Paul Dunne. Picture: Russell Roberts
Paul Dunne. Picture: Russell Roberts

Companies worldwide have been scrambling for cash against a desperately uncertain future, and platinum group metal miner Northam Platinum this week managed to switch R1.9bn of bond notes under its R10bn bond programme, effectively helping it raise cash and conserve money that would otherwise have been paid out. CEO Paul Dunne described the swap as "a very positive outcome". We asked him why.

PD: First of all, it’s precautionary and prudent. It’s very important that any company looks after its liquidity, because there is a high degree of uncertainty into the next 12 to 24 months in terms of what happens on the demand side of our industry. The biggest and most important segment of demand is automotive. To put that into some sort of quantum, over 80% of palladium and over 80% of rhodium and 40% of platinum is automotive. So when automotive is shut down, that’s of deep concern. Jewellery has also been affected, as you might imagine.

Was it relatively easy to set it up? Debt still seems to be quite readily available.

PD: I would contradict you a little bit there and say it’s quite difficult. Liquidity across the market is effectively drying up. We’re very grateful for the support from the members of the programme and they do tend to be shareholders, but they participate on the debt side also.

Clearly, palladium has dropped from its highs but it hasn’t been a catastrophic pullback. Are you surprised at the resilience?

PD: I would say that palladium is now in balance. And that’s healthy — a balanced market is a good thing. But the one metal that is not often written about, which I believe will be the metal of the decade, is rhodium. It remains in deficit and the reason for that is the tightening legislation across the world for the control of nitrous oxides — NOx. They are greenhouse gases, but the main issue is health and quality of the air in cities and control of NOx is very important. Rhodium is the metal that does that.

Was it the fact that you’ve got the Zambezi preference share structure that made you raise money as much as the uncertainty regarding the auto sector?

PD: It was more the contraction in demand. Of course, if we do see some form of recovery, the fact that we now have that liquidity does give us the option to target further purchases of the Zambezi pref shares, but it wasn’t the primary motivation. By the way, we have purchased quite a lot of Zambezi pref shares this year — R3.7bn worth — and that’s our return to shareholders. Because every pref is backed by an ordinary share, it’s a buyback by proxy. It’s more efficient to do that than pay a dividend which has a 20% tax leakage. That means we now own 33.4% of Zambezi.

Is the Zambezi share scheme a burden you have to be mindful of all the time? And do you have a black shareholding into perpetuity or does it end by the time you redeem the shares in 2025?

PD: It depends ultimately on the performance of the ordinary shares. The current structure has a termination date and if Zambezi is in the money, there will be residual shareholding. If it’s neutral, it’s a wash, and then if it’s below the line, if I can put it that way, Northam will make up the balance in what we call a secondary guarantee. This is a share scheme and we must perform, so this is why we keep saying that our Zambezi shareholders are fully aligned with other ordinary shareholders.

Do you think that businesses — irrespective of industry — should keep more cash on their books? It’s been argued that companies have run too lean and sacrificed resilience for efficiency. What do you think?

PD: If you stop revenue of a company, there is no company that can survive for long. Companies are not infinitely resilient and this is an extremely unusual circumstance that we face, so even the best balance sheets will come under a certain degree of pressure. It’s not a slowdown, it’s a 100% stoppage. Any conservative company — of which Northam is one, by the way — will protect the balance sheet by doing the types of things we’ve just done.

Northam supported the initial lockdown for the reasons that were given: delay and prepare, but now we must open the economy — [it’s] very, very important. I’m very much in the camp that this is not about the economy versus lives, it is lives versus lives. The economic destruction that we’re seeing is not good for society and it’s not good for quality of life and length of life. From a mining perspective I want to make one point: we are well versed in managing infectious disease. We have a good example of that: TB. The prevalence of TB in the industry is lower than the national average. We know what to do, and we know how to do it. We’ve done it for decades.

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