NORTHAM Platinum Holdings posted underwhelming numbers for the year ended June 30 owing to disappointing production from its Booysendal mine, above average cost inflation, and a 13.4% decline in the average dollar platinum group metal (PGM) basket price.
The outcome was a 7.6% decline in operating profit to R14.6bn and below consensus free cash generation of R11.4bn. Earnings before interest, tax, depreciation and amortisation (EBITDA) slid a shade to R16.5bn compared to R16.7bn for the 2021 financial year.
This comes as the group presses ahead with an aggressive, capital-intensive expansion strategy at its operations and as expressed in its purchase in November of a 34.52% stake in Royal Bafokeng Platinum (RBPlat).
Consequently, net debt increased to R16bn as of June 30 although the company said this was within its self-imposed 1:1 net debt to EBITDA target.
The strength of Northam’s balance sheet is especially relevant considering it has stated an ambition to control RBPlat. Rival Impala Platinum holds has a 38% stake in RBPlat following the launch of a takeover bid earlier this year. Explaining the continued absence of dividends, it referred to being “at a critical juncture in our growth trajectory, with various potential alternative outcomes which remain to be determined”.
Paul Dunne, CEO of Northam partly attributed the below par operational performance to “regional community unrest in the eastern limb of the Bushveld Complex” that resulted in lost production shifts at Booysendal. Northam also ran into lower grades at Booysendal’s North mine which led to declines in concentrator feed grades.
Speaking at the firm’s presentation today, Dunne said there were about 140 separate incidents of disruption at the firm’s facilities during the 12 months. These include the hijack of an Eskom sub-station cutting power supply for four days.
He also raised a flag on continued market and operational disruption this year with “a raft of global geopolitical issues” and “ongoing regional community unrest in the eastern Bushveld” likely factors along with the lingering effects of COVID-19 on staff.
“We continue to monitor the market and the societal landscape and will amend our capital program when and where prudent,” Dunne said, referring to the R5.4bn in 2023 capital expenditure compared to the revised capital fiture for the year in review of R4.6bn.
At Zondereinde, Northam’s other asset, there were two fatalities which Dunne described as “a setback”. Nonetheless, the mine had a relatively good year contributing strongly to year-on-year refined production of 716,488 ounces 4E, slightly above 690,867 oz 4E in production recorded for the 2021 financial year.
It was Zondereinde that under-performed registering a 22% year-on-year increase in unit cash costs to R25,321 per platinum oz, described by UBS last week (following Northam’s trading statement) as “alarming”.
Group unit cash costs increased 19% to R34,069/Pt oz – which was at the top-end of management guidance of R33,000 to R34,000/Pt – oz owing to above inflation increases in chemicals, steel, components, emulsion explosives and fuel. Labour costs also increased as Northam’s labour complement grew in line with production growth.
Northam is unique among South Africa’s PGM firms for its signficant production potential: it has targeted output of about a million PGM ounces annually by its 2026 financial year.
The company has guided to group refined production in its 2023 financial year of 770,000 to 810,000 4E oz from own mines, an increase of between 7.5% to 13% year-on-year at a group unit cost of between R36,000 to R37,000 per platinum oz, equal to 6% to 9% higher year-on-year.