The JSE-listed company, headed by CEO Paul Dunne, on Friday reported its best ever revenue of R17.8-billion, record operating profit of R5.3-billion, record earnings before interest, taxes, depreciation and amortisation (Ebitda) of R6-billion and record after-tax profit of R2.2-billion.
Sales revenue increased by 67.3% to R17.8-billion on a 60.8% rise in the four element (4E) basket price to $1 764/oz and a 10.9% weaker rand:dollar exchange rate realised.
Despite Covid-related logistical hurdles, including border closures that made the distribution of refined metal challenging, the group maintained robust refined metal sales of 560 238 oz 4E, highlighting, the company said, its strong relationships with its industrial customer base.
The average dollar sales prices achieved during the year under review improved for most metals. Palladium increased by 52.4% and rhodium by 169.8%. Platinum, however, making up roughly 60% of the sales volume of Northam’s precious metals 4E basket, continued to be the laggard. The average platinum price achieved during the year was $858/oz, which impacted the 4E basket price achieved., the company said in a release to Mining Weekly.
Platinum now contributed only 28.0% to the 4E basket and any upward movement in the platinum price would have a positive impact on the profitability of the group, the release stated.
Ongoing delivery in developing low-cost, long-life assets was positioning the group, the release stated, for further strong financial performance, even in subdued or potentially volatile commodity markets.
The direct cost estimate of Covid is R1-billion. In order to assist with Covid relief efforts, Northam donated funds to the group’s two community trusts.
Commenting on the significant impact of Covid, Dunne said: “At our operations we have lost five employees to the virus, one of these being a contractor employee. We recognise that premature and unexpected loss of life can have a devastating impact and our sincere condolences go out to the families of the deceased.
“Our operations were badly affected by the national lockdown and phased restart. It is testament to the efforts of mine management, working closely with organised labour and the regulators, that we limited this impact, restarting operations in a safe and sustainable manner,” Dunne said.
As a response to the pandemic, Northam has prioritised the health and well-being of its employees and host communities, and developed an action plan to minimise the social and economic impacts, which comprised:
paying employees and protecting their jobs;
implementation of comprehensive health measures and safety protocols to reduce the potential for infection;
driving towards operational normalisation, maintaining a focus on safe and sustainable production – Booysendal and Eland are back at full production and Zondereinde is getting there; and
managing the company’s cash position by trimming capex and restructuring its DMTN programme.
PERFORMANCE REVIEW
Metal production was flat year-on-year at 515 370 oz 4E given the Covid-related loss of more than 100 000 oz, which effectively neutralised the record first-half production levels. Net debt was contained to R3.3-billion, and the net debt to Ebitda ratio was held well within the target of 1:1.
The average dollar sales prices achieved during the year under review improved for most metals.
Now in the fourth phase of its strategic journey of developing low-cost long-life quality assets, Northam had continued to purchase Zambezi preference shares during the year, and post year-end. Its current holding is 46.7% of all shares in issue, and the current value is R5.6-billion, an effective value return to shareholders, the release stated.
OPERATIONAL OVERVIEW
The group’s equivalent refined metal from own operations fell by 0.9% to 515 370 oz 4E, which is 108 685 oz 4E below target and directly related to lockdown and restart of mining activities.
The brunt of losses was felt at the conventional Zondereinde mine; the mechanised Booysendal mine recovered well and group losses were partially offset by additional processing of surface sources at Eland mine. Group unit cash costs per equivalent refined platinum ounce increased by 28.2% to R29 281/Pt oz. This increase in unit cash cost is the result of the high fixed cost component of underground mining, allied with the production losses incurred.
Total group capital expenditure reduced year-on-year to R2.4-billion, owing to planned cutbacks and project completion. A decision to temporarily scale back on specific growth projects in the interest of liquidity management was made after the onset of Covid.
Projects that have been 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.
At Zondereinde mine, stoping is ramping up within the western extension section and further progress has been made on the deepening project. The pilot hole for the planned number 3 shaft has been completed and reaming to ultimate shaft diameter will commence during the first half of the 2021 financial year. At the metallurgical facilities, upgrades to the materials handling infrastructure are nearing completion. The coming years will see work start on capacity increases at both the original smelter furnace and the base metal removal plant.
The development of Booysendal South is progressing on schedule and on budget, with surface infrastructure construction almost complete and underground development at the upper group two mine on track. Work on the North aerial rope conveyor is continuing, but Covid-related stoppages have led to planned commissioning being delayed to December 2021. North Merensky mine build-up will continue.
At Eland mine, processing of surface materials has out-performed budget and will continue. Development of the Kukama decline system has progressed well. An early mining demonstration is ongoing, as is strike development to connect with the Maroelabult section. Despite the decision to pull back on stoping build-up, primary development at Eland mine will continue.
Going forward, Northam guided PGMs production in the range of 650 000 oz 4E to 670 000 oz 4E with unit cash costs to be between R28 500/Pt oz and R29 000/Pt oz, for the next two years.
Sales, the company stated, would follow production and will allow for the number 1 furnace rebuild scheduled this year, at an estimated capital forecast, for both 2021 and 2022 financial years of between R2.3-billion and R2.5-billion. At current rand basket price levels the company should generate healthy cash flows.
Dunne pointed to a second meaningful ramp-up in production, predominantly coming from the Booysendal South mine. “Growth from all operations will contribute to our medium-term annual production target of 1 million oz 4E over the forecast period,” he said.
Regarding dividends and other means of returning value to shareholders, Northam stated in its stock exchange news service announcement: “There are a number of ways that value can be returned to shareholders. This includes cash dividends, but also includes share buy-backs or the purchase of the Zambezi Platinum preference shares. During the year under review, Northam returned value to shareholders by acquiring 49 364 435 Zambezi preference shares for R3.7-billion. Subsequent to year end, an additional 21 134 297 preference shares were acquired for R1.7-billion. Northam now holds 46.7% of the total issued number of Zambezi preference shares."
The board has thus resolved not to declare a dividend for the financial year ended June 30, as was also the case in the 2019 financial year.