Xstrata Bids $1 Billion for Eland Platinum

Xstrata Alloys and Eland Platinum in early August announced an agreed cash takeover of Eland Platinum by Xstrata valued at about $1 billion. Eland Platinum’s primary asset is its 65% interest in the Elandsfontein project on the western limb of the Bushveld igneous complex in South Africa. Xstrata Alloys, a business unit of Xstrata PLC, is headquartered in Rustenburg, South Africa, and is one of South Africa’s largest producers of ferrochrome and vanadium.

The Ngazana Consortium, a group of companies and individuals from the ranks of the previously disadvantaged, owns a 26% interest in the Elandsfontein project, ensuring that the project meets the equity requirements of South Africa’s Mining Charter. Eltech Trust owns the remaining 9%.

The Elandsfontein project is based on a shallow UG2 resource totaling 183 million mt and containing an estimated 22.7 million oz of combined platinum, palladium, rhodium, and gold (4E PGM). Mining of open-cast ore at Elandsfontein began in January 2007, and commissioning of the Elandsfontein concentrator is scheduled for the fourth quarter of 2007, by which time some 600,000 mt of ore from the open-pit will have been stockpiled. Underground mine development will start in December 2007, and production will build to about 280,000 of 4E PGM, including 176,000 oz of platinum, by about 2012, when all production will be from underground. The current mine design and infrastructure provide for a doubling of capacity, and Xstrata said it will accelerate those expansion plans.

In addition to Elandsfontein, Eland Platinum controls additional PGM resources through controlling interests in Madibeng Platinum and Beestkraal Platinum Mines. Both companies have resources on the western limb of the Bushveld complex. The Madibeng property is contiguous to Elandsfontein.

At the time of the takeover announcement, Xstrata said that it had irrevocable undertakings of support from 51% of Eland Platinum’s shareholders, including directors and management. The offer remained subject to regulatory approvals and was conditioned on acceptance by at least 75% of Eland shareholders represented at a scheduled shareholders meeting.

Xstrata currently has a foothold position in South Africa’s PGM sector through its participation with Anglo Platinum in the Mototolo joint venture. The joint venture began production in the last quarter of 2006, and in the first half of 2007, produced 43,200 oz of equivalent refined platinum production of which 21,600 oz were attributable to Anglo Platinum, with the balance purchased in concentrate from the joint venture partners.

In announcing its bid for Eland Platinum, Xstrata said its “objective is to incrementally build this [Mototolo] exposure into a PGM business of scale by leveraging its mining and smelting competencies as well as the existing infrastructure of its chrome operations. Eland provides an anchor to this strategy, with a significant steady state production profile complemented by strong growth potential from existing and additional properties.”