NORTHAM Platinum has poured cold water on current buoyant conditions in the platinum market where the platinum price has jumped more than 30% in recent months while platinum mining company share prices have doubled over the past year.
In a trading statement released yesterday ahead of its upcoming results for the year to end-June the company warned that, “despite the increase in pgm (platinum group metals) after year-end, the low pgm price environment is constraining earnings across the entire pgm sector.
“The sector’s ability to respond to lower pgm prices by suspending or reducing costs is limited as the majority of mining costs are fixed in nature. This is consequently constraining cash generation across the sector.”
These conditions hit Northam hard in the year to June with the company expecting to report a 25.5% drop in operating profits to R3.6bn (previous financial year – R4.8bn) triggering a 19.8% fall in basic earnings per share.
According to Noah Capital Markets analyst Rene Hochreiter that is a miss on analyst consensus forecasts by between 30% and 53% and he has put out an “underweight” recommendation on Northam shares describing Northam as “the most expensive platinum share on our rankings as it trades at a premium to other shares.”
Northam said the group’s profit decline resulted mainly from flat pgm prices and rising mining costs as it reported a jump of 8.1% in group unit cash cost per refined pgm ounce “reflecting the impact of mining cost inflation.”
This was despite increasing refined pgm metal produced from own operations to 800,244oz (892,876oz) and pushing up chrome concentrate production 9% to 1.4Mt (1.3Mt).
Northam also reported it had received a once-off payment of $66m through an “amicable” agreement with Heraeus Precious Metals which refines Northam’s precious metal production.
According to Northam the payment was made “with a view to arrive at a mutually acceptable redetermination of historical refining outcomes, spanning over multiple years, in order to more accurately and fairly reflect refining results.”
Northam reckons the current outlook for global pgm demand and supply and therefore pgm prices remains uncertain.
The company commented, “a raft of global geopolitical and macro-economic issues have the potential to cause further disruption to the pgm markets and metal prices while the possibility of Eskom load curtailment events and interruptions in water supply could lead to additional operational disruption and challenges.
