Northam interim profit slumps but balance sheet strength is intact

CEO Paul Dunne says Northam is well placed to weather the storm. Photo: Simphiwe Mbokazi/ Independent Newspapers

CEO Paul Dunne says Northam is well placed to weather the storm. Photo: Simphiwe Mbokazi/ Independent Newspapers

Published Mar 4, 2024


NORTHAM Holdings’ headline earnings a share slumped 92.5% to 121.4 cents in the six months to December 31, a period of downturn in the platinum group metals (PGM) industry, but the miner has resolved to pay a dividend of 100 cents, from income reserves.

Northam’s share price closed 4.68% lower at R104.55 on Friday.

The PGM industry is navigating much lower prices and high inflation, with many global geopolitical uncertainties. Locally, it also faces Eskom load curtailment events.

However, CEO Paul Dunne said Northam was well placed to weather the storm.

“We have not yet seen a change in fundamentals which are likely to move the market into more positive territory, and consequently the short-term outlook remains challenging,” he said in a statement on Friday.

The group did not pay a dividend for the interim period last year, and a 600 cents dividend was paid for the year to end-June 2023.

Sales revenue fell 25.5% to R14.99 billion. Operating profit was down 64.1%. Earnings before interest, tax, depreciation and amortisation, excluding losses on the sale of the Impala Platinum Holdings (Implats) shares, fell 68.1% to R3.17bn.

During the period, Northam sold its investment in Royal Bafokeng Platinum into the Implats mandatory offer for R9bn in cash and 30 065 866 Implats shares, significantly strengthening the balance sheet and its liquidity position.

The group then sold the Implats shares on-market for R3.1bn, resulting in a R799.7 million loss being recognised.

Northam commissioned the expanded and upgraded furnace slag PGM recovery plant at its metallurgical facility during the period, to improve PGM yield.

Some R730m was paid to employees as part of various profit-share schemes during the six months.

The group had R11.8bn cash and cash equivalents as at December 31, 2023.

Equipping of 3 shaft, for transport of personnel and services to the Western extension, reached 230 metres by the end of the interim period, on schedule for commissioning near the end of the 2025 financial year.

Reaming of 3a vent shaft reached 402 metres, on schedule for holing towards the end of the second half of the 2025 year. Also, pilot drilling of the 3b rock-hoisting shaft reached 1 320 metres, on schedule for completion in the second half of the 2024 year.

For the six months under review, the basked price achieved decreased by 42.3% to R24 299 an ounce 4E, driven mainly by the decline in the price of palladium and rhodium by 41% and 69.7%, respectively.

The palladium price was impacted by a downturn in global demand for internal combustion-engined vehicles driven by the weak global economic climate and high interest rates. Rhodium was affected by substitution for platinum in the fibreglass industry, which has led to a lower price.

Dunne said they expect the low price environment would continue over the next 12 to 24 months, placing pressure on earnings and cash generation across the PGM sector.

“Preservation and prudent management of liquidity is now of utmost importance to ensure the sustainability of our operations as we focus on protecting the interests of our shareholders and the broader stakeholder base.

“We believe Northam is well positioned to weather the PGM pricing environment as a consequence of the proactive balance sheet strengthening and liquidity management initiatives we have implemented,” he said.

In addition to the cash resources, the staggered maturity profile of Northam’s 0Domestic Medium Term Note programme provided a further certainty and flexibility to prudent cash-flow management.

Dunne said mining was mainly a fixed-cost business, and their best defence against a low metal price and high inflation was to position production on the lower end of the industry cost curve.

“Today, Booysendal is positioned at the lowest end of the industry cost curve. This is significant as Booysendal contributes the majority of Northam’s production. More recently, Northam has implemented a number of capital preservation initiatives,” he said.

At Zondereinde, certain work streams relating to the Western extension project had been deferred in instances where it would not have a material impact on the overall project.

At Booysendal, development of the declines at both the South Merensky and BS4 modules were temporarily halted, and mining crews at South Merensky had been limited.

At Eland, development of decline systems had been temporarily paused “as we shift focus to strike and raise development to increase mineable reserves,” he said.

“Looking ahead, we will continue to monitor market developments and amend our capital programme when and where prudent,” said Dunne.