Platmin sells majority stake for US$175M

Vancouver – In exchange for US$175 million, enough to finish construction of the Pilanesberg platinum mine in South Africa, cash-strapped Platmin (PPN-T, PPN-L) has agreed to hand over the keys to its house in a three-part deal.

Through two private placements, the first valued at US$125 million and the second at US$50 million, Platmin will issue Pallinghurst, an investment group, and the Bakgatla-Ba-Kgafela tribe and Pallinghurst joint-venture (BPJV) a total of 258 million shares on top of its existing 111 million.

That will give Pallinghurst and the BPJV a combined stake of 69.8% in Platmin.

 

As part of the agreement and in addition to the private placements a consolidation in ownership of the Pilanesberg project, previously shared between Platmin and the BPJV, will also take place. It will increase the combined 69.8% stake to almost 80%.

 

The deal represents an enormous change in fortunes for the budding platinum mining company.

 

By late summer Platmin was well on its way to completing the US$220 million Pilanesberg platinum mine in South Africa, having paid for more than half of pre-production costs.

 

But still, the company knew it needed additional cash to finish up construction and pay back a roughly US$34 million bridge loan due Dec. 1, 2008 (a deadline subsequently extended to Dec. 31).

 

Platmin had intended to raise extra funds through a loan facility. And in August Platmin looked to have secured the necessary dollars.

 

Platmin announced Aug. 6 that it had entered an agreement for a US$200 million loan from The Standard Bank of South Africa, the same bank from which it held the bridge loan.

 

But it wasn’t to be. In a press release Platmin writes, “as both the credit and PGM commodity prices deteriorated, it became clear that such a facility could not be obtained on the terms envisaged.”

 

The financing fall-through posed an immediate threat to Platmin’s ability to meet its contractual obligations and loan repayment. As the company bluntly puts it, “Platmin was facing serious financial difficulty.”

 

It was at this point that Pallinghurst made its move. Pallinghurst came to Platmin with an alternative to debt: a US$175 million equity financing giving Pallinghurst and the BPJV a majority stake in Platmin.

 

Platmin, after forming a committee of independent directors and consulting with CIBC World Markets, soon agreed to the terms of the deal.

 

The broad strokes of the equity financing are as follows:

 

The first tranche sees Pallinghurst pay Platmin US$125 million for around 185 million shares at 85¢ a share (about 70% more than the closing price the day before Platmin announced the deal).

 

If completed current chairman of Platmin’s board, Rupert Pardoe, will step down and Platmin deputy chairman Keith Liddell will take his seat at the table. In addition the first transaction will see Brian Gilbertson, Pallinghurst chairman and former BHP Billiton CEO, join the board.

 

Platmin expects the first tranche to close before Dec. 19.

 

The second tranche, which Platmin sees closing by March 20, 2009, has the company issuing 74 million or so shares in exchange for US$50 million (again at 85¢ a share).

 

The shares will either go to the Bakgatla tribe (through the BPJV) or Pallinghurst, depending on whether Platmin gets a Johannesburg Stock Exchange listing by March 20. If it does Bakgatla will take the shares and if it does not Pallinghurst will pick them up.

 

Following the private placements the deal stipulates a consolidation of Pilanesberg ownership under Platmin.

 

Prior to the now unfolding private placement Platmin held a 72.39% interest in the Pilanesberg project through subsidiary Boyton. The BPJV (a 49.9-50.1 joint venture between Pallinghurst and the Bakgatla tribe), held the other 27.61% of Boyton through its own subsidiary called Moepi.

 

Under the terms of the private placement Platmin will convert Moepi’s (and thus the BPJV’s) 27.6% interest in Boyton into Platmin shares by March 31, 2010. That translates into Platmin issuing another 141 million or so shares and would give Pallinghurst and the BPJV an around 79% interest in Platmin.

 

So long as the agreement meets regulatory approval, the financing means Platmin should still be able to bring the Pilanesberg mine online in early 2009. Over 12 years Platmin expects to annually produce about 250,000 oz. of platinum, palladium, rhodium and gold, among other metals. Production will be dominated by platinum (about 50%) and followed by palladium (about 25%) and rhodium (about 10%).

 

The markets gave Platmin’s share price an 18% boost on news of the financing. It rose 9¢ to close at 60¢.