Platinum Group Metals Ltd. - Exhibit 99.2 - Filed by newsfilecorp.com
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Platinum Group Metals Ltd. |
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(An Exploration and Development Stage Company)
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Supplementary Information and MD&A |
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For the three months ended November 30, 2013
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This Management’s Discussion and Analysis is
prepared as of January 10, 2014 |
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A copy of this report will be provided to
any shareholder who requests it. |
Platinum Group Metals Ltd.
(An Exploration and Development
Stage Company)
Supplementary Information and MD&A
For the three months
ended November 30, 2013
MANAGEMENT’S DISCUSSION AND ANALYSIS
This management’s discussion and analysis (“MD&A”)
of Platinum Group Metals Ltd. (“Platinum Group”, the “Company” or
“PTM”) is dated as of January 10, 2014 and focuses on the Company’s
financial condition and results of operations for the three months ended
November 30, 2013. This MD&A should be read in conjunction with the
Company’s unaudited condensed consolidated interim financial statements for the
three months ended November 30, 2013 together with the notes thereto (the
“Financial Statements”).
The Company prepares its financial statements in accordance
with International Financial Reporting Standards (“IFRS”) and in
accordance with International Accounting Standard 34 – Interim Financial
Reporting (“IAS 34”). All dollar figures included therein and in the
following MD&A are quoted in Canadian Dollars unless otherwise noted. All
references to “U.S. Dollars” or to “US$” are to United States Dollars. All
references to “R” or to “Rand” are to South African Rand.
PRELIMINARY NOTES
NOTE REGARDING FORWARD-LOOKING STATEMENTS:
This MD&A and the documents incorporated by reference
herein contain “forward-looking statements” and “forward-looking information”
within the meaning of applicable US and Canadian securities legislation
(collectively, “Forward-Looking Statements”). All statements, other than
statements of historical fact that address activities, events or developments
that the Company believes, expects or anticipates will, may, could or might
occur in the future are Forward-Looking Statements. The words “expect,”
“anticipate,” “estimate,” “may,” “could,” “might,” “will,” “would,” “should,”
“intend,” “believe,” “target,” “budget,” “plan,” “strategy,” “goals,”
“objectives,” “projection” or the negative of any of these words and similar
expressions are intended to identify Forward-Looking Statements, although these
words may not be present in all Forward-Looking Statements. Forward-Looking
Statements included or incorporated by reference in this MD&A include,
without limitation, statements with respect to:
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revenue, cash flow and cost estimates and assumptions;
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production estimates and assumptions, including
production rate, grade per tonne and smelter recovery; |
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project economics; |
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project debt financing; |
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future metal prices and exchange rates; |
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mineral reserve and mineral resource estimates;
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production timing; and |
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potential changes in the ownership structures of the
Company’s projects. |
Forward-Looking Statements reflect the current expectations or
beliefs of the Company based on information currently available to the Company.
Forward-Looking Statements in respect of capital costs, operating costs,
production rate, grade per tonne and smelter recovery are based upon the
estimates in the technical reports described herein and ongoing cost estimation
work, and the Forward-Looking Statements in respect of metal prices and exchange
rates are based upon the three year trailing average prices and the assumptions
contained in such technical reports and ongoing estimates.
Forward-Looking Statements are subject to a number of risks and
uncertainties that may cause the actual events or results to differ materially
from those discussed in the Forward-Looking Statements, and even if events or results discussed in the Forward-Looking Statements
are realized or substantially realized, there can be no assurance that they will
have the expected consequences to, or effects on, the Company. Factors that
could cause actual results or events to differ materially from current
expectations include, among other things:
2
Platinum Group Metals Ltd.
(An Exploration and Development
Stage Company)
Supplementary Information and MD&A
For the three months
ended November 30, 2013
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inability of the Company to find an additional and
suitable joint venture partner for the Project 1 (as defined herein) and
Project 3 (as defined herein) platinum mines; |
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failure of the Company or its joint venture partners to
fund their respective pro-rata share of funding obligations; |
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additional financing requirements; |
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history of losses and ability to continue as a going
concern; |
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no known mineral reserves on most of the Company’s
properties and delays in, or inability to achieve, planned commercial
production; |
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discrepancies between actual and estimated mineral
reserves and mineral resources, between actual and estimated development
and operating costs, between actual and estimated metallurgical recoveries
and between estimated and actual production; |
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fluctuations in the relative values of the Canadian
Dollar as compared to the Rand and the U.S. Dollar; |
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metals price volatility; |
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difficulty enforcing certain judgments involving United
States federal securities laws; |
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the Company’s potential guarantee obligations under the
proposed New Project Loan Facility (as defined herein), if consummated;
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delays in the start-up of the Project 1 platinum mine
which could result in a default under the New Project Loan Facility, if
consummated; |
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the ability of the Company to retain its key management
employees; conflicts of interest; |
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any disputes or disagreements with the Company’s joint
venture partners; |
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the costs of increasing Black Economic Empowerment
("BEE") in the Company's mining and prospecting operations;
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certain potential adverse Canadian tax consequences for
foreign-controlled Canadian companies that acquire common shares of the
Company; |
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the Company’s designation as a “passive foreign
investment company” and potential adverse U.S. federal income tax
consequences for U.S. shareholders; |
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exploration, development and mining risks and the
inherently dangerous nature of the mining industry, including
environmental hazards, industrial accidents, unusual or unexpected
formations, safety stoppages (whether voluntary or regulatory), pressures,
mine collapses, cave ins or flooding and the risk of inadequate insurance
or inability to obtain insurance to cover these risks and other risks and
uncertainties; |
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property and mineral title risks including defective
title to mineral claims or property; |
3
Platinum Group Metals Ltd.
(An Exploration and Development
Stage Company)
Supplementary Information and MD&A
For the three months
ended November 30, 2013
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changes in national and local government legislation,
taxation, controls, regulations and political or economic developments in
Canada, South Africa or other countries in which the Company does or may
carry out business in the future; |
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equipment shortages and the ability of the Company to
acquire the necessary access rights and infrastructure for its mineral
properties; |
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environmental regulations and the ability to obtain and
maintain necessary permits, including environmental authorizations;
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extreme competition in the mineral exploration industry;
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risks of doing business in South Africa, including but
not limited to, labour, economic and political instability and potential
changes to legislation; |
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no expectation of paying dividends, share price
volatility, global financial conditions and dilution due to future
issuances of equity securities; and |
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the other risks disclosed under the heading “Risk
Factors” in the Company’s annual information form dated November 26, 2013
(“AIF”). |
These factors should be considered carefully, and investors
should not place undue reliance on the Company’s Forward-Looking Statements. In
addition, although the Company has attempted to identify important factors that
could cause actual actions or results to differ materially from those described
in Forward-Looking Statements, there may be other factors that cause actions or
results not to be as anticipated, estimated or intended.
The mineral resource and mineral reserve figures referred to in
this MD&A are estimates and no assurances can be given that the indicated
levels of platinum (“Pt”), palladium (“Pd”), rhodium (“Rh”)
and gold (“Au”) (collectively referred to as “4E”) will be
produced. Such estimates are expressions of judgment based on knowledge, mining
experience, analysis of drilling results and industry practices. Valid estimates
made at a given time may significantly change when new information becomes
available. While the Company believes that the mineral resource and mineral
reserve estimates included in this MD&A are well established, by their
nature, mineral resource and mineral reserve estimates are imprecise and depend,
to a certain extent, upon statistical inferences which may ultimately prove
unreliable. Any inaccuracy or future reduction in such estimates could have a
material adverse impact on the Company.
Any Forward-Looking Statement speaks only as of the date on
which it is made and, except as may be required by applicable securities laws,
the Company disclaims any intent or obligation to update any Forward-Looking
Statement, whether as a result of new information, future events or results or
otherwise.
NOTE TO U.S. INVESTORS REGARDING RESOURCE ESTIMATES:
Estimates of mineralization and other technical information
included or incorporated by reference herein has been prepared in accordance
with National Instrument 43-101 – Standards of Disclosure for Mineral
Projects (“NI 43-101”). The definitions of proven and probable
reserves used in NI 43-101 differ from the definitions in the United States
Securities and Exchange Commission (“SEC”) Industry Guide 7. Under SEC
Industry Guide 7 standards, a “final” or “bankable” feasibility study is
required to report reserves, the three year historical average price is used in
any reserve or cash flow analysis to designate reserves and the primary
environmental analysis or report must be filed with the appropriate governmental
authority. As a result, the reserves reported by the Company in accordance with
NI 43-101 may not qualify as “reserves” under SEC standards. In addition, the
terms “mineral resource”, “measured mineral resource”, “indicated mineral
resource” and “inferred mineral resource” are defined in and required to be
disclosed by NI 43-101; however, these terms are not defined terms under SEC
Industry Guide 7 and normally are not permitted to be used in reports and
registration statements filed with the SEC. Mineral resources that are not
mineral reserves do not have demonstrated economic viability. Investors
are cautioned not to assume that any part or all of the mineral deposits in
these categories will ever be converted into reserves. “Inferred mineral
resources” have a great amount of uncertainty as to their existence, and great
uncertainty as to their economic and legal feasibility. It cannot be assumed
that all or any part of an inferred mineral resource will ever be upgraded to a
higher category. Under Canadian securities laws, estimates of inferred mineral
resources may not form the basis of feasibility or pre-feasibility studies,
except in rare cases. Additionally, disclosure of “contained ounces” in a
resource is permitted disclosure under Canadian securities laws; however, the
SEC normally only permits issuers to report mineralization that does not
constitute “reserves” by SEC standards as in place tonnage and grade without
reference to unit measurements. Accordingly, information contained in this
MD&A and the documents incorporated by reference herein containing
descriptions of the Company’s mineral deposits may not be comparable to similar
information made public by U.S. companies subject to the reporting and
disclosure requirements of United States federal securities laws and the rules
and regulations thereunder.
4
Platinum Group Metals Ltd.
(An Exploration and Development
Stage Company)
Supplementary Information and MD&A
For the three months
ended November 30, 2013
TECHNICAL AND SCIENTIFIC INFORMATION:
The technical and scientific information contained in this
MD&A has been reviewed and approved by R. Michael Jones, P.Eng, President
and Chief Executive Officer and a director of the Company. Mr. Jones is a
non-independent “qualified person” as defined in NI 43-101 (a “Qualified
Person”).
1. DESCRIPTION OF BUSINESS
Platinum Group Metals Ltd. is a British Columbia, Canada,
company amalgamated on February 18, 2002 pursuant to an order of the Supreme
Court of British Columbia approving an amalgamation between Platinum Group
Metals Ltd. and New Millennium Metals Corporation. The Company is a
platinum-focused exploration and development company conducting work primarily
on mineral properties it has staked or acquired by way of option agreements in
the Republic of South Africa and in Canada.
The Company’s business is currently focused on the construction
of the Project 1 platinum mine (“Project 1”) and the exploration and
initial engineering on the newly discovered Waterberg Platinum deposit, where
the Company is the operator of the Waterberg joint venture project (the
“Waterberg JV Project”) with the Japan Oil, Gas and Metals National
Corporation (“JOGMEC”) and Mnombo Wethu Consultants (Pty) Ltd.
(“Mnombo”). The Company has also expanded its exploration on to the
prospecting rights covering 530 square kilometers immediately adjacent and north
of the Waterberg JV Project property (the “Waterberg Extension Project”
and, together with the Waterberg JV Project, the “Waterberg Projects”).
As a result of the resource scale and thickness of the Waterberg deposit, the
Waterberg Projects have increased in importance in the Company’s business
recently.
The Company’s current complement of managers, staff and
consultants in Canada consist of approximately 13 individuals and the Company’s
complement of managers, staff, consultants and casual workers in South Africa
consist of approximately 139 individuals.
Project 1 is operated by the Company on an “owner
managed-contractor” basis. At present the Company has 20 of its staff, 41
technical services and security staff and 11 human resources and labour
consultants assigned to Project 1. JIC Mining Services (“JIC”) has
approximately 429 people assigned to both the north and south mine areas at
Project 1. Engineering, procurement, construction and management (“EPCM”)
contractor DRA Mining (Pty) Ltd. completed its initial engagement with the
Company for Phase 1 establishment of the underground development of the north
mine declines in mid-2012, after which Company personnel assumed management over
underground services provided by JIC. Since December 2012 DRA Mineral Projects
(Pty) Ltd. (“DRA”) has been formally engaged as EPCM contractor for
commencement of Phase 2 surface infrastructure including mill and flotation
circuit construction. DRA is managing approximately 589 people working on site
at Project 1 assigned to earthworks, civil construction of surface
infrastructure, civil construction of the concentrator plant and perimeter
security fencing. Of the people working on site at Project 1 in South Africa at
present, approximately 20% are people from the local communities surrounding
Project 1.
5
Platinum Group Metals Ltd.
(An Exploration and Development
Stage Company)
Supplementary Information and MD&A
For the three months
ended November 30, 2013
General management and support services in South Africa were
larger compared to the previous period in response to growth at Project 1 and
the Waterberg Projects. New office premises were leased in Canada in the fourth
fiscal quarter of the last fiscal year due to the expiration of lease
arrangements and new offices were leased in South Africa due to growth. In
addition to its existing general office space, the Company utilizes facilities
at the Company-owned Sundown Ranch property for Project 1 mine site
administration, site induction and staff services and uses a secure compound and
core storage facility at the Company-owned Elandsfontein Farm, adjacent to
Project 1. The Company also rents a secure compound for core storage,
administration and field services near the Waterberg Projects.
2. PROPERTIES
Under IFRS, the Company defers all acquisition, exploration and
development costs related to mineral properties. The recoverability of these
amounts is dependent upon the existence of economically recoverable mineral
reserves, the ability of the Company to obtain the necessary financing to
complete the development of the property, and any future profitable production;
or alternatively upon the Company’s ability to dispose of its interests on an
advantageous basis.
The Company evaluates the carrying value of its property
interests on a regular basis. Any properties management deems to be impaired are
written down to their estimated net recoverable amount or written off. For more
information on mineral properties, see below and Notes 5 and 6 of the Company’s
Financial Statements.
SOUTH AFRICAN PROPERTIES
The Company conducts its South African exploration and
development work through its wholly-owned direct subsidiary Platinum Group
Metals RSA (Pty.) Ltd. (“PTM RSA”). Development of Project 1 is conducted
through Maseve Investments 11 (Pty) Ltd. (“Maseve”), a company that is
currently held 74% by PTM RSA and 26% by Africa Wide Mineral Prospecting and
Exploration (Pty) Limited (“Africa Wide”), which is in turn owned 100% by
Johannesburg Stock Exchange listed Wesizwe Platinum Limited (“Wesizwe”).
See “Project 1 and Project 3 – Africa Wide Dilution” for details regarding the
dilution of Africa Wide’s shareholding in Maseve.
The Company is the operator of the Waterberg Projects,
consisting of the Waterberg JV Project and the Company’s exploration on
prospecting rights on the Waterberg Extension Project. The Company conducts all
of its exploration activities at the Waterberg Projects through PTM RSA. As a
result of the resource scale and thickness of the Waterberg deposit, exploration
activities at the Waterberg Projects have increased in importance in the
Company’s business.
Project 1 and Project 3, South Africa
Projects 1 and 3 – Activities in the Period ended
November 30, 2013
During the three months ended November 30, 2013, the Company
incurred $36.1 million in development costs for Project 1 and did not incur any
significant costs on Project 3, located adjacent to and to the north of Project
1. In the prior year comparative period, total Project 1 and Project 3
expenditures amounted to $8.51 million. At November 30, 2013, the Company
carries total deferred development costs related to Project 1 of $271 million
and another $3.2 million related to Project 3. Africa Wide’s non-controlling
interest in Maseve as at November 30, 2013 is recorded at $56.5 million.
The original Phase 1 development program was budgeted at
R856.83 million (approximately US$100 million at the time). Including the effect
of both increases and decreases in scope, Phase 1 was completed in March 2013 at
a total cost of R777.20 million; however a further amount of R81.3 million
related to deferred expenditures for electrical services is still expected to be
incurred, bringing the Phase 1 total cost essentially to budget. Phase 1 was
completed approximately 12 weeks behind original schedule as set at
commencement. Schedule delays occurred as a result of the time taken to obtain
permits and sub-optimal civil contractor performance early in Phase 1 related to
electrical procurement, construction of sumps and high wall steel work installation. During the period from
February to March 2013 advance was halted or delayed for approximately a month
due to a Notice under Section 54 of the Mine Health and Safety Act (1996) as
described below.
6
Platinum Group Metals Ltd.
(An Exploration and Development
Stage Company)
Supplementary Information and MD&A
For the three months
ended November 30, 2013
The north decline box cut excavation brings the working area
down an access ramp from surface for 128 metres linear and 20 metres vertical to
where the north declines enter the underground. From the portal entrance or
“collar” the north declines are now approximately 1,589 metres linear (at
November 30) and approximately 240 metres vertical (at November 30) into the
underground. This brings development to the first infrastructure level in order
to provide for storage bins for conveyor transfers from various mining blocks at
depth as well as workshops, reef drive take offs, ventilation headings and other
ancillary excavations. Approximately 1,545 (at November 30) metres of
development has now been completed from the bottom of the declines along this
first important infrastructural level. Multiple cross cuts between declines of
10 metres in length and multiple re-muck bays have also been installed as well
as sumps and water management facilities. A ventilation raise bore was commenced
in August 2013 and completed in October 2013. The boring of a second ventilation
raise is now underway with the pilot hole complete and back reaming set to begin
(at November 30). Completion of this second ventilation raise bore is scheduled
for later January, 2014.
On March 28, 2013 the Merensky Reef was intercepted in the
north declines as had been projected in the mine geological model. An
underground drive along the strike of the deposit has now advanced on the
Merensky Reef approximate position northward for approximately 595 metres (at
November 30), exposing approximately 175 meters of well-developed reef. Raise
development into the mine blocks has commenced and continues. Shallow Merensky
Reef mine blocks are exhibiting rolling features where the critical zone of the
Bushveld Igneous Complex is in close proximity to the Transvaal Sediment floor
rocks. This condition, referred to as an abutment facies of the Merensky Reef,
is common to the shallow portions of the adjacent operating mine. Small scale
stock piling of Merensky Reef material on surface has begun with approximately
36,000 tonnes on surface (at November 30). As development opens areas of
Merensky Reef, an evaluation of the initial mining blocks will be completed by
Company geologists and engineers. In addition to the drives along the reef
position laterally the north declines have now turned and are continuing from
the first infrastructural level targeting deeper mine blocks. At present the
declines have advanced approximately 300 linear meters toward block 11 and 40
meters toward block 12 (at November 30). At several locations near and at the
first infrastructure level near the current bottom of the north declines,
localised rock conditions required the installation of additional support. With
the continued sinking of the declines to depth it is expected that ground
conditions will improve.
Crews working on the north declines regularly achieve rates of
face advance at the planned 100 metres per month as described in the technical
report entitled “Updated Technical Report (Updated Feasibility Study Western
Bushveld Joint Venture Project 1 (Elandsfontein and Frischgewaagd))” dated
November 20, 2009 with an effective date of October 8, 2009 prepared by Gordon
I. Cunningham, Charles J. Muller, Timothy V. Spindler and Byron Stewart (the
“2009 UFS”). The rate of underground development in the north and south
declines continues to be an important factor with respect to future mine
production rates. Delays in underground development, stopping rates and planned
tonnages may result in delayed start-up of production and may have a negative
impact on peak funding and working capital requirements.
During early fiscal 2012, geo-technical drilling and survey
work was completed at the planned site of the twin southern declines. A tender
process was completed and the Company awarded a contract for earthworks and
civil construction at the south decline site. This work commenced after a mining
right for Project 1 was granted in April 2012. The south box cut is now complete
and underground mining has advanced the twin declines for approximately 200
metres (at November 30). The south decline Phase 2 development is behind the
original planned schedule. The development of the south declines has progressed
slower than anticipated due to poor ground conditions in the first 50 metres
vertical from surface. Work to deal with these conditions included consolidation
support, grouting, void filling and the installation of steel sets. The south
declines are now advancing into more competent rock. Development rates are
improving and are expected to continue improving as vertical depth
increases.
7
Platinum Group Metals Ltd.
(An Exploration and Development
Stage Company)
Supplementary Information and MD&A
For the three months
ended November 30, 2013
On June 14, 2013 the Company announced that as a result of the
slower development rates in the south mine and a one month project delay as a
result of Section 54 safety work stoppages, the targeted start date for first
concentrate production had been adjusted by six months to mid-2015.
As of the date of this MD&A, approximately $226 million has
been invested in Phase 1 and Phase 2 development assets and construction in
progress (not including mining equipment, land or non-mining related buildings).
Estimated initial production and concentrate sales in mid-2015 are expected to
be further delayed. The amount of time for the further delay of first
concentrate sales depends on the delay in final financing arrangements for the
Project 1 and other factors. The ramp-up profile for production from
commencement forward over the following two years is similar to previous
projections. Delays in ramp-up profile could occur if underground development
rates fall behind plan, potentially resulting in delayed revenue from
concentrate sales, which would negatively impact peak funding requirements.
Since late 2012 the Company and DRA have been working on design
work and preparations for the Phase 2 construction of milling, concentrating and
tailings facilities. Tenders for the Primary Mill components, mining development
and equipment and other project expenditures have been adjudicated and orders
have now been placed resulting in a commitment of R1.19 billion ($124 million at
November 30, 2013) over the next two years. The primary run of mine ball mill
has been ordered from Outotec RSA (Pty) Ltd. and cleaner flotation cells have
been ordered from Metso Mining and Construction (South Africa) Pty Ltd. Phase 2
construction at Project 1 commenced in early January 2013 and earth works and
laydown areas for mill and concentrator facilities are now mostly complete.
Foundations for major mill and concentrator components are above ground as well.
Civil engineering and construction work is well advanced and on schedule.
Expected deliveries for all major components remain on schedule. Ancillary
servicing for the north decline site, including buildings, piping, cabling,
fencing and security, has been completed.
Electrical generating capacity has been overwhelmed by demand
in recent years in South Africa, but additional capacity is currently under
construction. See “Risk Factors” in the Company’s AIF.
South African power utility company ESKOM (“ESKOM”) gave
notice to Maseve in March 2013 that it will be unable to install a planned
132KVA power infrastructure for delivery of a full 40 megavolt ampere
(“MVA”) service to Project 1 as originally scheduled. Notwithstanding
this the Company expects that power requirements for Project 1 will be met as
and when required. Power lines and a sub-station at commercial scale have been
installed on site. A construction supply of 1.5 MVA was installed to the
property in 2012. ESKOM has completed installation of transformers for an
initial 10MVA service to site and commissioning of that service occurred in
October 2013. The mining and milling operations of Project 1 do not require more
than 20 MVA for several years and the full 40MVA service is not required until
2017 and beyond in the current mine plan. ESKOM’s engineers and the Company have
approved a plan to use an existing 88KVA regional infrastructure to provide the
mine site with power as needed during ramp-up and documentation for this change
is in progress.
The Company has paid deposits to ESKOM of R59.22 million
(approximately $6.17 million at November 30, 2013) of R142.22 million in
estimated costs (approximately $14.81 million at November 30, 2013) for ESKOM’s
work in designing and constructing infrastructure for the delivery of electrical
power to the property.
In February 2013 the National Energy Regulator of South Africa
approved an 8% annual rate increase in the electricity tariff for the next five
years. This escalation is within the general sensitivities for total costs as
considered in the 2009 UFS. Increased power costs will affect all producers of
platinum in South Africa.
At full capacity the Project 1 mine is estimated to require a
maximum water supply of 6 megalitres/day (“ML/day”). In 2011, Maseve
entered into an agreement with regional water supplier Magalies Water
(“Magalies”) for a temporary 0.5 ML/day water supply. The construction of
a water pipeline to site was completed in 2012 and the temporary water supply is
now in service. On site water management infrastructure was built at a scale
suitable for full scale production for Project 1. An agreement between Maseve
and Magalies for a permanent water supply of 6 ML/day was executed in late
November 2012 and full scale service is expected to begin when required.
Magalies, Wesizwe and Maseve are currently cooperating to design, purchase and install a pipeline
connected to Magalies local supply for delivery of full scale service as planned
to both Project 1 and Wesizwe’s nearby operations. Magalies currently has
existing capacity to supply Project 1, but will need to complete new regional
infrastructure to meet expected mine and municipal demand in the future.
8
Platinum Group Metals Ltd.
(An Exploration and Development
Stage Company)
Supplementary Information and MD&A
For the three months
ended November 30, 2013
On September 5, 2012, Maseve received notice from Rustenburg
Platinum Mines Ltd. (“RPM”) regarding RPM’s exercise of its 60-day right
of first refusal to enter into an agreement with Maseve on terms equivalent to
indicative terms agreed to by Maseve with another commercial off-taker for the
sale of concentrate produced from Project 1 and Project 3. Formal legal off-take
agreements were executed in April 2013 based on the third party indicative
terms. The terms of the executed off-take agreement with RPM are not materially
different than those modeled in the 2009 UFS.
Working with a third party specialist, the Company has acquired
and maintains insurance coverage in South Africa for Project 1 including
policies for course of construction, wrap around liability and a South African
special risks policy.
Project 1 - Safety
The Company considers safety at Project 1 to be its first
priority. A formalized safety training, testing and monitoring regime
administered by a third party specialized consulting firm has been underway for
Project 1 since commencement of Phase 2 and continues at present.
On February 13, 2013 Moshiko Molepo, an employee of a surface
earth works contractor, was involved in an incident on surface at the Project 1
mine site and subsequently died while receiving medical care. A formal inquiry
with respect to the fatality was commenced on August 20, 2013 for three days and
was then adjourned. The inquiry was scheduled to reconvene in late 2013 but was
postponed to March 2014. The Company does not anticipate any material claims
being brought against it arising from this incident.
Project 1 - Financial Overview
The Company completed a definitive feasibility study in July
2008 and the 2009 UFS in October 2009 for Project 1, which was at that time a
portion of the Western Bushveld joint venture (“WBJV”) in South Africa.
Included in each study is a declaration of four element or “4E” reserve ounces
of combined platinum, palladium, rhodium and gold at the time of publication.
The base case for the 2009 UFS was modeled using 3 year
trailing metal prices at September 2009, including US$1,343 per ounce platinum,
an exchange rate of R8 to the U.S. Dollar. Since April 2013 there has been
significant volatility in the market prices for base metals and for gold and
other precious metals such as platinum and palladium. In recent months the Rand
has weakened to approximately R10.6 to each 1 US$. Weakening metal prices or a
stronger Rand will each have a negative effect on peak funding estimates for
Project 1. The escalation of costs, metal price volatility, production ramp up
timing and Rand volatility are all material risk factors for Project 1.
The Company completed an equity financing in October 2010 and a
portion of the proceeds was used to initiate a US$100 million Phase 1
development and bulk sample program at Project 1, which also included surface
and earth works.
In April 2012, the Company completed a revised cost budget
estimate based on post-2009 UFS work for inclusion in a financial model for a
syndicate of lead arrangers. The Company referred to industry sources and
Qualified Persons for updated cost information and also applied experience
gained during procurement and construction under the Phase 1 development program
currently underway. The revised peak funding estimate, which is calculated in
Rand, was published in April 2012 and includes both Phase 1 and Phase 2 in their
entirety. The revised estimate was approximately US$506 million (at R8 to the
US$) for the construction and commissioning of Project 1, representing an
escalation of approximately 14% since the 2009 UFS. Operating costs per tonne
were estimated to have escalated approximately 24% since the 2009 UFS. These operating cost escalation estimates
are in keeping with inflation rates and industry experience in South Africa
since 2009.
9
Platinum Group Metals Ltd.
(An Exploration and Development
Stage Company)
Supplementary Information and MD&A
For the three months
ended November 30, 2013
On June 14, 2013 the Company announced that as a result of
slower than planned development rates in the south mine, and a one month project
delay as a result of Section 54 safety work stoppages, the targeted start date
for first concentrate production had been adjusted by six months to mid-2015. As
of the date of this MD&A, approximately $228 million has been invested in
Phase 1 and Phase 2 construction and estimated initial production and
concentrate sales in mid-2015 are expected to be further delayed. The amount of
time for the further delay of first concentrate sales depends on the delay in
final financing arrangements for the Project 1 and other factors. The ramp-up
profile for production from commencement forward over the following two years is
similar to previous projections.
The Company is seeing escalation in Rand terms at Project 1 in
areas such as labour, diesel fuel, power and certain supplies. These escalations
have been consistent with those seen in the South African mining industry in
general over recent years. Major service contracts and equipment purchase
contracts are collectively in keeping with previous cost estimates plus industry
escalation. The Company’s original cost estimates were modelled at 8 Rand to the
US Dollar. With the Rand currently at or near 10.6 Rand to the US Dollar these
cost escalations are substantially offset in US Dollar terms, however, diesel
petroleum products are marked to US Dollar prices and a weakening Rand has the
effect of raising Rand-based fuel costs.
When based on longer term metal price assumptions the net
effect of escalation and project delays was estimated by the Company in June,
2013 at less than a 10% increase from previous cost estimates in US Dollars,
however weakening metal price assumptions or a stronger Rand will each have a
negative effect on peak funding estimates for Project 1. Delays in underground
development or delays in delivery of ore tonnage to surface stockpiles will also
have a negative effect on peak funding requirements. The escalation of costs,
metal price volatility, production ramp up timing and Rand volatility are all
material risk factors for Project 1. As a result of the decision of Africa Wide
on October 18, 2013 not to fund a cash call approved by the Maseve board of
directors, and the consequent delays in finalization of the Project 1 finance
package including project lending, a procurement freeze was implemented on
Project 1. The resulting delay in implementing construction contracts combined
with potential delays in ramping-up mining ore may result in a decision to
further delay the completion of mill construction and the first concentrate
sales.
On December 9 2013, the Company announced a bought deal
financing for 148.5 million common shares of the Company at a price of $1.18 per
share resulting in gross proceeds of $175.23 million. The offering closed
December 31, 2013 with net proceeds to the Company after fees, commissions and
costs of approximately $166 million. The Company had granted the underwriters an
option, exercisable at the offering price for a period of 30 days following the
closing of the offering, to purchase up to an additional 15% of the offering to
cover over allotments, if any. The over allotment option will not be exercised.
The completion of this equity financing will allow the Company to recommence on
many significant contracts and critical path items for Project 1.
Apart from delays and updated financial estimates, the general
mine plan for Project 1 is substantially unchanged from the 2009 UFS with a
steady state production rate of 275,000 4E platinum, palladium, rhodium and gold
derived from decline accessed Merensky and UG-2 ore.
Project 1 and Project 3 - Africa
Wide Dilution
On October 18, 2013, Wesize, through its subsidiary Africa
Wide, informed the Company that it would not be funding its approximately
US$21.8 million share of a project budget and cash call for Project 1 that had
been unanimously approved by the Maseve board of directors. As a result of the
failure to fund its share of the cash call, Africa Wide’s interest in Maseve,
and therefore Project 1 and Project 3, will be diluted in accordance with the
terms of the Maseve Shareholders’ Agreement.
10
Platinum Group Metals Ltd.
(An Exploration and Development
Stage Company)
Supplementary Information and MD&A
For the three months
ended November 30, 2013
Based on, and determined in accordance with, the dilution
provisions of the Maseve Shareholders’ Agreement, the Company has calculated
that once it has paid its 74% share of the approved cash call into Maseve,
Africa Wide will be diluted from by 4.98% to a holding in Maseve of 21.02% .
However, Africa Wide has calculated its dilution at 3.55%, reducing its
shareholding, in its opinion, to 22.45% . At meetings of the shareholders and
the board of directors of Maseve held on November 11, 2013, resolutions were
passed to unanimously approve the issuance of shares in Maseve to PTM RSA once
it has paid its 74% share of the approved cash call into Maseve, which would
dilute Africa Wide by 3.55%, with the possible further dilution of another 1.43%
sent to arbitration for determination according to the terms of the Maseve
Shareholders’ Agreement. As a result of this decision, the Company and the New
Arrangers (defined below) agreed to replace the Original Proposed Loan Facility
(defined below) for Project 1 with the New Project Loan Facility (defined below)
and the Company delayed certain expenditures on Project 1.
As Africa Wide is the Company’s BEE partner for Project 1, and
legislation and regulations in South Africa require a 26% equity stake in mining
rights to remain in good standing, the Company advised the Department of Mineral
Resources of the Government of South Africa (“DMR”) on October 19, 2013
of Africa Wide’s decision to not fund the cash call and the dilution
implications as a result thereof. On October 24, 2013 the DMR provided the
Company with a letter stating that it will apply the provisions of the Minerals
and Petroleum Development Act 28 of 2002 ("MPRDA") related to any
administrative processes or decisions to be conducted or taken within a
reasonable time and in accordance with the principles of lawfulness,
reasonableness and procedural fairness in giving the Company the opportunity to
remedy the effect of Africa Wide’s dilution. The Company is currently working on
a plan to sell the diluted percentage interest in Maseve previously held by
Africa Wide to an alternative, qualified BEE company when shares in Maseve are
issued to PTM RSA to account for the dilution of Africa Wide.
Project 1 - New Project Loan Facility
On December 6, 2012 the Company announced that a syndicate of
lead arrangers, appointed in August 2011, had obtained credit committee approval
for a US$260 million project loan facility (the “Original Proposed Loan
Facility”). Closing and draw down of the Original Proposed Loan Facility was
still subject to the negotiation and execution of definitive documentation and
the satisfaction of conditions precedent.
On November 8, 2013 the Company entered into a new mandate
letter with Barclays Bank PLC, Absa Corporate and Investment Bank, a division of
Absa Bank Limited, Caterpillar Financial SARL and Societe Generale (London
Branch) (the “New Arrangers”) for a US$195 million project loan facility
(the “New Project Loan Facility”). The new mandate letter replaces the
mandate letter and related documents prepared in connection with the Original
Proposed Loan Facility. The new mandate letter requires the New Arrangers to use
commercially reasonably efforts to arrange the New Project Loan Facility, and is
subject to a number of conditions precedent, including the credit committee and
other internal approvals of each of the New Arrangers, the finalization of a
facility agreement and related documents, certain corporate restructuring
transactions, the New Arrangers’ financial and continued technical due diligence
of the Company, any other obligor and Project 1, and the sale of, and receipt of
necessary regulatory approvals for, Africa Wide’s diluted interest in Maseve to
a qualified BEE entity. Mnombo is currently documented in the new mandate letter
as the qualified BEE entity for this sale transaction. Should the Company choose
to sell Africa Wide’s diluted interest in Maseve to a different qualified BEE
entity to replace Africa Wide, the approval of the New Arrangers would be
required. The New Project Loan Facility will require, among other conditions,
the Company to provide an estimated $75 million cost overrun facility, to
implement a metal hedging program, to guarantee the obligations of Maseve, to
obtain a guarantee from Mnombo, to pledge to the New Arrangers the Company’s
interest in the capital of Maseve and the Company’s interest in the Waterberg
Projects and to satisfy specified financial tests going forward.
There is no certainty that the Company will be able to
successfully complete the New Project Loan Facility. As of the date of this
MD&A, no binding commitments have been signed by the New Arrangers with
respect to the New Project Loan Facility. The New Arrangers are under no
obligation to provide the New Project Loan Facility on the terms described in
this MD&A, or at all. Failure by the Company to complete the New Project
Loan Facility or alternative financing for Project 1, or to provide its share of
required funding may result in the delay or indefinite postponement of
exploration, development, or production on any or all of the Company’s
properties, or even a loss of property interests.
11
Platinum Group Metals Ltd.
(An Exploration and Development
Stage Company)
Supplementary Information and MD&A
For the three months
ended November 30, 2013
The issuance of additional equity capital, if available, to
fund project capital requirements, may result in substantial dilution to
existing shareholders and would require the approval of the New Arrangers.
Project 1 - Labour Relations
There has recently been significant labour unrest and demands
for higher wages by certain labour groups across the gold and platinum mining
industries in South Africa. Both legal and illegal or “unprotected” strikes have
occurred at several mines since the beginning of August 2012. In limited cases,
wage increases have been agreed to by the management of some mining companies.
To date, the Company has seen no adverse labour action on its site at the
Project 1 mine.
The Company has worked closely with local communities and human
resource specialists Requisite Business Solutions (Pty) Ltd. for several years
in order to create a database of local persons interested in work at the Project
1 mine, including their skill and experience details. The Company has set a
minimum target of 30% local employment for the mine, including persons under the
employ of contractors. At present approximately 20% of the onsite workforce is
comprised of local persons from the surrounding communities.
The primary union at Project 1 representing the workers of
underground mining contractor JIC is the National Union of Mineworkers
(“NUM”). The Company maintains an active dialogue with JIC, NUM and its
own employees. JIC recently agreed to reasonable terms with the National Union
of Mineworkers for a labour contract at the Project 1 platinum mine for a two
year period to September 2015. In the future, should higher salaries and wages
occur across the industry, the Company will likely be required to comply with
higher pay bands, and an increase in labour costs, and therefore higher
operating costs could occur. See “Risk Factors” in the Company’s AIF.
Projects 1 and 3 - Mineral Resources and
Reserves
The Company provided a statement of mineral reserves for
Project 1 in the 2009 UFS and an updated statement of mineral resources for
Project 1 in a NI 43-101 technical report dated November 20, 2009 entitled “An
Independent Technical Report on Project Areas 1 and 1A of the Western Bushveld
Joint Venture (WBJV) Located on the Western Limb of the Bushveld Igneous
Complex, South Africa” (the “Project 1 Report”). An updated NI 43-101
technical report dated August 31, 2010 entitled “Technical Report on Project 3
Resource Cut Estimation of the Western Bushveld Joint Venture (WBJV) Located on
the Western Limb of the Bushveld Igneous Complex, South Africa” (the “Project
3 Report”) was later filed with respect to Project 3. Project 1 hosts an
estimated 2.801 million measured four element or “4E” ounces of platinum,
palladium, rhodium and gold (14.067 million tonnes @ 6.19 grams/tonne
(“g/t”)), 5.361 million indicated 4E ounces (30.392 million tonnes @ 5.49
g/t) and 0.047 million inferred 4E ounces (0.176 million tonnes @ 8.33 g/t).
Project 3 hosts an estimated 1.939 million indicated 4E ounces (11.104 million
tonnes @ 5.43 g/t) and 0.076 million inferred 4E ounces (0.443 million tonnes @
1.47 g/t). Of the mineral resources stated above for Project 1, there are 1.756
million 4E ounces (11.764 million tonnes @ 4.64) categorized as proven mineral
reserves and 2.91 million 4E ounces (19.782 million tonnes @ 4.57 g/t)
categorized as probable mineral reserves. Mineral reserves and mineral resources
reported above are from combined Merensky and UG2 reef tonnes. The Company will
hold a 77.55% interest in the 4E ounces attributable to Project 1 and Project 3
through its percentage shareholding in Maseve. This interest could increase by a
further 1.43% to 78.98% pending the payment of the Company’s 74% share of the
cash call and the outcome of the arbitration process now underway with Africa
Wide as described above. In the event of the planned sale of Africa Wide’s
diluted interest in Maseve into an alternative, qualified BEE Company, also as
described above, the Company’s interest in Maseve would then be reduced
accordingly by the percentage points of interest sold. Additional information
regarding grades, prill splits, sampling, reserve and resource calculations and
risk factors can be found in the technical reports described above as filed on
SEDAR at www.sedar.com and on EDGAR at
www.sec.gov.
12
Platinum Group Metals Ltd.
(An Exploration and Development
Stage Company)
Supplementary Information and MD&A
For the three months
ended November 30, 2013
Mineral reserves are a sub-set of measured and indicated
mineral resources included in the UFS and take into account mining factors and
are not in addition to the mineral resources.
Cautionary Note to U.S. Investors with respect to the
information above: The Company uses the terms “measured resources,”
“indicated resources,” and “inferred resources,” which are recognized and
required by Canadian regulations but not recognized by the SEC. “Resources” are
not “reserves” and so do not have demonstrated economic viability. Inferred
resources have a great amount of uncertainty as to their existence, and great
uncertainty as to their economic and legal feasibility. Furthermore, under
Canadian rules, estimates of inferred resources may not form the basis of
feasibility or pre-feasibility studies, except in rare cases. Investors are
cautioned not to assume that measured and indicated mineral resources will ever
be converted into reserves or that part or all of an inferred resource exists or
is economically or legally minable. In the following tables, the Company also
presents proven and probable reserves calculated under NI 43-101, which differs
from the standards of SEC Industry Guide 7. In addition, while disclosure of
contained ounces in a resource is permitted disclosure under Canadian securities
laws, the SEC normally only permits issuers to report mineralization that does
not constitute “reserves” by SEC standards as in place tonnage and grade without
reference to unit measurements. Accordingly, the disclosure below may differ
materially from the reserve estimates and other disclosures that would be
provided by a U.S. public company.
Projects 1 and 3 - History of Acquisition
On October 26, 2004, the Company entered into a joint venture
agreement forming the WBJV among the Company (37% interest held through PTM
RSA), Anglo American Platinum Limited (“Anglo”) (37% interest held
through its subsidiary RPM), and Africa Wide (26% interest held directly) in
relation to a platinum exploration and development project on combined mineral
rights covering approximately 67km2 on the Western Bushveld Complex
of South Africa. The WBJV property was divided into three distinct project
areas, namely Projects 1, 2 and 3. In April 2007, Anglo contributed an
additional 5km2 area of prospecting rights into the WBJV. Africa Wide
was subsequently acquired by Wesizwe, a Johannesburg Stock Exchange-listed
company, in September 2007.
On December 8, 2008, the Company entered into certain
agreements to consolidate and rationalize the ownership of the WBJV (the
“Consolidation Transaction”). On April 22, 2010, the Consolidation
Transaction was completed and the WBJV was dissolved. As a result Wesizwe
retained 100% of Project 2 and Maseve obtained 100% of Projects 1 and 3. The
combined area covered by the mineral rights for Projects 1 and 3 held through
Maseve comprises approximately 47km2 of the original
72km2.
The Company also received a 37% interest in Maseve in exchange
for its share of Projects 1 and 3. Wesizwe received a 45.25% initial interest in
Maseve in exchange for the mineral rights it transferred to Maseve. In exchange
for rescinding its 18.5% of Project 2 to Wesizwe, the Company received an
additional 17.75% interest in Maseve, bringing its holdings in Maseve to 54.75%
..
Through the Consolidation Transaction the Company acquired the
Maseve Subscription Right entitling it to subscribe for a further 19.25%
interest in Maseve, from treasury, in exchange for a subscription amount of
R408.81 million. On January 14, 2011, the Company exercised the Maseve
Subscription Right in the amount of R408.81 million (approximately $59 million
at the time), thereby increasing its effective shareholding in Maseve to 74%.
The subscription funds were placed in escrow for application towards Africa
Wide’s 26% share of expenditures for Projects 1 and 3 (the “Escrowed Maseve
Funds”). During the current period the Escrowed Maseve Funds were exhausted
against Africa Wide’s share of Project 1 expenditures by early November 2013.
As a result of their decision on October 18, 2013 to not fund
their approximately US$21.8 million share of an approved cash call as described
above, and determined in accordance with the dilution provisions of the Maseve
Shareholders Agreement, the Company estimates that Africa Wide will dilute from
26% to approximately a 21.02% interest in Maseve and therefore Project 1 and
Project 3, and as a result the Company will see an increase in its share of
Maseve to approximately a 78.98% . As discussed above the Company plans to sell
diluted percentage interests in Maseve to an alternative, qualified BEE company
to comply with the empowerment aspects of the MPRDA. See further
details at “Project 1 and Project 3 - Africa Wide Dilution” above.
13
Platinum Group Metals Ltd.
(An Exploration and Development
Stage Company)
Supplementary Information and MD&A
For the three months
ended November 30, 2013
Under the terms of the Consolidation Transaction agreements,
RPM held a 60-day right of first refusal on the sale of ore or concentrate
produced from Project 1, Project 2 and Project 3. On September 5, 2012, Maseve
received notice from RPM that RPM would exercise its right of first refusal to
enter into an agreement with Maseve on terms equivalent to terms agreed to by
Maseve with another commercial off-taker for the planned sale of concentrate
produced from Project 1. A formal off-take agreement between RPM and Maseve was
executed in April 2013.
Waterberg JV Project, South Africa
PTM RSA applied for a prospecting right for the Waterberg JV
Project area in 2009 and in September 2009 the DMR granted PTM RSA a prospecting
right for the requested area. Later in October 2009, PTM RSA entered into an
agreement (the “JOGMEC Agreement”) with JOGMEC and Mnombo whereby JOGMEC
could earn up to a 37% participating interest in the Waterberg JV Project for an
optional work commitment of US$3.2 million over four years, while at the same
time Mnombo could earn a 26% participating interest in exchange for matching
JOGMEC’s expenditures on a 26/74 basis (US$1.12 million). See further details at
“Waterberg JV Project - History of Acquisition” below.
Waterberg JV Project - Activities in the period ended
November 30, 2013
Drilling on the Waterberg JV Project area has resulted in the
inferred mineral resources discussed below. After mid-September drilling had
stopped on the property and engineering work had commenced.
In April 2012, JOGMEC completed its US$3.2 million earn in
requirement to earn a 37% interest in the Waterberg JV Project. Following
JOGMEC’s earn-in the Company funded Mnombo’s 26% share of costs for US$1.12
million and the earn-in phase of the joint venture ended in May, 2012. An
approved post earn-in 2012 budget for the joint venture was initially set by the
joint venture partners at US$8.37 million. In February 2013 the joint venture
partners increased the post earn-in budget to US$13.0 million. A further 2013
budget in the amount of US$7.0 million was later approved. To November 30, 2013
approximately $21.5 million has been spent on the joint venture. The Company has
funded the Company’s and Mnombo’s combined 63% share of this work for a cost of
US$12.2 million with the remaining US$7.17 million funded by JOGMEC. At November
30, 2013 an amount of US$0.5 million was due to JOGMEC for its 37% share of
approved joint venture work. The Company has approved its own budget for
calendar 2013 to fund its 63% share (including Mnombo’s 26% share) of 2013 work
expenditures for the joint venture.
Waterberg JV Project - Mineral Resources
On September 5, 2012 the Company announced an initial mineral
resource for the Waterberg JV Project property. The details are contained in the
technical report entitled “Updated Exploration Results and Mineral Resource
Estimate for the Waterberg Platinum Project, South Africa” located on the
Northern Limb of the Bushveld Complex, with an effective date of November 5,
2012 (the “Waterberg Report”), prepared by Kenneth Lomberg, B.Sc. (Hons)
Geology, B. Com., M. Eng. Pr.Sci.Nat., MGSSA, of Coffey Mining (SA) Pty Ltd.
(“Coffey”). In the report the independent Qualified Person recommends a
forward 2013 budget in the amount of $10.0 million, which the Company is
undertaking with the joint venture partners as described above.
On February 1, 2013 the Company announced an updated inferred
mineral resource estimate on the Waterberg JV Project property. On March 18,
2013 the Company filed the associated National Instrument 43-101 technical
report. The report, entitled “Revised and Updated Mineral Resource Estimate for
the Waterberg Platinum Project, South Africa (Latitude 23° 22′ 01”S, Longitude
28° 49′ 42”E)” is dated effective February 1, 2013 and was prepared by Kenneth
Lomberg, B.Sc. (Hons) Geology, B. Com., M. Eng. Pr.Sci.Nat., MGSSA, of Coffey,
supporting the disclosure of the updated inferred mineral resource estimate.
14
Platinum Group Metals Ltd.
(An Exploration and Development
Stage Company)
Supplementary Information and MD&A
For the three months
ended November 30, 2013
On September 3, 2013 the Company announced a further updated
inferred mineral resource estimate on the Waterberg JV Project property. This
latest estimate is based on exploration and drilling results to the end of July,
2013. The updated inferred mineral resource estimates 167 million tonnes grading
3.26 grams per tonne of platinum, palladium and gold (“2PGE+Au”) for a total of
17.523 million ounces. Significant copper and nickel credits are also present.
On October 17, 2013 the Company filed the associated National Instrument 43-101
technical report. The report, entitled “Revised and Updated Mineral Resource
Estimate for the Waterberg Platinum Project, South Africa (Latitude 23° 22′
01”S, Longitude 28° 49′ 42”E)” is dated effective September 2, 2013 and was
prepared by Kenneth Lomberg, B.Sc. (Hons) Geology, B. Com., M. Eng. Pr.Sci.Nat.,
MGSSA, of Coffey Mining (SA) Pty Ltd. The report supports the disclosure of the
updated inferred mineral resource estimate. (See the resource details and metal
splits in the table below).
The shallowest edge of the known deposit on the Waterberg JV
Project property is on the T2 layer at approximately 130 metres below surface.
All resources estimates for the Waterberg JV Project property have been
restricted to 1,000 meters vertical as a preliminary economic cut-off. All
layers remain open to depth beyond the resource model. The deposit is 5.5
kilometers long on the Waterberg JV Project property and is limited to the north
by the property boundary. The deposit remains open along strike to the north
beyond the Waterberg JV Project boundary extending on to prospecting rights
where Platinum Group holds an 87% effective interest with the balance held by a
private BEE partner. See “Waterberg Extension Project” below.
Mechanized mining methods, milling and infrastructure
requirements for the Waterberg JV Project platinum deposit are all being studied
as part of a Preliminary Economic Assessment (“PEA”) being conducted by
South African engineering firm Worley Parsons TWP. As announced in May 2013,
estimated recoveries for platinum, palladium and gold (2PGE+Au) in scoping
flotation tests completed at SGS Labs in South Africa averaged 88% for the T2
layer and 83% for the F layer. The resource announced September 3, 2013 and the
baseline metallurgical work will form the basis of the PEA due to be completed
at the beginning of 2014.
Resource Details
The latest resource was calculated using 111 bore holes with a
total of 301 pierce points including deflections. The drill intersection data
was supplied to Coffey, independent consultants. The resource model was created
by Coffey and a number of iterations were done to confirm the validity. Grade
estimation was completed using IDW2 methodology and studied at various cut-off
grades. The previous split of the FH and FP layers were merged into one F zone.
The average thickness was calculated for the T zones that have distinct rock
layer characteristics. The F zone is located consistently near the floor of the
Bushveld Complex and is associated with an olivine rich rock layer and the
average thickness of 3.0 metres to 30 metres was defined by a grade cut-off. An
area of F layer related to an interpreted depression in the floor rocks where
thickness of the mineralization is greater than 12 meters has been given the
name “Super F”. This zone will be considered separately for larger scale
underground mining methods in the ongoing PEA.
Inferred 2PGE+Au Resource Estimate, August 29,
2013
The three main mineralized layers for which an inferred mineral
resource estimate is declared are presented below (as at September 2, 2013):
15
Platinum Group Metals Ltd.
(An Exploration and Development
Stage Company)
Supplementary Information and MD&A
For the three months
ended November 30, 2013
| |
Thickness
M
|
Tonnes
Mt |
Pt
(g/t) |
Pd
(g/t) |
Au
(g/t) |
2PGE+Au
(g/t)
|
Pt:Pd:Au |
2PGE+Au
(koz)
|
Cu
(%) |
Ni
(%) |
Cu (t) |
Ni (t) |
| T1 |
2.30 |
8.50 |
1.04 |
1.55 |
0.47 |
3.06 |
34:51:15 |
842 |
0.17 |
0.10 |
14,500 |
8,400 |
| T2 |
3.77 |
39.16 |
1.16 |
2.04 |
0.84 |
4.04 |
29:50:21 |
5,107 |
0.18 |
0.10 |
69,400 |
37,600 |
| T Total |
3.38 |
47.66 |
1.14 |
1.95 |
0.77 |
3.86 |
30:50:20 |
5,948 |
0.18 |
0.10 |
83,900 |
46,000 |
| F Total |
3.0 to30.0 |
119.05 |
0.91 |
1.98 |
0.13 |
3.02 |
30:65:5 |
11,575 |
0.07 |
0.17 |
78,800 |
202,200 |
| Total |
|
166.71 |
0.98 |
1.97 |
0.32 |
3.26 |
30:60:10 |
17,523 |
0.10 |
0.15 |
162,700 |
248,200 |
Note: The T1 and F layers are reported with a 2g/t
2PGE+Au cut-off
The
T2 layer is reported based on the selection of a mining cut of a minimum
of 2 metre consistently across all deflections |
Notes:
| (1) |
The Qualified Person for the information in the table
above, derived from the Waterberg Report, is Kenneth Lomberg, who was
independent of the Company as of the date of the Waterberg
Report. |
| (2) |
Mineral resources which are not mineral reserves do not
have demonstrated economic viability. The estimate of mineral resources
may be materially affected be environmental, permitting, legal, marketing
or other relevant issues. The quantity and grade of reported inferred
mineral resources in this estimate are conceptual in nature. There is no
guarantee that all or any part of the mineral resource will be converted
to a mineral reserve. |
Cautionary Note to U.S. Investors with respect to the
information in the tables above and discussion: In the preceding tables, the
Company presents “inferred resources,” which are recognized and required by
Canadian regulations but not recognized by the SEC. “Resources” are not
“reserves” and so do not have demonstrated economic viability. Inferred
resources have a great amount of uncertainty as to their existence, and great
uncertainty as to their economic and legal feasibility. Furthermore, under
Canadian rules, estimates of inferred resources may not form the basis of
feasibility or pre-feasibility studies, except in rare cases. Investors are
cautioned not to assume that part or all of an inferred resource exists or is
economically or legally minable. In addition, while disclosure of contained
ounces in a resource is permitted disclosure under Canadian securities laws, the
SEC normally only permits issuers to report mineralization that does not
constitute “reserves” by SEC standards as in place tonnage and grade without
references to unit measurements. Accordingly, the disclosure below may differ
materially from the disclosure that would be provided by a U.S. public company.
In order to be considered as a mineral resource estimate, it is
necessary to consider “the reasonable prospects for economic extraction” of the
mineral resource under consideration. For the Waterberg JV Project property, a
high level economic analysis was conducted which confirmed that the estimated
mineral resource at the Waterberg JV Project met this requirement.
Waterberg JV Project - History of Acquisition
Under the terms of the JOGMEC Agreement any mineral products
derived by the joint venture from the property are to be taken by each
participant in proportion to its then participating interest in the joint
venture. Provided JOGMEC or its nominee holds at least a 30% interest in the
Waterberg JV Project, JOGMEC or its nominee has the exclusive right to direct
the marketing of the mineral products of the other participants for a 10-year
period from first commercial production on an equivalent to commercially
competitive arm’s length basis and has the first right of refusal to purchase at
prevailing market prices any mineral products taken by another participant as
its share of joint venture output.
On November 7, 2011, the Company entered into an agreement
whereby the Company acquired 49.9% of the issued and outstanding shares of
Mnombo from its shareholders in exchange for cash payments totaling R1.2 million and agreeing to pay for Mnombo’s 26%
share of project costs to feasibility (bringing the Company’s share of project
costs to 63%). When combined with the Company’s 37% direct interest in the
Waterberg JV Project (taking into consideration the JOGMEC earn-in), the 12.974%
indirect interest held by the Company through Mnombo brings the Company’s
effective interest in the Waterberg JV Project to 49.974% . Mnombo remains over
50% held for the benefit of historically disadvantaged persons or historically
disadvantaged South Africans (“HDSAs”), as defined respectively by the
MPRDA and the Amendment of the Broad-Based Socio-Economic Empowerment Charter
for the South African Mining and Minerals Industry, 2010 ("Mining
Charter") and is a qualified BEE corporation under the Broad-Based Black
Economic Empowerment Act, 2003 (the “BEE Act”).
16
Platinum Group Metals Ltd.
(An Exploration and Development
Stage Company)
Supplementary Information and MD&A
For the three months
ended November 30, 2013
During 2012 the Company made application to the DMR to acquire
three additional prospecting rights adjacent to the west (one farm for
39km2), north (one farm for 63km2) and east (one farm for
16km2) of the existing Waterberg JV Project area. The farm to the
east was granted in January 2013. The farms to the west and north were granted
October of 2013. These three new prospecting rights cover a total area of
118km2, bringing the total combined area in the joint venture with
JOGMEC and Mnombo to 255km2.
The Company has been advised by JOGMEC that a formal auction
process has begun for the sale of JOGMEC’s 37% interest in the Waterberg JV
Project to a successful bidder from a group of qualified Japanese trading firms.
This is in keeping with JOGMEC’s mandate as determined by the Japanese Ministry
of Economy, Trade and Industry. Subsequent to the discovery on the Waterberg JV
Project a qualified Japanese firm nominated JOGMEC’s interest in the Waterberg
JV Project for sale. In accordance with its mandate, the nomination requires
that JOGMEC initiate a formal auction and sale process. As a result, the Company
anticipates a new Japanese firm will become a 37% joint venture partner in early
2014. The Company expects this new partner will participate in the Waterberg JV
Project technical committee and in the formulation of the 2014 work program for
the Waterberg JV Project.
Waterberg Extension Project
During early 2012 the Company applied to the DMR for further
prospecting rights adjacent to the north and east of the existing and applied
for joint venture area. This area of new prospecting rights known as the
Waterberg Extension Project is not included in the pre-existing Waterberg JV
Project property. The Company holds a direct 74% interest and Mnombo holds a 26%
interest in this new Waterberg Extension Project area, leaving the Company with
an 86.974% effective interest. During February and March of 2013 the Company
received letters from the DMR advising the Company that prospecting right
applications comprising the Waterberg Extension Project had been accepted.
During October of 2013 prospecting permits covering 489km2 of the
applied for Waterberg Extension Project area had been granted. At the time of
writing this MD&A a further 471km2 of prospecting permit
applications are in process with the DMR for addition to the Waterberg Extension
Project, none of which are directly on the trend of the primary exploration
target.
In late March and early April 2013 the Company conducted a
Fugro differential gravity and magnetic airborne survey in the Waterberg region.
Approximately 2,500 line kms were flown at 100 metre and 200 metre spacing over
and along strike from the known deposit area. Interpretation of the airborne
gravity and magnetic surveys by the Company provide a clear target for drilling
northward over approximately a further 20 to 25 kilometers. Physical prospecting
activities on these new license areas commenced in October, 2013. Ground gravity
and magnetic lines were completed and these support the interpretation of
airborne data as described above. Multiple boreholes along strike had been
drilled to November 30, 2013 with several drill holes intercepting F zone
mineralization on the extension area. Subsequent to the end of the period, the
Company reported on the drilling completed to date on the Waterberg Extension
Project. See the Company’s news releases dated December 9, 2013. A summary of
the reported results follows.
Hole WE 08 at the Waterberg Extension Project returned
preliminary assay values of 5.26 grams/tonne “3E” platinum, palladium and gold
(1.40g/t Pt, 3.59 g/t Pd and 0.27 g/t Au) over 53.22 metres (from 555.50 metres
to 608.72 metres, estimated true thickness of approximately 44 metres). Hole WE
08 is located approximately 340 metres northward along strike from previously
announced hole WE 02 (15.63 metres grading 3.16 g/t 3E, 1.11 Pt g/t, 1.92 g/t
Pd, 0.13 g/t Au) and approximately 1,600 metres directly along strike from the Waterberg JV Project deposit. The
mineralization in WE 08 has geological units and layering that is consistent
with the deposit to the south. The intercept in WE 08 is open for expansion
along strike and up and down dip.
17
Platinum Group Metals Ltd.
(An Exploration and Development
Stage Company)
Supplementary Information and MD&A
For the three months
ended November 30, 2013
A total of 8 holes have been completed in the first 4.7
kilometers of the F zone type target on the Waterberg Extension Project and 5 of
these have successfully intersected the F zone style of mineralization. Holes WE
01, 02, 06, 07 and 08 have all successfully confirmed the presence of F zone
type layers at their borehole locations. Holes WE 01 and 02 have been reported
previously. Hole WE 07 is located 4.7 kilometers from the Waterberg JV Project
deposit and returned assays from F zone mineralization and layers of 2.72 metres
grading 2.58g/t 3E (0.78 g/t Pt, 1.67 g/t Pd, 0.14 g/t Au, from740.59 metres to
743.31 metres). This result is within the variance range of the deposit model
and establishing the F zone mineralization this far north is a significant
project milestone. Interestingly, the intercept in WE 07 is located within a 51
metre envelope of lower grade platinum, palladium and gold mineralization
(0.95g/t 3E, Pt 0.26 g/t, Pd 0.63 g/t Au 0.05 g/t, 740.59 metres to 791.5
metres). Further drilling to determine an average grade in this area is an
immediate continued exploration target.
Hole WE 06 was drilled on the eastern edge of the F zone and
returned values of 2.44 metres grading 1.88 g/t 3E (0.57 g/t Pt, 1.22 g/t Pd,
0.09 g/t Au, from 457.80 metres to 460.24 metres) within a 13.45 metre envelope
grading 0.84 g/t 3E (0.24 g/t Pt, 0.55 g/t Pd, 0.05 g/t Au, 457.80 metres to
471.25 metres). Holes WE 03 and 04 were terminated due to faulting and did not
successfully test for the F type target. Further drilling is planned to test
this area. Hole WE 05 was drilled to test the eastern extent of the Bushveld
Complex and was drilled directly into basement lithology.
Drilling is planned to continue in January 2014 with 6 machines
in the northern block of the Waterberg Extension Project permits from
approximately 16 kilometres to 30 kilometres north of the Waterberg JV Project
deposit. Hole WE 09, a 17 kilometre step out from the Waterberg JV Project, on
the Waterberg Extension Project permits, intersected the Bushveld Complex and
disseminated sulphides interpreted to be the transition zone at the base of the
Complex. Based on the layering pattern identified in the Waterberg region, the F
zone target is interpreted to be to the west and further drilling is planned to
commence in January 2014 to test this area.
NON-MATERIAL MINERAL PROPERTY INTERESTS
Other non-material mineral property interests of the Company
include the War Springs and Tweespalk projects located in South Africa, the
Sable Joint Venture (as defined below) and the Company’s various mineral
property interests in Ontario, Canada and Northwest Territories, Canada. These
non-material property interests are not, individually or collectively, material
to the Company and are described below.
South Africa – Other Properties
Expenditures during the period ended November 30, 2013 on
projects in South Africa other than Project 1, Project 3 and the Waterberg
Projects totaled $0.03 million (November 30, 2012 - $0.02 million).
War Springs and Tweespalk Properties, South
Africa
Since 2005, the Company has been actively exploring its War
Springs and Tweespalk projects, which are located on the Northern Limb of the
Bushveld Complex in South Africa. The War Springs property covers 22km2
and is located 24km south of the Anglo open pit Mogalakwena Mine (formerly
the “PPRust platinum mine”) along the same “Platreef” section of the Bushveld
Complex. Exploration has consisted of diamond drilling, geophysical surveys and
ground prospecting. In March 2008, the Company reported an inferred resource on
a 100% basis of 1.676 million ounces 2PGE+Au at a grade of 1.11 g/t with a minor
credit for copper and nickel. See “Cautionary Note to U.S. Investors”.
Additional information regarding grade, prill splits, sampling and resource
calculations can be found in an NI 43-101 technical report dated June 18, 2009
entitled “Revised Inferred Mineral Resource Declaration War Springs
(Oorlogsfontein 45K2), Northern Limb Platinum Property, Limpopo Province,
Republic of South Africa” filed on SEDAR at www.sedar.com
and on EDGAR at www.sec.gov.
18
Platinum Group Metals Ltd.
(An Exploration and Development
Stage Company)
Supplementary Information and MD&A
For the three months
ended November 30, 2013
Subject to vendor payments due upon a decision to mine, the
Company holds a 70% interest in the War Springs project and Africa Wide and
Taung Platinum Exploration (Pty) Ltd. (“Taung Platinum”) each hold a 15%
interest carried to feasibility study. Taung Platinum is an affiliated company
of Moepi Platinum (Pty) Ltd., which is Platmin Ltd.’s BEE partner in South
Africa.
In March 2009, the Company announced an option agreement with
JOGMEC, pursuant to which JOGMEC may earn 35% (one half of the Company’s
interest) of Platinum Group’s interest in the War Springs project by incurring
US$10 million in expenses over five years. Since March 2009 a total of 17,222
metres of drilling in 20 boreholes have been completed on the War Springs
project with JOGMEC funding. Total expenditures incurred by JOGMEC to August 31,
2011 on War Springs amounted to approximately $2.9 million. During the year
ended August 31, 2012, the drilling program was completed and JOGMEC indicated
that it does not plan to fund further work on this project. The Company is
considering further work or possible joint ventures for the project at this
time.
Sable Joint Venture, South Africa
During 2009, the Company acquired prospecting rights in South
Africa on the Western Limb of the Bushveld Complex, west of Pretoria and then
entered into a joint venture agreement (the “Sable Joint Venture”) with
Sable Platinum Mining (Pty) Limited (“Sable Platinum”). Sable Platinum is
earning a 51% interest in exchange for funding approximately R 42.0 million
(approximately $6 million in 2009) in work on the project, while a private BEE
group will hold 26%. The Company was the operator of the project until mid-March
2012, after which time operatorship was transitioned to Sable Platinum.
Canadian Properties
Mineral property acquisition and exploration costs deferred
during the period ended November 30, 2013 on projects in Canada totalled $0.02
million (November 30, 2012- $Nil).
Thunder Bay, Ontario
The Company maintains various mineral rights positions in the
Lac des Iles and Thunder Bay North areas of the Thunder Bay Mining District,
Ontario as a strategic holding against increasing prices for palladium and
platinum. The core long term holding in the Lac des Iles area consisting of the
8 claim Shelby Lake and South Legris properties has been maintained. These 8
claims are subject to 2.0% net smelter return (“NSR”) royalties, which
the Company may buy back. Land holdings by the Company within the Thunder Bay
Mining District at the time of this MD&A total 276km2. In the
Sudbury Mining District, the Company retains a majority interest in an
additional 47km2 of mineral rights at the Agnew Lake property.
To date, five properties staked or acquired since 2011 have
been drill tested for younger intrusive targets and a new type of platinum
mineralization found in the district based on airborne geophysics survey
results, geological ground work, geochemistry and compilation of historic data.
A total of 4,274 metres have been drilled in 17 holes, of which 2,891 metres in
nine holes have been drilled on 100% owned properties.
To date none of the drilling by the Company on the younger
intrusive targets has intersected the new type of platinum mineralization found
in the district. No mineral reserves or mineral resources have been established
on any of the properties. The Company is now considering its potential programs
for the remainder of fiscal 2014 in Thunder Bay in context of its other Canadian
and global exploration opportunities.
Providence, Northwest Territories
In September 2011, the Company purchased the Providence
Copper-Nickel-Cobalt-Platinum Group Metals (“Cu-Ni-Co-PGM”) property from
Arctic Star Exploration Corp. (“Arctic Star”) for a payment of $50,000
and a 1.0% NSR royalty. During the prior year the core 11 (eleven) of the 13
original claims have been converted to lease and annual rent payments of $28,021 (due
June 30 annually) were made. Total acquisition costs to date are $106,092.
19
Platinum Group Metals Ltd.
(An Exploration and Development
Stage Company)
Supplementary Information and MD&A
For the three months
ended November 30, 2013
During the period ending November 30, 2013, minimal exploration
costs were incurred on the Company’s Northwest Territories exploration program.
Expenditures from the preceding fiscal year included research and compilation,
camp maintenance, fuel purchase and supply, a gravity survey, geology, diamond
drilling and assays. The Company has an active land use permit to conduct
exploration on the property and maintain a camp.
The 2 mineral claims and 11 mineral leases comprising the
Providence property measure approximately 134km2 and are located
approximately 70km west of the Diavik Diamond Mine, NWT. The property covers
approximately 20km of a belt of mafic to ultramafic rocks that is host to the
first discovery of magmatic Cu-Ni-Co-PGM massive sulphide mineralization in the
Slave Craton. Drilling by the Company and historic drilling by Arctic Star has
shown that the Cu-Ni-Co-PGM mineralization is hosted within, and at the base of
the ultramafic flow/intrusive sill sequence. The dimensions of the massive
sulphide mineralization defined to date ranges in thickness from 0.3 metres to
5.0 metres and have been intercepted in drilling over a 75 metres strike length
and down for 300 metres. The mineralized horizon has been drill tested over a
450 metre strike length to the east where disseminated sulphides with anomalous
PGM values occur. The mineralized horizons remain open to depth and the eastern
hole shows there is possibility of further horizon development along the
belt.
Since acquisition, the Company has completed a total of 3,150
metres of diamond drilling in 14 holes. Exploration programs in the year to date
consisted of camp supply, and diamond drilling with assays. Work on the property
commenced in mid-March, 2012. A step out drill program to further define the
extents of known Cu-Ni-Co-PGM mineralized zone was completed by August 15,
2012.
Ni-Cu-Co-PGM grade values are consistent with near surface
(maximum 115 metre vertical depth) massive sulphide intercepts by previous
operators and the mineralization remains open at depth. Significant grades from
disseminated sulphide mineralization intercepts were identified in the 2012
drilling program. No mineral reserves or mineral resources have been established
on any of the properties. Currently the company is assessing exploration results
to date in order to make a decision on further exploration work.
Newfoundland and Labrador
On August 9, 2013 the Company entered into an option agreement
with Benton Resources Corp. on the 261km2 Mealy Lake Property,
southwestern Labrador, in exchange for the Company making a one-time cash
payment of $51,000 on signing and $2.4 million over four years in exploration
expenditures to earn a 71% interest. To date compilation of available public
data has taken place to facilitate the planning of an exploration program.
In addition to the Mealy Lake Project, the Company also staked
the 45km2 Atikonak Property in southwestern Labrador for a total
acquisition cost of $10,800. The Atikonak Property was staked based on favorable
geology and positive results from the regional compilation of public data for
the area.
The Mealy and Atikonak Properties cover a Paleoproterezoic aged
layered mafic intrusive suite of rocks that have sulphide mineralization within
adjacent properties. These properties are central to a recently developed area
of Cu, Ni and PGM exploration.
20
Platinum Group Metals Ltd.
(An Exploration and Development
Stage Company)
Supplementary Information and MD&A
For the three months
ended November 30, 2013
3.
DISCUSSION OF OPERATIONS AND FINANCIAL CONDITION
A)
Results of Operations
Three Months Ended November 30, 2013
For the quarter ended November 30, 2013, the Company had a net
income of $0.47 million (November 30, 2012 –$1.71 million loss.) General and
administrative expenses totaled $1.40 million (November 30, 2012 - $0.78
million) with the increase due to an increase in overall expenditures and size
of the Company. A foreign exchange gain of $0.88 million was recorded for the
quarter (November 30, 2012 – loss $0.21 million), with the gain being due to the
stronger Rand at quarter end when the Company’s cash balances held in Rand were
translated into Canadian Dollars. Other comprehensive income for the quarter was
$2.89 million (November 30, 2012 –$10.15 million loss) with the gain being
mainly due to the translation of net assets carried in Rand in our South African
subsidiaries to their Canadian Dollar value at period end. At August 31, 2013,
the Rand was valued at approximately 9.72 Rand to the Canadian Dollar versus
9.61 at November 30, 2013.
Interest earned in the quarter totaled $0.98 million as
compared to $0.59 million in the comparative quarter. The higher interest earned
is due to higher cash holdings relative to the prior comparative period.
Quarterly Financial Information
The following tables set forth selected quarterly financial
data for each of the last eight quarters.
(In thousands of dollars, except for share data)
| Quarter ended
|
|
Nov.
30, |
|
|
Aug.
31, |
|
|
May
31, |
|
|
Feb
28, |
|
| (in thousands of
dollars, except for share data) |
|
2013 |
|
|
2013 |
|
|
2013 |
|
|
2013 |
|
| Interest income(1) |
$ |
976 |
|
$ |
1,056 |
|
$ |
1,376 |
|
$ |
1,984 |
|
| Net income (loss)(2) |
|
464 |
|
|
(1,355 |
) |
|
(10,015 |
) |
|
279 |
|
| Basic earnings(loss) per
share(3) |
|
0.00 |
|
|
(0.01 |
) |
|
(0.03 |
) |
|
0.00 |
|
| Total
assets(4) |
|
386,446 |
|
|
389,980 |
|
|
375,025 |
|
|
408,239 |
|
| Quarter ended
|
|
Nov.
30, |
|
|
Aug.
31, |
|
|
May
31, |
|
|
Feb.
29, |
|
| ($000s, per share
data) |
|
2012 |
|
|
2012 |
|
|
2012 |
|
|
2012 |
|
| Interest income(1) |
$ |
586 |
|
$ |
823 |
|
$ |
959 |
|
$ |
1,078 |
|
| Net (loss) income(2) |
|
(1,715 |
) |
|
(3,492 |
) |
|
(2,040 |
) |
|
645 |
|
| Basic earnings (loss) per
share(3) |
|
(0.01 |
) |
|
(0.02 |
) |
|
(0.01 |
) |
|
0.00 |
|
| Total
assets(4) |
|
231,055 |
|
|
243,734 |
|
|
250,505 |
|
|
269,612 |
|
Explanatory Notes:
| (1) |
The Company earns interest income from interest bearing
accounts and deposits. The balance of funds held in Rand can also affect
the amount of interest earned, as Rand balances earn significantly higher
rates of interest than can be earned at present in Canadian Dollars.
Interest income has declined relative to cash on hand. |
| (2) |
Net (loss) income by quarter is often materially affected
by the timing and recognition of large non-cash items. In the current
quarter there was no share-based compensation as opposed to the
comparative period in the prior year. Net (loss) income is also
significantly impacted by the movement of the Rand against the Canadian
Dollar as the Company continues to hold a significant portion of its cash
in Rand, which must be translated to Canadian Dollars at the end of each
reporting period. |
| (3) |
Basic loss per share is calculated using the weighted
average number of common shares outstanding. The Company uses the treasury
stock method for the calculation of diluted earnings per share. Diluted
per share amounts reflect the potential dilution that could occur if
securities or other contracts to issue common shares were exercised or
converted to common shares. In periods when a loss is incurred, the effect
of potential issuances of shares under options and share purchase warrants
would be anti-dilutive, and accordingly basic and diluted loss per share
are the same. |
21
Platinum Group Metals Ltd.
(An Exploration and Development
Stage Company)
Supplementary Information and MD&A
For the three months
ended November 30, 2013
| (4) |
At February 28, 2013, the Company’s assets increased
compared to November 30, 2012 as an equity offering closed on January 4,
2013. |
B)
Dividends
The Company has never declared nor paid dividends on its common
shares. The Company has no present intention of paying dividends on its common
shares, as it anticipates that all available funds will be invested to finance
its business.
C)
Trend Information
Other than the financial obligations as set out in the table
provided at item F) below, there are no demands or commitments that will result
in, or that are reasonably likely to result in, the Company’s liquidity either
increasing or decreasing at present or in the foreseeable future. The Company
will require additional capital in the future to meet both its contractual and
non-contractual project related expenditures. It is unlikely that the Company
will generate sufficient operating cash flow to meet all of these expenditures
in the foreseeable future. Accordingly, the Company will need to raise
additional capital through debt financing, by issuance of securities, or by a
sale or partnering of project interests in order to meet its ongoing cash
requirements. In December 2013, the Company closed a $175 million equity
financing for 148.5 million shares at a price of $1.18 per share. See
discussions at item 3. A) “Results of Operations” above and at item F)
“Liquidity and Capital Resources” below.
D)
Related Party Transactions
During the quarter ended November 30, 2013 an amount of $145
(November 30, 2012 - $26) was paid to independent directors for directors fees
and services.
During the quarter ended November 30, 2013, the Company
provided accounting, secretarial and reception services at market rates for
day-to-day administration and accounting to Nextraction Energy Corp.
(“NE”), a company with three directors in common (R. Michael Jones, Frank
Hallam and Eric Carlson). Fees received have been credited by the Company
against its own administrative costs. The Company accrued service fees of $15
(November 30, 2012 - $28) during the period from NE. Amounts receivable at the
end of the period include an amount of $185 ($63 – November 30, 2012) due from
NE.
During the quarter ended November 3, 2013, the Company provided
accounting, secretarial and reception services at market rates for day-to-day
administration and accounting to West Kirkland Mining (“WKM”), a company
with two directors in common (R. Michael Jones, Frank Hallam). Fees received
have been credited by the Company against its own administrative costs. The
Company received service fees of $26 (November 30, 2012 - $26) during the period
from WKM. Amounts receivable at the end of the period include an amount of $121
($112 – November 30, 2012) due from WKM.
All of the above transactions are in the normal course of
business and were completed and measured at estimated market rates.
E)
Off-Balance Sheet Arrangements
The Company does not have any special purpose entities nor is
it party to any off-balance sheet arrangements.
F)
Liquidity and Capital Resources
On January 4, 2013, the Company issued 225,000,000 common
shares at a price of $0.80 per common share, for aggregate gross proceeds of
$180 million. Net proceeds to the Company were $168.9 million, after
underwriters’ fees and other expenses of the offering. At present the Company is
using the balance of the proceeds from this offering to continue work at Project
1, the Waterberg Extension Project and at the Waterberg JV Project and for
general working capital requirements.
22
Platinum Group Metals Ltd.
(An Exploration and Development
Stage Company)
Supplementary Information and MD&A
For the three months
ended November 30, 2013
On December 9 2013, the Company announced a bought deal
financing for 148.5 million common shares of the Company at a price of $1.18 per
share resulting in gross proceeds of $175.23 million. The offering closed
December 31, 2013 with net proceeds to the Company after fees, commissions and
costs of approximately $166 million.
As at January 6, 2014 the Company held approximately $237
million in total cash on hand, which is sufficient to fund the estimated
general, exploration and development operations of the Company for calendar
2014. However the Company does not have adequate funds to complete construction
of the mine at Project 1. The Company requires additional financing from
external sources, such as the planned New Project Loan Facility, in order to
meet the requirements of its business plan through 2014 and carry out the future
development of its projects.
On December 6, 2012 the Company announced that a syndicate of
lead arrangers had obtained credit committee approval for the US$260 million
Original Proposed Loan Facility for the construction of the Project 1 platinum
mine. Closing and draw down of the Original Proposed Loan Facility was subject
to the negotiation and execution of final documentation and satisfaction of
conditions precedent.
On October 18, 2013 the 26% partner in the Project 1 platinum
mine, Africa Wide, a subsidiary of Wesizwe, informed the Company that it would
not be funding its approximate US$21.8 million share of a budget and cash call
unanimously approved by the board of directors of Project 1 operating company
Maseve. Africa Wide was also to be a guarantor and obligor to the above
mentioned project loan facility. As a result of Africa Wide’s decision, the
Company anticipates that it will be required to fund 100% of the Maseve cash
call.
On November 8, 2013 the Company entered into a new mandate
letter with the New Arrangers for the US$195 million New Project Loan Facility.
The new mandate letter is subject to the finalization of a facility agreement
and, among other conditions, the New Lenders’ financial and continued technical
due diligence of the Company and the receipt of necessary regulatory approvals
for the sale of Africa Wide’s diluted interest in Maseve to a qualified BEE
entity. The new mandate letter replaces the mandate letter and related documents
prepared in connection with the Original Proposed Loan Facility. The new mandate
letter requires the New Arrangers to use commercially reasonably efforts to
arrange the New Project Loan Facility, and is subject to a number of conditions
precedent, including the credit committee and other internal approvals of each
of the New Arrangers, the finalization of a facility agreement and related
documents, certain corporate restructuring transactions, the New Arrangers’
financial and continued technical due diligence of the Company, any other
obligor and Project 1, and the sale of, and the receipt of necessary regulatory
approvals for, Africa Wide’s diluted interest in Maseve to a qualified BEE
entity. See further details at “Project 1 - New Project Loan Facility” above.
As a part of the New Project Loan Facility, the Company will be
required to guarantee the obligations of Maseve. The Company will pledge to the
New Arrangers its interests in the capital of Maseve and its interests in the
Waterberg Projects. See “Risk Factors” in the Company’s AIF.
There is no certainty that the Company will be able to
successfully re-structure a project loan facility. As of the date of this
MD&A, no binding commitments have been signed by the New Arrangers with
respect to the New Project Loan Facility. The New Arrangers are under no
obligation to provide the New Project Loan Facility on the terms described in
this MD&A, or at all.
The completion of the New Project Loan Facility on the terms
described in this MD&A, or at all, is subject to a number of risks,
including, without limitation, risks relating to the ability of the Company to
sell Africa Wide’s diluted interest in Maseve to Mnombo or find an alternative,
suitable BEE partner, regulatory requirements, litigation, changes in general
market conditions, the condition of the Company or its properties, and economic,
social or political conditions in South Africa. No assurances can be given that
such facility will be consummated on any particular timeline or on the terms
described herein, or at all. In addition, funding under the New Project Loan
Facility, if consummated, is expected to be subject to certain conditions,
including, without limitation, that the Company restructure certain of its
holdings, secure additional equity financing, if required, as determined at the
time of the financial close of the New Project Loan Facility, acquire and
maintain all requisite permits and licenses and establish an agreed metals
hedging program. The Company may be unable to satisfy such conditions on
favourable terms, or at all. In particular, if the New Project Loan Facility is
consummated, any inability of the Company, Africa Wide or any other joint
venture partner to fund its required equity contributions thereunder will
prevent funding and utilization of such facility and may result in a default
thereunder, or in the case of Africa Wide or any other joint venture partner
being unable or unwilling to fund, the Company may be required to fund the
shortfall to avoid a default under such facility.
23
Platinum Group Metals Ltd.
(An Exploration and Development
Stage Company)
Supplementary Information and MD&A
For the three months
ended November 30, 2013
The completion and utilization of the New Project Loan
Facility, if successfully completed, combined with the Company’s cash on hand,
will not fully fund the Company’s business plan, including the construction of
Project 1. The Company will be required to source additional financing by way of
private or public offerings of equity or debt, or the sale of project or
property interests, in order to complete the construction of Project 1 and have
sufficient working capital for continued exploration on the Waterberg Projects,
as well as for general working capital purposes. Failure by the Company to
complete the New Project Loan Facility or alternative financing for Project 1,
or to provide its share of required funding may result in the delay or
indefinite postponement of exploration, development, or production on any or all
of the Company’s properties, or even a loss of property interests. In the event
that adequate financing is not arranged and available to the Company in the
short term, the Company will need to alter its business plan.
Accounts receivable at November 30, 2013 totaled $3.2 million
(August 31, 2013 - $6.9 million) being comprised mainly of value added taxes
refundable in South Africa, with expenditure advances being paid back in the
quarter. Accounts payable and accrued liabilities at November 30, 2013 totaled
$18.1 million (August 31, 2013 - $25.1 million).
Apart from net interest earned on cash deposits during the
quarter ended November 30, 2013 of $0.98 million (November 30, 2012 - $0.59
million), the Company had no sources of income. The Company’s primary source of
capital has been from the issuance of equity. At November 30, 2013 the Company
had unrestricted cash and cash equivalents on hand of $79.9 million compared to
$111.78 million at August 31, 2013 with the majority of cash expenditures in the
quarter made on Project 1. Subsequent to period end the Company closed a bought
deal financing for gross proceeds of $175 million. At November 30, 2013 the
restricted cash balance had been exhausted, (August 31, 2013 - $10.16 million).
To November 30, 2013 a total of $42 million (August 31, 2013 – $32 million) has
been applied from restricted cash against Wesizwe’s 26% share of project
expenditures.
The Company receives lump sum cash advances at various times as
laid out in agreed budgets from its partners to cover the costs of joint venture
projects.
The following table discloses the Company’s contractual
obligations. The Company currently has no long term debt or loan
obligations.
| Payments by period in Canadian
Dollars |
|
| |
|
< 1 |
|
|
1 – 3 |
|
|
4 – 5 |
|
|
> 5 |
|
|
|
|
| |
|
years |
|
|
years |
|
|
years |
|
|
years |
|
|
Total |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Lease obligations |
$ |
303 |
|
$ |
862 |
|
$ |
967 |
|
$ |
1,025 |
|
$ |
3,157 |
|
| ESKOM – power |
|
1,562 |
|
|
7,079 |
|
|
- |
|
|
- |
|
|
8,641 |
|
| Magalies water |
|
14,705 |
|
|
- |
|
|
- |
|
|
- |
|
|
14,705 |
|
| Insurance contracts |
|
61 |
|
|
- |
|
|
- |
|
|
- |
|
|
61 |
|
Concentrator plant and
surface
Infrastructure |
|
19,781 |
|
|
3,073 |
|
|
- |
|
|
- |
|
|
22,854 |
|
| Mining development |
|
47,054 |
|
|
28,455 |
|
|
- |
|
|
- |
|
|
75,509 |
|
| Mining equipment |
|
1,084 |
|
|
62 |
|
|
- |
|
|
- |
|
|
1,146 |
|
| |
$ |
84,550 |
|
$ |
39,531 |
|
$ |
967 |
|
$ |
1,025 |
|
$ |
126,073 |
|
24
Platinum Group Metals Ltd.
(An Exploration and Development
Stage Company)
Supplementary Information and MD&A
For the three months
ended November 30, 2013
Explanatory Notes:
| (1) |
The Company’s project operating subsidiary Maseve has
entered into a long term electricity supply agreement with ESKOM. Under
the agreement the Company received connection and service for a 10MVA
construction power supply in October 2013. A total 40 MVA production power
supply is now planned for delivery in stages to 2017. Remaining connection
fees and guarantees for the full service total R83.0 million ($8,641 at
November 30, 2013). |
The above contracts are subject to the following estimated
break fees in the event of cancellation:
| Concentrator plant and surface infrastructure |
$ |
15,110 |
|
| Mining development |
|
10,005 |
|
| Mining equipment |
|
1,013 |
|
| Other property
expenditures |
|
5,427 |
|
| |
$ |
31,555 |
|
Break fees are estimated by means of contractual notice
periods, work in progress costs and normal costs associated with the unwinding
and disestablishment of certain contractors.
On March 26, 2013 the Company waived an outstanding condition
precedent to a water off-take agreement with the Magalies Water Board for the
long term supply of water to the Project 1 mine site. The agreement is now in
effect. Pursuant to a 50/50 sharing agreement with Wesizwe, the Company will be
responsible for the cost of regional infrastructure to deliver water to the
Project 1 mine site in an amount not to exceed R73.0 million (approximately
$7.60 million at November 30, 2013). In order to source water for its own nearby
project Wesizwe will be required to pay for its 50% share of the cost as
described above. Wesizwe indicated to the Company on November 11, 2013 that they
will comply with the sharing agreement.
Outstanding Share Data
The Company has an unlimited number of common shares authorized
for issuance without par value. At November 30, 2013, there were 402,759,542
common shares outstanding, 14,816,500 incentive stock options outstanding at
exercise prices of $0.96 to $2.57. At January 10, 2013, there were 551,271,542
common shares outstanding and 14,664,500 incentive stock options outstanding.
During the period ending November 30, 2013, the Company made no changes to the
exercise price of outstanding options through cancellation and re-grant or
otherwise.
4.
OUTLOOK
At present Platinum Group is continuing with construction at
Project 1. Prior to January 2014 the Company had withheld the execution of
significant new contracts for Project 1 pending the completion of additional
debt or equity financing. Africa Wide’s failure to fund its share of Project 1
costs on an ongoing basis resulted in the need for the Company to restructure
its financial plan for the completion of Project 1. See “Project 1 - New Project
Loan Facility” and “Liquidity and Capital Resources” above, as well as the
disclosure made under the heading “Risk Factors” in the Company’s AIF, for a
further discussion.
On December 9, 2013, the Company announced a bought deal
financing for 148.5 million common shares of the Company at a price of $1.18 per
share resulting in gross proceeds of $175.23 million. The offering closed
December 31, 2013 with net proceeds to the Company after fees, commissions and
costs of approximately $166 million. The completion of this equity financing
will allow the Company to recommence on many significant contracts and critical
path items for Project 1.
The Company’s key business objectives for calendar 2014 will be
to restructure and close the New Project Loan Facility or other financing for
Project 1, continue with the underground development and mine construction at
Project 1 and continue exploration on both the Waterberg JV Project and the
Waterberg Extension Project.
25
Platinum Group Metals Ltd.
(An Exploration and Development
Stage Company)
Supplementary Information and MD&A
For the three months
ended November 30, 2013
Commencement of Phase 2 development at Project 1 began in
January 2013 and will continue to utilize the Company’s cash on hand in measured
stages until the proposed New Project Loan Facility or other financing is
completed and in place. In the event that the New Project Loan Facility is not
completed and available to the Company by mid-calendar 2014, the Company would
likely need to alter its business plan. A first alternative business plan would
be the sourcing and completion of alternative debt and/or equity financing in
order to complete the existing Phase 2 development schedule, although there is
no guarantee that such funding would be available to the Company. A second
option would be to suspend Phase 2 development and to potentially sell ore from
already established underground workings at Project 1. In this second scenario,
a milling and concentrating facility would not be immediately built, and the
construction of such facilities would be postponed until funding became
available.
The Company plans to continue working on the Waterberg JV
Project with its joint venture partner, JOGMEC, or the successful bidder
in the auction-process for JOGMEC’s interest in the Waterberg JV Project, who
will be providing 37% funding for that project, to conduct exploration. A
preliminary economic assessment is being undertaken for the Waterberg JV project
and is targeted for completion in early calendar 2014.
The Company plans to continue with exploration drilling in 2014
on the Waterberg Extension Project with multiple drilling rigs.
5.
CRITICAL ACCOUNTING ESTIMATES
The preparation of our consolidated financial statements in
conformity with IFRS requires management to use estimates and assumptions that
affect the reported amounts of assets and liabilities, as well as income and
expenses. The Company’s accounting policies are described in note 2 of our
audited annual consolidated financial statements for the year ended August 31,
2013.
Review of asset carrying values and impairment
In accordance with the Company’s accounting policy, each asset
or cash generating unit is evaluated every reporting period to determine whether
there are any indications of impairment. If any such indication exists, a formal
estimate of recoverable amount is performed and an impairment loss is recognised
to the extent that the carrying amount exceeds the recoverable amount. The
recoverable amount of an asset or cash generating group of assets is measured at
the higher of fair value less costs to sell and value in use.
The determination of fair value less costs to sell and value in
use requires management to make estimates and assumptions about expected
production, commodity prices, reserves, operating costs, closure and
rehabilitation costs and future capital expenditures. The estimates and
assumptions are subject to risk and uncertainty; hence there is the possibility
that changes in circumstances will alter these projections, which may impact the
recoverable amount of the assets. In such circumstances some or all of the
carrying value of the assets may be further impaired or the impairment charge
reduced with the impact recorded in the income statement.
Asset Retirement Obligations
The amounts recorded for asset retirement costs are based on
estimates included in closure and remediation plans. These estimates are based
on engineering studies of the work that is required by environmental laws. These
estimates include an assumption on the rate at which costs may inflate in future
periods. Actual costs and the timing of expenditures could differ from these
estimates.
Income and Resource Taxes
The determination of our future tax liabilities and assets
involves significant management estimation and judgment involving a number of
assumptions. In determining these amounts we interpret tax legislation in a
variety of jurisdictions and make estimates of the expected timing of the
reversal of future tax assets and liabilities. We also make estimates of our future earnings
which affect the extent to which potential future tax benefits may be used. We
are subject to assessment by various taxation authorities, which may interpret
tax legislation in a manner different from our view. These differences may
affect the final amount or the timing of the payment of taxes. When such
differences arise we make provision for such items based on our best estimate of
the final outcome of these matters.
26
Platinum Group Metals Ltd.
(An Exploration and Development
Stage Company)
Supplementary Information and MD&A
For the three months
ended November 30, 2013
Determination of ore reserve and mineral resource
estimates
The Company estimates its ore reserves and mineral resources
based on information compiled by Competent Persons as defined by NI 43-101.
Reserves determined in this way are used in the calculation of depreciation,
amortization and impairment charges, and for forecasting the timing of the
payment of close down and restoration costs. In assessing the life of a mine for
accounting purposes, mineral resources are only taken into account where there
is a high degree of confidence of economic extraction. There are numerous
uncertainties inherent in estimating ore reserves, and assumptions that are
valid at the time of estimation may change significantly when new information
becomes available. Changes in the forecast prices of commodities, exchange
rates, production costs or recovery rates may change the economic status of
reserves and may, ultimately, result in reserves being restated. Such changes in
reserves could impact on depreciation and amortization rates, asset carrying
values and provisions for close down and restoration costs.
6.
DISCLOSURE CONTROLS AND INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company maintains a set of disclosure controls and
procedures designed to ensure that information required to be disclosed in
filings made pursuant to both SEC and Canadian Securities Administrators
requirements are recorded, processed, summarized and reported in the manner
specified by the relevant securities laws applicable to the Company. Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by an issuer in the
reports that it files or submits under the applicable securities legislation is
accumulated and communicated to the issuer’s management, including its principal
executive and principal financial officers, or persons performing similar
functions, as appropriate to allow timely decisions regarding required
disclosure.
Changes in Internal Controls over Financial
Reporting
No change in the Company’s internal control over financial
reporting occurred during the quarter ended November 30, 2013 that has
materially affected, or is reasonably likely to materially affect, the issuer’s
internal control over financial reporting.
7.
OTHER INFORMATION
Additional information relating to the Company for the period
ending November 30, 2013 may be found on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. Readers are encouraged to review the
Company’s audited annual consolidated financial statements for the year ended
August 31, 2013 together with the notes thereto as well as the Company’s 2013
Annual Information Form.
27
Platinum Group Metals Ltd.
(An Exploration and Development
Stage Company)
Supplementary Information and MD&A
For the three months
ended November 30, 2013
LIST OF DIRECTORS AND
OFFICERS
| |
a) |
Directors: |
b) |
Officers: |
| |
|
|
|
|
| |
|
R. Michael Jones |
|
R. Michael Jones (Chief Executive Officer)
|
| |
|
|
|
|
| |
|
Frank R. Hallam (Secretary) |
|
Frank R. Hallam (Chief Financial Officer)
|
| |
|
|
|
|
| |
|
Iain McLean |
|
Peter C. Busse (Chief Operating Officer) |
| |
|
|
|
|
| |
|
Eric Carlson |
|
Kris Begic (VP, Corporate Development) |
| |
|
|
|
|
| |
|
Barry W. Smee |
|
|
| |
|
|
|
|
| |
|
Timothy Marlow |
|
|
| |
|
|
|
|
| |
|
Diana Walters |
|
|
28
