Northam Platinum continues to develop low-cost, long-life assets
Northam in its trading statement and trading update says that a key feature of H1 F2021 has been the positive operational response to the ongoing challenges of COVID-19, whilst maintaining the health and safety of its employees. The strong performance from all the operations has led to the group producing equivalent refined metal comparable to pre-COVID-19 production schedules and at production levels higher than the previous corresponding period.
The group achieved a 15.0% increase in production from own operations at 352 741 oz 4E, compared to 306 738 oz 4E for the period ended 31 December 2019, notwithstanding the ongoing phased restart of operations, particularly impacting the conventional Zondereinde mine, where only 90% of mining crews have returned to work.
Purchased material decreased by 3.2% to 18 772 oz 4E (H1 F2020: 19 398 oz 4E). The cost of purchased material is determined by ruling commodity prices, resulting in a cost increase of 34.9%.
Group unit cash costs per equivalent refined platinum ounce increased above inflation, primarily due to Eland mine’s production currently being derived from surface sources and purchased at prevailing metal prices.
Sales volumes during the period under review were adversely affected by the impact of factors arising as a result of COVID-19, in particular the negative effect on metal transport logistics during the last quarter of the previous financial year.
Previously reported production losses, together with logistical hurdles, including border closures, resulted in reduced metal volumes sent to Northam’s refiner in Germany which created a refining backlog.
This in turn impacted available metal for sale during the period under review, due to the restocking of the inventory pipeline. As a result of the varying refining lead times affecting individual platinum group metals, the impact was predominantly experienced in respect of rhodium.
The resultant lower contribution of rhodium to overall sales during the period, distorted the average realised basket price achieved during H1 F2021 and consequently reduced cash inflows reported during the period.
Excess rhodium in the pipeline will be released in the ordinary course of business and the relative contribution of rhodium to sales is expected to normalise during the course of the remainder of the current financial year.
Despite the adverse COVID-19 related impact on sales volumes, sales revenue increased by 51.9% from R7.8 billion in H1 F2020 to R11.9 billion for the period under review. This increase is attributable to a 49.7% increase in the average 4E basket price to USD2 160/oz (H1 F2020: USD1 443/oz), a 9.0% weaker ZAR/USD exchange rate realised and a 4.4% decrease in refined 4E ounces sold, for the reasons stated above.
Total revenue per platinum ounce sold increased by 53.8% to R61 307/Pt oz (H1 F2020: R39 864/Pt oz), resulting in a cash profit margin per platinum ounce in excess of 50%.
Total refined volumes remained marginally unchanged at 322 170 oz 4E (H1 F2020: 319 264 oz 4E).
The group’s financial results were impacted by lower sales volumes relative to actual production, which in turn impacted operating profit, the cash position of the group and therefore the net debt position as at 31 December 2020.
The combination of lower refined sales volumes and increased production resulted in a 25.5% increase in inventory on hand, to 276 235 oz 4E (F2020: 220 172 oz 4E on hand).
During the period under review, the group generated R1.9 billion in free cash flow, which was applied towards further purchases of Zambezi Platinum (RF) Limited preference shares. 74 974 739 Zambezi preference shares were acquired during H1 F2021 at a premium to face value (being the difference between the face value of the Zambezi preference shares and the price that Northam paid, together with transaction costs incurred on the purchases of these Zambezi preference shares), which resulted in a once off loss on derecognition of the Zambezi preference share liability of R0.9 billion.
CAPITAL EXPENDITURE REDUCED TO R1.3 BILLION (H1 F2020: R1.4 BILLION).
This is the combined result of capital trimming following the onset of COVID-19, together with capital projects having either been completed, or nearing completion at Booysendal mine. R918.1 million (H1 F2020: R1.2 billion) was spent on expansionary capital expenditure and R380.5 million (H1 F2020: R200.5 million) on sustaining capital expenditure.
Projects that were temporarily scaled back include – the Central Merensky module at Booysendal mine; aspects of the number 3 shaft project at Zondereinde mine; and the stoping build-up at Eland mine.
Following greater market certainty developing during the second half of 2020, all curtailed growth projects were re-initiated in October 2020 and the majority of stoppage impacts have been clawed back. As such, the overall impact on the group’s growth strategy will be minimal.
Group capital expenditure for F2021 is forecast to amount to R3.0 billion. However, the potential for further disruption to operations and the metal markets as a result of COVID-19 remains. Northam continues to monitor the market and will amend its capital program where and when prudent.
The group continues to execute on its strategy of developing low-cost, long-life assets in order to position itself at the lower end of the industry cost curve. Northam believes that the development of its project pipeline, which builds on its pre-existing and acquired asset base is bearing fruit and will continue to position Northam to deliver a strong operational and financial performance.
