Profit, earnings records all round at Northam as buoyant PGM pricing offsets Covid-19

BUOYANT platinum group metal (PGM) prices more than made up for disruption to mining at Northam Platinum from March as a result of national lockdowns called by the South African government, the company said in a trading update today.

The company lost about 108,000 ounces of PGM production in the 12 months ended June 30 and incurred costs as a result of Covid-19 lockdowns totalling R977m, most of which related to worker salaries the company elected to pay despite lockdown.

Two of the company’s mines – Eland and Booysendal – had returned to full production before the year-end, but Zondereinde, which accounted for about 60% of refined production in the firm’s 2019 financial year, would not recover full production until the second half of the current financial year, affecting production for the period. It was at 80% capacity by the close of the period under review.

Nonetheless, Northam will post outstanding numbers for 2020 with records all round in terms of sales volumes – after a significant increase in third party metal purchases – operating profit and earnings before interest, tax, depreciation and amortisation (EBITDA). Normalised full-year headline share earnings would be between 624.53 to 690.27 cents per share which far outstrips the 270c/share reported for the 12 months ended June in 2019.

The chief mover was the market. Total revenue per platinum oz sold was 78.8% higher increasing the cash margin per platinum oz to about 40%.

Northam decided to temporarily scale back on capital expenditure in the wake of the lockdown, but expansionary capital allocation was on the decline in any event. Capex for the 12 months was R2.4bn compared to R2.9bn in 2019. Of this expenditure, R2bn was expansionary and the balance was stay-in-business.


Net debt as of June 30 increased R300m to R3.3bn compared to net debt at the close of the previous financial year. Northam said its net debt to EBITDA ratio was below 1x and within its comfort zone. The increase was partly related to purchases of Zambezi Platinum preference shares.

Northam took its stake in Zambezi Platinum to 40.7% post the close of its financial year (when its stake was at 35.5%). The last tranche of shares bought cost R960m, a process that Northam said was a form of shareholder return in kind because it reduced the firm’s liabilities and would result in a reduction of Northam shares in issue once Zambezi Platinum paid dividends.

Zambezi Platinum was created and listed in 2015 after Northam Platinum was required to develop a new empowerment structure. In so doing, it raised R4bn selling a stake in itself which was used to back convertible preference shares in Zambezi Platinum.

The Zambezi preference shares fall due in 2025.

By buying preference shares in Zambezi, Northam limits its financial exposure when the preference shares mature and are converted. The number of Northam shares in issue will also be reduced because as a shareholder in Zambezi, Northam will receive back its own shares when the preference shares are redeemed.

The cash raised from the sale of Northam shares to Zambezi some five years ago has been used to expand Northam Platinum’s production. This has been achieved by embarking on the expansion of organic reserves in Booysendal and buying others such as the firm’s R1bn mineral rights swap with Anglo American Platinum.

In March, the company was admitted to the Johannesburg Stock Exchange’s Top 40 index after seeing its market value scale R60bn (it is currently trading at just over R72bn). From a single, lease-bound company, Northam is positioned to produce 600,000 oz of 6E platinum in the medium-term.