM (platinum group metals) concentrator plant from Ivanhoe Nickel & Platinum Limited for ZAR 53 million, or £4.8 million.

Pan African said that the acquisition will allow it to gain access to low cost PGM ounces, strengthen earnings and operating cash flows, provide it with further growth opportunities and enable it to benefit from medium and long term demand for PGMs.

The company is acquiring Ivanhoe's wholly-owned units GB Mining and RKR Mining, which together hold a 25% participating interest in the RK1 Consortium. The other members of the RK1 Consortium are FTSE 250 constituent Aquarius Platinum (LSE: AQP), which holds a 50% participating interest, and Sylvania Resources (AIM: SLV)with a 25% interest.

The RK1 Consortium owns a chromite tailings retreatment plant (CTRP) situated at Kroondal on the Western Limb of the Bushveld Complex in the North West Province of South Africa which produces PGM concentrate. The Aquarius-operated CTRP treats old dump material and current tailings streams derived from the beneficiation processes employed by nearby chromite mines.

The CTRP produced 6,824 ounces, or 246,600 tonnes at 2.34g/t (grammes per tonne) of four PGE (platinum group elements), including platinum (60.9%), palladium (21.9%), rhodium (16.9%) and gold (0.2%) at an average cost of US$332 per ounce for the 12-month period ended 30 June 2009. For the equivalent period of 2008 the CPRT produced 9,849 ounces (274,000 tonnes at 4.20 g/t) of four PGM at an average cost of US$360/oz. The decline in production was largely due to disruptions in tailings streams supplies. The company said that significant progress has been made with securing mid-term and long-term tailings supply sources.

The profit before tax attributable to the CTRP for the same period was approximately ZAR3.09 million £0.24 million compared to ZAR50 million, or £4.5 million in 2008.

The transaction hinges on securing the necessary regulatory approvals and the completion of due diligence by Pan African, which is expected to be completed by the end of April 2010.

Pan African announced in February that it had moved closer to agreeing terms with ferrochrome producer International Ferro Metals (LSE: IFL) that will allow the construction of a chrome tailings retreatment plant.

Pan African’s subsidiary Phoenix Platinum is seeking to build the plant at International Ferro Metals' Lesedi operations to extract PGMs from historic chrome tailings.  International Ferro Metals also holds a 25% Net Profit Interest (NPI) on the PGM contained in the tailings at Lesedi.

Phoenix Platinum owns the rights to the PGM content in the current and historical chrome tailings discards, which were generated from chrome seam mining in the Bushveld Igneous Complex. Pan African Resources reckons the tailings on site could support an operation processing 240,000 tonnes per annum for 17 years, producing approximately 11,000 ounces PGM 4E (platinum, palladium, rhodium and gold) annually. The current estimated capital expenditure to build the facility is £6 million.

http://www.proactiveinvestors.co.uk/companies/news/15089/pan-african-resources-to-take-25-stake-in-rk1-consortium-for-access-to-low-cost-pgm-15089.html