Platinum group metals developer, Southern Palladium, which is lining up its Bengwenyama project on the Eastern limb of the Bushveld for construction in two years’ time, says that presenting its project to investors at the Mining Indaba’s 1-2-1 event, lifted the profile of the project tremendously. By Nelendhre Moodley.
“Even though platinum is probably not the hottest commodity on the market at the moment, the Bengwenyama project garnered significant interest at the 1-2-1 conference. The project is now firmly placed on the radar of numerous potential financiers who attended the 1-2-1 event and the Mining Indaba in February,” MD Johan Odendaal tells Modern Mining.
The 1-2-1 Mining Investment global event series connects portfolio managers and analysts from institutional funds and private equity groups with mining company management teams for 1-2-1, private in-person and online meetings. On 5-6 February 2024, 101 mining companies and over 650 investors joined the 1-2-1 Mining Investment Cape Town. The event is built around two-days of 1-2-1 meetings matching projects to investment capital.
Further to this, Mining Indaba - the world’s largest gathering of influential stakeholders in the mining industry, provided a perfect venue for Southern Palladium Board members to gather for a strategic meeting.
“There is so much happening with the project, the company, and the global economy that we took the opportunity to have an intense strategic planning session. Importantly, global economic activity has warranted the need for better planning regarding how we take the Bengwenyama project forward.”
Taking Bengwenyama up the value curve
Highlighting recent project milestones, Odendaal explains that the A$19 million dollars raised at its listing on the Australian Stock Exchange in June 2022 assisted the company to kick-start its exploration programme with the aim of reaching Pre-feasibility Study stage by the end of 2024. It subsequently declared a resource which gave it the confidence to apply for a mining right.
During 2022 and 2023, Southern Palladium undertook a widespread drilling programme to better understand the Bengwenyama resource. It followed with a closely spaced drilling programme towards the end of 2023 and zoned in on the area above 500 metres on the eastern side of the project.
“On the 29th of September 2023, we applied for a mining right which was six months earlier than our intended deadline. By mid-October, we received a letter of acceptance for the mining rights application from the DMRE. The big milestone for us was receiving the acceptance letter as it marked the start of the next phase of project development – finishing a scoping report for the environmental impact assessment and expert studies.
Earlier this year, we received the results from the technical Scoping Study, which delivered beyond our expectations.”
According to Odendaal, the Scoping Study indicated that the project was substantial, placing Southern Palladium in the ranks of a Tier One operation.
“The recently concluded Scoping Study represents a pivotal moment for our company, made possible by the A$19 million raised in June 2022 for the drilling programme and associated study work. The Bengwenyama project is now recognised to be of world class stature. Our commitment to exploring every avenue to maximise value and optionality for all stakeholders has been underscored by the study’s impressive outcomes: a NPV8 of US$700 million, an Internal Rate of Return (IRR) of 21%, and a noteworthy annual Free Cash Flow (Pre-tax, real terms) of some US$180 million at steady state over a 36-year mine life. These compelling figures make a strong case for the continued development of the orebody. Our exploration efforts have resulted in the identification of a significant resource totalling 26.22 million ounces (7E). Notably, the Scoping Study has focused on the UG2 reef only, comprising 15.72 million ounces, with 6.52 million ounces classified as Indicated Resource. Importantly, this study acknowledges the substantial remaining resource in the Merensky reef (MR) and UG2 and MR Exploration target areas, which were not included in the current assessment of the 36-year mine life.
The Scoping Study underscores that we possess a potential world-class Platinum Group Metal mine, fortified by a substantial resource within an established mining area, effectively mitigating associated risks. Recent geotechnical studies and metallurgical assays confirm the suitability of well-established mining methods and processing techniques for the orebody located in the Steelpoort area. This location offers various advantages, including energy accessibility from the national grid, potential for alternative green energy sources, well-developed transportation infrastructure, and a skilled workforce from established mining communities.”
The life of mine on the UG2 reef only is estimated at 36 years with a total of approximately 52 million tonnes mined (~10.9 moz 7E, which includes platinum, palladium, rhodium, ruthenium, iridium, osmium and gold) for an average annual production rate of 330 Koz PGM (6E basis which refers to platinum, palladium, rhodium, ruthenium, iridium and gold) with cash costs firmly at the low end of the global cost curve. Mining and processing are amenable to proven technology.
The scoping study pegged capex for mine development at $408 million, for a life of mine of 36 years and an operation scheduled to deliver 2 million tonnes per annum, producing in order of 330 000 ounces of PGMS at steady state production.
“The project has a payback of four and a half years from a start of planned production. Another important aspect that emerged from the scoping study is an all-in-sustaining-cost of $970 per ounce, which places the Bengwenyama project at the lower end of the cost curve. This gives us some comfort and means that if prices start to drop, we will be fairly safe. The main reason for the lower cost per ounce is the higher grades of the UG2 reef, which can be efficiently delivered to the plant due to ideal UG2 reef mining conditions.”
Strategically situated amongst major mining operations with all the necessary infrastructure (water, power, roads, services, and skilled labour force) already in place, the Bengwenyama project will see the emerging miner focus on mining the higher-grade UG 2 Reef close to surface.
“Bengwenyama is a shallow ore body and provides us with an opportunity for early access. This gives us a significant advantage over our peers in terms of capital expenditure and the speed at which we will be able to bring the project into production. We will access the first ore at roughly 90 metres.”
In the initial study, Southern Palladium considered a single decline with a relatively slow build up to steady state production but has subsequently taken the decision to include a second decline. The second decline opens into the Horst Block, located on the north-western part of the Bengwenyama project mining area.
Given the sheer size of Bengwenyama, the project will employ roughly 4000 people.
“Considering the multiplier effect of roughly three to four times the number of people employed, between 12 000 and 20 000 people from the immediate area are set to benefit from Bengwenyama.”
Financial considerations
Following weak demand for PGMs, producers are feeling the pressure with many miners considering business restructure – this in a bid to keep afloat.
Odendaal, meanwhile, says that Southern Palladium is in a comfortable cash position, with cash reserves in the bank of close to A$9 million that will take the project to completion of the Pre-feasibility Study stage.
The Australian listed entity is, however, planning for two potential scenarios to play out in the PGM industry.
“In the worst-case scenario – should the bottom fall-out for PGMs, Southern Palladium has a financial buffer that allows the company to complete its PFS and continue with business for another 18 months. In essence, we would still be able to sustain the office and complete our studies.”
Given the diminished demand for PGMs, the company will be keeping a close eye on the market, seeking out quarterly market assessments as it begins preparation for project construction.
“Hand-in-hand with preparing for project construction, we will be finalising our Definitive Feasibility Study and embarking on a final investment decision. We will determine the final capital requirements later this year. Owing to the current market situation, we are flexible in terms of our capital requirements and are considering various funding options as we eye project construction in 2026.”
On a more positive note, should the PGM price improve by the end of 2025, Southern Palladium will consider “going full steam into 2025 with a Pre-feasibility Study and Mining Right in hand and possibly a slightly amended project construction time-line”.
The Roger Baxter drawcard
In January, Southern Palladium appointed industry heavy-weight Roger Baxter, who brings to the junior miner a wealth of South African mining industry experience, as its new Chairman.
The previous CEO of Minerals Council South Africa is also the chairman of the World Platinum Investment Council, and therefore able to share latest insights in the PGM market with the emerging miner.
“Having Roger Baxter on the Board of Southern Palladium is a great advantage, not only because of his intimate knowledge of the industry but also because he brings with him an extensive network of local, UK and Australian contacts.
Currently, our biggest shareholder base is in Australia and as we move into the development and construction phases, and enter the race to raise the requisite capital, we will need greater exposure and an introduction to investors, which is what Baxter offers.”
According to Odendaal, Baxter is a hands-on Board member who provides the company with “great direction” as well. Earlier this year, Baxter, together with Southern Palladium’s board members, visited the Bengwenyama project site.
PGM outlook
According to Odendaal, the three key PGM products of platinum, palladium and rhodium are forecast to be in a potential deficit in 2024 and 2025.
With the PGM price currently sitting at below $1000/oz, miners of the Merensky reef are facing challenges, with “as much as 25% of those platinum operations currently underwater”. In a bid to remain profitable, several miners are undergoing business restructure.
“I believe that from a demand perspective, the next year and a half could see slow improvement in demand for PGMs, driven by the automotive industry and a shift to hybrid vehicles. Coupled with being a commodity used in the industrial sector, platinum also has an investment component advantage. However, the overhang in the global economy, which sees uncertainty related to interest rates and possible recession in some major economies, including the US, continues to influence the minerals and metals market, particularly demand and supply fundamentals for PGMs.
On the upside, should there be an uptick in the global economy, there will certainly be an increased demand for PGMs, which will translate to supply deficits that will drive prices skyward. Overall, I believe there is still a good outlook for platinum going forward and that Southern Palladium is well positioned to take advantage of the market up-tick as our project begins development in 2026,” concludes Odendaal.
