Looking fashionable again

2010-12-02 00:00

JSE-LISTED JUNIOR MINER Anooraq Resources Corporation – currently sitting on South Africa’s third largest un-mined platinum group metals deposit – recently announced its plans to double production by 2014 to 240 000oz/year. Fancying themselves as “turnaround specialists and efficient operators”, CEO Philip Kotze and his management team have come out guns blazing since acquiring the controlling interest and management control of the Bokoni mine situated in the Bushveld Igneous Complex.

They turned Bokoni – historically SA’s highest cost producer – from an R80m/month operating loss in second quarter 2009 to a R2m operating profit in second quarter 2010. Since its takeover at the Bokoni mine (formerly Lebowa Platinum Mines) Anooraq has managed to increase production by 30% and cut unit costs by 20%.

Anooraq’s first stage of growth comprises the expansion of its Merenksy and UG2 reefs production to 240 000oz/year and currently mined at shallow levels of between 70m and 500m below the surface (industry average depth is approximately 1 000m). These low levels will ensure it’s able to minimise costs and focus on revenue-generating activities. It also provides Anooraq with a cost advantage on power, as refrigeration – a major consumer in underground mining – is usually required at below 650m.

Management says its second phase of growth will come from 2016 onwards, at which time it expects to grow steady output to around 600 000oz/year, production levels at which it can compete against the larger mid-tier PGM producers, such as Northam Platinum and Aquarius Platinum.

Finweek reckons investors can take advantage of the discount on the stock, which hasn’t fully priced in its growth potential – especially if you believe the price rally in the PGM basket will be sustained by strong platinum and palladium demand from China.