Recovery on track at Northam

The company’s results for the 2014 financial year were released on SENS this morning and posted to shareholders today, 14 August 2014.

Key features of the year


  • Earnings decline by 98.2% to 2.4cps
  • 93.4% drop in operating profit to R61.5 million
  • Taxation declines from R169.1 million to R26.2 million
  • Increased borrowings drive financing costs higher
  • Balance sheet strengthened by R1 billion


  • Smelter rebuilt and successfully recommissioned
  • Wage deal of between 7.5 and 9.5% reached after 11-week strike
  • Fourth quarter recovery


  • Ramp-up continues
  • Good safety performance
  • Reduction in capex reflects conclusion of construction and development phase


Incoming chief executive Paul Dunne paid tribute to his predecessor Glyn Lewis’s contribution to the company and its fortunes. “With Glyn’s determination, Booysendal has been successfully constructed and commissioned. The company’s second PGM mine on the eastern limb, now in full ramp-up stage, has transformed Northam, adding to its production profile, reducing the company’s operational risk and enhancing its optionality.” He added, “the company I joined is in good shape – both in terms of its assets and its people.”

Financial results

The group’s financial performance was dominated by the effects of the 11-week strike at the Zondereinde operation: revenue losses reached the R750 million level before a settlement was reached on 29 January 2014. In spite of the lower production volumes from Zondereinde, sales volumes were supplemented by Booysendal’s contribution and also from a release of inventory. The higher volumes, combined with the effects of a higher rand metal basket price drove sales revenues higher to R5.3 billion (F2014: R4.4 billion), thereby compensating marginally for the moribund US dollar PGM prices.

A 38.4% increase in cost of sales reflects the higher operating costs, increases in refining and related costs, along with a substantially higher depreciation charge, associated with the inclusion, for the first time, of costs relating to the Booysendal mine.

The net taxation charge of the group fell by 84.5% to R26.2 million (F2013: R169.1 million). A marginal profit of R19.6 million was earned for the year – resulting in earnings per share of 2.4 cents (F2013: 132.0 cents).

Financing arrangements

In a balance sheet strengthening exercise in the first half of the financial year the group successfully raised a total of R1 billion in additional cash and financing facilities through a R600 million claw back rights offer underwritten by Coronation Asset Management Proprietary Limited, and a R400 million additional revolving credit facility. R120 million was also raised through a tap issue on the domestic medium term notes programme during the year.

Zondereinde mine – operating performance

Safety statistics indicate a drop in the total number of injuries year on year, reflecting the fewer shifts worked owing to the industrial action.  The ‘making safe’ of workplaces was the most urgent priority at the start-up of operations after 21 January. Safety officers intensified on-the-job training activities and management carried out due diligence in declaring working areas safe.  Safety personnel, in consultation with other service departments, assisted mining crews to ensure that workplaces which had not been operational for the duration of the strike were subjected to thorough risk assessments. Risks were duly scrutinised and recorded, and remedial action plans were prioritised and executed.

The strike seriously affected production at Zondereinde. After the strike it took some three months before normalized production levels were resumed. By the end of the financial year production had improved considerably.  The effect of the strike on production was marked by a drop of 18.9%.  However, PGM sales were down by a lesser extent, or 8.2% at 9 827kg. Unit costs were abnormally high, skewed by the lower production volumes.  Capex for the year came in at R351 million, allocated mainly to the smelter rebuild, the deepening project and hostel conversion programme.

The smelter was rebuilt and successfully recommissioned thereafter at a cost of R54.0 million. The facility is operating normally.

Progress on ore reserve development in the north west quadrant of the mine and the deepening project was curtailed during the strike. Following a slow restart, these activities are progressing satisfactorily.

In the absence of further disruptions, Zondereinde mine’s production in the year ahead should be at normalized levels, while costs will continue to reflect the inflationary effects of higher wages and electricity tariffs and the weaker rand.  Capex in the coming year is forecast at R331 million.  The deepening project should absorb approximately R105 million, with the balance allocated to routine capex items, including R28 million for an autoclave replacement and a further R42 million for the hostel conversion programme.

Booysendal mine

The group’s new mechanized mine on the eastern limb continues to ramp up to steady state, anticipated by the end of 2015. The mine posted an operating loss for the year, but is anticipated to make a positive contribution in F2015.

At R539.6 million, capital expenditure was significantly lower than the previous year, given the near-completion of the construction and development work.  Forecast capital expenditure in F2015 is expected to be R483.4 million of which R78.4 million will be allocated to routine capital, and of the R405 million project capital, R50 million is to be spent on a project to investigate the feasibility of mining Merensky ore at Booysendal.

Strategic review

Turning to the group strategy, Dunne alluded to the seeming failure of metal prices to react more immediately and positively to the supply shortfalls occasioned by the strikes in South Africa.  He pointed however, to a more sustained recovery in prices after 2016. “The challenge for us in the medium term is to position the company so that we benefit from a turn in market conditions when fundamentals for the metals reassert themselves,” he explained.

The labour relations climate in the sector remains fraught, and there are already some early signs of industry restructuring. “Northam is strategically well positioned with a number of internal and external opportunities to explore,” said Dunne.

On the issue of the group’s empowerment credentials Dunne added, “We are progressing our empowerment transaction, and seek to balance the need of our current shareholders with legislative requirements to bolster our empowerment status. Once this transaction is successfully put to bed, we will be well positioned to pursue our strategic ambitions.”

Operational optimisation

Given the considerable infrastructural footprint at Zondereinde, the focus will be on increasing the current 15 year life of mine by prioritising the deepening project, further exploitation of the UG2 orebody and improving the process plant to deal with a higher UG2 ratio, while also improving the Zondereinde operation’s position on the cost curve.

At Booysendal the priority remains the ramp-up, while opportunities for growth will be the subject of a study to capitalize on the size of the Booysendal orebody.

In terms of processing and refining, Northam’s strategic advantage has perhaps not always been fully recognized, so some work is being planned on the metallurgical complex, addressing both capacity and risk.


Social and economic uncertainty is likely to continue to influence the fortunes of the platinum industry in the near future. Barring any disruptions to Northam’s operations in F2015 and F2016 Zondereinde mine is expected to continue in steady state production. The Booysendal mine is anticipated to reach steady state production by October 2015. The stable financial performance of the group therefore is largely dependent on improved industrial relations, improved demand for platinum group metals in the global economy (which could result in higher US dollar metal prices), achieving production targets and benign cost inflation. A weakening R/US dollar exchange rate as well as above average increases in administered prices such as Eskom’s power tariffs pose a risk to cost inflation.

Issued by Russell & Associates
14 August 2014