Northam battles unit, capital cost hikes


[] — NORTHAM Platinum, the R13bn, 300,000 oz/year platinum producer, warned above-inflation cost increases would affect profitability in the current financial year, and said that the capital cost of its Booysendal project had increased to R3.9bn in June 2011 money terms, an 8% increase on its last capital cost estimate.

Strike and safety related stoppages, costs, and a poor performance at its Zondereinde mine laid Northam low in the financial year under review which closed on June 30.

Headline earnings per share fell almost 50% to 89.5 cents from 177.8 cents in the previous year.

In guidance to shareholders, Northam said earlier that it expected headline earnings of between 80 and 110 cents per share because of a six-week strike which saw production in the first half of the year fall 33% to around 116,000 ounces.

Development work on the Booysendal project remained on track with production expected to start in the third quarter of 2013. However, given the extra capital cost burden, Northam said it was seeking additional debt finance, possibly a revolving credit facility.

Booysendal was estimated to cost R3bn in its first phase development when the feasibility study was completed in 2009. Then in June, 2010, it hiked the cost of Booysendal to R3.6bn.

A total of R688m (F2010: R132.4m) was spent on capex for the Booysendal mine in the year under review. Project expenditure is anticipated to peak at R2.2bn in the current financial year, Northam said.

Looking forward, Northam said Zondereinde would continue to be “hampered” by difficult geology and restrictions associated with ore reserve availability. “The focus in the year ahead will be on recovery improving the ore reserve availability and controlling and improving the mill head grade,” it said.

Worryingly, management would be “hard pressed” to contain costs which were rising faster than inflation. “Without any relief in this area, unit costs will continue to rise. The profitability of the group will be affected by these factors, along with the average rand basket price received in F2012,” Northam said.

However, there was some optimism. The current average rand PGM basket price was similar to the 2011 realised price of R323 899/kg which could augur well for some growth in earnings in the next reporting period”, it said.

“Recent global economic turmoil, and the ongoing debate on nationalisation have done little to support resource stocks.

“Nevertheless, Northam`s appeal will continue to be underpinned by its ability to produce these precious PGMs, for many years to come,” Northam said.