By Leia Michele Toovey- Exclusive to Platinum Investing News

The sharp retreat of the stock market, combined with a higher US dollar has triggered a broad sell-off in the precious metals.

Spot platinum slipped to a session low of $794.50 an ounce, down 8.8 per cent from $871.50 an ounce late on Friday. Gold and silver took a big hit; both metals are at 10-day lows. Platinum is trading at its lowest price relative to gold in about 11 years.  

Moving forward, there is some optimism that with everyone cutting their output and work force, shrinking supply may rebound prices. Poor economic conditions for platinum were cemented by weak auto sales data coming out of Asia and Europe. The metal dived as figures from Japan, South Korea and Europe showed another plunge in car sales in November.

Platinum producer Lonmin, down 18 per cent, is in uncharted waters.  On the back of years of high platinum prices, the company had a few years in which it struggled with production problems.  Now, Lonmin needs to repay a $230 million debt towards the end of next year, but at the present spot price of platinum the miner will be loss-making and cash flow will be negative. The hope that Xstrata, the former predator, which has built a 25 per cent stake in Lonmin, might bid again when its lockout expires in March is rapidly diminishing. Xstrata is faced with bringing down its own debt, and worried that Glencore, its main shareholder, may be forced to sell down its stake.

Platinum junior Wesizwe Platinum has amended the project structure and financing for its core PGM Frischgewaagd-Ledig project. The company’s board of directors has split its R5, 6-billion capital expenditure plans to turn the platinum prospector into a platinum producer into a series of smaller contracts. This is part of Resize’s strategic imperative to technically and financially lower the risk of the project in terms of current market conditions and the long-term viability of the project. Wesizwe wants the market to understand that the company has not cut corners and has not underestimated its capital expenditure, “Wesizwe’s original plan has changed very little. All it has done is shuffle a few options around to mitigate shareholder losses and survive the current economic situation.

The project will be completed in phases or modules, which will give the project the flexibility it needs to, proceed with as few delays as possible.  The Frischgewaagd-Ledig project has been split into three phases: shaft sinking, site preparation, and ramp-up to full production. Total capital expenditure remains the same, but the money will be needed in phases. Over ten years, the total amount will be spent, and therefore it is not necessary for the entire amount to be raised at this point. The company currently has R340-million in cash, which it will use to begin the construction of its critical path items. Sequential tranches of capital will be raised as needed to fund the phases of the project, which will prevent the underlying value of the shares from decreasing. The completion of the first phase will lower the project’s debt risk, enabling the company to plot its financial course and raise further capital for the next phases.  Capital expenditure on the second and third phases is undetermined; however it will amount to about R3, 8-billion. The mine will begin producing in 2013 and will build up to a steady production of 350 000 ounces per year in 2016, at which time platinum demand is forecast to peak.