Another creditable performance from Northam

“The best defence for Northam in this difficult market remains our relative position on the cost curve.” Paul Dunne, CEO

Johannesburg, Friday 07 September 2018. Northam Platinum Limited (Northam) has released its results for the year ended 30 June 2018. The following publications are available on the group’s website for further information:

The chief executive’s message to shareholders is reproduced below.

The year under review has been among the busiest in the company’s history as we have progressed our strategy of growing and diversifying our operations. This has been achieved during a period with significant challenges for South Africa’s PGM mining sector. A period of consolidation will follow in F2019 characterised by project execution, operational delivery and stock reduction. Post the commissioning and ramp up of the Booysendal expansion project, the company is expected to become a strong cash generator, enabling Northam to purchase further Zambezi preference shares. The best defence for Northam in this difficult market remains in our relative position on the cost curve, ensuring that all production is cash generative.

PGM MARKETS

In nominal terms, the rand basket price for PGMs is unchanged from its level of a decade ago, a decade in which inflationary cost pressures have continued to erode operating margins. However, while our confidence in the markets for PGMs in the medium to long term remains undiminished, the past 12 months have underscored the fact that short-term challenges persist and that our strategy of managing the business to ensure that Northam is positioned in the bottom half of the industry cost curve is correct.

Immediate challenges were highlighted by the soft price of platinum, the principal contributor to our basket of metals. For most of the financial year, the platinum price fluctuated between USD850/oz and USD1 020/oz. Post year-end the price has fallen below USD800/oz. It is fair to say that the ‘dieselgate’ issue at certain major auto manufacturers combined with the potential future penetration of battery electric vehicles created significant negative sentiment towards platinum during the course of this year.

Average annual prices (USD/oz)
  F2018 F2018 F2017  
Platinum 934 988 5.5%
Palladium 976 731 33.5%
Rhodium 1 618 803 101.5%

In contrast, the spot price of palladium rose steadily from USD838/oz in July to a high of USD1,139/oz in January 2018. That was followed by a period of price consolidation even as there were concerns over the possible effects of US sanctions on Russian deliveries into the global supply chain. The palladium price, which exceeded that of platinum, ended the year at $954/oz, having declined in tandem with the platinum price.

Palladium’s relative price strength, together with that of rhodium which rose 128% over the year, provided Northam with some relief from platinum’s weakness. Palladium’s principal use is as a catalyst for petrol driven motor vehicles where demand growth is likely to persist for several decades even with the advent of battery-driven vehicles. Platinum, on the other hand, finds its automotive use as a catalyst for diesel powered vehicles whose sales have been affected by negative sentiment following the ‘dieselgate’ scandal.

Northam and other PGM producers remain price takers to a large extent, and our continuing success is determined by our ability to contain the cost of production.

HEALTH AND SAFETY

Our commitment to ensuring that our employees enjoy safe and healthy working conditions remains our primary concern.

Sadly, there were two fatal accidents at Zondereinde this year. Mr Feliciano Sebastiao Massingue, a diamond drill operator, lost his life in an underground rail accident in July 2017. Mr Daniel du Plessis, an underground fitter, was fatally injured in an engineering-related accident in June 2018. Management’s thoughts remain with the families and friends of Mr Massingue and Mr du Plessis.

Despite this safety setback, Zondereinde achieved a 22% improvement in its lost time injury incidence rate (LTIIR). The Booysendal mine continues with its world class safety record, achieving an LTIIR of 0.31 per 200 000 hours worked and 3 000 000 fatality free shifts.

STRATEGIC PROGRESS

While our aspirational target of producing 1Moz or more of PGMs remains, we will not chase production for the sake of size alone. All our ounces are and must remain profitable.

During the year’s first half we acquired the ground adjacent to Zondereinde’s western boundary from Anglo American Platinum. This western block, acquired for a cash consideration of R1 billion, provides Zondereinde with additional Merensky and UG2 resources that can be developed cost-effectively by leveraging Zondereinde’s existing underground and surface infrastructure. As a consequence, Zondereinde’s life expectancy has been extended to more than 30 years.

A further strategic development was the acquisition of the mothballed Eland mining assets from Glencore at a price of R175 million. It is not envisaged that full-scale mining will be resumed at Eland until the global PGM market recovers or until we anticipate a sustainable recovery. However, in a move to take advantage of the synergy that our new acquisition makes possible, we have initiated the restoration of concentrator operations following an agreement to process PGM-bearing material from Jubilee Metals, beginning February 2019. The concentrator’s production will be processed further at Zondereinde’s smelter, where a second furnace was brought into operation in February this year. The Eland tailings dam will be reprocessed for chrome and PGMs and Kukama shaft will be recommissioned for trial mining on 1 level west.

The commissioning of the second furnace was a vital development in our longer-term strategy of positioning Northam as a major integrated mine-to-market player. The R1.0 billion smelter expansion and furnace were built with the help of a €20 million contribution by our long-term refining partner, Heraeus Deutschland GmbH & Co. KG (Heraeus), a partnership that has successfully endured for the past 30 years. Significant de-stocking of excess concentrate is expected during the course of F2019.

Full technical details of our operations at our Zondereinde and Booysendal mines are provided elsewhere in this report. In summary, however, Zondereinde has had a very solid year. Merensky grades of over 6g/t were instrumental in boosting production to 349 000 6E oz.

At Booysendal, a few teething problems with the startup of the dense media separation plant were mastered and overcome in the second half of the year. Work was completed on deepening the existing UG2 North mine while, simultaneously, developing the Booysendal Merensky North and Booysendal South operations. The aerial rope conveyor system which will link Booysendal Central mine to the Booysendal South Concentrator is scheduled to be commissioned by April 2019 and may come in ahead of schedule.

In addition, Booysendal has successfully transitioned to full owner-operator status. Since its inception in 2013, Booysendal’s mining operations were carried out on a contract basis by Murray & Roberts Cementation (MRC). As that contract approached its conclusion, however, it was decided that the mine’s management and operation should revert to Northam. The process included the permanent employment of the contractor workforce by Northam. No jobs were lost and our new employees now enjoy the full benefits of permanent employment. Our contractual arrangement with Minopex South Africa also ended in December, and the concentrator moved to an owner-operator model.

While maintaining our focus on mining, we recognised and acted upon a low-risk opportunity to diversify into recycling. In July, we entered into an agreement with the liquidators of A-1 Specialised Services to acquire that company’s mothballed autocatalyst recycling assets and property in Pennsylvania, USA for a cash purchase price of USD10.8 million. The acquisition has given us a low-cost entrée into the recycling sector and is underpinned to a high degree by the value of the building and land. The first trial shipments of recycled material landed in South Africa in April this year for processing at our Zondereinde smelter. Development of this segment within Northam will be done slowly and carefully over time.

During the course of the year we disposed of our 7.5% participation interest in the Pandora joint venture on 1 December 2017, which we considered to be non-core.

INDUSTRIAL RELATIONS

We are conducting wage negotiations at our Zondereinde mine after the financial year end. We expect negotiations to be tough but to be completed with mutual understanding and respect.

Negotiations at Booysendal are scheduled for June 2019. Despite the unprotected work stoppage that was carried out by the former MRC employees in late March to early April, which did impact production somewhat, Booysendal has had a satisfactory year.

THE FUTURE

With regard to the draft Mining Charter of 2018, Northam’s position remains aligned with that of the Minerals Council South Africa, of which Northam is a member. The Mining Charter 2018 is a material improvement on the 2017 Mining Charter draft. However, more work needs to be done to create a Charter that promotes competitiveness, investment, growth and transformation in South Africa. Northam remains well positioned with respect to ownership credentials through the Zambezi Platinum participation.

In the second half of the year, management concluded that it would be prudent to increase available funding going forward mainly as insurance against cash flow requirements for Northam’s business during this period of low rand basket prices. And so, with effect from 17 May, the domestic medium term note programme was increased by R1 billion. Northam also secured a new R1 billion two-year revolving credit facility, increasing total revolving credit facilities to R3 billion until April 2020. The additional R2 billion funding flexibility strengthens Northam’s balance sheet capability in support of the group’s key strategic initiatives, including the development of the Booysendal expansion. Together with existing cash reserves, the new facility provides Northam with increased financial flexibility, ensuring that the group’s growth initiatives remain fully funded in the medium term.

Our focus remains to keep our operations lean and well positioned to take full advantage of a recovery in metal prices, while ensuring we are profitable and cash-flow positive after sustaining capital expenditure.

APPRECIATION

It would be remiss of me not to mention the role which our former chairman Lazarus Zim played in Northam’s development. His wise counsel was invaluable over his 10-year tenure. Lazarus retired in November and was succeeded by Brian Mosehla, the chairman of our BEE partner Zambezi Platinum.

The proposed appointments of Mr Mcebisi Jonas and Mr Jean Nel at our AGM in November will further strengthen an already diverse and very experienced board.

The past year has been a period in which unstinting teamwork was essential, and I must commend my colleagues throughout the company for their efforts, which are so essential to our success. My thanks and appreciation go to all of them.

Issued by
R&A Strategic Communications
Johannesburg
Tel +27 (0)11 880 3924
Marion Brower +27 71 493 0387
Jan Walker +27 71 493 0429