Dear Fellow Shareholder,

We believe it’s the right time to build a new,

near surface, safe platinum mine in South Africa.

 

This past year was again one of significant advancement for Platinum Group Metals Ltd. as we continued with construction at our Western Bushveld Joint Venture Project 1 platinum mine (“WBJV Project 1”) and we continued to expand our amazing Waterberg platinum discovery. We anticipate another exciting year ahead in 2014.

 

This documents contains Forward-Looking Statements.  Refer to Financial Information.


 

WBJV planned production rate of 275,000

ounces per year steady state of platinum, palladium, rhodium and gold

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2013 Accomplishments


2013 has been a year of challenges and extraordinary growth. Our shares have outperformed our peers and the general mining equity market. We have advanced the WBJV Project 1 through Phase 1 development of initial decline access into the underground and are now well under way with Phase 2 construction of surface facilities and further underground development and access. There are now approximately 1,000 people working on site. We have grown our assets enormously through our discoveries at the Waterberg Joint Venture and the Waterberg Extension platinum, palladium and gold projects.

 

At the time of writing in December 2013, we have successfully restructured our project finance plans for the WBJV Project 1 platinum mine held by our 74%+ owned operating company, Maseve Investments 11 Pty Ltd. (“Maseve”). We have entered into a revised project loan mandate for USD$195 million and in December, 2013 we accepted a C$175 million “bought deal” equity financing. The new mandate letter requires a syndicate of lead arrangers to use commercially reasonable efforts to arrange the project loan facility, and is subject to a number of conditions precedent.

 

This all followed the surprise announcement by Wesizwe Platinum on October 18, 2013 that they would not fund their first cash call for ongoing Project 1 mine construction in the amount of $21.8 million. We have put in place plans to have a qualified black economic empowerment company acquire the points of interest in Maseve diluted from Wesizwe, as required by the South African Mining Charter. We are continuing with the current construction activities and contracts at a moderated pace as the equity and loan finances are finalized. We have restructured our finance plans in order to avoid any reliance on Wesizwe as they have shown themselves to be unpredictable. 

 

In general, we see the timing and finance challenges for the WBJV Project 1 mine build as being small in scale when compared to the extraordinary growth opportunity at the Waterberg Projects. 

2,700

jobs at the WBJV

 

The cover photo and theme of this annual report reflect the dual nature of our business at this time. We stand on the foundation of the mine that we are building at Project 1 as it heads into production while the giraffe in the photo is symbolic of the Waterberg Projects – pleasant, surprising and sizable discoveries. In many ways the Waterberg Projects are like the giraffe in that they represent an ideal adaptation to changing conditions. The Waterberg Projects were discovered by our team in part because we could look far ahead. Note that the giraffe in the photograph is of one you own, living happily in the back part of the Sundown Ranch property adjacent to the area of the WBJV Project 1 platinum mine.

 

Five years ago we could see likely changes in the platinum industry as the world’s continued demand for more metal would seemingly be hard to meet in the future by the existing deeper mines, themselves struggling with safety and economic issues. We started our in house “New Business Unit” as a response to these coming changes. The objectives of this team were to come up with brand new platinum exploration ideas. The Waterberg JV Project was ranked as one of the top four ideas. The changing conditions in South Africa include costly technical and safety challenges for the deeper mines, layered on top of a changing local labour market and social climate. In simple terms, workers are demanding more compensation for the tough physical work in the deep and narrow gold and platinum mines. Frankly, this is understandable. Also, as it should be, safety awareness is ever increasing. Given the challenges of the conventional South African mining operating environment, this is to be expected and commended. The Waterberg JV Project is a shallow deposit with good grade and has excellent thickness, which allows us to consider a mechanized mining method in the ongoing engineering and Preliminary Economic Assessment (“PEA”) on the Waterberg JV Project. Engineering firm WorleyParsons TWP has now completed initial designs for the Waterberg JV Project and is well into the cost estimation and engineering portions of the PEA at this time. 

 

The differences between a mechanized operation at the Waterberg JV Project as compared to a mine operating with conventional mining methods (our own Project 1 mine is utilizing conventional mining methods) are significant. A mechanized mine has significant advantages in terms of efficiency and productivity, and a reduced waste profile, as compared to a conventional platinum mine. With mechanized equipment, fewer people can move more tonnes and larger stopes can be mined effectively. The improved working conditions in a highly mechanized mine also create an improvement in the most important of all operational issues - safety. By lowering the frequency and intimacy of the rock to human interface, safety increases dramatically. 

 

The current inferred resource on the Waterberg JV Project of 17.5 million ounces (167 million tonnes grading 3.26 grams per tonne of 0.98 g/t platinum, 1.97 g/t palladium and 0.32 g/t gold, Ken Lomberg QP, Sept 3, 2013 www.sedar.com) is defined by 130,000 meters of drilling completed to date. In our current internal working model for the Waterberg JV Project we are looking at decline access for 130 meters vertical to allow access into the T2 layer. This is similar to the twin access declines already developed into the northern portion of the WBJV Project 1 mine. A further set of twin declines would then be developed at the Waterberg JV Project below the T layers to access the lower F layer. 


We look forward to the results from the ongoing PEA work at the Waterberg JV Project. At the time of writing, we are considering the positive impact of the discoveries on the Waterberg Extension Project, effectively owned 87% by our company. New drill intercepts assayed in December 2013 include 53 meters grading 5.26 grams per tonne platinum, palladium and gold located approximately 1,600 meters north of the main deposit on the Waterberg JV Project. The thickness and grade of the initial wide spaced holes on the Waterberg Extension Project indicate a scale for the new deposit area that will need to be considered in a sensitivity analysis for the PEA, especially with respect to the potential to spread the costs of basic infrastructure over an even larger deposit than the current inferred resource of 17.5 million ounces (167 million tonnes grading 3.26 grams per tonne of 0.98 g/t platinum, 1.97 g/t palladium and 0.32 g/t gold, Ken Lomberg QP, Sept 3, 2013 www.sedar.com).

 

The WBJV Project 1 is developing well. At the planned production rate of 275,000 ounces per year steady state of platinum, palladium, rhodium and gold, with 2,700 jobs and a 20 year+ mine life, the WBJV Project 1 is a solid platform from which we can grow the Company. 

 

Our responsibilities have increased greatly in the past year as we are currently legally responsible under the Mine Health and Safety Act of South Africa for approximately 1,000 people including contractors at work on our job site. In order to match our increasing level of responsibility as a mining company we continue to grow and add key personnel. In South Africa we have added to our owner’s management team for the WBJV Project 1 mine, including a senior Financial Manager, a Cost Engineer, a Rock Mechanics Specialist, a Senior Mine Geologist and a Social & Labour Plan Manager. All of these South African team additions were added as planned during our mine build and the individuals have joined us with extensive and impressive experience in the exact work areas where we require their skills. Our team of full time employees in South Africa, including our operating subsidiary Maseve, has grown to 119 persons, with an additional 20 consultants also under our direct engagement.


I am very proud of our team and I am pleased to report that it feels like the same “Platinum Group Metals” that Frank Hallam and I co-founded 12 years ago. We strive for a collegial feel with a deep sense of responsibility and mutual respect both internally and externally. Our basic approach is to strive for extraordinary results and to “spend the Company money like it is your own” and do it safely. 

million

man hours worked at the WBJV site

 

Our first priority is safety. We have completed over 3 million man-hours of work on our site with four lost time incidents. It is with deep regret that we must remember Mr. Moshiko Molepo who was fatality injured on the WBJV Project 1 worksite when an articulated dump truck working on surface backed into him. We have been co-operating in all ways possible with the Department of Mineral Resources (“DMR”) who are currently conducting a formal inquiry into the accident. We promise to continue to learn from this unfortunate event and to improve our safety in all respects. Our condolences are again expressed to Mr. Molepo’s family, friends and co-workers. 

 

Many shareholders and potential shareholders ask questions about the South African operating environment in terms of strikes and unrest. We have had a positive relationship with labour on our site since the start of WBJV Project 1 construction. We believe our hiring policy targeting 30% local participation along with a vigilant effort to maintain an open, honest and team oriented relationship with our work force has contributed to the positive “vibe” on site. Apart from safety related stoppages, we have had continuous construction operations and a positive work environment. Our underground mining contractor, JIC Mining Services, recently agreed to reasonable terms with the National Union of Mineworkers for a labour contract at the WBJV Project 1 platinum mine for a two year period to September 2015. We expect that like most operators we will have future challenges and we are expecting some escalation in South African Rand based costs. We maintain a positive co-operative relationship with the DMR in all departments. Although we would like some things to move faster, as is the case with most government processes around the world, we have found all of the interactions with the DMR to be diligent and professional. Interestingly, at the end of 2013, we note that 2 of the top 4 mining financings on the TSX for the year were ours – destined for South Africa. Clearly the larger investors see South Africa as a good investment destination.

 

Looking forward into 2014 we again see development and growth of our Company. Our milestones include closing the planned loan financing for the WBJV Project 1 and further exploration and engineering for the Waterberg Projects. We also look forward to the results from continued underground development and construction of the WBJV Project 1. At the Waterberg JV Project in early calendar 2014 we expect to complete our first designs for the project along with a mine plan for the first section of the deposit. This will allow an initial assessment of value. We expect to have substantial opportunities to grow the already sizable Waterberg JV Project deposit by further drilling along strike onto the 87% owned Waterberg Extension Project prospecting rights. The Waterberg JV Project has larger scale resources than the resources at WBJV Project 1. Our announcements in October 2013 confirmed an expanded potential deposit scale. 

 

We have grown successfully as a Company in 2013 moving into operations and we now have an opportunity with the Waterberg Projects to grow substantially and meaningfully into a multiple project company within the platinum industry. 

 

In terms of the global market setting for platinum, palladium and gold, we see growing demand as the global economy expands with particular emphasis on 2015 and beyond. Clean air legislation continues to tighten emission standards around the world requiring more platinum group elements as auto sales continue to grow. With the critical European market showing signs of growth near term demand recovery is likely. The recent and projected growth in Chinese jewelry demand for platinum provides a great new area for increased sales. Over the past year Chinese jewelry demand has picked up the slack provided by the lackluster European auto demand. As auto sales in Europe rebound and Chinese jewelry continues to grow the platinum demand picture looks bright. 

 

We believe we are in an exciting commodity at the right time with highly competitive deposits. Mechanization and shallow depth will be key success factors in the platinum industry as the rising costs of deep mining and labour will play an important role in curbing future production. We believe the current price of platinum is untenable for many producers and that the supply could tighten significantly.

 

In this our 12th year, we again thank our employees and contractors for their diligent work and we thank our shareholders for their stalwart support.

 

R. Michael Jones

President, CEO and Co-Founder 

Platinum Group Metals Ltd.