Northam Platinum to post 88% higher interim earnings despite growing sales backlog

NORTHAM Platinum will report a major improvement in year-on-year interim basic earnings by as much as 88% thanks to significantly improved metal prices.

Covid-19 related logistical delays, however, slowed sales of metal to its refiner, Heraeus, which has resulted in restocking of the inventory pipeline.

As a result, metal sales were affected, especially rhodium, which resulted in the metal’s contribution to the average basket price being distorted, the company said in a trading statement issued on Tuesday.

From a production perspective, Northam performed well despite its Zondereinde mine operating at only 90% at capacity owing to Covid-19 effects. Half year output totalled 352, 741 oz 4E which is 15% higher than for the same period last year.

The combination of lower refined sales volumes and increased production resulted in a 25.5% increase in inventory on hand to 276,235 oz 4E compared to an inventory of 220,172 oz 4E on hand at the corresponding period of the previous financial year.

Commenting in its trading statement ahead of its interim results presentation on March 19, Northam said basic share earnings would come in between 583.5 cents and 616.3c which is between 77.9% and 87.9% higher year-on-year.

Revenue increased 51.9% to R11.9bn owing to an attributable 49.7% increase in the average 4E basket price to $2,160/oz, a 9% weaker rand exchange rate, and a 4.4% decrease in refined 4E ounces sold.

Total revenue per platinum ounce sold increased 53.8% to R61,307/Pt oz (H1 F2020: R39 864/Pt oz), resulting in a cash profit margin per platinum ounce in excess of 50%.

Northam said it generated R1.9bn in free cash flow which it used to buy preference shares in Zambezi Platinum, the firm’s black economic empowerment vehicle.

Buying back the preference shares has the effect of reducing the preference share expense and liability of Zambezi Platinum in Northam Platinum’s books. It also reduces Northam’s financial exposure in terms of the guarantee it provides to Zambezi preference shareholders. Northam owns about 80,4% of Zambezi Platinum.

Northam said that it had fully restarted capital projects it had scaled back during the onset of the Covid-19 pandemic.

Investors will be keeping a keen eye on clues Northam management may give regarding future returns. So far, Northam CEO, Paul Dunne, has focused on the repurchase of the Zambezi preference share, but he has previously raised a flag on possible cash returns.

There will also be some focus on speculation linking Northam with a bid to buy Bokoni Platinum Mines which was put on care and maintenance by Anglo American Platinum and its empowerment partner, Atlatsa Resources.

According to a report by BusinessLive, Northam has been shortlisted to buy the mines, situated in the northern part of the Bushveld Complex along with Siyanda Resources.