Record Northam interim results as higher output meets improved metal prices

Northam Platinum ramped up production at just the right time, increasing output by a fifth as metal prices soar, giving it record interim financials.

Northam opted not to pay shareholders a dividend, unlike its peers in the platinum group metals (PGMs) industry, preferring to buy preference shares held by its Zambezi Platinum empowerment structure, arguing this was the most value-accretive action it could take for its shareholders.

Buying the preference shares reduces the dividend costs Northam has to pay to Zambezi and reduces Northam’s exposure to the financial guarantee it provided to Zambezi.

During the interim period to end-December, Northam bought R2.4bn worth of preference shares and now holds 23% of the instruments.

The Zambezi preference shares muddy the results and Northam uses normalised numbers to give a clearer insight into the business. Zambezi holds a 31.4% interest in Northam’s shares and the preference shares will be redeemed in May 2025.

Normalised headline earnings of R1.9bn for the period compared with earnings of R553m in the same six months a year earlier. This number strips out the R619m of preference share dividend recorded in the period, among other items. It is a non-cash item.

Northam reported posttax profit of R1.1bn against a loss of R64m the year before.

Profit before the Zambezi expenses and tax of R820m was R2.7bn from a R800m profit before.

Operating profit trebled to a record R3bn due to a 57% increase in revenue to R7.8bn.

Northam, which set itself a production target of 1-million ounces of four PGMs a year, is pouring money into its Booysendal mine, a shallow, mechanised operation with a series of shaft complexes on a large property. It has a new section of resources at its Zondereinde mine that it is targeting for production, while it is returning to production the mothballed Eland mine it bought recently.

These three assets will generate the 1-million ounces of production in coming years.

In the interim period, Northam increased production of platinum, palladium, rhodium and gold from its mines by nearly 20% to a record 306,738oz.

Prices for palladium and rhodium, the two metals used to make anti-pollution devices in petrol engine exhausts, increased by 54% and 102% during the interim period respectively because of a growing deficit in the supply and demand equation.

Platinum, which is used in autocatalytic devices in diesel engine exhausts, jewellery, industrial applications and investments, makes up 60% of Northam’s metal sales but contributed just 31% of revenue.

The platinum price has lagged far behind that of palladium and rhodium.

Northam generated free cash flow of nearly R700m for the interim period, the first time since 2015 it had “generated meaningful free cash flow after funding capital expenditure”.

Net debt grew to R5bn from just shy of R3bn a year earlier, but the net debt to earnings before interest, tax, depreciation and amortisation (ebitda) metric improved to 1.1 times from 1.7 times before.

seccombea@businesslive.co.za