By: OrePulse

South African platinum group metals developer Southern Palladium said it has likely become a takeover target after authorities granted a mining right for its Bengwenyama project and an updated study, disclosed earlier in October, sharply increased the project's estimated value.

Chief executive Johan Odendaal said the mining right, combined with the project's improved economics, had shifted the company's position. "I think we are probably vulnerable at the moment, especially now that we have the mining right granted," he said. Odendaal said the company's relatively low valuation, even after a run-up in its share price, made it the kind of asset that larger mining groups could look to acquire.

Southern Palladium, which is listed on the Johannesburg Stock Exchange and the Australian Securities Exchange, said a revised prefeasibility study lifted Bengwenyama's net present value to $1.96 billion, up from an earlier estimate of $857 million. The company attributed the increase to changes in the project's planned processing circuits.

The updated study also raised planned annual chrome output, a byproduct of the PGM operation, to about one million tonnes, up from 350,000 tonnes under the earlier study. Life-of-mine chrome production is now estimated at 17.2 million tonnes, compared with six million tonnes previously.

Bengwenyama is planned for development in two phases, with the first phase producing 200,000 ounces of platinum group metals a year before output expands to 420,000 ounces a year in the second phase. Combined, the two phases would take production to about 620,000 ounces a year at full capacity.

Odendaal said the earlier study's basket price assumption of about $1,500 an ounce had "gone a bit stale" as platinum group metals prices rose. Platinum prices have climbed 83% over the past three years, while rhodium prices have more than doubled over the same period.

Southern Palladium's share price has risen about 70% over the past 12 months. Odendaal said the stock remained relatively inexpensive when measured against the project's revised valuation, a gap he suggested could draw the attention of larger, cash-rich producers looking to secure new supply.

Odendaal also pointed to a tightening outlook for PGM supply, saying the market faced a structural deficit. Metals Focus, a precious metals consultancy, is forecasting a fifth consecutive annual platinum deficit next year, with the average platinum price projected to reach $2,060 an ounce, a 7% increase from this year. The consultancy expects this year's average platinum price to come in at $1,930 an ounce, up 51% from the previous year. Metals Focus said the outlook for palladium differs, with softer demand and improving supply easing pressure on that metal.

No bidder or formal approach for Southern Palladium has been disclosed. Odendaal's remarks reflect his own assessment of the company's vulnerability following the mining right award, rather than any confirmed takeover interest in the company.