Northam Platinum expects to report a more than 50% decline in operating profit for the six months ended December, as low platinum group metals (PGM) prices continued to take their toll.
Northam, which operates three mines in SA and is valued at about R47bn on the JSE, said on Wednesday that as a largely fixed cost business, its best defence against persistently low PGM prices was to shift down the industry cost curve by efficiently raising production.
However, efforts to grow its production base in the current price environment have meant short-term pain for the group's balance sheet, with operating profit at R1.1bn for the six months to end-December, down 55.5% year on year.
The group cited a 3.3% decrease in the 4E rand basket price as primarily responsible for its weaker sales revenue in the period under review, which at R14.5bn was down 3.1%.
While prices dragged down sales revenue, the cost of sales also grew by 6.9% to R13.4bn, shrinking their operating profit margin from 16.1% previously to 7.5%. An increase in unit cash costs was attributed to mining inflation and lower refined volumes in the first quarter.
As a result, Northam expects headline earnings to be between 55c-67.1c per share for the period, down between 44.7%-54.7% from the previous comparable period.
“Commodity markets are known for their cyclicality. The current outlook for global PGM demand and supply remains uncertain which in turn results in an uncertain outlook for PGM prices.
“A raft of global geopolitical and macroeconomic issues have the potential to cause further disruption to the PGM markets and metal prices, while the possibility of Eskom load curtailment events could lead to additional operational disruption and challenges,” said the company.
Despite the dip in profits, equivalent refined metal production was up 3.7%, with all mines recording a strong operational performance and the Eland mine increasing its metal in concentrate production by 15.1%.
Northam’s capital expenditure bill for the rest of the financial year was estimated at R2.2bn, with most of the investment focusing on growth programmes such as the development of an 80MW solar power plant at the Zondereinde operation.
Northam said it would adjust its expansionary approach to capital expenditure if it was necessary to preserve liquidity, should market conditions deteriorate further.
“The prevailing low PGM price environment is constraining earnings across the entire PGM sector,” said the miner.
“The sector’s ability to respond to lower PGM prices by suspending or reducing costs is limited, as the majority of mining costs are fixed in nature. This is consequently constraining cash generation across the sector, requiring ever more prudent management of liquidity,” it said.
The group said it expected to publish its interim results on February 28.
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