NORTHAM Platinum said on Monday it had adjusted capital projects across its three mines following a deterioration in the platinum group metal (PGM) market.
Commenting in a trading statement ahead of its interim results, scheduled for March 1, Northam said it had curtailed, deferred or paused certain capital projects. These included Zondereinde’s Western Extension and the development of declines at the Booysendal. At its Eland mine, development of decline systems had been temporarily paused.
The capital project adjustments might have a negative impact on Northam’s medium-term production targets, according to a report by UBS.
Northam’s watchful approach to capital also comes amid warnings of continued market volatility. “A raft of global geopolitical issues has the potential to cause further disruption to PGM markets and metal prices, whilst the potential for further and more severe Eskom load curtailment events could lead to additional operational disruptions,” said Northam.
“We continue to monitor the market and are rolling out additional on-demand self-generation capacity at all of our operations. We will amend our capital programme when and where prudent, taking into account the changing landscape,” it said.
Northam’s comments are in the context of an estimated 87.5% to 97.5% year-on-year decline in basic headline share earnings of between 56.7 and 216.3 cents per share for the six months ended December 31.
Market prices played a major role but there was also lower-than-expected sales volumes of 457,000 ounces compared to total production of 518,000 oz, said UBS. Working capital lock up also resulted in net debt of R2.4bn when UBS expected Northam to be cash positive as of December 31.
Revenue from metal sales of R15bn represented a year-on-year deterioration of 25.5%. Total revenue per equivalent refined 4E ounce sold decreased by 32.5% to R32,785/oz 4E. There was a 42.3% decline in the average rand basket price of PGMs to R24,269 per ounce (H1 2022: R42,046/oz 4E).
Northam is one of the few South African PGM miners that is increasing production. While increasing output helps minimize cash cost increases (to an average of 6.7%), and the weakening rand help offset the dollar decline in prices, the scale of the market deterioration will make for grim reading when Northam posts its numbers.
Northam’s earnings were also negatively affected by a R799.7m loss on the sale of part of its stake in Royal Bafokeng Platinum (RBPlat) to Impala Platinum (Implats). Northam duelled against Implats for nearly two years for RBPlat but withdrew its takeover offer in April last year amid a decline in PGM prices.
In accepting Implats’ cash and share offer for RBPlat, in which it had a 34% stake, Northam took a loss on the Implats’ shares it received and promptly sold (for R3.1bn or a price of R103.95 per share). The cash portion of Implats’ offer netted Northam R9bn.
Northam said the marcoeconomic outlook “remains uncertain” which would result in “volatile metal prices and exchange rates”. PGM market conditions and the material decline in the 4E basket price had “negatively impacted the profitability and rate of cash generation of the group”, it said.
It also added that: “Relative positioning on the industry cost curve, and the ability to retain operational flexibility and balance sheet strength, are becoming increasingly important sector differentiating factors.
“Northam has always maintained inherent optionality and flexibility in executing its growth strategy and these considerations remain key drivers to all our decisions.”
