Eventful year for Northam

Johannesburg, Friday 25 August. Northam Platinum Limited (Northam) issued its results for the 2017 financial year today, Friday 25 August 2017.

KEY FEATURES OF THE YEAR

  • Successful delivery on strategy
  • Diversification adds flexibility and reduces risk
  • Booysendal stand-out performance sustained
  • Solid performance from Zondereinde
  • Group unit costs in lower quartile of industry cost curve
  • Tough market conditions persist

Paul Dunne provided a review of the group’s activities and fortunes over the year:
The year under review was a period in which the people of Northam rose to the challenge of a difficult platinum market and contributed positively to the strategic positioning of the group, ensuring sustainability into the future.

While I am confident that platinum group metals (PGMs) will emerge from their current trough, there is no doubt that the platinum mining sector is in a precarious position. Following a promising start for PGMs in F2017, the situation grew progressively more difficult as the year continued.

At the start of our financial year, spot platinum traded at USD1 039/oz and rose to reach a peak of USD1 182 in early August. This was followed by a steady decline to USD898/oz on the last trading day of December. A subsequent recovery was not sustained, with the result that the metal’s price was struggling at USD922/oz by the end of June. Palladium, which makes a lesser contribution to Northam’s product mix and revenue, performed well, with the price of spot metal opening the financial year at USD598/oz before reaching an interim high of USD770/oz at the end of November.

The final six months of our financial year resulted in a steady advance to USD898/oz in mid-June, followed by a few weeks of price consolidation. It is unclear what the immediate future holds: over the longer term though, demand for both metals for use in auto catalysts and for catalysts in many oil and chemicals processes will increase.

The fact remains, however, that Northam and its PGM-mining counterparts are price takers, and their future sustainability remains dependent on an ability to contain the costs of production. Northam has succeeded in moving unit costs into the lowest quartile of the industry cost curve at a group level.

Our success depends on our continuing ability to contain costs at levels that ensure operations remain profitable throughout the market cycle. We are positioning our operations to take advantage of rising prices when platinum enters its next upward cycle. We aim to be “first to market” and capable of delivering up to an annual one million ounces of PGMs when demand for newly-mined metal recovers, as we believe it will.

HEALTH AND SAFETY

It is regrettable that, shortly after Zondereinde had achieved six million fatality free shifts in November 2016, we lost our colleague, Mr Alexandre Macave, a locomotive operator with many years’ service, in an underground rail accident on 6 January 2017. I offer my personal condolences and those of my executives to Mr Macave’s family, his friends, and colleagues.

Soon after the end of the financial year in July 2017, Booysendal achieved three million fatality-free shifts. Mechanised technology enhances not only our people’s safety but also contributes to the cost-effectiveness of mining. Mechanised systems will continue to be judiciously applied across group operations where appropriate.

DELIVERING ON OUR STRATEGY

Our strategy is based on growth, operational diversification and optimisation. Our growth strategy is to target large, shallow, mechanisable assets contiguous to existing operations. Any deviation from this approach would have to be motivated by a compelling value proposition for our shareholders.

Recently we have purchased a recycling asset which will complement Northam’s primary production in future. Our growth and diversification from a single operating asset – Zondereinde – to one that now includes Booysendal North and South and the newly-acquired Eland mine means less operational risk for the group and all our stakeholders.

Highlights for F2017 include the continued success of Booysendal North, which has now been producing at steady state for more than two years. Booysendal North performed particularly well, producing 199 000oz of PGMs, well above its 160 000oz nameplate capacity. The deepening project is progressing, and remains on schedule for completion by F2019. The recently-developed Booysendal North Merensky mine is currently producing at 25 000oz per annum.

Philosophically we believe mine first, metallurgy second. We have responded to this natural progression by developing and constructing the mining operations which produce the ore ahead of processing. This has been followed by a significant capital investment in our smelting capacity at Zondereinde, where an additional new furnace will serve to absorb the steadily growing output from our expanding mining footprint.

Zondereinde produced a solid operational performance, under testing circumstances, brought about by the necessity for operational reorganisation measures in the workplace, following the discharge of 357 employees after labour disruptions in June 2016.

ACQUISITIONS

In F2017 we made two important acquisitions.

In October 2016, we concluded an agreement to acquire the high-quality resources of the Tumela block from Anglo American Platinum’s Amandelbult mine adjacent to our Zondereinde mine. Not only will the incorporation of Tumela increase Zondereinde’s life expectancy to beyond 30 years, it provides significant operating synergies for Zondereinde, delivering flexibility and optionality and allows the mine to continue mining higher-grade Merensky reef at little incremental cost. This transaction will transform Zondereinde, providing it with similar long-term potential and flexibility enjoyed by the Booysendal mine.

We followed this up in February 2017 with the R175 million purchase of Eland Platinum mine from Glencore Operations South Africa Proprietary Limited. We regard Eland as a low-cost option for the future. Eland’s resource is shallow and located on the south-eastern limit of the western limb of the Bushveld Igneous Complex. Its two mining rights contain a resource estimated at 21.3Moz 4E (platinum, palladium, rhodium and gold) with an average in situ 4E grade of 4.4 g/t.

In terms of the Eland transaction, Northam acquires all Eland’s assets: its two mining rights, surface and underground infrastructure including a concentrator with a nameplate capacity of 250 000tpm, two decline systems equipped to 1.3km, surface support infrastructure designed for a 250 000tpm operation and a mining fleet of more than 100 vehicles which includes low-profile mechanised mining equipment. In addition, we entered into a long-term marketing agreement with Glencore for the group’s chrome ore sales.

Subsequent to year-end, Northam reached an agreement to purchase a suite of PGM recycling equipment and the associated premises from A-1 Specialized Services Inc., a recycler of PGMs. The business is located in the state of Pennsylvania, United States of America. The total value of the transaction amounts to USD10.7 million in cash. The transaction gives Northam a low-cost entry into a key segment of the PGM market. The recyclable material market from auto catalysts in the US is well established, large and continues to expand. Northam has secured an excellent asset base of strategic future importance; which is an easily scalable business to meet growing demand; and provides exposure to the broader PGM market.

THE FUTURE

Booysendal North and South are evolving to produce an annual 500 000oz within three years. Zondereinde will be delivering 350 000oz and Eland should produce at 150 000oz over a 30-year life. With these numbers we believe we will have successfully transformed Northam into a major producer with low unit costs and lower operational risk. I should emphasise, however, that we are not driven by size for size’s sake. Our production will be tailored to meet market demand, while ensuring that we have the mining and processing capacity to respond promptly to changes in market conditions. It is not our policy to cross-subsidise, and each operation needs to be profitable through the cycle.

EMPOWERMENT

It is inconceivable that our country’s mining industry could remain sustainable without empowerment and transformation. Northam’s continued development has been made possible by our black economic empowerment (BEE) transaction with a consortium representing a broad selection of historically disadvantaged South African (HDSA) individuals and groupings, who, together hold a 31.4% BEE interest in Northam through Zambezi Platinum (RF) Limited.

Northam’s response to the many other aspects of the DMR’s revised charter is aligned with that of the South African Chamber of Mines, of which Northam is a member. It is critical to bring government back to the negotiating table and to work towards a solution which will ultimately grow and strengthen our sector.

APPRECIATION

Northam’s progress during F2017 has been a team effort. I want to thank all the people of Northam Platinum, including the board and our management team, for their contributions during what has been a year of considerable change.

Distributed by R & A Strategic Communications

Johannesburg
Tel: +27 (0)11 880 3924
Marion Brower: +27 (0)71 493 0387
Jan Walker: +27 (0) 71 493 0429