Northam Platinum will defer and temporarily halt some of its development projects to “preserve capital” as it and other platinum miners grapple with significant metals price decreases.
Market conditions were the worst in three decades, CEO Paul Dunne told journalists on Friday.
“We may be in for a difficult time. I can’t see any sign in the market for a quick rebound just yet. If these conditions persist for another year, it will bring great difficulty for all the platinum group metal (PGM) miners,” he said.
In its results for the six months to end-December posted on Friday, Northam said the rand 4E (platinum, palladium, rhodium and gold) basket price fell 42% from R42,000/oz to R24,200/oz compared with that of the previous matching period.
The drop was driven mainly by the palladium price falling 41% and rhodium’s price dropping 70%.
“We have not yet seen a change in fundamentals which are likely to move the market into more positive territory and, consequently, the short-term outlook remains challenging. We anticipate the depressed pricing environment will continue over the next 12-24 months, placing significant pressure on earnings and cash generation across the PGM mining sector,” said Dunne.
Given market conditions at present, Northam said it had decided to “trim” its capital schedule in the interests of capital preservation by deferring or temporarily halting certain development work at its Zondereinde, Booysendal and Eland mines.
The group’s capital expenditure guidance of R4.6bn is still within previous guidance of R4.5bn-R4.8bn for the year. Capital expenditure in the previous year was R5.6bn.
Remains challenge
In addition cuts of about R200m-R300m in capital expenditure in the current year, the group also expected to cap capital expenditure at about R4bn in the next year, said Dunne.
While having to contend with the slide in metal prices, SA’s energy crisis remained a challenge for the country’s PGM industry.
Northam, which is investing in more diesel generators, said there was no certainty on when improvements would be seen in this regard.
“Across the group, we have on-demand power generation capacity from diesel generators of 22MW. Additional capacity of 35MW has been purchased and is being installed, with commissioning expected before the end of the third quarter.
“This additional capacity will enable all operations to operate unimpeded under level 4 Eskom load-curtailment conditions, which is equivalent to stage 6 load-shedding,” said Dunne.
CFO Alet Coetzee said the company spent about R200m on diesel generators. Half of this was on buying the generators and the rest on installing them.
Dunne said that while they were also investing in solar and wind power, the diesel generators offered a quicker solution to immediate electricity supply challenges.
While Eskom’s performance improved recently, they still saw “difficulty ahead … until the end of this decade”.
“As the older power stations reach their end of life and are decommissioned, our concern is whether renewable energy is being added quickly enough to substitute coal-fired capacity.”
Despite the load-curtailment events, Northam’s operations had a strong performance, increasing production 10.6% for the six-month period. This helped to partially offset the 42.3% weakening in the 4E rand basket price, but sales revenue fell 25.5% to R15bn.
Operating profit fell 73% drop to R2.4bn. Headline earnings per share (HEPS) for the period dropped 92% to R1.21.
Northam declared an interim dividend of R1 per share.
The company’s share price traded 4.7% lower at R104.55 at the close of trade on Friday. Over the past 12 months, the share price fell about 30%.
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