Why is Eastern Platinum’s Share Price On the Rise?

- May 5th, 2015

Investors keeping an eye on companies in the platinum space will no doubt have noticed that Eastern Platinum’s share price is on the rise. Shares of the company were up 12 percent to $1.96 on Tuesday, and have risen nearly 40 percent so far this year. However, there hasn’t been much news from Eastern Platinum aside from updates on a proposed deal to sell its South African assets to China’s Hebei Zhongbo Platinum.

blue graphInvestors keeping an eye on companies in the platinum space will no doubt have noticed that Eastern Platinum’s (TSX:ELR) share price is on the rise. 

Shares of the company were up 12 percent to $1.96 on Tuesday, and have risen nearly 40 percent so far this year. Since it was announced last November that Eastern Platinum would sell substantially all of its South African assets to China’s Hebei Zhongbo Platinum, the Eastern’s share price has gone up by about 130 percent.

At the time of the announcement, Eastern Platinum CEO Ian Rozier stated that the company would be “extremely well capitalized” following the transaction, while market commentators such as James Fraser of CEO.ca pointed out that the deal could mean as much as $3.25 cash per share for shareholders.

Since then, the company has reached an agreement to buy out its minority interest partners in light of the deal and has seen approval from shareholders and from the Chinese government for the transaction. On April 9th, break fees of US$11.25 million were placed into escrow by each party, as per the terms of the agreement.

On rising prices and insider buying

According to Rozier, it’s that progress towards closing the transaction that’s stoking interest in Eastern Platinum stock.

“Over the last 3 months investors have continually been quantifying the risk of the deal possibly not completing,” he said via email. “However, with shareholder approval, Chinese government approval to do the transaction, and the recently reported payment of the ‘break-fee’ by Hebei Zongbo, I think investors are feeling more confident that the transaction will complete. On the basis that upon completion the stock would  have a cash value of over $3.00 per share, the stock is becoming more attractive with time as the risks are reduced.”

Furthermore, it’s worth noting that Eastern Platinum has seen a fair bit of insider buying in recent months. Salida Capital International and Harrington Global Opportunities Fund acquired roughly 2.7 million shares each at $1.54 per share on March 16, with both purchasing a further million shares at $1.61 on April 9th.

When asked what might be drawing those investments from Salida and Harrington, Rozier suggested that both parties are “very sophisticated investors” with a good understanding of the situation.

“They understand the transaction, they understand South Africa, and they know management,” he said. “I think this buying just reflects more confidence on their part in the deal closing.”

What’s next?

The formal closing of the deal still depends on approvals from the Competitions Board in South Africa and from the country’s Department of Mineral Resources (DMR) with respect to change of control of the assets, Rozier noted. Still, he said that Eastern Platinum is hoping to see the process completed within two to three months.

Certainly, investors and market watchers will be keeping an eye out for more news from the company. In terms of other plans it might pursue following the closing of the transaction, Eastern Platinum has not made any formal announcements, and Rozier wasn’t able to comment on any future opportunities that the company might be considering at this time.

 

Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article. 

Related reading:

Eastern Platinum Jumps Over 120 Percent on Asset Sale

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