Financial capital

KEY FEATURES

• Sustained operational recovery at Zondereinde.
• Sales revenues 20% higher year on year at R4.4 billion (F2012: R3.7 billion).
• Increases in operating and cash unit costs contained.
• Operating margin improves to 13.7% (F2012: 9.2%).
• 62.6% increase in earnings per share to 132.0 cents per share (F2012: 81.2 cents per share).
• Successful commissioning of the Booysendal concentrator plant.
• Booysendal South sale agreement lapses.

APPROACH AND STRUCTURE

Based on market capitalisation, Northam is considered to be a mid-tier PGM company. However, unlike many of its peers and smaller producers, Northam is unique in that it has full ownership of its production stream, from mining to processing to marketing.

At Zondereinde, Northam’s smelter complex produces final precious metal concentrate which is processed in terms of a long-term toll-refining contract with Heraeus GmbH (Heraeus). The precious metals emanating from the Heraeus refinery are shipped to Northam’s customers in Europe, Japan and North America. The by-product base metals, copper and nickel sulphate, are extracted at the on-site base metals removal plant and are sold in the domestic market.

PERFORMANCE F2013

The company’s performance in terms of economic contributions is dealt with comprehensively in Northam’s integrated annual report for F2013.

The key developments of the year are listed below:

• 17 production days lost at Zondereinde owing to unprocedural industrial action, resulting in the loss of 17 000oz and R192 million in revenues.
• Section 54 safety stoppages accounted for 18 days lost.
• The Zondereinde smelter was shut down in May after some problems were encountered with the refractory bricks. This is anticipated to absorb some R55 million in capex.
• Zondereinde capex absorbed R349.7 million (F2012: R331.1 million).
• Booysendal commissioned in the second half of F2013.
• Capex at Booysendal reached the R1.5 billion level (F2012: R1.7 billion).
• No significant financial assistance received from government.
• Northam sales revenues reached R4.4 billion (F2012: R3.7 billion).
• Taxes increased by 19% to R169.1 million (F2012: R142.1 million).
• Year on year the value of the rand was 13.5% lower against the US dollar, averaging R8.82/US$ (F2012: R7.77/US$).

ECONOMIC IMPACTS

• R24 million contributed to the Toro Employee Empowerment Trust (F2012: R10.8 million).
• Continued employment at Zondereinde and Booysendal of 7 059 permanent employees.
• Taxes of R384.4 million paid to national, provincial and local government (F2012: R322.6 million).
• 380 affordable housing units sold to employees to date.
• Corporate social investment (CSI) and LED expenditure amounted to R3.0 million.

BLACK ECONOMIC EMPOWERMENT

Northam’s board and management continue to explore ways of restoring the company’s black equity holdings to the 26% level, as is required by the MPRDA by 2014. The following key principles form the basis of an empowerment scheme proposed to the DMR in 2011:

• Compliance with the provisions and principles of the Mining Charter and the MPRDA;
• The black economic empowerment (BEE) transaction should be sustainable and beneficial for all stakeholders;
• The shareholding structure should be secure so that the BEE status cannot be threatened again in future;
• The participation should be as broad based as possible; and
• Northam’s historically disadvantaged South African (HDSA) employees should participate and benefit from the scheme.

Northam is committed to further engagement with the DMR in this regard, and is optimistic that employees and communities become beneficiaries of the new structure.

PROCUREMENT POLICIES TO BENEFIT LOCAL ECONOMIC DEVELOPMENT

HDSA suppliers to Northam have preferred-supplier status subject to commercial competitiveness. Total procurement spend at Northam reached R2.9 billion in F2013 (F2012: R3.6 billion), of which 43.13% or R1.3 billion, was allocated to BEE suppliers.

BENEFICIATION

Northam has been instrumental in facilitating the development and construction of an independent PGM refinery in Port Elizabeth, owned and operated by the internationally renowned Heraeus group. Northam also continues to supply a percentage of its metal for local industrial offtake.

LOCAL ECONOMIC DEVELOPMENT

Northam’s operations are located in rural and fairly isolated areas, where surrounding communities continue to have unrealistic expectations with regard to economic and employment opportunities.

Local employment remains a key issue in the communities surrounding Zondereinde. Management works closely with the local municipality to manage expectations. Northam has helped in identifying key economic priorities to be developed through small businesses and local entrepreneurs. These include environment and waste management, agriculture and construction. The company hopes that the small medium and micro enterprise (SMME) development will stimulate local economic activity, limiting the dependence of communities on the mining industry and creating a strong economic future after operations have ceased.