Northam expects large drop in earnings as higher production fails to offset low prices

The industry-wide slide in platinum group metals prices has taken a hefty toll on profit earned by mid-tier PGM miner Northam Platinum in the six months to end-December.

The group’s headline earnings per share for the period are expected to decrease by between 87.5% and 97.5% compared with the same six months in 2022.

In a trading update published on Monday ahead of the release of interim results on March 1, Northam said it expected earnings before interest, tax, depreciation and amortisation to be down 68% to R3.2bn and gross profit to decrease about 73% to R2.4bn.

“The decrease in commodity prices [have put] earnings across the PGM sector under pressure,” Northam said.

The decrease in earnings was largely due to a “significant” drop in commodity prices which could not be offset by a 10% increase in sales volumes and a roughly 11% increase in refined metal production.

Sales revenue decreased by 25.5% despite a 10.4% increase in 4E (platinum, palladium, rhodium and gold) sales volumes.

The 4E rand basket price was down about 42% to R24,270 per 4E ounce and the dollar basket price declined 46%.

“A raft of global geopolitical issues has the potential to cause further disruption to PGM markets and metal prices, while the potential for further and more severe Eskom load curtailment events could lead to additional operational disruptions,” the group warned. 

Its earnings for the period were also affected by a roughly R800m loss on the sale of shares it held in bigger rival Impala Platinum (Implats).

Northam received R9bn in cash after selling its 34.5% interest in Royal Bafokeng Platinum (RBPlat) to Implats following a mandatory offer by the latter. The mandatory offer from Implats amounted to R90 per share in cash as well as 0.3 new Implats shares.

The 3.3% stake that Northam obtained in Implats through the mandatory offer was sold for R3.1bn, but due to the decrease in the value of Implats’ shares between the time when Northam accepted the offer and then sold the shares, the deal resulted in an R800m loss.

Northam and Implats were involved in a protracted tussle to acquire RBPlat before the former dropped out of the race in 2023, citing the drop in PGM prices. Led by CEO Paul Dunne, Northam was also under pressure from shareholders who argued at the time that its production pipeline looked more favourable relative to its peers.

It has in recent years invested in beefing up production at its Zondereinde deep-level mine near Thabazimbi, its Booysendal mine near Steelpoort, and the Eland mine close to Brits.

“We operate a largely fixed-cost business and consider increasing production, and doing so efficiently, to be our best defence against current global inflationary pressures,” Northam said.

The 10.6% increase in production was due to a “solid performance from all mines across the group” and specifically a 15% increase in 4E concentrate from its Booysendal mine and a roughly 60% increase from its own operation and surface sources at Eland mine.

In early afternoon, Northam’s share price was down about 4.8% at R106.28. The share has lost roughly 31% of its value over the last 12 months.

With Andries Mahlangu

erasmusd@businesslive.co.za