Another record year for Northam — Results reflect sustained strong price environment
Northam Platinum’s results for the year ended 30 June 2007 were posted today, Thursday 2 August 2007.
Results at a glance:
- Sales revenues up by 57% at R3.7bn
- Year on year rand basket price received increased by 57% to R297 292/kg
- 88% rise in attributable earnings to R1.3bn level
- 86% increase in headline earning to 560 cps
- Cash reserves of R1.2bn, 45% higher year on year
- Total dividend for the year at 525 cps (F2006: 280 cps)
- Anticipated difficult geological and mining conditions persist, with adverse effect on head grades and output
- Excellent progress in building up to local refining targets with a growing percentage of Northam’s platinum and palladium now being refined at Heraeus SA in Port Elizabeth
Financial results for the year were boosted by sustained strong market fundamentals, with continued record price levels for Northam’s basket of metals, contributing to the peak sales revenues of R3.7bn. The basket price, averaging US$1 288/oz, reflected the excellent dollar price performance particularly of platinum, rhodium and ruthenium. In rand terms this translated into a 57% rise in prices received to R297 292/kg, largely offsetting the effect of lower sales volumes to 10 703kg (344 077oz). In addition, revenues from nickel were boosted by strong prices, and at R404 million was 118% higher year on year.
The anticipated decline in production of metals in concentrate was contained to 4% when stripping out the effect of metal gains arising from reverts which were reported in F2006. The lower production is largely attributable to the declining head grade on the Merensky reef to 5.6g/t, which in turn had an adverse effect on the combined head grade at 5.1g/t, demonstrating the effect of the relative contribution of NP2 reef to the Merensky mining mix. “We are in the process of addressing this imbalance by turning to account higher grade P2 reserves,” says Northam chief geologist Damian Smith.
Although total operating costs increased by 9.7%, the lower head grade, and consequent metal recoveries impacted adversely on volumes, resulting in unit costs being 23.6% higher year on year. Also contributing to rising costs were the increases in prices for steel, cement and reagents.
The 26% increase in cost of sales at R1.7bn reflects purchases of custom material and higher refining costs, including a 225% increase in nickel refining costs, which are linked to fluctuations in the nickel price. “Nevertheless,” commented Northam CEO Glyn Lewis, “against the background of Northam’s high gearing to metal prices and the Rand/dollar exchange rate, the favourable metal price environment saw the operating margin 26.3% higher at 54%.”
Following the February opening of the Heraeus SA refinery in Port Elizabeth, a growing percentage of Northam’s platinum and palladium output is now being refined locally. The Heraeus Fine Metal Refinery has the capacity to produce Heraeus brand metal, sponge and ingots. Heraeus SA has applied for London-Zurich good delivery status from the London Platinum and Palladium Association (LPPA). Commenting on the progressive switch to local refining, Lewis said that this had been an extraordinarily successful process, and has further cemented the long-standing relationship with Heraeus, a world-renowned specialist in precious metals refining and manufacture. Furthermore the project ensures a continued independent metal supply to global markets, and further entrenches Northam’s South African beneficiation opportunities.
Looking forward, Lewis anticipates that difficult Merensky mining conditions are likely to persist at the Northam operation. “Consequently it is extremely difficult to estimate PGM production levels for F2008. However,” he concluded, “we expect continued robust fundamental metal demand, and therefore continued strong US dollar prices. In these circumstances, and should the rand remain at current levels, earnings are likely to be in line with those of the year under review.”
Russell and Associates
+27 11 880 3924