Paul Dunne. Picture: MARTIN RHODES
Paul Dunne. Picture: MARTIN RHODES

Northam Platinum is pushing its mines and projects hard to cut debt, fund growth and, probably most importantly, position it to address the repayment of its empowerment structure.

The bottom line of Northam's strategy is to generate cash, with a view to more than tripling its share price to the R170/share and giving it the firepower up to 2025 to buy the preference shares underlying the empowerment transaction.

If the share price doesn't get to R170 then Northam has either a cash payment to make up the gap between the prevailing price and the R170 mark or it will have to issue shares.

Analysts said the drag on Northam's shares relative to its peers stemmed from this aspect of what was a remarkably complex empowerment transaction, which was essentially a vendor financed transaction with an upfront payment of R4bn to Northam to give it the cash to pursue its growth strategy.

Chris Nicholson from RMB Morgan Stanley said Northam's interim results on Friday were "very solid".

"On production, cost and project delivery, I can't tell you how good it is to consistently see that happen. Having said that, it has been slightly disappointing to some in the market how Northam has lagged its peers... it often comes down to this potential overhang in the empowerment structure," he said. 

Northam intends bringing net debt down from R2.9bn to R2.2bn or less by June, the end of its financial year and close to the R2bn level at which it has targeted as a level with which it would be comfortable, said CFO Alet Coetzee. 

Debt levels will be lowered with the use of more than R2bn worth of stockpiled material working its way through concentrators, furnaces and refineries that extract base and precious metals, she said.

Once there, the board would decide how to apply cash, including the purchase of the preference shares in the empowerment structure-- which will reduce the 2025 payment if the R170/share level is not reached - or the purchase of ordinary shares, she said.

There would be an update for shareholders in the September presentation of full-year results on what the decision was around capital allocation, said CEO Paul Dunne.

Northam, which is in the throes of a growth programme at its Booysendal assets and incurring hefty capital expenditure, withheld its dividend again, but reported sound results to underpin its strategy.  Operating profit trebled on the back of higher production and improved prices for the basket of metals it produced.

The bottom line profit line is distorted by the preference shares.

Northam reported a post-tax loss of R64m for the six months to end-December, an improvement from the R284m loss a year earlier. 

Accounting for the nearly R620m related to dividend payments to the preference shares, Northam reported normalised headline earnings of R553m up from R189m.

Operating profit reached a record R1bn in the interim period, up from R339m in the same period a year earlier and more than 2018’s full-year operating profit of R823m.

Revenue increased by 48.6% to R4.98bn on the back of a 40% increase in metal sales as Northam supplemented mined production with stockpiled material to take advantage of higher prices.

Northam forecasts it will spend more than R2.3bn at its Zondereinde, Booysendal complex and Eland assets this year, with the biggest chunk of R1.5bn going towards Booysendal, a shallow, mechanised, low-cost operation near Steelpoort in Limpopo.

Northam has net debt of R2.9bn and intends reducing this by working through stockpiled material that has a sales value of R2.3bn.

Northam has to repay domestic medium-term notes of R1.25bn during the next six months.

Dunne said in the results statement: “The group intends to refinance the domestic medium-term notes and to continuously review and optimise the quantum of its available debt facilities in view of the group’s increasing production profile and the impact thereof on working capital requirements and exposure to metal price fluctuations.”