A year of consolidation for Northam

...company moving into growth phase

Johannesburg, Friday 26 August 2016. Northam Platinum has released its preliminary annual results for the year ended 30 June 2016. The statement which follows captures the key features for the year, and contains a message from chief executive Paul Dunne.

KEY FEATURES

  • Exemplary group safety performance
  • PGM production up 15.7% to 436 960 ounces
  • Group capital investment reaches the R1.2 billion mark
  • Healthy year-end cash balance of R3.1 billion
  • Normalised headline earnings of 87.1cps
  • US$ basket price 25% lower year on year
  • Booysendal South expansion approved

A WORD FROM PAUL DUNNE – CHIEF EXECUTIVE

The past year was one of consolidation for the group as we completed the restructuring and strengthening of our balance sheet and as we progressed development of the physical assets on which our corporate future is being built. Northam is moving into a growth phase, funded by significant cash holdings and internally generated cash flows. Successful project execution will be critical in the coming year.

Health and safety

Our operations completed the past financial year with no fatal accidents. In terms of providing safe working environments, the mechanised operations at Booysendal continue to be the differentiator. However, Zondereinde’s performance was exemplary and was rewarded with five million fatality-free shifts. My congratulations go to all employees who worked hard to achieve these milestones.

PGM markets

The past year has been one of the most challenging this industry has faced. Metal prices have languished at levels not seen since 2009, with platinum plummeting to USD814/oz in January this year. Some recovery has been discernible since, taking the metal to USD1 023/oz at the financial year’s end.

Palladium’s trading followed a somewhat similar pattern, with spot metal opening the financial year at USD699/oz, touching a low of USD470/oz in January and ending the year at USD589/oz.

Recent research has indicated that the current 2016 calendar year will end with an overall platinum supply deficit of 455 000oz based on forecast demand of 8.26Moz and supply of 7.80Mz. Newly-refined production is projected to fall in each of the four principal platinum producing regions – as mining firms curtail output of unprofitable ounces and deliver just shy of 6Moz into the market. Nevertheless, Northam expects platinum demand to continue to grow at a rate similar to the growth in world gross domestic product.

The operating environment

Challenges in the labour relations arena are likely to persist in the near term, even though labour relations at our two operating mines were largely stable in the wake of securing three-year wage agreements.

I believe that these agreements illustrate that competition between unions can be set aside for the overall benefit of employees. Longer-term agreements provide a platform for a stable operating environment, a fundamental tenet of our business strategy.

Civil unrest in the Steelpoort valley is not a new phenomenon, and occasionally resulted in production losses at Booysendal when passage for employees was too dangerous. We are optimistic that the task team set up to deal with community issues will generate some fresh impetus and that these concerns will be resolved.

The situation at Zondereinde was potentially more serious in early June when a mine employee was killed in the neighbouring Northam town. This was followed by the death of another employee, raising tensions on the mine and resulting in eight days’ underground production losses. This issue is still being actively managed by mine management.

My thanks, and those of the board, go to all the stakeholders who contributed to resolving the immediate situation at Zondereinde, in particular the SAPS and the Minister of Mineral Resources, Mr Mosebenzi Zwane.

Performance

The introduction of Zambezi Platinum (RF) Proprietary Limited as a 31.4% shareholder in the company, along with the capital injection it brought, have been accounted for in our financials, contributing to the healthy cash position of R3.1 billion shown on the statement of financial position at the financial year’s end. Dollar-denominated PGM prices masked the solid performances at both operations.

In line with our focus on core business activities we disposed of our 20.3% stake in the Trans Hex Group Limited, further strengthened the balance sheet by issuing medium-term notes to the value of R425 million, and welcomed the Industrial Development Corporation of South Africa Limited (IDC) as a strategic funding partner. This financial strength provides the basis for funding expansion projects that will take our annual PGM production profile to 800 000oz.

While our balance sheet is particularly strong we shall continue with our conservative approach to growth and acquisition. The massive orebody at Booysendal, along with the Everest infrastructure (now part of the Booysendal South complex), secures contiguous, lease-bound brownfields growth in an area where the capital footprint has largely already been established.

Each one of our mines has ore reserves sufficient for at least 20 years of production. We have completed the ramp-up of Booysendal UG2 North’s operations to full capacity and are carrying out deepening projects at both Zondereinde and Booysendal North. The Merensky mine at Booysendal North and development of the Booysendal South mining complex have been approved and are progressing well. We are also extending and optimising our processing capacity. The smelter expansion at Zondereinde is in progress, and due for completion towards the end of calendar year 2017. An offtake agreement with Heraeus Deutschland GmbH & Co. KG (Heraeus) has secured an investment contribution of €20 million in this R750.0 million expansion programme.

Looking ahead

Looking ahead, Northam is confident that the fundamentals of the PGM markets will reassert, giving impetus to a stronger pricing environment. The perceived threats to demand are receding and South African primary supply is under pressure from underinvestment. Northam’s investment in new production through the cycle is intended to deliver into a rising market.

Issued by

Russell & Associates
Johannesburg
Tel +27 (0)11 880 3924

Marion Brower +27 71 493 0387
Jan Walker +27 71 493 0429
Memory Johnstone +27 72 439 5430