The low-cost platinum mining firm, valued at R32bn, said yesterday that it would kickstart the Kukama shaft at Eland in the new financial year, signalling a return of capital investment thanks to the PGM price recovery that has been driven by strong palladium and rhodium prices.
The platinum industry led a jobs bloodbath between 2012 and 2017 as thousands of employees were retrenched when companies closed marginal shafts in an oversupplied market, which resulted in the sustained price weakness exacerbated by high input costs.
The PGM industry has shed almost 30000 jobs since 2012, and employed 168000 people at the end of 2018, compared with 197000 in 2012. Northam said it had decided to reopen Eland following positive feedback from a feasibility study for the Kukama project.
Eland provided the group with an additional mining footprint, increasing flexibility and reducing overall operational risk, the company had said previously.
Northam chief executive Paul Dunne said the project’s return on investment comfortably exceeded the company's weighted average cost of capital.
“The project further diversifies the group's operations and production capacity and does so efficiently by utilising an extensive existing capital footprint. Kukama is a project that lends itself to scaling up or down and will form the production base for the broader Eland complex,” Dunne said.
The group estimated developmental capital expenditure of R2.2bn, including the provision for working capital requirements during the development phase for the project.
Northam, which also operates the Zondereinde deep level conventional mine and the Booysendal shallow mine, both in Limpopo, said Kakuma would be fully funded from its own resources.
Northam acquired Eland from Swiss commodities trader Glencore for R175million in 2017.
Eland had been mothballed in 2015 in light of poor platinum market conditions and operational issues at the mine.
Since the acquisition in 2017, Northam managed the mine while conducting the feasibility study for the Kukama shaft.
The group said it had commenced early work in preparation for its recommissioning, including refurbishing underground fixed and mobile equipment, as well as certain sections of the concentrator.
“Processing of the tailings storage facility at Eland mine has also commenced, which facilitated recommissioning of the surface plant and associated infrastructure,” the company said.
Production was forecast to reach 100000 ounces a year by 2025, and steady state production of 150000 ounces a year was forecast from 2029.
South Africa, which has 69000 tons of known platinum reserves, which account for 87percent of known world reserves, was in recent years battered by low prices.
Thanks to the palladium and rhodium price strength, which strengthened 128percent during 2018, local producers, including Northam, have received some relief from platinum's weakness.
Palladium, which is principally used as a catalyst for petrol-driven motor vehicles, has seen growing demand while platinum, on the other hand, has suffered from negative sentiment following the “dieselgate” scandal.
On Tuesday, Anglo American Platinum, the world's biggest platinum producer, said earnings in the six months to the end of June would jump by at least 80percent thanks to higher PGM prices in rand terms.
Northam shares closed 3.37percent lower on the JSE at R61.12 yesterday.