Walking the Path to Production

SITE VISIT

Pilanesberg, South Africa — As 37%-owner and operator of the Western Bushveld joint venture (WBJV) in South Africa, Platinum Group Metals (PTM-T, PTMQF-O) stands poised to join the exclusive ranks of platinum group metal (PGM) producers as it advances the Project 1 section of the property into the final bankable feasibility stage along with 37%-partner Anglo Platinum (AGPPY-O, ANP-L, ANANP-J) and Black Economic Empowerment (BEE) company Africa Wide Mineral Prospecting and Exploration, which holds 26%.

A recent charter flight into the Bushveld complex from Johannesburg provided The Northern Miner with an impressive view of several of the world’s largest PGM mines and refining complexes, which line the south rim of the structure. The Bushveld complex supplies more than 70% of the world’s platinum, aptly illustrating that Platinum Group Metals is situated in the right neighbourhood to bring forward a producer.

Just prior to the visit, the partners released a positive prefeasibility reviewing a planned underground operation in the Project 1 area of the WBJV, with anticipated annual platinum output of 155,000 oz. (total of 250,000 oz. per year combined platinum, palladium, rhodium and gold) over a more than 18-year mine life. The JV partners liked the study’s economic outlook and approved advancing it to the bankable feasibility stage.

Besides having good grades, the deposit occurs at a relatively shallow depth compared to others in the Bushveld. The ore zone in the Project 1 section of the WBJV averages about 500 metres depth, while some producers in other sections of the Bushveld are modelling production depths of up to 1,800 metres.

Total measured resources of 4.45 million tonnes grading 5.2 grams of combined platinum, palladium, rhodium plus gold were reviewed in the study. A further 40.9 million tonnes of indicated resource was also tabled, averaging 4.3 grams of the combined precious metals. Contained metal in the measured and indicated resource comes to about 6.4 million oz. precious metals with another 1.8 million contained ounces in the inferred portion.

The JV partners are deliberating over two types of underground access scenarios to reach the narrow ore horizons. Both a standard vertical access shaft (that would see production start around 2013) and an early access decline/vertical shaft combination (bringing initial production by 2010) are being considered.

Running the numbers on a vertical access shaft scenario gives a 17.7% pretax internal rate of return (IRR) and a US$339-million net present value (NPV), while the decline-shaft combination delivers an estimated 17% IRR and US$325-million NPV. Both scenarios assume average industry long-term metal price estimates (US$900 per oz. platinum, US$330 per oz. palladium, US$2,000 per oz. rhodium and US$500 per oz. gold) and a 5% discount rate.

When January 2007 spot prices for the metals (US$1,204 per oz. platinum, US$322 per oz. palladium, US$4,800 per oz. rhodium and US$627 per oz. gold) were used, project economics were significantly enhanced with IRRs of 28.9% and 29% and NPVs of US$884 million and US$881 million forecast for the two access methods, respectively.

Total capital spending (including sustaining costs) of US$328 million and US$355 million are estimated for the vertical access shaft and decline-shaft combination options, respectively.

The Bushveld layered igneous complex in northern South Africa hosts about 75% of the world’s platinum group metal resources. The 350-km-diameter structure was formed from multiple injections of magma into a chamber where it slowly cooled, allowing for segregation and “layering” of different minerals during crystallization. Precipitation of certain minerals resulted in the accumulation or concentration of certain elements, such as platinum, palladium, chromium and vanadium, into economic deposits.

Main producing areas of the Bushveld complex are around its rim, as the centre is deeply covered by rock sequences. Two principal mineralized horizons, the Merensky and Upper Group 2 (UG2) reefs, are being worked in the eastern and western limbs of the complex. The layers are quite thin, usually less than 1 metre, necessitating labour-intensive underground mining.

Platinum group metal resources on the WBJV are primarily hosted in three distinct units. In the Merensky Reef, which contains about 80% of the resource, mineralization occurs both in a pegmatoidal feldspathic pyroxenite unit and in the contact reef. PGMs also occur in the Upper Group No. 2 (UG2) chromitite seam.

In sections of the deposit, the interval between the Merensky Reef and UG2 is as little as 8 metres, but averages about 50 metres. Datamine modelling of Project 1 showed an average mining cut of just 1.26 metres on the reefs with the Merensky having an average width of about a half-metre.

The mining plan calls for the use of “off-the-shelf” technology, namely methods that have been proven on neighbouring projects, including Anglo Platinum’s adjoining Bafokeng Rasimone mine, which churns out 200,000 oz. refined platinum per year. Drift development from the shaft will establish multiple “attack points” on ore faces to maximize material delivered to the mill.

Sitting at the company’s field office in what it dubs its “War Room,” Platinum Group Metals’ South African exploration manager, Willie Visser, provides an overview of ongoing plans. He maps out a further 5-6 km of prospective ground to be explored north of the JV’s Project 1 section, particularly in the Project 3 area.

With about 170 holes completed on Project 1, Visser says the company has a “high level of assurance” that its geological understanding will be transferable to its new exploration targets.

Project 2 adds ounces

Just northwest of Project 1, the company’s Project 2 area recently saw an initial resource estimate outlining 3 million inferred tonnes grading 5.62 grams of combined precious metals on ground held by the JV. Another 18.5 million inferred tonnes of 5.05 grams 4E PGMs was delineated on a section shared equally between the JV and Wesizwe Platinum (WSZWF-O, WEZ-J).

The Project 2 resource contains just over 3.5 million oz. platinum group metals plus gold, of which about 2 million oz. is attributable to the WBJV partners.

JV partner Anglo Platinum also recently contributed its 50% interest in the nearly 5-sq.-km Portion 11 block, adjacent to the Project 2 area, to the WBJV. An inferred resource estimate of 32.3 million tonnes at 5.3 grams of combined precious metals, or about 5.5 million oz. total precious metals, was recently tabled for the block.

Speaking on the level of co-operation among the players in the area, PTM president and CEO Michael Jones says, “Anglo is contributing in the process, putting things into logical packages. They’ve contributed Portion 11 into the WBJV so that now you have two projects. . . that are logical geological blocks that have the same ownership.”

Wesizwe holds the other 50% of the Portion 11 block that constitutes part of its prefeasibility study and stated probable reserves of 16.7 million tonnes grading 4.2 grams of combined precious metals plus further “potential” reserves of 56 million tonnes of 4.1 grams combined precious metals.

“Wesizwe has a full prefeasibility study, so their engineering is actually a long way ahead of ours,” Jones says.

Beyond the joint holdings with Wesizwe in the Project 2 area and ongoing co-operation agreements, the relationship recently got even cozier following Wesizwe’s planned takeover of WBJV partner, Africa Wide Mineral Prospecting and Exploration.

Wesizwe plans to acquire Africa Wide for just over 62 million shares valued at 650 million rand, or about $103 million, to become part of the trio.

As Wesizwe is 52% owned by black South Africans, it complies with the ownership requirements under the country’s Mineral Act and Mining Charters.

Farther to the northwest, the WBJVs Project 3 area is located adjacent
to another of Wesizwe’s resource blocks, with a good chance that mineralization carries over onto the JV land.

With the WBJV comprising more than 67 sq. km of very prospective ground in the western limb of the Bushveld Complex, many investors speculate Platinum Group Metals is becoming a tempting takeover target as the platinum inventory rises. Stakeholders in the Bushveld have seen a recent trend of consolidation by the major operators.

The dominant operator in the region is Platinum Group Metals’ JV partner Anglo Platinum, which produced 2.8 million oz. platinum in 2006 and expects similar output for 2007.

Impala Platinum (IMPUY-O, IPLA-L, IMP-J), which operates in Zimbabwe’s Great Dyke region as well as the Bushveld, produced 1.85 million oz. platinum last year. Other significant Bushveld-region platinum producers include Lonmin (LNMIY-O, LMI-L, LOLMI-J) with output of about 1 million oz. in fiscal 2006, Aquarius Platinum (AQPTY-O, AQP-L, AQP-A, AQP-J) supplying about 250,000 oz. platinum in its latest fiscal year and Northam Platinum (nmpnf-o, nhm-j) mining about 200,000 oz. annually.

Platinum Group Metals has recently enjoyed a rally on strong platinum prices and its expanding resource base. Since February, the share price has seen a boost of about 50% to trade at around $4.00, giving the prospective miner a $240-million market capitalization based on its 60.7 million shares outstanding.

T.N.M. NUGGET

PLATINUM GROUP METALS’ WESTERN BUSHVELD JOINT VENTURE

THE ASSET:37% interest in the 67-sq.-km Western Bushveld Joint Venture in South Africa

RESOURCES: Project 1 measured resources of 4.45 M t of 5.2 grams combined Pt, Pd, Rh plus Au (4E PGMs) plus an indicated 40.9 M t at 4.3 grams 4E PGMs, or 6.4 M oz. 4E PGMs contained metal; further 1.8 M oz. in inferred portion; Project 2 area hosts additional inferred resources

MINE PLAN: Undergound development using shaft and possible decline combo; Annual Pt output of 155,000 oz. (total of 250,000 oz. per year combined Pt, Pd, Rh and Au) over a more than 18-year mine-life

PRODUCTION SCHEDULE: Production to start between 2010 and 2013, depending on access decision