Northam results skewed by work stoppages
Northam Platinum Limited (Northam) today issued results for the six months ended 31 December 2010, the first half of the 2011 financial year.
- Strike impacts production performance negatively
- Higher basket price environment
- 65% drop in earnings
- Cash balance of R967.9 million maintained year on year
- Dividend reduced to 5 cps (4 times cover)
- Solid progress at Booysendal
Northam chief executive Glyn Lewis said today, "the story of H1 is largely about a disappointing operational result at Zondereinde. As I have cautioned in the past, given the difficulties associated with accessing available reserves following the loss of mining face on the eastern side of the mine, and the pressure of maintaining a balance between the Merensky and UG2 material, this was always going to be a challenging time operationally. This was further aggravated by the protracted strike, the slow start-up post the strike, and safety stoppages, resulting in a loss of 31% of available production time.
"At Booysendal solid progress continues on site; with all mining licences having been received and executed, any project risk associated with regulatory permitting is now significantly reduced. Furthermore, the cash injection of R650 million which will come into Northam post the Mvela unbundling and Northam’s proposed acquisition of Mvela’s rump, will boost the cash component of the Booysendal funding mix, the finalisation of which is gaining momentum," added Lewis.
Zondereinde mine – operational results
Tonnages milled were significantly lower at 693 460 tonnes. The challenging operational environment also affected the head grades on both the Merensky and UG2 reef, resulting in a drop in the combined grade to 5.1g/t (H1 F2010: 5.2g/t). In line with the 31% fewer shifts, total PGM production declined by 33% to 3 629kg. An increase of 6.8% in purchased concentrates, along with a drawdown in inventory, helped to stem the decline in sales volumes by a lesser margin (23.7%) to 4 682kg.
The cost performance in the period was largely skewed by the lower volumes: in total, operating costs year on year were 3.3% lower, while unit cash costs were 42.6% higher at R279 936/kg. Although costs will continue to be under pressure owing to the increases in mining input costs, these are likely to resume at more normalized levels once production is fully back on track.
Expansion project – Booysendal
Good progress continues at Booysendal. The early works programme activities are now largely completed. This includes procurement of long-lead items, construction of the on-reef boxcut, off-site establishment of recruitment and training facilities, safe access roads and the installation of temporary power and water supplies. Capital expenditure on the project to date is R378 million. Bulk earthworks for surface infrastructure has started. Capex for the full financial year is estimated at R747 million, to be funded from internal resources.
Apart from the water use licence, all the required mining licences and environmental permits for Booysendal have been received. There are positive indications that the water use licence is likely to be issued reasonably soon.
Operationally the problems associated with mining the Merenksy reef at Zondereinde are unlikely to abate in the short term. "The turnaround should start manifesting, albeit slowly, during the next financial year, as we establish additional stoping areas in the upper and central western portions of the mine and as the decline development starts contributing to production. However," concluded Lewis, "it will probably be at least another 18 months before we are out of the woods." Booysendal is moving into the crucial construction phase with the appointment of a mining contractor finalized and the development of the decline system about to commence. Bulk earthworks for the on-site concentrator and other mine infrastructure have also started.
Overall, production is anticipated to fall significantly short of the 300 000oz (3PGM+Au) level for the full financial year. In the medium term though, as Zondereinde starts recovering from its operational difficulties, Northam should be well positioned to take advantage of the continuing improvement in global economic conditions.
In the longer term, the growth opportunity which Booysendal presents will also add a critical element of geographic diversification, thereby reducing the risk associated with operating a single mining asset.
Russell and Associates
+27 11 880 3924