Northam posts creditable results in challenging year

Introducing the group’s results for the year ended 30 June 2012, chief executive Glyn Lewis said today the platinum mining business had been particularly challenging during the past year with poor economic fundamentals, safety stoppages and labour relations issues to deal with. He added, “More recently, and more disturbing, have been the tragic and troubling events at Marikana. We hope that the experiences of recent days will have had a sobering effect on all parties and that logic and discipline will prevail going forward throughout the industry.”

Key features for the year:

  • Solid operating performance at Zondereinde
  • Increase in PGM concentrates produced
  • Unit cash cost increases well contained to 1.7%
  • Satisfactory progress at Booysendal
  • Credit facilities of R1.65 billion secured

Financial performance

The ready supply of mine platinum group metals (PGMs) to the market continued largely undiminished, and combined with the increased volumes of recycled metal resulted in a protracted period of market surplus. Metal prices reacted accordingly and weakened notably in recent months. In dollar terms the average PGM basket price was 6.5% lower year on year, at US$1 345/oz (F2011: US$1 439/oz). In spite of a weakening of the rand, averaging 10.7% over the year, the rand basket price received increased only marginally to R335 325/kg (2011: R323 899/kg).

Sales volumes were virtually flat year-on-year at 9 980 kg (320 861 oz) resulting in largely unchanged revenues at R3.7 billion (F2011: R3.6 billion). Higher production levels translated into a 16.6% rise in operating costs, which on a unit level were contained to 1.4%. Nevertheless, the higher volumes did little to stem to decline in the profit margin, dropping to a low of 9.2%.

Zondereinde mine

Higher tonnages and grades at the Zondereinde mine translated into PGM output rising by 15.4% to 8 979 kg (288 675 oz). Mining on the Merensky reef horizon continues to be challenging. However, ore reserve development on 15 level is in progress, with increased volumes expected from H1 2013. The furnace at Zondereinde is currently being rebuilt following a run-out at the smelter earlier in the year. The furnace should be operational again by the end of September 2012. In the interim Northam has been using third party toll-smelting facilities.

Booysendal mine

Steady progress continues to be made at the company’s new Booysendal mine. More than 4500 metres of underground development has been completed and the reverse decline system has been connected with the on-reef declines. “This is a significant milestone in the development programme and is a credit to the management at Booysendal,” said Lewis.

The reverse decline is currently being equipped with a conveyor while preparations for the installation of a chairlift, underground pumps and ventilation fans are on track.

On surface, construction of the concentrator plant and other mine infrastructure is well advanced. The plant is likely to completed by the end of H1 F2013, but hot commissioning remains subject to the availability of Eskom power. The company is currently working with Eskom to resolve the difficulties associated with access to and construction of a powerline over an Eskom servitude east of the mine. Subject to the resolution of this situation, production remains on track for H2 of F2013.

A total of R1.7 billion has been spent in the current year on the development of this mine. Estimated capex in F2013 is estimated at R1.3 billion. A total of R2.5 billion of Booysendal’s development has been funded from internally generated cash resources.

Financing arrangements

In order to meet its funding requirements, Northam secured a five-year revolving credit facility for an amount of R1 billion in November 2011. A further R650 million bridging loan facility is in place.

The company is currently engaged in raising additional third party debt funding to cover the completion of phase 1 of the Booysendal mine, the deepening project at the Zondereinde mine as well as other operational and working capital requirements of the group.

In conclusion

Looking forward Lewis pointed to continued economic uncertainties in global markets which are expected to weigh on PGM prices for the foreseeable future. “Whilst we will endeavour to improve output from our operations, which may also be affected by recent events in the industry, the outlook for earnings growth is subdued.”

Issued by
Russell and Associates
Johannesburg
Tel +27 11 880 3924