Canadian explorer Platinum Group Metals (PTM) has secured a loan from its single biggest lender by pledging the rights to its SA subsidiary and its only material asset.
The latest developments in PTM show how difficult, risky and expensive it is to bring a large new mine into production.
PTM had total current assets of $1.9m by the end of its 2020 financial year to August 31 compared with total current liabilities of $4.3m.
PTM had subsequently raised $10m in share offerings and a private placement of $2.5m, which gave investment holding firm Hosken Consolidated Investments (HCI) a 32% stake in the Canadian company.
While PTM has repaid $1.9m of the $20m loan held by Sprott Private Resource Lending, the parties agreed in early September 2020 to amend the agreement between them to show PTM has pledged its shares in its SA subsidiary as security for the debt.
Sprott is a Canada-based company and, among other businesses, it lends money to mining companies.
The subsidiary owns a 37% stake in a joint venture, which holds the rights to the undeveloped Waterberg platinum group metals (PGMs) and base metals deposit.
Failure to repay the Sprott loan could see PTM losing its interest in the Waterberg prospect over which a definitive feasibility study has been concluded, PTM warned in its year-end results.
The Sprott loan agreed in August 2019 matures in mid-August 2021 and PTM has the option to extend the loan by another year in exchange for a payment of shares or cash equivalent to 3% of the outstanding debt.
During the 2020 financial year, PTM spent $2.2m on interest payments to Sprott and another $400,000 since the end of August.
So far, various investors have spent $75m (about R1.1bn at the prevailing exchange rate) at Waterberg, which is 85km north of Mokopane, Limpopo, to explore the deposit and develop engineering plans on how to mine it.
Impala Platinum (Implats), a 15% owner of the joint venture after a $30m deal in 2017, opted earlier this year not to pursue its rights to increase its stake in Waterberg, which will take $874m to develop into a mine producing 420,000oz of platinum, palladium, rhodium and gold a year.
Implats said in June it had alternative capital requirements and declined to invest in a new mine.
PTM and its joint venture partners in Waterberg, including Japan Oil, Gas and Metals National Corporation (Jogmec), “have begun a process to assess commercial alternatives for mine development financing and concentrate offtake”.
“Several parties are currently in discussions with the company,” PTM said, adding it remained in talks with Implats about selling its concentrate from the Waterberg.
PTM reported a loss for its 2020 financial year of $7.1m compared with a $16.8m loss the year before.
“The company has no sources of operating income at present,” it said, a situation that is normal for an exploration company, which relies heavily on capital injections from investors and other lenders.
PTM holds 37% of the Waterberg joint venture and it owns 49.9% of Mnombo Wethu Consultants, its empowerment partner which has a 26% stake in the venture. Mnombo has not paid anything towards work at Waterberg and those costs have been borne by PTM, which is owed $4.8m, or R73m, by its empowerment partner.
PTM has direct and indirect ownership of 50.02% of Waterberg.
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