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Are Chinese Investors Likely to Invest Further in SA Platinum?

Posted on 2012-11-09, By A-Best Staff

Are Chinese Investors Likely to Invest Further in SA Platinum?

When the China-Africa Jinchuan Investment consortium, composed of diversified miner Jinchuan Group (JNMC) and the China-Africa Development Fund (CADFund), agreed to pay $227 million for a 45 percent stake in Wesizwe Platinum (OTC Pink:WSZWF), it was not just another mining deal. South Africa’s platinum mining industry became a bit more diverse as Chinese investors stepped in. But given the conditions of the deal and the consortium’s experience executing it, how likely is it to invest further?

In addition to purchasing the stake in Wesizwe, JNMC and the CADFund committed to underwriting a credit facility for Frischgewaagd-Ledig (now Bakubung) in the amount of $650 million. JNMC and the CADFund also vowed guaranteed funding for any capital shortfalls until the project reaches full production.

Shareholders are therefore offered “a unique proposition” in which Wesizwe’s flagship project is fully funded with “no prospect of further equity dilution.”

Bakubung is in the western limb of South Africa’s Bushveld Complex, a mineral-rich area. The Bakubung mine is estimated to have a 35-year mine life and will be capable of annual production of 330,000 ounces of PGMs.

Though Jinchuan brought mining and technical experience with the money, some were still surprised at the amount it was willing to pay given the circumstances.

“Most of us were shaking our heads when this deal was announced,” Peter Major, a mining analyst at Cadiz, an asset management firm specializing in Sino-African investments, told Asia Times.

“For a brand new group to enter this field, and sink a shaft that deep [nearly a kilometer] is quite something. They also have to build everything — the employee village, a processing plant and all the other elements that go with a mine of this size,” Major said.

In addition to the development challenges Bakubung presents, the Chinese investors will have to adapt to other operating conditions in South Africa. When they entered the game, those already playing were pondering the security of adequate water and energy supplies and were trying to manage rapidly-rising costs.

Under Chinese control, Wesizwe did not escape the grips of cost inflation. The price tag for Bakubung has increased, with the company revising the capital budget estimate up to R7.9 billion in real terms from R6.5 billion.

CEO Jianke Gao described the increases as “troublesome” and said costs could escalate further to R12 billion.

Chinese investors additionally had to adapt to the concept of black empowerment, which requires a certain percentage of black ownership in companies. With access to Bakubung, they were also introduced to the depths to which South African cultural and community issues get intertwined with mining.

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