| Wed 5 Nov 2008, 12:27 | | WEZ - Wesizwe - Wesizwe Platinum Strategic Update |
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WEZ
WEZ
WEZ - Wesizwe - Wesizwe Platinum Strategic Update
Wesizwe Platinum Limited
(Incorporated in the Republic of South Africa)
(Registration number: 2003/020161/06)
JSE code: WEZ & ISIN: ZAE000075859
(the "Company" or "Wesizwe")
05 November 2008
WESIZWE PLATINUM STRATEGIC UPDATE
Further to the Frischgewaagd-Ledig Project ("the Project") strategic update
issued on 28 October 2008, Wesizwe is pleased to announce that the Company`s
Board of Directors has duly considered the strategic options presented by
management and has made a decision on the future development of the Project.
The Board decisions are that:
1. Deferral of the project will be detrimental to shareholder value and the
project should proceed according to plan, subject to the implementation of
certain amendments to the project structure and financing.
2. With due consideration to the current global economic situation, the
project financing options will be reviewed as the board believes an equity
financing component would be excessively dilutive to current shareholders
if raised in a single offering as originally planned.
3. The original project capital of R5,6bn was determined by the Bankable
Feasibility Study released in March 2008. It is important to appreciate
that this amount is to be expended over a period of 10 years and that it is
not necessary to raise the entire amount at this point in time.
4. Consequently, the project is being divided into a series of discrete phases
and the capital required for each phase will be raised incrementally.
5. In line with the overall approach of risk management, Wesizwe will not
commit to the full EPCM (Engineering, Procurement and Contract Management)
contract amount but has negotiated with both the EPCM contractor, TWP and
the shaft sinking contractor, Murray and Roberts Cementation, to repackage
the current arrangements. The contractors have therefore agreed that the
Project would be further broken down into smaller work components than
initially envisaged in the original contract. The smaller components will
be more manageable from a financing perspective and will considerably lower
the commercial risk to the company.
6. The directive is to focus on the critical path items of shaft sinking and
development, winders and critical infrastructure directly associated with
accessing the ore body ahead of the auxiliary items. The flexibility
inherent in this staged approach will ultimately allow the Project to
proceed with minimal delay and adherence as far as is possible to the
original project plan.
The raisons d`etre for these decisions are that:
a) The first phase will be the shaft sinking operation which will take two
years and cost approximately R1,8bn ($200 m) under the revised capital
raising target. This amount is considered achievable even in these market
conditions, but in line with the fund raising philosophy of mitigating
dilution, is likely to be raised in more than one tranche. The modular
approach will serve to mitigate the dilutive impact of a full capital raise
as sequential tranches of capital will only be raised as the project moves
towards the tangibility of production, as the Project is progressively
being de-risked with the completion of each phase;
b) completion of the shaft sinking operation will provide access to the ore
body and considerably de-risk the project technically; and
c) by adopting a modular approach to developing the Project utilising existing
cash resources, the company will proceed with commissioning the site
preparation while simultaneously raising the finance for the pre-sink and
sinking phases of the Project.
The above options and subsequent decisions were taken in full consultation with
the Company`s principal service providers, namely TWP Consulting (Pty) Limited
and Murray & Roberts Cementation (Pty) Limited ("Murray & Roberts"). Both these
companies are fully committed to the Project and have indicated their
willingness to be highly innovative in the approach taken in the development of
the Project.
Digby Glover, TWP Consulting CEO, said: "We are well aware that the current
market conditions make it difficult for mining projects to proceed with their
current plans. We are fully supportive of Wesizwe`s pioneering modular approach
to the Project and remain committed to see it develop into a world class
platinum mine."
Henry Laas, MD of Murray & Roberts Cementation added: "It is important for us to
remain flexible and accommodate our clients in whatever way we can, especially
in the current market environment. We are delighted to be the shaft sinking
contractor chosen on this high quality project and are committed to progress it
at a rate that that will suit the revised development plan. We will assist
Wesizwe wherever we can in keeping the project on track."
Michael Solomon, Wesizwe CEO, commented, "Wesizwe is well known for its
innovative approach to project and risk management. What we are doing here in
modularising the capital contracts is completely consistent with our highly
successful Reverse Engineering Strategy that took the project from first
borehole to BFS in record time for a project of this size and was a full year
ahead of schedule on completion. For example, with our initial exploration
programme, we adopted a highly unconventional approach by covering the
prospecting area with mother holes first on a large grid to outline the ore body
and establish an inferred resource. We then came back later to do the
deflections. While the unit cost was higher on a hole-by-hole basis, it speeded
up the resource definition phase and allowed us to list earlier than we would
otherwise have been able to do. Similarly, by adopting this modular approach
this difficult economic environment, we will keep the project on track and
enhance our competitive edge, whilst mitigating shareholder dilution
The company is scheduled to be cash generative in 2013, five years time. The
NPV, which represents the underlying value of the project, will be premised on
commodity prices prevailing then, not the current spot prices. We anticipate
that by then the economic recovery will have some traction and we will hit the
production road running. Five-year platinum price forecasts from a number of
institutions range between $1300 - $1500/oz while our BFS was undertaken at
$1125/oz at a long-term exchange rate of R9.17 to the US dollar; this is
entirely realistic even in the current environment. The underlying value of the
Project therefore remains relatively unaffected by the current economic travail.
What this environment has impacted on is the ability to raise money and its
cost, and it is this aspect that we have tackled head on.
The willingness of both TWP and Murray & Roberts to cooperate in this innovative
and unconventional staged approach to the Project development is absolutely
critical and is further evidence of the quality of the Project team and its
ability to adapt to adverse situations and we have the steely resolve to keep
the project going, irrespective of the obstacles faced. This is a great start to
the mining phase of the project and gives us confidence in tackling the road
ahead
Both management and the Board still firmly believe in the superior quality of
the Project, its inherent value and strategic location and will jointly continue
to work to unlock value for shareholders. We are convinced that reasonable long-
term platinum industry fundamentals will be restored and that Wesizwe is well
positioned to deliver into the growth and further consolidation of the
industry."
Ends
Enquiries
Wesizwe Platinum +27 11 994 4600
Mike Solomon, CEO
www.wesizwe.com
Lucidity Investor Relations +27 83 604 0820
Ilja Graulich
College Hill +27 11 447 3030
Ashleigh Dubbelman
Qinisele Resources +27 82 492 4957
Dennis Tucker
Sponsor: Investec Bank Limited
Date: 05/11/2008 12:27:03 Produced by the JSE SENS Department.
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