Business context and reporting period
Platinum Group Metals Ltd. filed this Form 20-F annual report for the fiscal year ended August 31, 2018; it is not a standalone 2018 fourth-quarter report. The company is a South Africa-focused exploration and development company with no operating revenue. Its principal project is Waterberg, where it was advancing a definitive feasibility study (DFS). Figures are in U.S. dollars unless noted; financial statements follow IFRS.
Key financial metrics
| Metric | FY2018 / August 31, 2018 | Comparison |
|---|---|---|
| Net loss | $41.0 million; loss per share $0.20 | FY2017 net loss $590.4 million; loss per share $4.30 |
| Revenue and margins | No operating revenue; margins not applicable | Company identifies interest on cash as its only significant income source in 2016–2018 |
| Cash flow | Operating cash flow: $(20.6) million; investing cash flow: $7.9 million; financing cash flow: $11.8 million; cash declined by $0.9 million before $0.5 million favorable FX impact | Cash and cash equivalents ended at $3.0 million |
| Liquidity | Working capital: $7.7 million; current assets: $11.3 million; current liabilities: $3.6 million. Marketable securities: $7.1 million. | Working capital was $13.3 million and cash was $3.4 million at August 31, 2017 |
| Debt and equity | Loans payable: $42.3 million; convertible notes: $14.9 million; total liabilities: $61.4 million; shareholders’ deficit: $19.5 million | Sprott facility repaid in full during FY2018; LMM facility remained outstanding |
| Waterberg investment | $9.1 million exploration and engineering costs capitalized; exploration and evaluation assets totaled $29.4 million | $5.7 million additions and $22.9 million asset balance in FY2017 |
Material changes versus the prior period
- FY2018 net loss fell substantially from FY2017, mainly because FY2017 included a $589.2 million Maseve impairment. FY2018 included $18.4 million interest expense, $14.4 million Maseve closure and care-and-maintenance costs, and a $4.1 million foreign-exchange loss.
- The Maseve sale generated stated gross consideration of approximately $74 million, including cash and RBPlat shares. Proceeds were used to repay the Sprott facility and make a partial payment on the LMM facility.
- The company raised $19.9 million gross through May 2018 unit offerings and used the first $12 million of proceeds to reduce LMM indebtedness. The offerings substantially increased shares outstanding; 291.0 million common shares were outstanding at fiscal year-end versus 148.5 million a year earlier.
- Waterberg project interest changed after Implats acquired a 15% interest for $30 million. Platinum Group retained a 50.02% direct and indirect interest at the filing date, subject to Implats’ option to increase its stake.
Outlook, risks and unusual items
- Management targeted completion of the Waterberg DFS by the end of March 2019. The DFS was evaluating a larger-scale mine and a lower-capital alternative. The Waterberg mining-right application was accepted for consideration in October 2018; approval was not assured.
- An updated resource estimate reported 26.34 million 4E ounces measured and indicated and 7.01 million inferred at a 2.5 g/t cut-off, on a 100% project basis. These are mineral resources, not mineral reserves, and do not demonstrate economic viability.
- The company had no operating income and depended on additional financing, asset sales or strategic arrangements. The audited statements and auditor’s report highlight substantial doubt about the company’s ability to continue as a going concern. Management expected to obtain further funding, but gave no assurance it would be available.
- The LMM facility carried interest at LIBOR plus 9.5%; the filing reported $46.5 million owed at year-end and a maturity extended to October 31, 2019. The loan is secured, including by shares in the South African subsidiary and Waterberg JV Co. Convertible notes had $20 million principal, 6⅞% stated interest and a July 2022 maturity; interest could be paid in shares.
- Africa Wide sued in South Africa seeking to set aside the Maseve transaction or obtain increased value for its former 17.1% interest. The company considered the claim defective but could not predict the outcome.
- Other major risks include NYSE American listing compliance, possible dilution, currency and metal-price volatility, South African permitting and empowerment requirements, water and power access, and reliance on joint-venture partners. The company announced a proposed 1-for-10 share consolidation after year-end to address the exchange’s low-price requirement.
- The audit opinion was unqualified, but the auditor emphasized going-concern uncertainty. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not provide an attestation on internal controls.
Important facts for investors to verify
- Current cash, working capital, financing availability and compliance with LMM cash and working-capital covenants, including subsequent amendments and payments.
- Whether the RBPlat shares were sold and proceeds applied to LMM debt, and the remaining debt balance, interest burden and maturity terms.
- Progress and economics of the Waterberg DFS, mining-right and environmental approvals, infrastructure plans, and any conversion of resources into reserves.
- Status and potential financial impact of the Africa Wide litigation and any other claims or contingencies.
- Post-year-end share consolidation, listing compliance, warrant and note dilution, and updated shares outstanding.