JOHANNESBURG (miningweekly.com) –  The earnings of platinum group metals (PGMs) mining company Northam Platinum soared in the six months to the end of December when 54% more cash was generated.

Operational growth projects, initiated in a period of lacklustre metal prices, are now coming on track, and delivering valuable contributions into a rising metal-price environment, and projects which were temporarily scaled back have been resumed, the company stated in a release to Mining Weekly.

A solid half-year operational performance has underpinned the company’s share price appreciation, with normalised headline earnings rising 73.6% to R3.3-billion on a 51.9% increase in sales revenues to R11.9-billion.

Operating profit was 75.4% higher at R5.2-billion, at a margin of 43.7%; cash generated from operating activities rose to R3.1-billion; and earnings before interest, taxes, depreciation and amortisation rose 69.5% to R5.4-billion.

Tonnage performance was 21.1% up to four-million tonnes, with own production equivalent refined metal up 15% to 352 741 four-element (4E) ounces and an 11% increase in production of chrome concentrate.

Northam CEO Paul Dunne highlighted the normalisation of production following the Covid-19 disruption: “Our production statistics bear testament to this. Especially significant is the first meaningful metal contribution from the Booysendal South mine.

“We are currently operating at close to full production. However, Covid remains a threat to the health of our employees and we are still following the risk mitigation protocols implemented during F2020. We will continue to closely monitor the situation,” Dunne stated in the release.

Notwithstanding the 15% growth in group metal production, sales volumes declined by 4.4% to 315 320 oz, owing primarily to Covid disruption. Lower fourth-quarter financial year 2020 production volumes together with logistical hurdles resulted in reduced metal volumes sent to Northam’s refinery in Germany, creating a refining backlog, the company stated.

In turn, this impacted available metals for sale during the period under review, owing to the restocking of the inventory pipeline. The varying lead times for individual PGMs impacted rhodium in particular during the period. The resultant rhodium surplus in the pipeline should be released in the ordinary course of business and the relative contribution of rhodium to sales is expected to normalise during the remainder of the current financial year.

Nevertheless, sales revenues grew to R11.9-billion, attributable predominantly to a 49.7% increase in the average 4E basket price to $2 160/oz, and a 9% weakening in the average rand/dollar exchange rate.

CORPORATE DEVELOPMENT

Northam’s holding in Zambezi reached 80.4% of all Zambezi preference shares in issue by the end of December and subsequent acquisitions post the reporting period have taken the Northam holding to 87.5%.

The rationale of these acquisitions is to reduce the preference share dividend expense and liability included in Northam’s consolidated financial results; and to lower Northam’s potential financial exposure under the guarantee it provided in favour of the holders of Zambezi preference shares.

Also, if Zambezi were to redeem the Zambezi preference shares through a distribution of ordinary shares in Northam held by Zambezi, then the redemption of the Zambezi preference shares held by Northam at such time would result in a distribution of Northam shares to Northam, thereby reducing the number of Northam shares in issue, which would be tantamount to effecting a share buy-back.

A further benefit would be the reduction of Northam’s financial exposure in terms of the guarantee provided to Zambezi preference shareholders, should the guarantee be called upon.

The transaction with Zambezi, along with the new holding of 87.5% of all Zambezi preference shares, the JSE-listed company stated, had created significant value for all Northam shareholders. This development, together with the inherent share buy-back implied by the holding, provided an opportunity to unlock permanent value, while maintaining Northam’s black economic empowerment ownership.

“At the corporate level, we are pleased to have been able to continue the purchase of Zambezi preference shares, returning significant value to shareholders,” Dunne stated.

ENERGY SUPPLY

Looking ahead, the major factors likely to affect future financial results include dealing with an unreliable energy supply and effective project execution, with the global economic outlook remaining uncertain.

Dunne expressed confidence that, going forward, the group’s financial position, financial controls and successful execution of its expansion strategy would position Northam favourably in continuing to take advantage of improved market conditions.