Production declines at Northam - modest increase expected in second half

Northam Platinum reported an 18.4% decline in production of precious metals in concentrate (3PGE+Au) to 149?481 oz (4 649kg) for the first half of the 2005 financial year, compared with the first six months of F2004.

Safety

A significant event during the period was the tragic death of nine employees in a fire in the conveyor decline section between 13 and 14 levels on 20 September 2004. A formal enquiry into the cause of the accident is still due to be held, and the company has pledged its full support for this process.

Operating and financial performance:

Following the accident, mining operations were suspended for the course of the underground investigations. Full-scale operations only resumed during the course of November 2004, resulting in a loss of an effective six weeks of production.

The interruption of operations saw a decline in tonnages milled from 1 212 506 tonnes (December 2003) to 989 883 in the current reporting period. Of some relief was the slight improvement in the combined head grade, from 5.5 g/t to 5.6 g/t year on year, reflecting improved grades from the UG2 reef, at 4.4 g/t.

Progress continued to be made with development, although this too was affected by the suspension of operations, with immediately available Merensky ore reserves increasing to 20 months and UG2 ore reserve availability declining to 16 months as planned.

In line with the lower production and combined with a decrease in the production pipeline in December, sales revenues decreased 18.3% to R720.3 million. Although the US$ basket price rose by 21.1% to US$665/oz, the continued strength in the Rand meant that the average price received increased by only 7.7% to R132 645/kg.

The higher unit cash operating costs at R119 742/kg (an increase of 23.4%) reflect the lower production volumes combined with a high fixed cost component. Costs of sales decreased by 10.7% during the period, resulting largely from the lower sales volumes.

Profit attributable to shareholders decreased by 39.7% to R63 million compared with the six months ended 31 December 2003. The directors have declared a dividend of 25 cents per share for the period, down 44% on the dividend declared for the same period last year.

Capital expenditure of R50 million was largely made up of development expenditure (R13 million), extensions to the backfill infrastructure (R8 million), additional pumping capacity (R4 million) and access infrastructure to 1 and 12 levels (R3 million).

Expansion opportunities

The participants in the Booysendal Project are working towards finalizing outstanding conditions precedent to the transaction. This includes the granting of a prospecting licence by the Department of Minerals and Energy in respect of two state-owned properties included in this project on the eastern limb of the Bushveld Complex, which comprises an estimated resource of some 124 million oz (62 million ounces attributable to Northam).

Further growth opportunities are being explored in conjunction with Mvelaphanda Resources Limited, which has a 22.3% equity interest in Northam. Shareholders will be advised of developments as they occur.

Hedging

In F2003, on account of the company’s sensitivity to metal prices and the exchange rate, Northam embarked on a programme of hedging metals to protect its revenues from any significant decline in metal prices and to ensure the company’s continued sustainability. During the reporting period the company continued to take advantage of metal price spikes; minor volumes of palladium were hedged at an average price of US$215/oz. A small amount of currency hedging also took place during the period with US$6.0 million being hedged at an average rate of US$1.00=R6.30.

Prospects

Production of metals in concentrate in H2 is likely to reflect the levels achieved for the same period in F2004. Should the Rand basket price of metals remain at current levels, a similarly modest increase in earnings may be expected in the second half of the financial year.

Distributed by:

Russell & Associates
Marion Brower
Tel: +27 11 880 3924
Fax: +27 11 880 3788
Cell: +27 82 895 0698