[miningmx.com] — ENTERING the business after the three majors had wrapped up the most promising properties, Northam Platinum has always suffered from the twin problems of inadequate reserves and difficult working conditions underground.
The proposed Booysendal acquisition will solve the former problem but the latter is more intractable.
In the six months to December, no less than 23 working days were lost after the Department of Minerals & Energy closed the mine for safety reasons.
Lower tonnages and grades on the Merensky Reef were only partially offset by continuing efforts to raise production at the other reef mined, the UG2. So despite buoyant metals markets, six-month HEPS fell from 280c to 199c, making a rolling 12-month 439c.
To build up cash for Booysendal, the interim dividend was slashed even more sharply, from 245c to 145c, making 425c for the past 12 months.
In a remarkable testimony to record metals prices, the operating margin stayed above 50% despite cost increases of 39%/t milled and 37% for the basket of products (the three main platinum group metals and gold).
Given a 90% electricity supply, Northam expects second-half production to be much the same and says earnings will depend on the rand basket price, now much higher than the average for the past six months.
All the platinum stocks, except Lonmin, are at or near their all-time highs, but Northam’s vulnerability is reflected in that – even now, at 5900c, it yields 7.2%. Booysendal’s estimated cost is R7.1bn, exactly half Northam’s market cap, so major external equity or loan funding will be needed to supplement retained earnings.
Conservative investors seeking to participate in the platinum boom will stick to Anglo Platinum, but for the more speculative minded Northam is an interesting alternative.
