JOHANNESBURG - Northam Platinum shares surged 4.22 percent on the JSE on Friday to R174.21 after the miner received a major credit ratings boost on the combination of its strong earnings profile and expectations of continued robust free cash flows buoyed by record metal prices.
Credit rating agency GCR Ratings upgraded the group's national scale long-term credit rating to A(ZA) from the previous rating of A-(ZA) and short-term credit rating to A1(ZA) from A2(ZA) with a stable outlook. GCR said in a note that Northam’s profitability had surged over recent years, enhanced by higher platinum group metals prices and rising production volumes.
Northam’s operating profit more than doubled to R5.3billion during the 2020 financial year, with the margin buoyed to 30percent from 23percent a year earlier, and the group had managed the impact of Covid-19 well, with its key mine able to resume operations fairly quickly as lockdown eased, said the note.
“Importantly, while the pandemic has led to a delay of some of the planned capital investment for production expansion, growth projects remain largely on track. As such, further margin uplift is expected over the rating horizon as we see metal prices broadly remaining favourable and the continued ramp-up of lower-cost production from Booysendal’s mechanised operations as it moves towards reaching a steady state. Partially counterbalancing these expectations in the short-term is the highly uncertain global operating climate,” said the GCR note.
Northam which was listed on the JSE in 1987, debuted on the FTSE/JSE Top 40 index, in March ranking at number 32. According to the PricewaterhouseCoopers' 2020 Mine report released last week, Northam has been among the platinum group metals producers that have outperformed the JSE All Share Index, largely driven by the weakening rand and surging metal prices, as investors fled to safe havens.
The group shares have accelerated 104percent between July 2019 and June 2020, helping it to become the second biggest climber after Sibanye-Stillwater in terms of the market capitalisation of the Top 10 mining companies. Sibanye-Stillwater climbed the most to fifth place in June from eighth place a year earlier, while Northam’s climbed to seventh place in terms of market cap at the end of June 2020 from the tenth place a year earlier. GCR said that the group’s earnings had historically hinged on production at Zondereinde.
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