Business context and reporting period
Platinum Group Metals Ltd. filed this Form 20-F annual report for the fiscal year ended August 31, 2019; it is not a report for calendar-year Q4. The filing was dated November 25, 2019 and presents audited IFRS financial statements in U.S. dollars. The company is an exploration and development-stage PGM company with no operating revenue; its principal asset is the Waterberg Project in South Africa. The filing also discusses a definitive feasibility study (DFS) released in September 2019, after the fiscal year-end.
Financial and operating highlights
| Metric | FY2019 / August 31, 2019 | Comparable period |
|---|---|---|
| Revenue | No operating revenue | No operating revenue |
| Net loss | $16.8 million | $41.0 million in FY2018 |
| Operating cash flow | $(5.0) million | $(23.4) million in FY2018 |
| Cash and cash equivalents | $5.6 million | $3.0 million at August 31, 2018 |
| Working capital | $(0.6) million | $7.7 million at August 31, 2018 |
| Total assets | $43.7 million | $41.8 million at August 31, 2018 |
| Total liabilities | $44.8 million | $61.4 million at August 31, 2018 |
| Loss per share | $0.52 basic and diluted | $2.03 in FY2018 in the audited statements |
FY2019 net loss narrowed mainly because FY2018 included $14.4 million of Maseve care-and-maintenance costs. Interest expense fell to $8.4 million from $18.4 million as debt declined; foreign-exchange loss was $1.0 million versus $4.1 million. A $2.7 million loss on derivative and warrant fair-value changes partly offset these improvements. The FY2017 loss was $590.4 million, largely due to a $589.2 million Maseve impairment.
Financing cash flow was $6.4 million and investing cash flow was $0.6 million in FY2019; cash increased by $2.0 million before the effect of foreign exchange. The company raised equity and obtained a new $20 million Sprott facility, using proceeds in part to repay the approximately $43 million LMM facility in full in August 2019. At year-end, reported loan payables were $18.8 million and the carrying value of convertible notes was $16.1 million. The notes have $19.99 million principal outstanding, bear 6⅞% interest and mature July 1, 2022; the Sprott facility bears 11% interest compounded monthly and matures August 21, 2021, subject to an extension option. Year-end common shares outstanding were 58.6 million, versus 29.1 million a year earlier.
Material changes and project outlook
- The September 2019 Waterberg DFS estimated proven and probable reserves of 187.5 million tonnes containing 19.5 million 4E ounces. At a 2.5 g/t 4E cutoff, measured and indicated resources were 26.35 million ounces; inferred resources were 7.01 million ounces. Mineral resources are not reserves and do not demonstrate economic viability.
- The DFS envisages a mechanized underground mine producing about 4.8 million tonnes and 420,000–425,000 4E ounces in concentrate annually at steady state, with an estimated mine life of about 45 years. These are study estimates, not company production guidance.
- Estimated project capital to reach 70% of steady-state production is R13.1 billion (about $874 million), plus R3.5 billion (about $230 million) of capitalized operating costs. The study estimated peak funding of approximately $617 million under spot-price assumptions and $667 million under three-year trailing-average assumptions.
- At the DFS’s three-year trailing-average metal prices, estimated after-tax NPV at 8% was $333 million, IRR 13.3%, and undiscounted payback 11.2 years. At September 4, 2019 spot prices, estimated after-tax NPV was $982 million, IRR 20.7%, and payback 8.4 years. Estimated cash cost was $554–$640 per 4E ounce, depending on the price case. The results are sensitive to metal prices, exchange rates, costs, recoveries and other assumptions.
- The Waterberg mining-right application had been accepted for consideration, but the filing lists the mining right, environmental authorization and waste-management licence as submitted and the water-use licence application as imminent. Surface rights, infrastructure and project financing remained important development requirements.
- Implats holds an option, subject to DFS approval and other conditions, to increase its project interest to 50.01%, including a proposed $34.8 million purchase from JOGMEC and a $130 million development-work commitment. Exercise is not assured; if completed, the company’s stated direct and indirect interest would be 31.96%.
Risks, contingencies and unusual items
- Going concern and liquidity: The auditor’s report highlights substantial doubt about the company’s ability to continue as a going concern. The company had recurring losses, no operating income, negative working capital and significant debt. Management expected to seek further financing, but its availability and terms were uncertain. The Sprott debt is secured by company assets and pledged interests in PTM RSA and Waterberg JV Co.; default could put the project interest at risk.
- Funding constraints: The Sprott facility restricts use of proceeds and requires 50% of proceeds from new equity or debt financings to be applied to repayment. The filing also describes minimum cash and working-capital covenants. The company states it was compliant at year-end despite reporting negative working capital; the filing text does not clearly reconcile these figures.
- Tax audit: SARS had proposed disallowing claimed South African foreign-exchange tax deductions. The company estimated approximately R51 million (about $3.35 million) of tax exposure for FY2014–FY2016, plus possible further exposure for FY2017–FY2018, interest and penalties. The matter remained unresolved and the company intended to contest any assessment.
- Litigation: Africa Wide sought to set aside or obtain increased value in connection with the completed Maseve sale. The company considered the claim defective but could not assure a favorable outcome.
- Other key risks: Mining-right and environmental permitting, South African regulatory and BEE requirements, water and power availability, infrastructure and construction execution, joint-venture funding and partner decisions, PGM price and currency volatility, resource-estimate uncertainty, and potential dilution from future financings or convertible securities.
- The company reported no dividends and no material off-balance-sheet arrangements. Management concluded disclosure controls and internal control over financial reporting were effective; the non-accelerated filer exemption meant the auditor did not provide an attestation on internal control effectiveness.
Important facts for investors to verify
- Reconcile the reported $0.6 million working-capital deficit with the Sprott facility’s stated working-capital covenant and management’s assertion of compliance.
- Review current cash needs, covenant calculations, debt service and the availability, timing and terms of additional financing; confirm the collateral and default consequences under the Sprott facility.
- Check the status of Waterberg JV approval of the DFS, Implats’ option decision, mining and environmental permits, water rights, surface access and project financing.
- Test the DFS economics against updated PGM prices, exchange rates, capital and operating costs, recoveries, offtake terms and funding assumptions; distinguish study estimates from committed plans.
- Confirm the latest status and potential exposure from the SARS tax dispute and Africa Wide litigation.
- Note an inconsistency in the filing: the audited statements report FY2018 loss per share of $2.03, while the selected financial data table shows $0.20. Verify the correct comparable figure and its presentation.