Johannesburg, South Africa — MININGREVIEW.COM — 28 October 2008 – WESIZWE Platinum – currently in the process of launching the capital construction phase of its R5.6 billion Frischgewaagd-Ledig core project on the Western Bushveld – is weighing six options when it comes to developing an underground mine project in South Africa, with one of the options being the deferral of the project until platinum prices recover.
“Effectively we’ve got six strategic options to follow, of which deferral is one, but that decision has not been made,” said CEO Mike Solomon on SAfm Market Update.
“The implications of deferring a project of this nature are fairly significant. You push the NPV out, you’ve got this increasing capex, so first prize is to commence with the project and keep it going, and to try and keep it on track,” he added.
Solomon pointed out that the project had a five-to-seven year horizon and decisions had to be made accordingly. “So in terms of the underlying value of the project, one is looking at the commodity prices as they may be in 2013 to 2016, compared to what they are now,” he said.
“Where the market is difficult right now is that it inhibits one’s ability to raise capital. Project finance is all but dried up and, as one’s stock price declines, it makes the raising of equity that much more expensive," he explained.
“Debt is not an option,” Solomon emphasised. “In a case like ours, our original strategy was to negotiate our project finance, then go out and raise the equity side of the capital cost, then come back, spend that to draw down the debt as close as possible to cash generation, in order to mitigate the roll-up of interest. Now our plans don’t change,” he said.
“The only thing that does change is the fact that we’ve got to be a lot more careful in the raising of capital right now – it’s a lot more expensive. So instead of going out and raising, for example, the R2.8bn that we were intending to raise in capital if we’d geared the project 50%, we have to start looking at much smaller tranches,” he admitted.
“We are in the fortunate position that we have R350 million in the bank, and so the general approach is to wait for the dust to settle on the market and see which way it’s going,” Solomon concluded.