With the decrease in commodity prices, earnings across the platinum group metals (PGMs) sector are under pressure. This will, consequently, constrain cash generation across the sector, resulting in prudent management of liquidity becoming even more important, JSE-listed Northam said in a trading update on February 19.
The group noted that the global economic outlook remained uncertain, resulting in volatile metal prices and exchange rates, adding that prevailing PGM market conditions and the material decline in the platinum, palladium, rhodium and gold (4E) basket price had negatively impacted the profitability and rate of cash generation of the group during the six months ended December 31, 2023.
The group’s financial performance is influenced by the exchange rate and commodity prices, together with the stability of Northam’s broader operating environment. Relative positioning on the industry cost curve, and the ability to retain operational flexibility and balance sheet strength, are becoming increasingly important sector differentiating factors.
Northam said it expects to report an 86.4% to 96.4% year-on-year decrease in earnings per share for the first half of the 2024 financial year.
This is largely because of the significant decrease in commodity prices, together with a loss of R799.7-million on the disposal of the Impala Platinum ordinary shares received as part of the disposal consideration following acceptance of the mandatory offer made by Implats to shareholders of Royal Bafokeng Platinum.
Further, the company expects to report a 25.5% year-on-year decrease in sales revenue to R15-billion for the interim period. This is despite the 1.4% increase in sales volumes, mainly as a result of a 42.3% decrease in the rand basket price per 4E ounce.
The group’s growth strategy is focussed on growing production down the industry cost curve by developing shallow, mechanisable orebodies.
“Our programme of optimising existing operations is progressing and remains on track. We have utilised our balance sheet to grow the business and the project pipeline has been funded through cash generated by our operations, as well as the utilisation of our banking facilities and the R15.0-billion domestic medium-term note programme.”
The increase in group unit cash costs has been limited to 6.7%, despite the ongoing trend of generally higher mining inflation.
“We have benefitted from growing mining production, improved concentrator feed grades and disciplined, focussed cost control,” the company reported.
Further, as at December 31, 2023, net debt improved to R2.4-billion, with cash and cash equivalents of R11.8-billion.
Capital expenditure (capex) amounted to R2.4-billion. This is in line with the group’s trimmed capital schedule, and the combined result of lower expansionary capital of R1.6-billion, slightly offset by a marginal increase in sustaining capex to R846-million.
The majority of expansionary capex related to significant activity on the Western extension project at Zondereinde, together with the ongoing ramp-up at Eland. Sustaining capex at Booysendal increased in line with production levels, while sustaining capital requirements at its metallurgical operations increased as a result of the upgrade to the furnace slag concentrator at Zondereinde.
“We plan significant development activity at the Western extension of Zondereinde, as well as at Eland, over the coming 18 months.”
Looking ahead, the company stated that a raft of global geopolitical issues had 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.
“We continue to monitor the market and are rolling out additional on-demand self-generation capacity at all of our operations. We will amend our capital programme when and where prudent, taking into account the changing landscape.”
Northam will publish its results on March 1.