Hosken Consolidated Investments (HCI), best known for its investment in gaming and leisure group Tsogo Sun, is having a flutter on the beleaguered local platinum mining sector.

The group’s latest annual report discloses a typically adventurous $6m investment in Canadian-listed mining exploration company Platinum Group Metals, which is prospecting a palladium and platinum resource in the Waterberg area.

The investment snags HCI a useful 15% stake in Platinum Group Metals, as well as board representation and a seat at the table of the joint-venture project arrangement with JSE-listed Impala Platinum.
This is not HCI’s first resource investment. The group already owns sizeable investments in the coal sector and in energy through Impact Oil & Gas.

HCI CEO Johnny Copelyn has played down any speculation that HCI is looking to mop up other low-priced opportunities in the platinum sector. He emphasises that Platinum Group Metals offers a low-cost opportunity to enter the sector, and should not be interpreted as HCI holding grand ambitions in mining.

“It’s not an extravagant investment … and [it’s] much smaller than what we have invested to date in Impact,” he says.

In his annual review, Copelyn concedes that platinum mines have “struggled terribly” for a number of years, with platinum prices sinking to a point where several mines appear to be making such deep losses that there is little hope for their survival.

He adds that the commodity price seems likely to remain under pressure as the automotive industry moves towards electric cars, which do not require platinum-containing catalytic converters.
Still, Copelyn believes the ore body in the Waterberg prospect appears to offer an extremely low-cost entry, being both relatively shallow and some 40m thick.
“It is hoped that the final feasibility study, which should be completed within 12 months, will result in Impala Platinum investing in the mine and operating it,” he says. “Should this happen, HCI’s entry will have been at a very cost-effective price.”

He says the shallow nature of the Waterberg platinum and palladium project, as well as the ability to support a fully mechanised operation, mean the project’s operating costs could rank among the lowest in the sector.

HCI’s investment in platinum is interesting, considering Copelyn’s frustrated remarks around the group’s strong-performing coal-mining endeavours in the annual report.

Though the coal company generated R1.2bn in revenue (previously R1.1bn) and posted headline earnings of R169m (against R106m), he believes it is a business that requires the patience of Job, with civil unrest often threatening operations.

He says in the past year the coal business has weathered demands for 20% of the company to be “given” to various protest groups, demands that employment be restricted to particular areas, and demands for contracts to truck the mine’s coal.

The standout observation was around a new inspector at the department of mineral resources issuing a section 54 order to stop production over a long weekend on the grounds that the operation (at 4.30pm on a Friday) was too dusty.

“Within minutes, our dust monitors were able to prove the contrary but, needless to say, we were unable to raise the department over the long weekend and were obliged to lose four days’ production,” Copelyn says.

Copelyn also hopes the coal segment can capitalise on plans by Eskom to solicit bids for a privately constructed coal-fired power station. The tender for this multibillion-rand project is expected to go out this year.

He says HCI Coal has done an enormous amount of preparatory work, and successful participation in the tender would mean using its Palesa coal mine directly in the project.

While the coal and platinum thrusts are intriguing, investors might also take time to dwell on HCI’s investment in Impact, a company that seeks out African offshore opportunities.

HCI has raised its stake in the company to 49% after participating in a recent $35m capital raise. Another exploration company, Africa Oil, has taken a 25% stake in Impact, while the Lancaster Trust, a family trust aligned to Copelyn, has also acquired a 5% stake in Impact.

Copelyn discloses that HCI has invested about R1bn in the business. This is big by HCI’s standards, as the group has previously indicated a preference to limit investments to about R500m. It suggests HCI is determined to become a serious player in the energy sector.

But he cautions that legislation still needs to be passed in SA before any real progress with offshore drilling commences in earnest. “While both President [Jacob] Zuma last year and President [Cyril] Ramaphosa this year assured all in their state of the nation addresses that this legislation was being prioritised, progress remains at a snail’s pace.”

He is hopeful that there will be progress, but adds that delays would render it unlikely that a well would be drilled in Impact’s SA blocks before 2020.

A well for Impact’s Namibian block — recently farmed out to Total — is set to be drilled next year.

Copelyn is at pains to reiterate that oil exploration is of a speculative nature, and typically an average of only one in five wells is successful.

“Nevertheless, we have taken a big position in this company and we remain of the view that one of the blocks in which Impact has invested might make such a discovery over time.”
These are still early days for HCI’s resource-aligned investments, but could there be a commodity play in the making?

Copelyn dismisses the idea of HCI starting up a mining house. But the FM would not shrug off the idea of the group — in years ahead, depending on capital calls — separately listing a commodity corporation.

Source: Financial Mail – Marc Hasenfuss