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Northam Platinum makes hay of strong PGM pricing with best ever first half production


BEST ever production numbers and elevated pricing for the rand basket of platinum group metals (PGM) would propel Northam Platinum to a record interim profit.

The company said in a trading statement today that normalised headline earnings would be in excess of R1.8bn, an increase of roughly R1.25bn year-on-year, or some 240%. Shares in the company have long priced in its prospects, having gained nearly 150% in the last 12 months. The share was up 1.6% by close of trade Monday.

Booysendal Platinum Mine

JP Morgan Cazenove picked Northam as its preferred platinum share owing to the strength of its Booysendal project that would eventually take production to 900,000 ounces. PGM prices have also been extraordinarily strong, especially palladium and rhodium – the latter advancing again for the second half of Northam’s financial year.

At the half-year point, production from Northam’s “own operations” amounted to 306,738 oz 4E oz (platinum, palladium, rhodium and gold), an increase of 19.6% compared to the first half of the previous financial year. Sales volumes increased by 11.9% to 329,760 4E oz, the company said.

During the period under review, Northam bought 32.5 million Zambezi preference shares – representing 20.3% of all Zambezi preference shares in issue – for R2.4bn. Northam holds 22.9% of all Zambezi preference shares in issue, whilst maintaining a net debt to earnings before interest, tax, depreciation and amortisation (EBITDA) ratio of 1 to 1.

Northam believed that if it bought about half of the Zambezi preference shares it would have completely de-risked the black economic empowerment funding structure of 2015/16 in which it raised net R4bn by selling shares to then newly created Zambezi Platinum.

The shares were then backed by Northam Platinum shares on a one-to-one basis and listed on the Johannesburg Stock Exchange as convertible preference shares. Zambezi Platinum, owned by black shareholding groups, originally had a 32% stake in Northam. The balance of the Zambezi preference shares fall due in 2025.

In its report, JP Morgan also upgraded its two-year price forecast for palladium 27% and 25% higher in 2020 and 2021 to $1,556 and $1,250/oz respectively. It adjusted downwards its forecast for the platinum price which would average $925/oz in 2020 – a 10% decline.

“Our top pick among South African PGM miners remains Northam, which we believe is being transformed by the expansion at its Booysendal mine,” said Dominic O’Kane, an analyst for JP Morgan Cazenove.

“We expect this expansion to drive peer-leading earnings growth for Northam, while a substantial inflection in free cash flow should support ongoing purchasing of its preference shares,” he said.

Rand Merchant Bank said in a report in December that it saw “… a reasonable likelihood that prices and sector profitability will remain elevated and/or move higher in 2020”. This was based on a fundamental PGM market deficit of 500,000 oz to one million oz annually, and tightening emission standards that would drive demand.

Anglo American Platinum announced on January 28 that it expected headline earnings as high as R17.5bn – some R10bn more than achieved during its 2018 financial year. This was despite some production losses as a result of power rationing.



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