Northam swings to profit

Strategic review starts to deliver results

The company’s results for the first half of the 2015 financial year were released on SENS this morning and posted to shareholders today, Friday 20 February 2015.

Key features

  • Sales revenues reach the R3 billion mark
  • Headline earnings per share of 89.6 cents
  • 35% empowerment post BEE transaction
  • Parallel capital raising to overhaul the balance sheet
  • Expansion strategy crystallised
  • Booysendal ramp-up on track
  • Solid performance from Zondereinde
  • Unsettled labour climate

Financial overview

Profit attributable to shareholders of R354.1 million (H1 2014: loss R92.7 million) may be ascribed to two main factors:

  • Higher group production volumes, which impacted positively on unit cash costs. The comparative period in the previous financial year was marked by protracted industrial action at Zondereinde.
  • A generally higher ZAR basket price for platinum group metals (3PGE + Au) owing to a weaker ZAR/USD exchange rate.

Metal sales revenues for the group reached R3.0 billion for the period (H1 F2014: R2.3 billion) reflecting the effect of higher volumes combined with the weakening of the rand by 9.5% year on year against the US dollar. This was despite losses of 615kg and R255 million in production and revenues respectively, resulting from the shaft incident at Zondereinde. Noteworthy is the contribution from Booysendal where metal sales ramped up to 1 820kg (H1 F2014: 1 138kg), an increase of 59.9% year on year.

Corporate activity

The BEE transaction announced by the company on 22 October 2014 has progressed well. Details of the transaction are contained in a circular (available on the Northam website www.northam.co.za). In terms of the transaction Northam intends to raise R4.6 billion in cash by issuing new shares. The effect of the transaction would be to increase Northam’s BEE shareholding to 35.4%. The deal, which encompasses a parallel capital raising, will facilitate the injection of R4 billion in cash to fund the group’s growth strategy.

The deal has been facilitated by the Public Investment Corporation (PIC) and Coronation Asset Management Proprietary Limited (Coronation) and secures for Northam the following:

  • The immediate transfer of economic value to a broad-based HDSA group.
  • Funding to strengthen the group balance sheet, thereby positioning the company to exploit value-accretive growth opportunities in the sector.

In a separate transaction the group purchased an additional 20% of Northam Chrome Producers Proprietary Limited (NCP) for R50.0 million with effect from 1 August 2014. This brings the total holding in this subsidiary to 100%. NCP produces chrome from Zondereinde’s UG2 tailings.

Operational overview

Zondereinde

The group’s Zondereinde mine performed well during the period, with improved tonnages and production. This was in spite of the shaft incident at Zondereinde in July, which resulted in lost production of 615kg. The higher volumes helped to contain unit operating costs which improved by 4% from R404 674/kg to R388 547/kg year on year.

The extension of the decline section of the mine has progressed steadily and on completion will extend the mine’s life to more than 20 years. At the same time work continues on optimising the exploitation of both orebodies at Zondereinde and entails the reconfiguration of the concentrator plants and increasing smelter and base metal removal capacity.

Booysendal

The production ramp-up at Booysendal mine continues as planned, with the production of metals in concentrate increasing by 15.8% to 2 041kg (H1 F2014: 1 763kg), illustrating the effect of significantly improved concentrator recoveries.

Work continues on investigating the feasibility of mining the Merensky reef at Booysendal mine. To that end, on-site work has started on a box-cut to extract a bulk sample of Merensky ore to conduct metallurgical test work and to examine the feasibility of using mechanised methods to mine the Merensky reef here.

Booysendal’s commendable safety performance continues.

Prospects

Looking to the prospects for the group, Dunne said today, “Metal prices are likely to remain subdued in the near term. We remain concerned about the unstable electricity supply in South Africa, along with an unsettled labour climate. Nonetheless,” said Dunne, “and despite the difficult operating conditions, we believe Northam is well positioned for the future.”