Aquarius Platinum Ltd.

Level 4 Ste. 5, S Shore Centre/8
Perth
WA 6151
Australia
Telephone: +61 8 9367 5211
Fax: +61 8 9367 5233
Web site: http://www.aquariusplatinum.com

Public Company
Incorporated: 1996
Employees: 23
Sales: $96.9 million (2003)
Stock Exchanges: Australian London
Ticker Symbol: AQP
NAIC: 212299 Other Metal Ore Mining; 551112 Offices of Other Holding Companies

A minnow compared with the big fish in the PGM (platinum group metals) mining market, Aquarius Platinum Ltd. is also the industry's only publicly listed, independent pure-play platinum producer. Aquarius is an Australia-based, Bermuda-registered company operating mines in South Africa and Zimbabwe. The company owns and mines property on South Africa's Merensky Reef, in the so-called Bushveld Complex, one of the world's major PGM deposits. Aquarius operates two mines at Bushveld, including Kroondal, which is expected to ramp up to more than 500,000 ounces per year by the end of the 2000s, and Marikana, which will reach 155,000 ounces per year. The company also is developing a third site at Bushveld, the Everest South, with deposits forecasted at more than 225,000 ounces per year. Aquarius also owns a 50 percent stake in the Mimosa mine at Zimbabwe's Great Dyke, which produces 135,000 ounces per year. The company expects production to top 600,000 PGM ounces by 2005. Aquarius bills itself as the industry's lowest-cost producer, in part because it operates using a highly mechanized mining model. The company has also avoided the costs associated with constructing and operating smelting plants, instead turning to primary partner Impala Platinum Holdings (Implats), the world's second largest platinum producer, which processes Aquarius's ore, and is also the group's largest shareholder, with stakes in the Aquarius South African subsidiary and the Mimosa mine as well. Aquarius is listed on the Australian and London stock exchanges, with shares available in the United States through ADR sales. The group reports sales in dollars, the world standard currency for the platinum market. It is led by CEO Stuart A. Murray.

Exploring the Platinum Market in the 1990s

Aquarius Platinum represented the evolution of a mining group rooted in the Australian gold rush of the 1920s. The company's earliest incarnation was as Mount Monger Gold Mining Company, set up in 1920 as one of many small-scale mining groups exploiting the Kalgoorlie goldfield. The Mount Monger group later developed a successful mine site, at the Penny West deposit, but faded away again when that deposit was exhausted. In 1984, the company listed on the Australian stock exchange as part of a real estate divestment effort. Joining the company's board at that time were Peter Briggs, an entrepreneur based in Perth, and Jim Del Piano, who became instrumental in steering the company into its next phase as Aquarius Platinum.

The idea behind the company's entry into the South African platinum market came from Ed Nealon and Mike Tuite. Both were geologists working for CRA—later known as Rio Tinto—one of the world's largest mining groups. Nealon and Tuite had recognized an important trend in the metals market, that of a coming rise in demand for platinum group metals, or PGMs, a group including platinum, rhodium, and palladium, as well as osmium, iridium, and ruthenium. These metals were becoming increasingly vital components in a variety of industries, ranging from the high-technology and electronics industry, to the automotive industry, where both platinum and palladium were necessary materials used in catalytic converter systems, and to the jewelry and related industries, such as eyewear, where platinum increasingly replaced gold as the metal of choice.

Although PGM deposits—the various metals composing the group were generally found in the same seams, often alongside base metals such as copper—had been found in Russian Siberia, in Montana, and in Ontario, the overwhelming majority of known PGM deposits were located in South Africa and Zimbabwe. The Merensky Reef, site of the massive Bushveld Complex itself, represented more than one-third of all South African PGM deposits. Yet this real estate lay almost entirely in the hands of a small number of major mining groups. Several small-scale "junior" mining companies attempted to enter the region, without success.

Led primarily by Nealon, Aquarius began acquiring property in the Bushveld Complex. As part of this effort, Aquarius acquired three companies, Gemex Exploration & Mining Company and Randex Platinum Holdings in 1995, and Pacific Platinum Limited in 1996. These purchases gave Aquarius two sites near the village of Kroondal. The company then commissioned a feasibility study to determine whether the sites offered enough ore to support the full-scale implementation of a mining complex. That study was completed in September 1997, and the Kroondal project, with deposits estimated at 25 million tons, classified as "robust."

Yet the simple presence of strong reserves was not enough to ensure the company's viability. Because platinum tended to be present only in narrow seams, mining platinum was traditionally labor-intensive and costly. Extraction costs ran as high as nearly $400 per ounce (platinum prices on a global scale remained expressed in U.S. dollars), a fact that raised an extremely high entry barrier for junior companies such as Aquarius.

Aquarius, however, had developed a unique mining model based on a "wide reef" concept. Instead of sending a large number of miners down into narrow tunnels, Aquarius proposed to open tunnels that were large enough to allow the use of mechanical mining equipment. The use of machinery meant that the company was able to drastically reduce its manpower needs—cutting the cost of extraction in half.

Another feature of Aquarius was its willingness to avoid investing in costly smelting and processing equipment. Instead, the company went looking for a larger partner for processing the ore it produced. In the meantime, Aquarius moved ahead with construction of the mining site, raising AUD 5 million in a private placement.

The company found its partner in January 1998, signing a life of mine sales agreement with platinum mining giant Impala Platinum Holdings (Implats), then the world's second largest platinum concern. As part of the agreement, Implats agreed to buy Aquarius's production according to the daily spot rates, rather than according to a fixed discount rate, which was then an industry standard. This meant that Aquarius remained in position to profit from the coming boom in global PGM prices. Another important part of the agreement held that Aquarius received first rights to acquire properties that did not meet Implats' own development criteria.

The next step in the Kroondal project came in July 1998, when Aquarius successfully brought the Kroondal project, through a subsidiary Kroondal Platinum Mines (later Aquarius Platinum South Africa), to the Johannesburg stock exchange. Aquarius itself retained a 45 percent stake in Kroondal, and Implats acquired stakes in both Aquarius and Kroondal.

Flushed with the proceeds of the public offering, and armed with the backing of a major platinum producer, Aquarius launched construction of the Kroondal site. At the same time, the company also began preparing for the future, acquiring a second site at Marikana, also located in the Bushveld complex.

Production began at the Kroondal site in 1999. The company quickly began the ramp-up to full production, which was expected to top 100,000 ounces of platinum, 50,000 ounces of palladium, and 15,000 ounces of rhodium per year. The total of more than 165,000 ounces represented some 100,000 more per year than the company had originally planned.

With its share price languishing in Australia—which, with no platinum resources, was said to remain indifferent to platinum stocks—Aquarius decided to make its stock more easily available to the European market. In 1999, the company obtained a dual listing on both the London and Australian stock exchanges through a share-swap Bermuda-registered entity, Strategic Platinum Mines Ltd. Aquarius's stock was then placed on the London Stock Exchange's AIM index, where it quickly became one of the listing's hottest stocks.

Platinum Success Story in the 2000s

Aquarius and Implats deepened their relationship in 2000, when the companies agreed to exchange Implats' holdings in the Everest North, Everest South, and Chieftains Plains mining projects for a 24.5 percent stake in Aquarius Platinum South Africa, under which Aquarius had been developing the Marikana project. Aquarius, which by then had favorably completed its feasibility study, projected bringing the Everest South site online by the end of 2002, a move that, together with the launch of production at the Marikana site in 2001, would boost the company's total production past 500,000 ounces per year.

The Kroondal site, meanwhile, was boosted in the middle of 2000 with the announcement of an agreement between Aquarius and Anglo American Platinum Corp. that called for a tripling of Kroondal's production over a 16-year period. Aquarius now moved to regain complete control of the Kroondal project, in a restructuring move that placed it as a subsidiary under the Aquarius Platinum South Africa operation. By 2001, the company had retaken control of the subsidiary, which was then delisted from the Johannesburg exchange.

Company Perspectives:

Aquarius Platinum has been uniquely successful in bringing into operation small-scale deposits using methods and operating systems which differ from those used by the major players in the industry.

Aquarius Platinum has adopted highly focused operating principles of doing what it does best—and has applied these in all aspects of its business.

Demand for platinum and other PGMs increased markedly by the dawn of the 21st century. Platinum jewelry had become extremely popular and represented a major portion of worldwide platinum sales. At the same time, the use of platinum and palladium for catalytic converters also had stepped up demand for the metals. Meanwhile, new platinum-based fuel cell technologies were expected to provide a new boost to demand in the early part of the new decade.

As a result, platinum prices soared, prompting Aquarius to step up its efforts to expand its production. In 2002, the company acquired a direct 50 percent stake in ZCE Platinum, which owned the Mimosa Platinum Mine in Zimbabwe's Great Dyke. Joined by partner Implats, Aquarius now controlled a prime site in the world's second largest known platinum deposit. Soon after, the company transferred its London listing to the London Stock Exchange main board, where it soon joined the FTSE 250 index.

By the end of 2002, Aquarius had boosted its total production past 220,000 ounces per year. As the company ramped up the Marikana site in 2003, production forecasts were raised to 600,000 ounces per year by 2005. Yet Aquarius seemed only at the beginning of a new growth phase, with plans to begin construction on its Everest South site slated for that year as well. Into 2004, the company was hampered somewhat by the strength of the South African rand—the currency used for paying its costs—against the U.S. dollar, in which Aquarius received its revenues. Nonetheless, the company remained highly profitable and encouraged by the expected continued demand in PGM metals. Aquarius had successfully developed into the world's only independent "pure-play" platinum company.

Principal Subsidiaries

Aquarius Platinum (Australia) Limited; Aquarius Platinum (South Africa) (Pty) Ltd.; Kroondal Platinum Mines Limited; Malfeb (Pty) Ltd.; Rossal No. 9 (Pty) Ltd.; Magaliesburg Properties (Pty) Limited; TKO Investment Holdings Ltd.

Key Dates:

1920:: Mount Monger Gold Mining is created in order to explore and mine the Kalgoorlie gold fields in Australia.
1984:: After exploiting and exhausting the site at Penny West deposit, Mount Monger goes public in order to divest a number of real estate holdings.
1995:: Geologists Ed Nealon and Mike Tuite join the company with a plan to enter the South African platinum mining sector.
1996:: Becoming Aquarius Platinum, the company acquires three properties in South Africa's Bushveld Complex.
1998:: After a successful feasibility study, Aquarius signs a life of mine offtake agreement with Implats, then lists Kroondal Platinum Mines on the Johannesburg stock exchange and begins construction at the Kroondal site.
1999:: Production is launched at Kroondal; company acquires a second site, Marikana, at the Bushveld Complex; lists stock on London Exchange's AIM index.
2000:: The company reaches agreement with Anglo American Platinum, tripling production at Kroondal.
2001:: The company acquires full control of Kroondal, which is then placed under a new subsidiary, Aquarius Platinum South Africa (APSA); APSA acquires several sites, including Everest South, from Implats in exchange for a 25 percent stake.
2002:: Aquarius acquires 50 percent of the Mimosa platinum mine at Zimbabwe's Great Dyke.
2003:: Aquarius ramps up production at the Marikana site, forecasting total production to top 600,000 ounces in 2005.

Principal Competitors

Lonmin Platinum Div.; Impala Platinum Holdings Ltd.; Anglo American PLC; Western Platinum Ltd.; Metallgesellschaft AG.

Aquarius Platinum Ltd

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