Proactive investors

Goldplat

Goldplat : A profitable, debt free, cash generative, Africa-focussed gold producer

Goldplat, the African-focused gold producer, is currently enjoying a bumper year with a number of significant news releases. To date in 2009, the company, which aims to become a mid tier gold mining house with mining projects financed by its gold recovery operations, has announced:

·    record production and turnover from its gold recovery plants in South Africa and Ghana
·    acquisition of the remaining 50% interest in the Kilimapesa Hill gold mining project in Kenya taking Goldplat to 100% ownership
·    commencement of production at Kilimapesa and a maiden JORC resource statement.
·    record pre-tax profits of £2.4m for the year ending 30 June 2009
·    a healthy cash position of £2.2 million in the bank at the end of FY09 an increase of £700,000 on FY08
·    record levels of stocks awaiting processing at its recovery plants

Managing Director Demetri Manolis hopes that the next major item of newsflow will be an announcement within the next few weeks that the mining licence for Kilimapesa has been granted.  All the requirements for the licence are in place and Manolis does not envisage any problems; Kenya is keen to further develop its mining industry in order to support its economy, exports, foreign earnings and employment. Once the licence has been formalised the company will be in a position to sell the accumulated production since mining began onsite in January this year.

Other future newsflow from the company is likely to include further developments at Kilimapesa, steps to increase the efficiency of the South African processing plant, expansion and efficiency improvements in Ghana, and acquisitions to expand the company’s asset base; Goldplat is currently looking for known deposits in Africa with targets of between 200,000 and one million ounces of contained gold.

Gold Recovery Operations : South Africa and Ghana

Since the current management took over the company in 2000 Goldplat has established itself as a market leader in the extraction of precious metals from mining waste in Africa.

The thinking behind the business model was that gold mines generate significant quantities of waste materials. The mines have an obligation to dispose of the waste in order to comply with environmental regulations yet much of it still contains precious metals, (often in significant quantities), which is not treatable by conventional means.  Examples of waste in this category includes woodchips from underground mine supports, smelting slag, bio-leach residues, fine carbon, waste gear grease, mill liners and so on; indeed Goldplat’s website lists 18 different waste sources.

Goldplat therefore developed a number of extractive processes to treat these kinds of waste, acquiring its first processing plant in 2003 at Benoni, which lies 40km east of Johannesburg on the Witswatersrand (which, allegedly, has produced 40% of all the gold ever produced in the world). The process route at the plant includes roasting, crushing, milling, thickening, floatation, leaching, carbon in leach, elution and smelting, and is highly flexible to suit the material currently being treated. Machinery is continually upgraded at the plant to enable materials to be treated more efficiently and to enhance economies of scale.

Typically after testing waste from a mine for assay, moisture content, recoverability and size Goldplat will purchase the materials outright from a mine operator.  When material is high grade however it will operate on a toll or profit-sharing arrangement with the mine operator.  Goldplat’s policy is to purchase raw materials as soon as they become available as this provides a service to its customers, it enables Goldplat management to operate and schedule production in an efficient manner blending waste from different origins, and it operates as a barrier to market entry.

Production at the South African plant has increased each year and in 2006-7 Goldplat built a second plant in the Freeport of Tema in Ghana. Tema was chosen as a strategic location both because of its free zone status with accompanying tax benefits – Goldplat has been granted a ten year tax holiday by the Ghanaian government – and as it provides access to raw materials from mines in West and Central Africa particularly in Mali, Guinea, Burkina Faso, Benin, Cote D’Ivoire, Senegal, DRC and Mauritania. The plant, which replicated the Benoni operation, commenced full production in January 2008.  

In the financial year ending June 2009 Goldplat produced 21,000 ounces of gold.  Total revenue was £11.2M, up 45% on 2008, profits before tax rose 48% to £2.4M, and the company has built up raw material stocks containing 88,000 ounces of gold. It has a blue chip client base including Anglogold, DRD Gold, Harmony, Barrick, Anglo Platinum and Mogale Gold.  The extensive client base means that Goldplat is also well positioned to hear about new opportunities relating to mining in Africa.

Kilimapesa Hill gold project, Kenya

Although Goldplat has generated revenues only from its recovery operations to date its ultimate aim is to become a mining house on the basis that this would create more value for shareholders, mining is better understood by the market and mining offers a better opportunity for quantum growth.

Goldplat therefore acquired its first mining interests in 2007, beginning with a 50:50 JV with the Swedish company International Gold Exploration AB in the Kilimapesa gold project in Kenya.  In September 2009 it purchased the remaining 50% for $2.7m.  So it now owns outright the Kilimapesa Hill gold mine and adjacent exploration assets which are located in South Western Kenya in the historically producing Migori Archaean Greenstone Belt.  The belt is a continuation of the Lake Victoria Goldfields, which hosts many major gold deposits including Barrick's multi-million ounce North Mara mine, 40 km to the southwest.  The neighbouring Macalder Mine (resource, 1.24M ounces of gold), is currently being explored by a Canadian junior, while the Kilimapesa licence area itself has been the site of considerable historical gold mining and is still the focus of artisanal mining. Official reports show that from 1920-1950 the area produced nearly 1 million ounces of gold.

The mine began producing again in January 2009 and on 5th October Goldplat announced the initial JORC-compliant resource for Kilimapesa totalling 1.65M tonnes at grade of 2.44 g/t and thus 129,000 ounces of gold (at a cut-off grade of 1 g/t Au). This should provide Goldplat with sufficient ore to run its Kilimapesa operations for at least eight years at current plant capacity levels. The mineralisation is contained in three quartz veins which vary between 10cm and 1.2m in thickness; access to the orebodies is via an adit.  There is plenty of water at the mine and while power generators are currently used the mine will shortly be connected to the national network.  Access to the mine is by plane and then 45 minutes by road. Revenue from the mine will initially be used to further develop the mine, to increase the plant’s production capacity and to investigate other known high grade areas on the property with surface mining potential. 

Other Expansion Plans

Goldplat is also actively looking for other mining targets in Africa, specifically for known deposits of between 200,000 and 1 million ounces and a short lead time to production. It is focusing on projects of this size both as Goldplat already has particular expertise in projects of this size and as these often fall below the radar of the majors and so can be acquired at favourable prices, perhaps from exploration companies who lack the financial capacity to develop them.

While Goldplat is looking throughout Africa its sale last October of 15% of its South African operations in October 2008 to BEE partner, Amabubesi Capital (Pty) Limited, means that the company can now take advantage of mining opportunities in South Africa.


Analysis

Goldplat has a unique business model and niche in Africa.  To date it has a strong track record in expanding the company even through the credit crunch and it has remained debt free, cash generative, unhedged and profitable. Several broker’s report by WH Ireland written over the last year have highlighted a number of strengths and opportunities for the company including:

·    the strength of the board and management team:  who offer a strong mix of corporate, metallurgical, geological, engineering and mining expertise
·    the established processing facilities in South Africa and Ghana:  which have no mining or exploration risk
·    the company’s strong relationships and networks with a large number of gold and platinum mining companies
·    the African dimension combined with Goldplat’s cash balance:  which means that Goldplat will be in a good position to react quickly to opportunities
·    the large stockpiles of treatable resources at both recovery plants
·    record profits

Weaknesses and threats in the reports have included the company’s vulnerability to a loss of key staff, its exposure to the gold price and South African rand exchange rate, and its exposure to energy prices as the recovery process is energy intensive.  Nonetheless the WH Ireland reports have consistently rated the company as a speculative buy.