- Published on 14 August 2009
Solid operating performance from the Zondereinde mine
Metal price slump dents profits
Northam Platinum Limited (Northam, JSE: NHM) has released results for the year ended 30 June 2009.
Key features from the results:
- Sales volumes increase by 22% to 333 000 oz (3PGM+Au)
- 31% decline in rand basket price from R409 161 to R280 609/kg
- Unit cash cost increases held to 14%
- Strong cash position maintained
- Operating margin at 27.5%
Commenting on developments in the year, Northam CEO Glyn Lewis said today that the finalisation of the Booysendal transaction and the implementation of the agreements associated with the acquisition of the Booysendal platinum asset from Mvelaphanda Resources Limited (Mvela Resources) were defining developments in the life of Northam over the past year. “This transaction has resulted in Northam’s empowerment status being cemented at the equity level, which in turn, has led to the inclusion of revenues from the company’s 7.5% stake in the Pandora Joint Venture. These developments signal the transformation of Northam, as it begins to make progress in reducing the risk attached to a single operating asset, diversifying its income streams and starts to benefit from lower cost volume growth,” Lewis said.
Financial and operating results
Results for the year were severely impacted by the global economic slowdown which resulted in metal prices in US dollar terms being 42% lower at US$1 001/oz. The 18% decline in the value of the rand against the US dollar over the period only partly offset the effect of the dollar metal prices, resulting in a rand basket price of R280 609/kg, 31% lower than the previous year, at R409 161/kg.
The Zondereinde mine reported a marginal increase in production to 9 408kg (302 474oz). This, together with the purchase of 487kg (15 657oz) of custom material and a decrease in metal inventories, contributed to the record metal sales of 10 362kg (333 159oz). The overall effect of the combination of the lower prices and increased sales was an 18% decline in sales revenues, down from R3.9 billion in F2008 to R3.2 billion in the year under review.
Lewis explained that company’s cost performance was satisfactory, with the increase in costs per kilogram produced held to 14% at R199 680/kg. “Against the background of increases in steel, chemicals and the 25% higher cost of power and water, this was a very respectable outcome.”
A major contributor to the significantly higher cost of sales over the year was the 60% increase in refining costs incurred in the first half of the year on toll treatment charges, as well as the R140 million spent on purchasing concentrates for custom smelting. Along with depreciation charges of R161 million, and a decrease of R40 million in metal inventories, the net effect on cost of sales was a 47% increase to R2.4 billion.
All these factors had a predictable adverse impact on operating profits, which dropped by some 64% to R818 million. Profit attributable to shareholders declined by 58% to R630 million, with headline earnings per share dropping from 627 cents per share to 169 cents per share. The decline in earnings also reflects the increase in the average number of shares in issue following the allotment and issuing of 121 million new shares as consideration for the Booysendal asset.
Nevertheless, by year end the company was still in a healthy cash position, with R921 million in cash reserves. In view of the company’s expansion prospects, the dividend of 78cps for the year (H1: 38cps; H2: 40cps) is in line with previous guidance of a more cautious approach to dividend payments.
Booysendal project update
The Booysendal feasibility study has progressed according to plan and remains scheduled for completion during the second half of this calendar year after which a value engineering exercise will be undertaken to optimise designs, layouts and schedules. Specialist consulting teams are close to finalising the metallurgical and mine design as well as the infrastructure and environmental components of the project. A modular design and incremental production build-up remains the preferred method of developing the Booysendal mine. “This approach provides flexibility in implementation, given the current uncertain market conditions, and the availability of power and water supplies,” Lewis emphasized.
Looking to production at the Zondereinde mine in the year ahead, Lewis anticipates a marginal improvement in metal production. Costs are likely to increase in line with inflation, and earnings will be determined largely by the average Rand basket price received in F2010. Notably, this is currently at a lower level than the R280 609 per kilogram received during this reporting period.
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