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Those who noticed that Eastern Platinum’s stock was halted Friday morning were not disappointed with the company’s subsequent announcement. Eastplats initially jumped well over 100 percent on news that it is selling its South African platinum assets to Hebei Zhongbo Platinum.
Eastern Platinum’s (TSX:ELR) 88-cent share price jumped above $2 Friday morning on news that the company will sell its South African assets to Hebei Zhongbo Platinum. Shares of Eastplats jumped over 120 percent to touch $2.13 at 1:28 p.m. EST, and the company was up 93 percent, trading at $1.70 per share, as of 2:25 p.m. EST.
Under the terms of an agreement between the two companies, Hebei Zhongbo will acquire all of Eastern Platinum’s South African platinum group metals (PGM) assets, as well as all the loan agreements that Eastern Platinum has with its subsidiary companies, for a total cash consideration of US$225 million.
The assets include Eastern Platinum’s interest in the Crocodile River mine, the Spitzkop PGM project and the Kennedy’s Vale and Mareesburg projects, as well as associated mining and prospecting rights. The agreement is expected to close within three to six months, and is subject to a break fee of $11.25 million should either party fail to secure timely approval from the Toronto Stock Exchange or from the People’s Republic of China.
Explaining the reasoning behind the transaction, Eastplats CEO Ian Rozier commented that the deal will allow the company to finance development of its projects in a tough market. “The entire resource sector is under considerable pressure and PGMs have been disproportionately impacted as a result of a number of factors unique to the sector,” he stated. “The capital required to advance the Eastplats assets into production is not available in the public markets at this time and we are very encouraged by the ability of Hebei Zhongbo to deploy its resources in this regard. Closing the transaction will leave Eastplats extremely well capitalized to take advantage of the considerable opportunities in this weak market.”
To be sure, the market’s reaction was good for the company, but the deal could be good for investors as well. As Tommy Humphries of CEO.ca notes, Eastern Platinum has just 92.8 million shares outstanding due to a rollback earlier this year. That means that if the deal with Hebei Zhongbo is closed, each share will “have ~$3.25 per share.”
That’s certainly nothing to shake a stick at. Certainly, precious metals investors will be watching Eastern Platinum for the closing of the transaction.
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.