q32008mda.htm
Platinum
Group Metals Ltd.
(Exploration
Stage Company)
Supplementary
Information and MD&A
For the
period ended May 31, 2008
Dated:
July 15, 2008
A
copy of this report will be provided to any shareholder who requests
it.
Platinum
Group Metals Ltd.
(Exploration
Stage Company)
Supplementary
Information and MD&A
For the
period ended May 31 , 2 008
Management
Discussion and Analysis
1. DESCRIPTION
OF BUSINESS
The
Company is a British Columbia corporation incorporated on February 18, 2002 by
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 an exploration and development company conducting work primarily on
mineral properties it has staked or acquired by way of option agreement in
Ontario, Canada and the Republic of South Africa. The Company has not yet
determined whether its mineral properties contain ore reserves that are
economically recoverable. 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 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.
This
management discussion and analysis (“MD&A”) of Platinum Group Metals Ltd.
(the “Company”) focuses on the financial condition and results of operations of
the Company for the nine months ended May 31, 2008 and 2007. It is prepared
as of July 11, 2008 and should be read in conjunction with the audited
consolidated financial statements of the Company for the year ended August 31,
2007 and the unaudited consolidated financial statements for the period ended
May 31, 2008 together with the notes thereto.
2. DISCUSSION
OF OPERATIONS AND FINANCIAL CONDITIONS
a)
Results of Operations
Any
reference to “period” refers to the nine month period ended May 31,
2008.
At May
31, 2008 the Company had cash, cash equivalents and short term investments on
hand of $5,575,866 as compared to $14,699,067 on August 31, 2007. Of this amount
approximately $Nil (August 31, 2007 – $3,613,919) relates to amounts advanced
from the partners of the Western Bushveld Joint Venture (“WBJV”) to fund their
share of the remaining portion of approved work programs. The Company was owed
$1,686,012 by the WBJV partners for WBJV expenditures at May 31, 2008 and
received this amount subsequent to the end of the period. Accounts payable at
period end totaled $2,836,020 (August 31, 2007 - $2,304,845) and almost all of
this ($2,117,000) was payable against technical and exploration work completed
for the WBJV. The Company also held marketable securities at period end with a
fair value of $1,714,001 (August 31, 2007 - $2,084,001).
The
Company has not completed an equity placement since July of 2006. Apart from
interest of $220,943 (2007 - $297,618) earned on cash deposits during the period
the Company had no significant revenues to report. Funds on hand are expected to
finance ongoing general and administrative costs, exploration activities and the
Company’s portion of costs related to the WBJV.
On
January 10, 2007, the Company completed a positive pre-feasibility study for the
Project 1 area of the WBJV titled “Technical Report – Western Bushveld Joint
Venture, Project 1 (Elandsfontein and Frischgewaagd)” and filed the report on
SEDAR January 30, 2007. During 2007 the WBJV then commissioned a Feasibility
Study (“FS”) for the Project 1 area of the WBJV, which was completed and
delivered to the partners of the WBJV on June 30, 2008. Details of
the FS were published by the Company in a news release dated July 7,
2008. The partners will have ninety days to review the FS and the
Management Committee of the WBJV is expected to be asked to consider a decision
to mine for Project 1 of the WBJV in early October 2008. Additional
financing will be required if the Company is to fund its share of Project 1
costs in the event that a decision to mine is taken by the partners of the
WBJV.
At the
time of writing, power shortages in South Africa and the probability that
electrical power will be in short supply until the end of 2012 have caused the
Company to plan for the need to be self sufficient during this time for
electrical needs by including the capital and operating cost for site diesel
generation into its FS.
During
the third quarter the Company published three resource calculation updates, one
for the War Springs Project, one for Project 2 of the WBJV and one for Project 3
of the WBJV. (See Item 2d. “Exploration Programs and Expenditures”
below).
Through a
50% direct interest held by the WBJV the Company also holds an effective 18.5%
interest in two farms comprising Project 2 of the WBJV. Project 2 is the main
component property of the Frischgewaagd-Ledig project operated by Wesizwe
Platinum Ltd. (JSE: WEZ) for which a feasibility study was completed and
published on March 31, 2008. Platinum Group Metals, Anglo Platinum
and Wesizwe are in amicable discussions regarding the business arrangement over
the areas of shared mineral rights within the Wesizwe area covered by the study.
The Project 2 mineral rights form a logical block for
consideration.
The
Wesizwe feasibility study was completed by Wesizwe and their consultants TWP,
Murray and Roberts Cementation and the Mineral Corporation, all relevant
experienced South African independent mining contractors. The study is now being
reviewed and amended by a “qualified person” with reference to Canadian National
Instrument 43-101 and is expected to be published in NI 43-101 format by
Platinum Group Metals Ltd. in the fourth quarter. Platinum Group will
provide more technical information once this process is complete.
Platinum
Group Metals most recent disclosure on the 781 hectare Project 2 area provides
for a total of 832,000 ounces of Platinum, Palladium, Rhodium and Gold (“4E”) in
the measured category, 4.2 million 4E ounces in the indicated category and 3.94
million 4E ounces in the inferred category. Of these ounces 50%
attribute to the WBJV resulting in 18.5% of the gross ounces attributing to the
Company. (See Item 2d. “Exploration Programs and Expenditures”
below). Considerable drilling by Wesizwe and a 3 dimensional seismic
survey, completed co-operatively by all owners, has been completed over the
Project 2 and Project 3 areas.
The
Company is currently conducting further exploration work on the Project 3 area
of the WBJV. Guided by the 3 dimensional seismic survey, the Company
has conducted drilling over the area during the period. At the time of writing
there is one diamond drill turning on Project 3. Several other rigs
have just completed there current Project 3 assignments. One other
rig continues with geo-technical drilling on Project 1. The Company
completed an initial resource calculation for the Project 3 area of the WBJV
during the third quarter. (See Item 2d. “Exploration Programs and Expenditures”
below).
The
majority of work programs approved by the partners of the WBJV since 2006 have
been completed at the time of writing. The partners share the cost of
work programs pro-rata to their interest in the WBJV. Rand 201
million (approximately $28.7 million) was budgeted for work by the partners of
the WBJV since 2006 and of that approved cash calls to the partners to date
total R 179 million (approximately $25.57 million). During April 2008
the participants of the WBJV also approved a budget for the acquisition of long
lead capital items in the amount of R 21.086 million (approximately $2.74
million) and that budget has been funded at the time of writing. The
remaining work budget applies to both the exploration of the Project 3 area of
the WBJV and to preparatory engineering and development work on Project
1. Activities for the WBJV have included research and data review,
prospecting, mapping, detailed engineering, drilling of project areas,
geophysical studies, geotechnical work, metallurgical studies and mine plan and
scheduling work. A new forward budget is currently under
consideration as the FS for Project 1 was completed on June 30,
2008.
The
Company also maintains two other projects in South Africa on the North Limb of
the Bushveld Complex. The Tweespalk and War Springs projects are currently the
subject of only modest work efforts as the Company is focused on the WBJV. Given
recent increases in metal prices more active work is being considered at both
the Tweespalk and War Springs projects in 2008. On March 17, 2008 the Company
published a revised and updated resource calculation for the War Springs
property based on drilling and exploration work conducted in the last three
years. (See Item 2d. “Exploration Programs and Expenditures”
below).
During
the period the Company has conducted a new business generative
program. Research and implementation, including the staking of
several new license areas, has cost approximately $259,048. The Company hopes to
receive the grant of one or more new prospecting permits on or near to the
Bushveld Complex in the near future.
The
Company also conducted work on its Canadian projects during the period. A 1,125
metre drill program was completed on the Company’s Lac Des Iles projects in the
first quarter. The Company maintains a large mineral rights position in the Lac
des Iles area north of Thunder Bay as a strategic holding against increasing
prices for palladium and platinum. Encouraging exploration results for
palladium, platinum, nickel and copper continue to be returned and the Company
plans to invest further in this area in the future.
For more
information about the WBJV and the Company’s other mineral properties please
refer to Notes 5. and 6. of the Company’s May 31, 2008 unaudited financial
statements and below for further discussion regarding the WBJV.
During
the 9 month period the Company incurred a net loss of $3,943,588 (2007 -
$5,365,229). Before a non-cash charge for stock based compensation of $638,034
(2007 - $1,395,866) and mineral property costs written off of $Nil (2007 -
$1,323,222), general and administrative expenses totaled $3,667,996 (2007 -
$2,943,759). Interest amounted to $220,943 (2007 - $297,618). The
$724,237 increase in administrative expenses over the comparative period is
explained for the most part by foreign exchange losses of $35,181 (2007 -
$(5,711)), a $40,892 change, a $204,137 increase in salaries and benefits from
$875,405 in 2007 to $1,079,542 in 2008, a $302,606 increase in professional fees
from $212,710 in 2007 to $515,316 in 2008, and an increase in travel expenses of
$187,197 from $500,754 in 2007 to $687,951 in 2008.
The
Company has increased its general level of activity in the past three years in
South Africa while exploration activities in Canada have been reduced, as the
more advanced nature of the WBJV project has caused it to become an investment
focus for the Company. Since 2005 the Company has seen its compliment of staff,
consultants and casual workers increase from approximately 20 to over 50
individuals in April 2008. Office space and support services requirements in
Canada and South Africa have also increased to accommodate these people. As the
WBJV has matured there has been a need for more administration and management
oversight from Canada with a corresponding increase in travel and communication
expenses. At the same time the general market for both skilled and unskilled
personnel in Canada and South Africa has seen increases in general compensation
costs. The Company’s listing on the American Stock Exchange in 2007
and the costs of compliance with Sarbanes-Oxely legislation in the USA and
Multilateral Instrument 52-109 in Canada have resulted in increased professional
fees in the nine months ended May 31, 2008.
During
the period Wesizwe Platinum Ltd. completed the acquisition of 100% of the
Company’s Black Economic Empowerment partner Africa Wide Mining and then repaid
the Company an amount of $21,205 for the cost of administrative amounts recorded
as advances due from Africa Wide. Total global exploration expenditures for the
Company’s account, including the Company’s share of WBJV expenditures during the
period totaled $6,545,212 (2007 - $2,737,018). Of this amount $6,069,729 was for
the WBJV (2007 - $2,266,519) and $475,483 was for other exploration (2007 -
$470,499). After meeting its earn in requirements in April 2006, Platinum Group
Metals Ltd. is currently responsible only for its 37% pro-rata share of
expenditures for the Western Bushveld Joint Venture (“WBJV”). Total WBJV
expenditures during the period by all Joint Venture partners amounted to
$15,771,419 (2007: $6,415,630).
The
Company still actively reviews many potential property acquisitions in the
normal course of business. The Company also makes efforts to raise its profile
and liquidity in the capital markets.
The
following tables set forth selected financial data from the Company’s annual
audited financial statements and should be read in conjunction with those
financial statements:
|
Year
ended
Aug.
31, 2007
|
Year
ended
Aug.
31, 2006
|
Year
Ended
Aug.
31, 2005
|
Revenues
|
$640,359(1)
|
$235,236
|
$218,373
|
Net
Loss
|
($6,758,123)(2)
|
($3,853,273)
|
($3,795,648)
|
Net
Loss per Share
|
($0.12)
|
($0.08)
|
($0.10)
|
Total
Assets
|
$36,764,203(3)
|
$27,664,441
|
$15,705,187
|
Long
Term Debt
|
Nil
|
Nil
|
Nil
|
Dividends
|
Nil
|
Nil
|
Nil
|
Explanatory
Notes:
(1)The
Company’s only significant source of revenue during the years ending August 31,
2005 to 2007 was interest revenue from GIC’s held by the Company. The amount of
interest revenue earned correlates directly to the amount of cash on hand during
the period referenced.
(2)The
Company’s net loss has been increasing during the years ending August 31, 2005
to 2007 due to several factors. A large factor is stock compensation expense
which totalled $1,487,661 in 2007, $110,176 in 2006 and $1,283,289 in 2005.
Another factor is the write off of deferred mineral property costs of $1,323,222
in 2007, $1,174,325 in 2006 and $974,294 in 2005. If one removes the effect of
these two factors from each fiscal year the recorded annual loss becomes
modified to $3,947,240 for 2007, $2,568,772 for 2006 and $1,538,065 for
2005. During fiscal 2007 the Company completed a listing on the American Stock
Exchange and for the first time was required to certify its internal and
disclosure controls under Sarbanes-Oxley legislation in the USA as well as
Multilateral Instrument 52-109 in Canada. This resulted in an increase in
professional fees in 2007 over 2006 of $150,722 and an increase in listing fees
in 2007 over 2006 of $80,696. Management and consulting fees increased by an
aggregate $322,613 in 2007 as a result of several factors, including; the
Company used an executive search consultant during the period ($27,154), the
Company used a strategic analyst during the year ($78,225), performance bonuses
increased in the year ($41,000), new directors fees for non-executive directors
were paid in the year ($75,000). General market related increases in
compensation levels also occurred. Salaries and benefits were up by $495,873 in
2007 and factors include; the hiring of new employees in South Africa
(approximately $270,000), increased performance bonuses ($39,200) and market
related increases in compensation levels. The remaining year-on-year increase in
this modified loss value is then explained by the growth in the Company and its
activities as described above at “Discussion of Operations and Financial
Condition”.
(3)Total
assets have been increasing year-on-year primarily as a result of the Company’s
cash balance and continued investment in mineral properties funded by completion
of private placement equity financings. At August 31, 2007 the Company held
$14,669,067 in cash and cash equivalents and short term investments. At August
31, 2006 the Company held $10,066,801 in cash and cash equivalents versus
$2,750,461 at August 31, 2005.
The
following tables set forth selected financial data from the Company’s unaudited
Interim Consolidated Financial Statements and should be read in conjunction with
these Interim financial statements.
|
|
Period
ended
May
31, 2008
|
Period
ended
May
31, 2007
|
Interest
|
|
$220,943
|
$297,618
|
Net
Loss
|
|
($3,943,588)
|
($5,365,229)
|
Net
Loss Per Common Share
|
|
($0.06)
|
($0.09)
|
Total
Assets
|
|
$33,024,710
|
$33,972,451
|
Long
Term Debt
|
|
Nil
|
Nil
|
Dividends
|
|
Nil
|
Nil
|
The
following table sets forth selected quarterly financial information for each of
the last eight (8) quarters.
Quarter
Ending
|
|
|
Net
Loss per share
|
May
31, 2008
|
$38,027
|
($1,307,784)
|
($0.02)
|
February
29, 2008
|
$78,337
|
($1,430,050)
|
($0.02)
|
November
30, 2007
|
$104,579
|
($1,205,754)
|
($0.02)
|
August
31, 2007
|
$137,331
|
($1,392,894)
|
($0.03)
|
May
31, 2007
|
$119,764
|
($1,027,268)
|
($0.02)
|
February
28, 2007
|
$92,799
|
($2,158,649)
|
($0.03)
|
November
30, 2006
|
$85,055
|
($2,179,312)
|
($0.04)
|
August
31, 2006
|
$55,034
|
($1,200,351)
|
($0.02)
|
The
Company has not 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 the growth of
its business.
Restatement
During
the current interim period, the Company identified that it had recorded stock
based compensation of $803,000 in the third quarter of 2007 that should have
been recorded in the second quarter of 2007. The Company has restated its
interim consolidated statements of operations and comprehensive income and
cashflows for the three months ended May 31, 2007 as follows:
This
restatement for the comparative period in 2007 has been reflected throughout the
Company’s disclosure for May 31, 2008 and in particular in the table of selected
quarterly financial information presented above. This restatement had
no affect on either the results for the 9 month period ended May 31, 2007 or for
the year ended August 31, 2008.
b)
Trend Information
Other
than the financial obligations as set out in the table provided at item 6 below,
there are no identifiable trends, demands, commitments, events or uncertainties
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 sufficient capital in the future to meet its
ongoing obligations. Apart from a possible buy-out of the War Springs
and Tweespalk properties, the Company has no other property acquisition payments
due to vendors under mineral property option agreements. It is
unlikely that the Company will generate sufficient operating cash flow to meet
all of its ongoing obligations in the foreseeable future. Accordingly, the
Company will need to raise additional capital by issuance of equity within the
next year. The Company has completed a Feasibility Study for the Project 1 area
of the WBJV. If a production decision is taken by the WBJV in October 2008, the
Company will most likely pursue debt financing for a portion of its share of the
capital requirements for that project.
At the
time of writing there is a favourable macro-trend with regard to the market for
metal commodities and related products, however, it is the opinion of the
Company that its own liquidity will be most affected by the results of its own
acquisition, exploration and development activities. The acquisition or
discovery of an economic mineral deposit on one of its mineral properties may
have a favourable effect on the Company’s liquidity, and conversely, the failure
to acquire or find one may have a negative effect.
c)
Risk Factors
The
Company’s securities should be considered a highly speculative investment and
investors should carefully consider all of the information disclosed in the
Company’s Canadian and U.S. regulatory filings prior to making an investment in
the Company. For a discussion of risk factors applicable to the Company, see the
section entitled “Risk Factors” in the Company’s most recent annual information
form filed with Canadian provincial securities regulators, which was also filed
as part of the Company’s most recent annual report on Form 40-F with the S.E.C.
Without limiting the foregoing, the following risk factors should be given
special consideration when evaluating an investment in the Company’s
securities.
General
Resource
exploration and development is a speculative business, characterized by a number
of significant risks including, among other things, unprofitable efforts
resulting not only from the failure to discover mineral deposits but also from
finding mineral deposits, which, though present, are insufficient in quantity
and quality to return a profit from production.
The
Company’s business is subject to exploration and development risks
All but
one of the Company’s properties are in the exploration stage and no known
reserves have been discovered on such properties, the exception being the
development stage Project 1 of the WBJV (see Item 2d. “Exploration Programs and
Expenditures” below). At this stage, favorable drilling results, estimates and
studies are subject to a number of risks, including:
·
|
the
limited amount of drilling and testing completed to
date;
|
·
|
the
preliminary nature of any operating and capital cost
estimates;
|
·
|
the
difficulties inherent in scaling up operations and achieving expected
metallurgical recoveries;
|
·
|
the
likelihood of cost estimates increasing in the future;
and
|
·
|
the
possibility of difficulties procuring needed supplies of electrical power
and water.
|
There is
no certainty that the expenditures to be made by us or by our joint venture
partners in the exploration of the properties described herein will result in
discoveries of precious metals in commercial quantities or that any of our
properties will be developed. Most exploration projects do not result in the
discovery of precious metals and no assurance can be given that any particular
level of recovery of precious metals will in fact be realized or that any
identified resource will ever qualify as a commercially mineable (or viable)
resource which can be legally and economically exploited. Estimates of reserves,
mineral deposits and production costs can also be affected by such factors as
environmental permit regulations and requirements, weather, environmental
factors, unforeseen technical difficulties, unusual or unexpected geological
formations and work interruptions. In addition, the grade of precious metals
ultimately discovered may differ from that indicated by drilling results. There
can be no assurance that precious metals recovered in small-scale tests will be
duplicated in large-scale tests under on-site conditions or in production
scale.
Political
and economic instability may affect the Company’s business
South
Africa has undergone significant change in its government and laws since the
free elections in 1994. At present, Mining Legislation in South Africa is
continuing to undergo change. The new Mineral and Petroleum Resources
Development Act became law on May 1, 2004. The regulation and operation of this
new law is still being implemented. In association with the new Act, the Mining
Charter sets out a target of 26% ownership and participation in the mineral
industry by “Historically Disadvantaged Persons” within ten years, but the
mechanisms to fully affect this objective are still evolving. Accordingly, the
South African legal regime may be considered relatively new, resulting in risks
related to the possible misinterpretation of new laws, unilateral modification
of mining or exploration rights, operating restrictions, increased taxes,
environmental regulation, mine safety and other risks arising out of new
sovereignty over mining, any or all of which could have an adverse affect on the
Company. There is no certainty that the Company will be able to convert its
existing exploration rights into mining rights. The Company’s operations in
general may also be affected in varying degrees by political and economic
instability, terrorism, crime, fluctuations in currency exchange rates and
inflation.
The
Company is subject to risk of fluctuations in the relative values of the
Canadian Dollar as compared to the South African Rand and the U.S.
Dollar
The
Company may be adversely affected by foreign currency fluctuations. The Company
is primarily funded through equity investments into the Company denominated in
Canadian Dollars. Several of the Company’s options to acquire properties in the
Republic of South Africa may result in option payments by the Company
denominated in South African Rand or in U.S. Dollars over the next three years.
Exploration and development programs to be conducted by the Company in South
Africa will also be funded in South African Rand. Fluctuations in the exchange
rate between the Canadian Dollar and the South African Rand or U.S. Dollar may
have an adverse affect on the Company.
The
Company’s properties are subject to title risks
The
Company’s properties may be subject to prior unregistered agreements or
transfers and title may be affected by undetected defects. These defects could
adversely affect the Company’s title to such properties or delay or increase the
cost of the development of such properties. In addition, the Company’s
properties may be subject to aboriginal or other historical rights that may be
claimed on Crown properties or other types of tenure with respect to which
mineral rights have been conferred. The Company is not aware of any aboriginal
land claims having been asserted or any legal actions relating to native issues
having been instituted with respect to any of the mineral properties in which
the Company has an interest. The Company is aware of the mutual benefits
afforded by co-operative relationships with indigenous people in conducting
exploration activity and is supportive of measures established to achieve such
co-operation.
Environmental
risk
Environmental
legislation on a global basis is evolving in a manner that will ensure stricter
standards and enforcement, increased fines and penalties for non-compliance,
more stringent environmental assessment of proposed development and a higher
level of responsibility for companies and their officers, directors and
employees. There is no assurance that future changes to environmental
legislation in Canada or South Africa will not adversely affect the Company’s
operations. Environmental risks may exist on properties in which the Company
holds interests which are unknown at present and which have been caused by
previous or existing owners or operators. Furthermore, future compliance with
environmental reclamation, closure and other requirements may involve
significant costs and other liabilities. In particular, the Company’s operations
and exploration activities are subject to Canadian and South African national
and provincial laws and regulations governing protection of the environment.
Such laws are continually changing, and in general are becoming more
restrictive.
The
mineral exploration industry is extremely competitive
The
resource industry is intensely competitive in all of its phases, and the Company
competes with many companies that possess greater financial resources and
technical facilities. Competition could adversely affect the Company’s ability
to acquire suitable new producing properties or prospects for exploration in the
future. Competition could also affect the Company’s ability to raise financing
to fund the exploration and development of its properties or to hire qualified
personnel.
Metal
prices affect the success of the Company’s business
Metal
prices have historically been subject to significant price fluctuation. No
assurance may be given that metal prices will remain stable. Significant price
fluctuations over short periods of time may be generated by numerous factors
beyond the control of the Company, including domestic and international economic
and political trends, expectations of inflation, currency exchange fluctuations,
interest rates, global or regional consumption patterns, speculative activities
and increases or decreases in production due to improved mining and production
methods. Significant reductions or volatility in metal prices may have an
adverse effect on the Company’s business, including the economic attractiveness
of the Company’s projects, the Company’s ability to obtain financing and, if the
Company’s projects enter the production phase, the amount of the Company’s
revenue or profit or loss.
d)
Exploration Programs and Expenditures
General
The
Company continues to be active in the Republic of South Africa (“RSA”). In 2003
the Company acquired a 100% South African subsidiary named Platinum Group Metals
RSA (Pty.) Ltd. (“PTM RSA”) for the purposes of holding mineral rights and
conducting operations on behalf of the Company. The Company conducts all of its
South African exploration and development work through PTM RSA.
Mineral
property acquisition costs deferred during the period totaled $223,956 (2007 -
$362,915). Of this amount acquisition costs relating to the Company’s 37%
pro-rata share of the WBJV amounted to $182,748 (2007 - $252,164) while the
balance related to Canadian properties. Exploration costs incurred globally in
the period for the Company’s interests totaled $6,545,212 (2007 - $2,737,018).
Of that amount $161,619 (2007 - $171,571) was incurred on the Company’s Canadian
properties and $6,383,593 (2007 - $2,565,447) was incurred on the Company’s
South African properties. Of the South African amount, $6,069,729 was for the
Company’s 37% share of WBJV expenditures (2007 - $2,266,519). The total amount
(100%) of exploration expenditures by all Joint Venture partners for the nine
month period for the WBJV came to $15,559,303 which was higher than the
100% amount spent in the same period last year (2007 - $6,125,726).
During
the period there were no write-offs in deferred costs relating to South African
or Canadian projects, while write-offs in the same period in 2007 amounted to
$1,323,222 for Canada and Nil for South African properties. For more information
on mineral properties see Note 5 and 6 of the Company’s August 31, 2007 Audited
Consolidated Financial Statements or May 31, 2008 unaudited Interim Consolidated
Financial Statements.
Western
Bushveld Joint Venture
On
October 26, 2004 the Company (37%) entered into a Joint Venture with Anglo
Platinum Limited (“Anglo Platinum”) (37%) and Africa Wide Mineral Prospecting
and Exploration (Pty) Limited ( “Africa Wide” ) (26%) to pursue platinum
exploration and development on combined mineral rights covering approximately 67
square kilometres on the Western Bushveld Complex of South Africa. The Company
contributed all of its interests in portions of the farms Onderstepoort 98 JQ
and Elandsfontein 102 JQ. Anglo Platinum contributed its interests in portions
of the farms Koedoesfontein 94 JQ, Elandsfontein 102 JQ and Frischgewaagd 96
JQ.
The
Company is the operator of the WBJV. From October 2004 to April 2006 the Company
funded a required exploration program in the amount of Rand 35 million (at
August 31, 2005 approx. C$6.44 million). Since then the partners of the WBJV
have been required to fund their portion of further expenditures pro-rata based
upon their working interest in the Joint Venture. From April 2006 to March 2007
the partners to the WBJV approved budgets in the amount of Rand 76,393,208
(approximately C$11.7 million at September 2006). In July 2007 the WBJV
participants approved a new cash budget for the WBJV totaling Rand 102,976,176
(approximately C$15.5 million in July 2007). At May 31, 2008 Anglo Platinum had
a contribution balance owing to the WBJV of Rand 7,591,847 (C$990,736) and
Africa Wide had a contribution balance owing to the WBJV of Rand 5,327,783
(C$695,276). These balances were received subsequent to period
end.
To May
31, 2008 all receipts, disbursements and net assets, excluding mineral
properties contributed by other venturers to the WBJV are recorded in the books
and records of the Company on behalf of the Joint Venture. Of the $2,836,020 in
the Company’s accounts payable at May 31, 2008 an amount of $2,117,000
(approximately Rand 16.2 million) was incurred on behalf of the
WBJV.
In April
2007 Africa Wide accepted an offer for the purchase of 100% their company from
Wesizwe Platinum Ltd. (WEZ:JSE). The transaction closed in September 2007 and
Wesizwe paid consideration of 57.4 million new shares of Wesizwe at a deemed
price of Rand 10.48 per share for total consideration of Rand 601.5 million
(approximately C$90 million). Since September 2007 Wesizwe has become
responsible for all of the rights and obligations of Africa Wide.
On April
9, 2007 the Company announced the formal contribution to the WBJV of a 50%
interest in the mineral rights to the 494 hectare Portion 11 of the Farm
Frischgewaagd 96 JQ (“Portion 11”) by Rustenburg Platinum Mines Ltd., a
subsidiary of Anglo Platinum. With this addition the geographic area of the WBJV
now covers approximately 72 square kilometres of territory. Portion 11 now forms
part of the Project 2 area of the WBJV. This expanded Project 2 area is adjacent
to the WBJV “Project 1” area. Anglo Platinum’s 50% interest in Portion 11
relates to New Order mineral rights that were converted from Old Order rights in
2007. All of the parties to the shared mineral rights on Portion 11 and RE 4 are
working toward a detailed co-operation agreement. Current drilling being
conducted under initial co-operation agreements is expected to
continue.
Once a
Feasibility Study has been completed the respective deemed capital contribution
of each party will be credited based on their contribution of measured,
indicated, and inferred PGM ounces from the contributed properties comprising
the WBJV, determined in accordance with the South African SAMREC code. Under the
terms of the original WBJV Agreement, inferred ounces will be credited at
US$0.50 per ounce, indicated ounces will be credited at US$3.20 per ounce and
measured ounces will be credited at US$6.20 per ounce. The Company will also be
credited for its Rand 35 million expenditure as described above. Each party will
then have the opportunity to make equalizing cash payment, or contribute capital
going forward in order to catch up any resulting shortfall in their contributed
capital and thereby maintain their respective working interest in the JV. Should
a party not wish to participate, the JV agreement provides a mechanism whereby
the parties may elect to become “non-contributory” to the JV and by doing so
they would be subject to dilution.
Portion
11 was contributed to the WBJV in 2007 as originally planned under the existing
terms of the October 2004 WBJV Agreement. For this later contribution of Portion
11 the original credit rates for equalization as described above have been
amended to US$0.62 per inferred ounce, US$10.37 per indicated ounce and US$39.55
per measured ounce in order to adjust for current market
conditions.
In
January 2007 the Company published a Pre-Feasibility Report and an updated
Independent Resource Estimate which shows Measured, Indicated and Inferred “4E”
(platinum, palladium, rhodium and gold) resources for the Project 1 area of the
WBJV. On February 7, 2007 the Company published an initial Independent Resource
Estimate for the Project 2 area of the WBJV. Later, on September 7, 2007 the
Company published an updated resource calculation. During the current
period, on April 22, 2008 the Company published a resource calculation for
Project 2 of the WBJV and then on April 25, 2008 an initial resource was
published for the Project 3 area of the WBJV. These resource
calculations are summarized in the table below.
The
Pre-Feasibility Study and revised resource estimation for the Project 1 area of
the WBJV was dated January 15, 2007. A report titled “Technical Report Western
Bushveld Joint Venture Project 1 (Elandsfontein and Frischgewaagd)” was filed by
the Company on www.sedar.com January 30, 2007. The Pre-Feasibility Study
considers and outlines the details and possible mitigation of several considered
projects risks, not yet assessed in full detail, including metallurgical
recoveries, smelting and refining costs, surface and mining rights, permits, and
involvement of communities in compliance with the Minerals and Petroleum
Resources Development Act (2002).
The
Pre-Feasibility Study’s findings were positive for a platinum mine in the
Project 1 area of the Western Bushveld Joint Venture (“WBJV”) in South Africa.
The partners of the WBJV gave their approval to advance towards a Feasibility
Study for an underground mine producing approximately 250,000 4E ounces per
annum in concentrate with a total mine life over 18 years. The
Feasibility Study was delivered to the Partners of the WBJV on June 30, 2008 and
results thereof were published by the Company in a news release dated July 7,
2008.
The
majority of work programs approved by the partners of the WBJV since 2006 have
been completed at the time of writing. The partners share the cost of
work programs pro-rata to their interest in the WBJV. Rand 201
million (approximately $28.7 million) was budgeted for work by the partners of
the WBJV since 2006 and of that approved cash calls to the partners to date
total R 179 million (approximately $25.57 million). During April 2008
the participants of the WBJV also approved a budget for the acquisition of long
lead capital items in the amount of R 21.086 million (approximately $2.74
million) and that budget has been funded at the time of writing. The
remaining work budget applies to both the exploration of the Project 3 area of
the WBJV and to preparatory engineering and development work on Project
1. Activities for the WBJV have included research and data review,
prospecting, mapping, detailed engineering, drilling of project areas,
geophysical studies, geotechnical work, metallurgical studies and mine plan and
scheduling work. A new forward budget is currently under
consideration as the FS for Project 1 was completed on June 30,
2008.
Resources
in the Measured and Indicated categories can be included in a financial model
under SAMREC and NI-43101 guidelines. Further drilling is now investigating
additional areas with reef potential along strike on Project 3 within the Joint
Venture area. Since January 2005 PTM has drilled more than 200,000 metres of
core in 265 boreholes, including 37 geotechnical holes. At the time of writing
the Company has one diamond drilling rig deployed on Project 3 of the WBJV and a
second conducting geo-technical drilling on Project 1 of the WBJV.
Summary
resource details from published reports for Project 1, Project 2 and Project 3
follow in the table below. Platinum Group Metals Ltd. holds a 37% interest in
the 4E ounces attributable to the WBJV. The prill splits and 4E estimates for
Project 2 have been calculated by arithmetic mean. The prill splits and 4E
estimates for Project 1 and 3 have been tested for reasonableness by kriging on
the individual elements. Copper and nickel as well as the minor platinum group
elements have also been estimated with a statistical process of Simple Kriging
for Project 1. Absent values for copper, nickel and the minor platinum group
elements have been derived from regressed values.
|
|
Resource
|
Tonnes
|
Grade
|
Width
|
Prill
Split (4E)
|
WBJV
Ozs
|
PTM
|
PTM
Ozs
|
|
Reef
|
Category
|
(million)
|
(4E)
|
(metres)
|
Pt
|
Pd
|
Rh
|
Au
|
(millions)
|
Interest
|
(millions)
|
Project
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MR
|
Measured
|
6.305
|
7.03
|
1.18
|
64%
|
27%
|
4%
|
5%
|
1.425
|
37%
|
0.527
|
|
UG2
|
Measured
|
7.165
|
3.75
|
1.56
|
63%
|
26%
|
10%
|
1%
|
0.864
|
37%
|
0.320
|
|
MR
|
Indicated
|
12.181
|
6.78
|
1.22
|
64%
|
27%
|
4%
|
5%
|
2.655
|
37%
|
0.982
|
|
UG2
|
Indicated
|
18.579
|
3.96
|
1.44
|
63%
|
26%
|
10%
|
1%
|
2.365
|
37%
|
0.875
|
|
MR
|
Inferred
|
0.289
|
6.47
|
1.03
|
64%
|
27%
|
4%
|
5%
|
0.060
|
37%
|
0.022
|
|
UG2
|
Inferred
|
2.387
|
4.40
|
1.49
|
63%
|
26%
|
10%
|
1%
|
0.338
|
37%
|
0.125
|
|
MR
|
Inferred
|
1.871
|
6.48
|
1.15
|
64%
|
27%
|
4%
|
5%
|
0.390
|
37%
|
0.144
|
|
UG2
|
Inferred
|
2.973
|
5.00
|
1.57
|
63%
|
26%
|
10%
|
1%
|
0.478
|
37%
|
0.177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project
2
|
|
|
|
|
|
|
|
|
|
|
|
|
22-Apr-08
|
MR
|
Measured
|
4.539
|
5.70
|
1.54
|
64%
|
27%
|
5%
|
4%
|
0.832
|
18.5%
|
0.154
|
22-Apr-08
|
MR
|
Indicated
|
11.426
|
6.03
|
1.66
|
64%
|
27%
|
5%
|
4%
|
2.216
|
18.5%
|
0.410
|
22-Apr-08
|
UG2
|
Indicated
|
13.702
|
4.51
|
1.46
|
61%
|
28%
|
10%
|
1%
|
1.986
|
18.5%
|
0.367
|
22-Apr-08
|
MR
|
Inferred
|
8.758
|
5.84
|
1.38
|
65%
|
26%
|
6%
|
3%
|
1.644
|
18.5%
|
0.304
|
22-Apr-08
|
UG2
|
Inferred
|
15.537
|
4.59
|
1.34
|
61%
|
28%
|
10%
|
1%
|
2.292
|
18.5%
|
0.424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project
3
|
|
|
|
|
|
|
|
|
|
|
|
|
25-Apr-08
|
MR
|
Inferred
|
4.040
|
6.26
|
1.12
|
64%
|
27%
|
4%
|
5%
|
0.814
|
37%
|
0.301
|
25-Apr-08
|
UG2
|
Inferred
|
6.129
|
5.51
|
1.22
|
62%
|
28%
|
9%
|
1%
|
1.086
|
37%
|
0.402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
War
Springs
|
|
|
3E
|
|
|
|
|
|
|
|
|
|
17-Mar-08
|
B
Reef
|
Inferred
|
20.935
|
0.95
|
6.57
|
34%
|
58%
|
0%
|
8%
|
0.641
|
70%
|
0.449
|
17-Mar-08
|
C
Reef
|
Inferred
|
26.031
|
1.24
|
8.75
|
16%
|
78%
|
0%
|
6%
|
1.035
|
70%
|
0.725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Attributable Measured & Indicated Resources (million
ounces)
|
3.636
|
|
|
|
Total
Attributable Inferred Resources (million ounces)
|
3.073
|
MR
= Merensky
Reef UG2
= Upper Group 2 Reef
Cautionary Note to U.S.
Investors: The U.S. Securities and Exchange Commission permits U.S.
mining companies, in their filings with the SEC, to disclose only those mineral
deposits that a company can economically and legally extract or produce. We use
certain terms in this document, such as “measured,” “indicated,” and “inferred,”
“reserves,” “resources,” that the SEC guidelines strictly prohibit U.S.
registered companies from including in their filings with the SEC. “Resources”
are not “Reserves” and so do not have demonstrated economic viability. U.S.
investors are urged to consider closely the disclosure in our U.S. regulatory
filings, File No. 0-033562, which may be secured from us, or from the SEC’s
website at: http://sec.gov/edgar.shtml.
Project
1 Resource Calculation Detail
A 39% and
41% total geological loss for the Merensky Reef and UG2 Reef respectively was
applied to the resource area to accommodate for areas of potentially un-mineable
structural and geological conditions. This geological loss considers losses for
faults, dykes, potholes and areas of iron replacement pegmatite. Structural loss
estimates are based on drilling, field mapping and remote sense data which
include a high resolution aeromagnetic survey. The Merensky mineral resource
estimate is based on 158 boreholes with 178 intercepts and the UG2 is based on
192 intercepts within the 1,087 hectare area. The prill split has been
calculated by weighted averages as a proportion of the total 4E and the grades
have been estimated with a more rigorous statistical process of Simple Kriging.
The cut-off was determined on a practical mining width and the known costs and
mining methods regionally. Platinum Group’s independent consulting Qualified
Person has provided the resource estimate according to the SAMREC code. The
reconciliation to the CIM codes is that the categories are the same. The
resources are located on New Order prospecting permits that provide for the
right to be converted to mining rights. Charles Muller of Minxcon is the
Qualified Person (“QP”) for this report. He is registered with the SACNASP
(South African Council for Natural Scientific Professions) (Registration No.
400201/04). Mr. Muller is an independent consultant with 18 years experience as
a geologist, and resource evaluator. Samples were analyzed under Platinum
Group’s and Anglo Platinum’s protocols including insertion of blanks, duplicates
and certified reference materials in the assay stream once in every 24 or fewer
samples. This is in addition to internal quality control measures undertaken by
the contracted analytical facilities.
Project
2 Resource Calculation Detail
The
mining cuts were evaluated based on a minimum width of 100cm, the application of
a geological cut as applicable to the various facies of the Merensky Reef and
UG2 Chromitite Layer and a 1g/t 3PGE+Au marginal cut-off. Kriging and
declustered means were used for the calculations. The updated
estimate is based on 123 holes of drilling by Wesizwe and a 3 dimensional
seismic survey, completed co-operatively by all owners in the area. A total of
519 intersections on the reef plane have been completed and assayed for
platinum, palladium, rhodium, and gold. A 25% geological loss was applied. The
resources are calculated in accordance with the SAMREC code and the
reconciliation of SAMREC to CIM categories is that they are effectively the
same. Mr. David Young of The Mineral Corporation is the independent
QP for mineral resource estimation for Frischgewaagd Portions 4 and 11 and takes
responsibility for it. He is registered with the South African Council for
Natural Scientific Professions (“SACNASP”) (Registration No. 400989/83) and
Fellow of the Australasian Institute of Mining and Metallurgy. Mr.
Ken Lomberg of RSG Global/Coffey Mining acting as an independent QP, has
reviewed the mineral resource estimate undertaken by Mr. Young. Mr. Lomberg is
registered with the SACNASP (Registration No 400038/01) and has some 22 years of
relevant experience in platinum group metal resource assessments. Mr. Lomberg
visited the property and has completed sufficient testing to be satisfied that
he has reasonably verified the data for the resources announced
here. Samples were analyzed under Wesizwe’s care, custody and quality
control process for the project including insertion of blanks, duplicates and
certified reference materials in the assay stream. This is in addition to
internal quality control measures undertaken by the contracted certified
analytical facilities. Assays were completed by Mintek and SGS Lakefield,
Johannesburg and check assays by Setpoint and Genalysis,
Johannesburg.
Project
3 Resource Calculation Detail
A 14%
geological loss for the Merensky Reef and UG2 Reef respectively was applied to
the area to accommodate for areas of potentially un-mineable structural and
geological conditions. This geological loss considers losses for faults, dykes,
potholes and areas of iron replacement pegmatite. Structural loss estimates are
based on drilling, field mapping and remote sense data which include a high
resolution aeromagnetic survey and a 3D seismic survey. The Merensky
mineral resource estimate is based on 24 boreholes with 27 intercepts and the
UG2 is based on 15 intercepts within the 224.28 hectare area. The prill split
has been calculated by weighted averages as a proportion of the total 4E and the
grades have been estimated with a more rigorous statistical process of Simple
Kriging. (The prill splits and 4E estimates have been tested for reasonableness
by kriging on the individual elements). Copper and nickel as
well as the minor platinum group elements have also been estimated with a
statistical process of Simple kriging. Absent values for copper, nickel and the
minor platinum group elements have been derived from regressed values. The
cut-off was determined on a practical mining width and the known costs and
mining methods regionally. Platinum Group’s independent consulting Qualified
Person has provided the mineral resource estimate according to the SAMREC code.
The reconciliation to the CIM codes is that the categories are the same. The
resources are located on new order prospecting permits that provide for the
right to be converted to mining rights. Charles Muller of Minxcon is
the Qualified Person (“QP”) for this report. He is registered with the South
African Council for Natural Scientific Professions (“SACNASP”) (Registration No.
400201/04).
War
Springs Resource Calculation Detail
The War
Springs Mineral Resource is characterised by two distinct reef layers, termed
the "B" and "C" reefs. Both reefs are typically greater than 6m thick. The reefs
outcrop on surface and extend down dip in parallel sheets at a 65 degree angle
to a depth of 400 metres, remaining open at depth. A 5% geological loss has been
applied. Eighteen holes had been completed by the end of May 2005,
relating to 7,433m of drilling. A total of 8,188 samples were collected for the
determination of elements Platinum, Palladium, Gold, Copper and Nickel. Four
additional boreholes were drilled (1,646m) during the period November 2005 to
early February 2006, on high priority soil targets (Phase 2 Drilling Program).
An additional 1,738 samples were collected for analysis. Of the 22
boreholes drilled, 15 boreholes intersected the “B” Reef and 8 boreholes
intersected the “C” Reef. Drilling results from Phase 1 and 2
covering approximately 2,200 metres of strike length on a 250 metre spacing,
combined with a review of the cut-off, form the basis of the updated Inferred
Mineral Resource estimation to be reported in a NI43-101 document, compiled by
Minxcon (Pty) Ltd, dated March, 2008. Mr. Charles Muller of Minxcon
is the Qualified Person (“QP”) for the War Springs resource estimate. He is
registered with the South African Council for Natural Scientific Professions
(SACNASP) (Registration No. 400201/04). Mr. Muller is an independent consultant
with 18 years experience as a geologist, and resource evaluator. Samples were
analyzed under Platinum Group’s previously published protocols for the project
including insertion of blanks, duplicates and certified reference materials in
the assay stream once in every 24 or fewer samples. This is in addition to
internal quality control measures undertaken by the contracted certified
analytical facilities. Assays were completed by standard fire assay procedures
with preparation at the Setpoint facility at Mokopane and final assays at
Genalysis Laboratories Services Pty Ltd in Perth Australia or Anglo Research
Laboratories.
Northern
Limb, Bushveld - War Springs and Tweespalk Properties
On June
3, 2002, the Company entered an option agreement whereby it may earn a 100%
interest in the 2,396 hectare War Springs property and the 2,177 hectare
Tweespalk property both located in the Northern Limb or Platreef area of the
Bushveld Complex north of Johannesburg. Acquisition and exploration costs on
these properties to May 31, 2008 total $3,271,673 (2007 -
$3,342,672).
By prior
agreement with the holders of the Old Order mineral rights the Company had an
option to purchase 100% of these mineral rights for US$690 per hectare. The
Company also agreed to pay prospecting fees to the vendors of US$3.25 per
hectare. The vendors retain a 1% NSR Royalty on the property, subject to the
Company’s right to purchase the NSR at any time for US$1.4 million. A 5%
finders’ fee applies to vendor payments.
Under the
new Mineral and Petroleum Resources Development Act (2002), which became
effective in May 2004, Old Order permits were to be converted into New Order
permits during a transition period. This process is now complete for the War
Springs and Tweespalk properties. The June 3, 2002 option agreement provides for
amendments as may be needed to maintain the parties in the same commercial
position as they were in under the preceding mineral legislation and such
amendments are yet to be completed.
Black
Economic Empowerment groups Africa Wide and Taung Minerals (Pty) Ltd. have each
acquired a 15% interest in the War Springs project carried to bankable
feasibility. The Company’s retains a net 70% project interest.
Africa
Wide also has a 30% participating interest in the Tweespalk property. During the
period the Company received payment in full from Wesizwe Platinum Ltd. for
Africa Wide’s share of costs to August 31, 2007, which amounted to R 1,549,673
(C$213,855 at May 31, 2008). The payment was treated as a recovery of costs
relating to the Tweespalk property.
The
Tweespalk and War Springs projects are currently the subject of only modest work
efforts as the Company is focused on the WBJV. Given recent increases in metal
prices both the Tweespalk and War Springs projects are being considered for more
active exploration work in 2008. On March 17, 2008 the Company published a
revised and updated resource calculation for the War Springs property based on
drilling and exploration work conducted in the last three
years. Details are as follow are included in the Table
above.
The War
Springs Mineral Resource is characterised by two distinct reef layers, termed
the "B" and "C" reefs. Both reefs are typically greater than 6m thick. The reefs
outcrop on surface and extend down dip in parallel sheets at a 65 degree angle
to a depth of 400 metres, remaining open at depth. A 5% geological loss has been
applied.
Mr.
Charles Muller of Minxcon is the Qualified Person (“QP”) for the technical
report disclosing the above resource. He is registered with the South African
Council for Natural Scientific Professions (SACNASP) (Registration No.
400201/04). Mr. Muller is an independent consultant with 18 years experience as
a geologist, and resource evaluator. Samples were analyzed under Platinum
Group’s previously published protocols for the project including insertion of
blanks, duplicates and certified reference materials in the assay stream once in
every 24 or fewer samples. This is in addition to internal quality control
measures undertaken by the contracted certified analytical facilities. Assays
were completed by standard fire assay procedures with preparation at the
Setpoint facility at Mokopane and final assays at Genalysis Laboratories
Services Pty Ltd in Perth Australia or Anglo Research Laboratories.
Lakemount,
Ontario
On
November 6, 2003 the Company acquired an option to earn up to a 62% interest in
the 3,017 hectare Lakemount property located near Wawa, Ontario. Exploration
results on the project to date have been of interest, but in light of certain
title deficiencies and a complex title chain, the Company has abandoned the
project. Deferred acquisition and exploration costs relating to the project in
the amount of $1,323,222 were written off in the year ended August 31,
2007.
Lac
Des Iles Area Properties, Ontario
On May 5,
2000, New Millennium entered into an option agreement to acquire a 50% interest
in the Lac des Iles River property located near Thunder Bay, Ontario in exchange
for cash payments ($43,500 paid in total) and the completion of exploration
expenditures. On October 6, 2006, the Company and the property vendors entered
into a termination and sale agreement whereby the option agreement was cancelled
and the Company purchased an undivided 100% interest in the property subject
only to an underlying 2.0% Net Smelter Return Royalty. In settlement the Company
made a one-time payment to the vendors of $50,000 in lieu of past and future
exploration expenditure commitments not incurred.
In April
2000, and later as amended in January 2005, the Company acquired an option to
earn a 50% interest in the South Legris property located near Thunder Bay,
Ontario in exchange for cash payments ($105,000 paid in total) and the
completion of certain exploration expenditures. On October 13, 2006, the
Company and the property vendors entered into a termination and sale agreement
whereby the option agreement was cancelled and the Company purchased an
undivided 100% interest in the property subject only to underlying 2.0% Net
Smelter Return Royalties. In settlement the Company made a one-time payment of
$50,000 in lieu of past and future exploration expenditure commitments not
incurred.
On June
28, 2000, New Millennium entered into an option agreement to earn up to 60%
interest in the Shelby Lake property, located near Thunder Bay, Ontario in
exchange for cash payments of $15,000 (paid), the issue of 30,303 shares
(issued) and the completion of exploration expenditures. On October 18, 2006,
the Company and the property vendor entered into a termination and sale
agreement whereby the option agreement was cancelled and the Company purchased
an undivided 100% interest in the property for a one-time payment of $5,000
subject only to an underlying 2.0% Net Smelter Return Royalty.
In late
2006 a 1,090 metre drill program was conducted on the Company’s Lac Des Iles
area projects. A further drill program planned for 1,125 metres was
completed during the period and completed in December 2007. Costs for the
program since August 31, 2007 have amounted to approximately $161,000. Results
of exploration for the current program and those over the last few years for
palladium, platinum, nickel and copper have been encouraging and the Company
plans to invest further in this area in the future. At the time of writing a
2008 exploration budget for the area is under consideration.
e)
Administration Expenses
Before a
non-cash charge for stock based compensation of $638,034 (2007 - $1,395,866),
and mineral property costs written off of $Nil (2007 - $1,323,222), and not
including interest in the period of $220,943 (2007 - $297,618), general and
administrative expenses totaled $3,667,996 (2007 - $2,943,759). Since
2002 the Company has grown substantially through its amalgamation with New
Millennium Metals Corporation and its expansion into the Republic of South
Africa. This growth is reflected in the costs described herein. During 2004 the
Company opened and staffed a permanent office in Johannesburg and commenced
active exploration on the ground. The costs described above include management
and consulting fees of $443,865 (2007 - $524,197); office and miscellaneous
expenses of $157,390 (2007 - $185,365); professional fees of $515,316 (2007 -
$212,710); salaries and benefits of $1,079,542 (2007 - $875,405); shareholder
relations expense of $110,423 (2007 - $167,408); travel expenses of $687,951
(2007 - $500,754); news release, print and mailout expenses of $55,786 (2007 -
$79,526) and promotion expenses of $176,829 (2007 - $147,475).
f)
Related Party Transactions
Management,
salary, consulting fees paid to directors for the period amounted to
$351,280 (2007 - $338,131). Of this amount approximately $189,197 (2007 -
$174,151) is related to fees for the Company’s President and the balance of
$162,083 (2007 - $163,980) relates to the salary and consulting fees of other
directors. At May 31, 2008 there were $Nil in fees (2007 - $Nil) owed and
included in accounts payable.
The
Company received $101,802 (2007 - $104,152) during the period from MAG Silver
Corp. (“MAG”), a company with two common directors and a common officer under an
administrative services agreement. The services provided include day-to-day
administration and accounting and are provided at market rates. There are no
long term obligations or commitments for either party with relation to the
services agreement. Accounts receivable at the end of the period include an
amount of $6,799 due from MAG.
During
the period the Company accrued or received payments of $81,000 (2007 – $35,100)
from West Timmins Mining Inc. (“WTM”) formerly Sydney Resource Corporation, a
company with three common directors and a common officer, for administrative
services. The services provided include day-to-day administration and accounting
and are provided at market rates. There are no long term obligations or
commitments for either party with relation to the provision of services.
Accounts receivable at the end of the period include an amount of $6,353 due
from WTM.
During
the year ended August 31, 2005, the Company entered into an office lease
agreement with Anthem Works Ltd. (“Anthem”), a company with a common director.
During the period ended May 31, 2008 the Company accrued or paid Anthem $67,559
under the office lease agreement (2007 - $46,751). The space occupied
approximates one third of 6,050 square feet in a first tier building located in
downtown Vancouver, British Columbia. The rental rate was negotiated on an
“arm’s length basis”. At the time of writing the Company has an obligation to
rent the premises until September 30, 2009 at a rate of $6,943 per
month.
All of
the above transactions are in the normal course of business and are measured at
the exchange amount which is the consideration established and agreed to by the
noted parties.
g)
Shareholder Relations’ Expenses
Shareholder
relations’ expense during the period totaled $110,423 (2007 - $167,408). The
Company manages its shareholder relations as an internal function. The Company
has been active in raising its profile with both retail and institutional
investors. From May 2005 until April 30, 2008 Roth Investor Relations (“Roth”)
was contracted at a rate of US$5,000 per month to provide distribution of the
Company’s information to US institutions and other international analysts and
money managers. Since June 2005 Mr. Tony Mahalski of LM Associates in
London, U.K., has been engaged for a fee of GBP 1,000 per month for the purpose
of general business development and the raising of the Company’s profile in
Europe.
h)
Travel and Promotion Expenses
Travel
expenses for the period amounted to $687,951 (2007 - $500,754). These
activities relate to the supervision of ongoing operations in South Africa and
Canada, new property investigations and meetings with potential and current
institutional and sophisticated investors. Travel related to all of these
activities was higher during the period than in the same period in
2007. Promotional expenses in the period amounted to $176,829 (2007 -
$147,475) and these costs relate to design work, media relations, printed
material, postage and trade show attendance.
i)
Property Acquisition Expenses
Property
acquisition expenditures during the period totaled $223,956 (2007 - $362,915) in
cash and shares. This includes $4,558 for properties in Ontario, and $219,398 to
acquire or maintain option rights to the South African properties. Cash payments
or accruals totaled $58,456 (2007 - $132,915) and share issuances for property
acquisitions totaled $165,500 (2007 - $230,000).
The
Company evaluates its property interests on an ongoing basis and intends to
abandon properties that fail to remain prospective. Apart from a possible
buy-out of the War Springs and Tweespalk properties, the Company has no other
required property acquisition payments due to vendors under mineral property
option agreements. At the time of writing the Company was incurring
further property acquisition expenses, such as research and
staking expenses, through its activities in Ontario, Canada and South
Africa.
j)
Off-Balance Sheet Arrangements
The
Company has no off-balance sheet arrangements.
3. CRITICAL
ACCOUNTING ESTIMATES
The
Company’s significant accounting policies are set out in Note 2 of its unaudited
Interim Consolidated Financial Statements for the period ended May 31,
2008.
The
preparation of financial statements in conformity with Canadian GAAP requires
Management to make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent liabilities at the date of
the financial statements, and the reported amounts of revenues and expenditures
during the reporting period. Management has identified (i) mineral property
acquisition and exploration deferred costs (ii) provision for reclamation and
closure, (iii) future income tax provision and (iv) stock based compensation as
the main estimates for the following discussion. Please refer to Note 2 of the
Company’s consolidated financial statements for a description of all of the
significant accounting policies.
Under
Canadian GAAP, the Company defers all costs relating to the acquisition and
exploration of its mineral properties. Any revenues received from such
properties are credited against the costs of the property. When commercial
production commences on any of the Company’s properties, any previously
capitalized costs would be charged to operations using a unit-of-production
method. The Company regularly reviews the carrying values of its properties to
assess their recoverability and when the carrying value of a property exceeds
the estimated net recoverable amount, provision is made for impairment in
value.
The
existence of uncertainties during the exploration stage and the lack of
definitive empirical evidence with respect to the feasibility of successful
commercial development of any exploration property does create measurement
uncertainty concerning the estimate of the amount of impairment to the value of
any mineral property. The Company relies on its own or independent estimates of
further geological prospects of a particular property and also considers the
likely proceeds from a sale or assignment of the rights before determining
whether or not impairment in value has occurred.
Reclamation
and closure costs have been estimated based on the Company’s interpretation of
current regulatory requirements, however changes in regulatory requirements and
new information may result in revisions to estimates. The Company recognizes the
fair value of liabilities for reclamation and closure costs in the period in
which they are incurred. A corresponding increase to the carrying amount of the
related assets is generally recorded and depreciated over the life of the
asset.
The
future income tax provision is based on the liability method. Future taxes arise
from the recognition of the tax consequences of temporary differences by
applying enacted or substantively enacted tax rates applicable to future years
to differences between the financial statement carrying amounts and the tax
bases of certain assets and liabilities. The Company records a valuation
allowance against any portion of those future income tax assets that it believes
will, more likely than not, fail to be realized.
For its
2005 fiscal year, The Company adopted CICA Handbook Section 3870 – Stock-Based
Compensation and other Stock-Based Payments, which requires the fair value
method of accounting for stock options. Under this method, the Company is
required to recognize a charge to the income statement based on an
option-pricing model based on certain assumptions. For the period ended May 31,
2008 the assumptions were as follows; no dividends were paid, a weighted average
volatility of the Company’s share price of 64.10%, a weighted average annual
risk free rate of 4.10 per cent and an expected life of 3.31 years. The
resulting weighted average option pricing resulted in an expense for stock
options in the period ended May 31, 2008 of $993,022 (2007 - $1,395,866). Of the
$993,022 in cost calculated for May 31, 2008 an amount of $638,034 was expensed
while $354,988 was capitalized to deferred mineral property exploration
costs.
In
accordance with these new standards, the Company now classifies all financial
instruments as either held-to-maturity, available-for-sale, held-for-trading,
loans and receivables, or other financial liabilities. Financial assets held to
maturity, loans and receivables and financial liabilities other than those held
for trading, are measured at amortized cost. Available-for-sale instruments are
measured at fair value with unrealized gains and losses recognized in other
comprehensive income. Instruments classified as held for trading are measured at
fair value with unrealized gains and losses recognized in the statement of
operations. Transaction costs are expensed as incurred.
Upon
adoption of these new standards, the Company has designated its cash and cash
equivalents as held-for-trading, which are measured at fair value. Accounts
receivable and other are classified as loans and receivables, which are measured
at amortized cost. Restricted certificates of deposit are classified as
held-to-maturity, and are measured at amortized cost. Accounts payable and
accrued liabilities, property and mining taxes payable, convertible debentures,
notes payable, and accrued site closure costs are classified as other
liabilities, which are measured at amortized cost.”
4. SIGNIFICANT
ACCOUNTING POLICIES
The
Company’s significant accounting policies are set out in Note 2 of its
Consolidated Audited Financial Statements for the year ended August 31, 2007 as
well as Note 2 of its unaudited Consolidated Interim Financial Statements for
the period ended May 31, 2008. There are several policies that are significant
to the financial results of the Company.
Under
Canadian GAAP, the Company defers all costs relating to the acquisition and
exploration of its mineral properties. Any revenues received from such
properties are credited against the costs of the property. When commercial
production commences on any of the Company’s properties, any previously
capitalized costs would be charged to operations over the life of the property
using a unit-of-production method. The Company regularly reviews deferred
exploration costs to assess their recoverability and when the carrying value of
a property exceeds the estimated net recoverable amount, provision is made for
impairment in value.
The
existence of uncertainties during the exploration stage and the lack of
definitive empirical evidence with respect to the feasibility of successful
commercial development of any exploration property do create measurement
uncertainty concerning the calculation of the amount of impairment to the value
of any mineral property. The Company relies on its own or independent estimates
of further geological prospects of a particular property and also considers the
likely proceeds from a sale or assignment of the rights before determining
whether or not impairment in value has occurred.
Future
income taxes are calculated based on the liability method. Future income taxes
arise from the recognition of the tax consequences of temporary differences by
applying enacted or substantively enacted tax rates applicable to future years
to differences between the financial statement carrying amounts and the tax
bases of certain assets and liabilities. The Company records a valuation
allowance against any portion of those future income tax assets that it believes
will, more likely than not, fail to be realized.
5. ADOPTION
OF NEW ACCOUNTING STANDARDS
Effective
September 1, 2007, we have adopted CICA Handbook Sections 3855 Financial Instruments – Recognition
and Measurement; Section 3861 Financial Instruments – Disclosure
and Presentation; Section 3865 Hedges; Section 1530 Comprehensive Income and
Section 3251 Equity. As
the Company has not previously undertaken hedging activities, adoption of
Section 3865 currently has no impact. Prior to September 1, 2007, the principal
accounting policies affecting financial instruments related to marketable
securities that were valued at the lower of original cost and fair market
value.
CICA
Section 3855 requires that all financial assets, except those classified as
held-to-maturity, and loans and receivables, must be measured at fair value. All
financial liabilities must be measured at fair value when they are classified as
held-for-trading; otherwise, they are measured at amortized cost. Investments
classified as available-for-sale are reported at fair market value (or marked to
market) based on quoted market prices with unrealized gains or losses excluded
from earnings and reported as other comprehensive income or loss. Those
instruments classified as held-for-trading, have gains or losses included in
earnings in the period in which they arise. All of the Company’s investments
have been designated as available-for-sale.
Comprehensive
income is the change in our net assets that results from transactions, events
and circumstances from sources other than our shareholders and includes items
that would not normally be included in net earnings such as unrealized gains or
losses on available-for-sale investments. Other comprehensive income includes
the unrealized gains and losses from available-for-sale securities which are not
included in net income (loss) until realized.
The
adoption of Sections 1530 and 3855 impacts our opening equity. The unrealized
gain on the available-for-sale securities from purchase to August 31, 2007 was
$1,874,001, which is reported as an adjustment to the opening balance of
accumulated other comprehensive income. The net unrealized loss on the
available-for-sale securities for the nine months ended May 31, 2008 was
$370,000. There would be no tax impact resulting from adjustments arising from
comprehensive income as there are sufficient unrecognized future tax benefits
available to offset any future tax liability arising.
6. LIQUIDITY
AND CAPITAL RESOURCES
The
Company issued a total of 1,603,500 (2007 – 7,035,069) common shares during the
period. Of this 1,553,500 shares (2007 – 6,985,069) were issued for cash
proceeds of $2,246,025 (2007 - $11,882,866). During the period 50,000
shares (2007 – 50,000) were issued for mineral properties for a fair value of
$165,500 (2007 - $230,000). Cash proceeds are net of share issuances to be spent
on mineral property acquisitions, exploration and development as well as for
general working capital purposes. The Company’s primary source of capital has
been from the sale of equity. At May 31, 2008 the Company had cash, cash
equivalents and short term investments on hand of $5,575,866 compared to
$14,486,241 at May 31, 2007.
The
Company receives lump sum cash advances at various times as laid out in agreed
budgets from its joint venture partners to cover the costs of the WBJV. The
balance of cash outflows is made up of management fees and expenses of $443,865
(2007 - $524,197) and other general and administrative expenses of $3,224,131
(2007 - $2,419,562).
In the
normal course of business the Company enters into transactions for the purchase
of supplies and services denominated in South African Rand. The Company also has
cash and certain liabilities denominated in South African Rand. As a result the
Company is subject to foreign exchange risk from fluctuations in foreign
exchange rates. In the past year to the time of writing this report, the South
African Rand has fallen in value against the Canadian Dollar by approximately
12%.
The
following Table discloses the Company’s continual obligations for optional
mineral property acquisition payments and committed office and equipment lease
obligations. Apart from a possible buy-out of the War Springs and Tweespalk
properties, the Company has no other property acquisition payments due to
vendors under mineral property option agreements. The Company has no
long term debt or loan obligations. Under the terms of several of the Company’s
mineral property option and purchase agreements, the Company is required to make
certain scheduled acquisition payments as summarized in the table below in
order to preserve the Company’s interests in the related mineral properties. In
the event the Company is unable or unwilling to make these payments, it is
likely that the Company would forfeit our rights to acquire the related
properties.
Payments
by period
|
Total
|
<
1
Year
|
1
– 3
Years
|
3
– 5
Years
|
>
5
Years
|
Optional
Acquisition Payments War Springs & Tweespalk
|
$
3,978,000
|
$
3,978,000
|
$0
|
$
0
|
$
0
|
Lease
Obligations
|
228,314
|
25,755
|
165,986
|
10,818
|
0
|
Totals
|
$
4,206,314
|
$
4,003,755
|
$165,986
|
$
10,818
|
$0
|
In
addition to the above the Company will be required to pay an equalizing amount
under the terms of the WBJV agreement based on the measured, indicated and
inferred 4E PGE ounces reported in a Feasibility Study. See item d) “Exploration
Programs and Expenditures” above for details of how the equalizing payment will
be calculated.
7. OUTSTANDING
SHARE DATA
The
Company has an unlimited number of common shares authorized for issuance without
par value. At July 7, 2008 there were 62,592,247 shares outstanding, 3,994,375
incentive stock options outstanding and no common share purchase warrants
outstanding.
8. 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 U.S.
Securities and Exchange Commission and Canadian Securities Administration
requirements are recorded, processed, summarized and reported in the manner
specified by the relevant securities laws applicable to the Company. The Company
operates in both Canada and the Republic of South Africa and work is ongoing to
improve and modernize these controls and to ensure that they remain consistently
applied in both jurisdictions. The Chief Executive Officer and the Chief
Financial Officer have evaluated the Company’s disclosure control procedures as
of May 31, 2008 through inquiry, review, and testing, as well as by drawing upon
their own relevant experience. The Company retained an independent third party
specialist in 2007 to assist in the assessment of its disclosure control
procedures. The Chief Executive Officer and the Chief Financial Officer have
concluded that, as at May 31, 2008, the Company’s disclosure control procedures
were effective. Management is also developing and implementing a plan to address
disclosure controls and procedures on a forward looking basis as the Company
continues to grow.
The
Company also maintains a system of internal controls over financial reporting
designed under the supervision of the Company’s Chief Executive Officer and
Chief Financial Officer to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with Canadian GAAP. The Company retained an
independent third party specialist in 2007 to assist in the assessment of its
internal control procedures. The Board of Directors approves the financial
statements and ensures that management discharges its financial
responsibilities. The Board’s review is accomplished principally through the
audit committee, which is composed of independent non-executive
directors.
The audit
committee meets periodically with management and auditors to review financial
reporting and control matters. The Board of Directors has also appointed a
compensation committee composed of non-executive directors whose recommendations
are followed with regard to executive compensation.
From time
to time the board may also form special sub-committees, which must investigate
and report to the Board on specific topics.
During
the year ended August 31, 2007, the Company effected the changes in internal
control over financial reporting that have materially affected, or may
materially affect, the Company’s internal control over financial reporting. The
Company has (i) taken steps to improve segregation of duties and the
authorization process through the addition of accounting personnel; and (ii)
reviewed and refined internal control processes; and (iii) adopted and published
new corporate governance policies; and (iv) reviewed and improved general
controls over information technology; and (v) enhanced financial control over
period close processes. During the period ended May 31, 2008 there were no
significant changes with regard to internal controls.
The
Company’s management, including the Chief Executive Officer and the Chief
Financial Officer, is responsible for establishing and maintaining adequate
internal control over financial reporting, and evaluating the effectiveness of
the Company’s internal control over financial reporting as at each fiscal year
end. Management has used the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) framework to evaluate the effectiveness of the
Company’s internal control over financial reporting as at May 31, 2008. Based on
this evaluation, management has concluded that as at May 31, 2008, the Company’s
internal control over financial reporting was effective.
9. AMEX
CORPORATE GOVERNANCE
The
Company’s common shares are listed on the American Stock Exchange (“AMEX”).
Section 110 of the AMEX company guide permits AMEX to consider the laws, customs
and practices of foreign issuers in relaxing certain AMEX listing criteria, and
to grant exemptions from AMEX listing criteria based on these considerations. A
company seeking relief under these provisions is required to provide written
certification from independent local counsel that the non-complying practice is
not prohibited by home country law. A description of the significant ways in
which the Company’s governance practices differ from those followed by domestic
companies pursuant to AMEX standards is posted on the Company’s website at
www.platinumgroupmetals.net and a copy of such description is available by
written request made to the Company.
10. OTHER
INFORMATION
Additional
information relating to the Company, including the Company’s Annual Information
Form for the year ended August 31, 2007 and filed November 29, 2007, may be
found on SEDAR at www.sedar.com.
11. SUBSEQUENT
EVENTS
On June
30, 2008 the Company, as operator of the WBJV, delivered a positive Feasibility
Study for Project 1 to the partners of the WBJV. A news release
summarizing the detailed findings of the study was published by the Company on
July 7, 2008. The partners of the WBJV will have 90 days, until
approximately early October 2008, to consider the findings, at which time they
will be asked to consider a decision to mine.
12. LIST
OF DIRECTORS AND OFFICERS
a)
Directors:
Iain McLean
Frank R. Hallam
(Secretary)
R. Michael
Jones
Eric Carlson
Barry W. Smee
b)
Officers:
R. Michael
Jones (Chief Executive Officer)
Frank
R. Hallam (Chief Financial Officer)
Peter C. Busse (Chief Operating
Officer)
1 The
Company’s primary source of revenue during the quarters listed above was
interest revenue from GIC’s held by the Company. The amount of interest revenue
earned correlates directly to the amount of cash on hand during the period
referenced.
2 Net
losses by quarter are often materially affected by the timing and recognition of
large non-cash expenses or write-offs. For example, the quarter ended May31,
2008 includes a non-cash charge for stock based compensation in the amount of
$245,837. The quarter ended February 29, 2008 includes a non-cash charge for
stock based compensation in the amount of $250,830. The quarter ended November
30, 2007 includes a non-cash charge for stock based compensation in the amount
of $141,367. The Quarter ended August 31, 2007 includes a non-cash charge for
stock based compensation in the amount of $91,795. The May 31, 2007 quarter
includes a non-cash charge for stock based compensation in the amount of
$11,890. The February 28, 2007 quarter includes a non-cash charge for stock
based compensation in the amount of $1,171,517. The quarter ended November 30,
2006 includes a non-cash charge for stock based compensation of $212,459 and a
mineral property write off for $1,323,222. The quarter ended August 31, 2006
includes a non-cash charge for stock based compensation of $70,232 and a mineral
property write off for $381,027. When adjusting these non-cash charges the
results for the quarters listed show a more consistent trend, with a general
growth in expenses over time that is consistent with the Company’s increased
exploration and corporate activities over the past two years as described above
at “Discussion of Operations and Financial Condition”.