Global industry’s need for platinum group metals (PGMs), thanks to their high melting point, corrosion resistance and catalytic activity, represents a more than US$30 billion global market. That market is slated to grow through this decade and into the next, making PGM mining stocks an attractive area to source your next portfolio allocation.
A stock ideally positioned to deliver shareholder value through PGMs is Eastern Platinum (TSX:ELR), market capitalization C$35.44 million, a miner and mineral producer developing PGM and chrome assets in South Africa, whose 23.91 per cent loss since 2019 severely undercuts its consistent asset development, its turn into net income profitability in 2023, and its target commodities’ long-term growth runway, with chrome representing a more than US$5 billion addressable market.
The miner’s properties reside in the Bushveld Complex, which is host to about 80 per cent of the world’s PGM-bearing ore, and are highlighted by its robust and producing Crocodile River mine.
The Crocodile River mine
Eastern Platinum’s 2,700-hectare Crocodile River mine, 70 kilometres north-northwest of Johannesburg on the western limb of the Bushveld Complex, has been reclaiming chrome since 2018 and PGMs since 2020 from the Zandfontein tailings facility and producing chrome and PGMs since Q1 2024 from the Zandfontein underground mine.
According to a 2022 technical report, Crocodile River’s resources and reserves are estimated at 1.72 million ounces of 4E PGM (platinum, palladium, rhodium and gold) proven and probable, representing more than US$1.7 billion in metals in the ground to be extracted over a 22-year mine life. This is in addition to 8.49 million ounces of 4E PGM measured and indicated and 11 million ounces of 4E PGM inferred. For reference, the price per ounce of 4E PGM has hovered consistently above US$1,000 per ounce since 2019 (slide 19).
The company completed the first phase of restarting underground mining at Zandfontein in March 2024, and has US$8.5 million in cash and equivalents to ramp up to 40,000 tons of PGM ore production per month by end of 2024, with 70,000 tons per month envisioned by the end of 2025, and between 70,000 and 80,000 tons per month by 2026.
Commissioning continues to advance towards the next phase of development, including more than 75,000 tons of ore blasted up to Oct. 1, 2024, and 22,000 tons of the ore processed in September. From these efforts, the company generated 4,354 tons of chrome concentrate in Q3, as well as 242 tons of PGM concentrate and 1,211 ounces of 6E PGM (platinum, palladium, rhodium, ruthenium, iridium and gold) under an existing offtake agreement with Impala Platinum.
Eastern Platinum expects to process 30,000 tons in October, generating concentrates with between 2,000 to 2,500 ounces of 6E PGM to be delivered to Impala, positioning it to blast and process up to 185,000 tons of ore in 2024.
The ramp-up currently relies on chrome sales representing more than 90 per cent of total revenue, but will diversify Eastern Platinum’s business over the next few years, increasing PGMs to approximately 65 per cent of total revenue by 2026.
Development-stage projects with data-driven upside
Eastern Platinum sweetens its flagship asset’s value proposition with three development-stage assets on the eastern limb of the Bushveld Complex, each of which backs up their prospectivity with established resources, and two of which are on the verge of production. Here’s a breakdown:
- The 11,683-hectare Kennedy’s Vale and Spitzkop project 350 km northeast of Johannesburg houses a combined 51.43 million ounces of 4E PGM measured and indicated and a further 20.9 million ounces inferred, according to a 2010 estimate. Management intends to advance environmental work at Spitzkop in 2024 and bring it into production within the next 12-24 months.
- The 2,129-hectare Mareesburg project, 350 km to the north-northeast of Johannesburg, houses 586,200 ounces of 4E PGM probable and 2 million ounces measured and indicated, according to a 2010 estimate, and holds mining and surface rights in place. Management plans to perform environmental impact assessment work later this year and restart production in 2025.
Eastern Platinum’s board and management team have added value in the mining industry for almost 200 years combined, and they have been deploying their experience to guide the company’s portfolio from a chrome-centric to PGM-centric operation since the initial Zandfontein underground mining announcement in Q1 2023. A growing track record of profitability substantiates their success now and into the future.
Profitable long-life operations priced at peak pessimism
Eastern Platinum turned profitable in Q1 2023, yielding US$1.3 million in net income, and went on to add another US$12.5 million by year end thanks to increased revenue and gross margins from tailings-based chrome and PGM production at the Crocodile River mine.
This cash flow injection helped the miner cover the costs of restarting underground mining at Zandfontein, completing phase one while sustaining a minimal US$900,000 net loss in Q1 2024, setting the stage for increased chrome and PGM revenue from tailings as well as ore processing as production ramps up.
Eastern Platinum continued to show operational efficiency in Q2 2024 as this ramp-up progressed, covering Q1’s loss with US$3.5 million in net income, and announcing initial ore processing from the Zandfontein underground only a few months later in Q3 to diversify its revenue base, enhance balance sheet resiliency and free up the company’s focus to improve recoveries.
Operations are expected to process 30,000 tons in October, up from 22,000 in September, and bolster the company’s top and bottom lines, contingent on market conditions, over the next 22 years. This doesn’t even count the value Mareesburg and Kennedy’s Vale and Spitzkop will bring to the market’s awareness over the next two years.
Undervalued against its peers on an enterprise value (EV)-to-reserves and EV-to-resources basis (slide 18), Eastern Platinum stock has lost 23.91 per cent since 2019, even though the underlying company has reoriented itself to capitalize on a more than US$35 billion addressable market and delivered on a recent stretch of profitability, with increased revenue expected over the next few years from underground mining at Crocodile River.
That said, investors have been slowly catching on to the market’s unjustified pessimism, initiating a stock price re-rating since Eastern Platinum’s turn to profitability in Q1 2023 to the tune of about 60 per cent to date. The company’s operations are positioned for this trend to continue as they deliver on production growth, garner market recognition through income statement strength and ride the oncoming wave of demand for PGMs across the world.
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(Top photo of Eastern Platinum’s Crocodile River mine in South Africa: Eastern Platinum)