Northam posts solid results; Respectable operating performance at Zondereinde

Johannesburg, 20 August 2010. Following a year of mixed fortunes, Northam Platinum Limited (Northam, JSE: NHM) reported a solid set of results for the year ended 30 June 2010, underpinned by a creditable operating performance from its Zondereinde mine.

Key features for the year

  • Sustained improvements in safety performance
  • Metal in concentrate produced 6.3% higher at 9 999kg (321 475oz)
  • Average basket price 2.7% higher year on year at R288 255/kg
  • Unit cash costs (R/kg produced) increases held to 8.1%
  • Metal sales in concentrate reach a record 395 879oz
  • Sales revenues 23.8% higher at R3.9 billion
  • Earnings 1.7% higher at R641 million
  • Cash in hand of R1.1 billion
  • Board approval for Booysendal project

Commenting on the year’s developments chief executive Glyn Lewis said today that it had been a busy year on many fronts for Northam. “It’s fair to say that the Zondereinde mine again posted a respectable operating performance, with solid production, and sales volumes reaching record levels at almost 400 000oz.”

Smelter downtime owing to an incident in the precipitator in the second half of the financial year was shortlived, and had little impact on output. Following the installation of a temporary bypass around the precipitator the smelter is back in operation while the final repairs should be completed in the second quarter of the new financial year.

“Importantly, however,” said Lewis, “we now have board approval for the Booysendal project – which promises to be more robust than the initial feasibility work suggested. We are also optimistic about the feasibility of establishing a ConRoast smelting facility in Mpumalanga province – which provides us with more smelting optionality, while also reducing our reliance on Eskom.”

Operating and financial results

Tonnages milled at the Zondereinde mine were marginally lower at 2.0 million tonnes (Mt). Improved stoping width control on the UG2 reef and minor variations in the ratios of the Merensky pothole facies mined, contributed to the improved combined mill head grade of 5.2g/t. Total on-mine production was higher at 9 999kg (321 475oz). Purchased material accounted for 2 106kg, boosting metal sales by 18.8%% to 12 313kg or 395 879oz.

Sales revenues were 23.8% higher at R3.9 billion, on the back of higher sales volumes and buoyed by a slightly higher basket price, which had appreciated by 2.7% to R288 255/kg. (Year on year the rand was 13.2% stronger against the US dollar at US$/R7.57 (F2009: R8.72)).

Increases in mining input costs, in excess of inflation, put pressure on costs and contributed to a 17.0% increase in total operating costs. This included an amount of R21 million payable from March 2010 in terms of the Minerals and Petroleum Resources Royalty Act. The 33.4% increase in the cost of sales reflects the higher operating costs as well as the significantly higher cost and volumes of concentrates purchased, valued at R735.1 million, compared to R140.2 million in the previous year. This is in line with the company’s strategy of building capacity for enhanced downstream beneficiation.

The combination, inter alia, of interest from the investment in escrow payable to Anglo Platinum Limited (Anglo Platinum), higher sundry revenue and lower tax payable resulted in group profit attributable to shareholders being largely unchanged at R641.3 million. Headline earnings increased from 172.2 cents per share to 177.8 cents.

Booysendal update

Since the completion of the Booysendal feasibility study and the subsequent optimisation exercise the board has given approval for development of the mine to proceed. The optimisation study suggests that the project could support a production rate of 187 500 tonnes per month, or 162 000 oz (3PGM+Au) per annum and that the capital requirement for this mine would be approximately R3.6 billion.

Activities planned for the early works programme, namely detailed engineering, procurement of long lead items, construction of the on-reef boxcut, off site establishment of employee recruitment, training and accommodation facilities, safe road access to site and the establishment of construction power and water facilities are progressing according to plan. Capital expenditure on the project to date is R132.4 million. The primary construction activities will start as soon as certain outstanding regulatory approvals are obtained.

Outlook

The challenges of mining the Merensky reef at Zondereinde are anticipated to persist in the year ahead. This is likely to result in lower production volumes, while unit cash operating costs will continue to rise as the effects of wage demands and the rising costs of chemicals, power and explosives continue to be felt. Group earnings will be largely determined by these costs and by the average Rand basket price received in F2011.