Northam mulls investor reward
As Northam Platinum’s capital spend on growth slides off a record high, the company is considering the best way to return value to shareholders, with dividends the least preferred option.
As Northam Platinum’s capital spend on growth slides off a record high the company is considering the best way to return value to shareholders, with dividends the least preferred option.
Northam spent R3.8bn in its 2018 financial year to end-June on developing its new Booysendal South mining complex, buying resources from Anglo American Platinum to give its Zondereinde mine fresh ore in good ground, the mothballed Eland mine from Glencore, building a new furnace and buying a platinum group metals recycling business in the US.
Capex will drop to R2bn in 2019, which will “complete the heavy lifting, in particular at Booysendal South” and spending will drop to R1.5bn in 2020. Sustaining capital across all its SA operations would be about R1bn a year.
With its growth blocks in place, the focus is now on making sure the company realises the potential from these assets, while the board will decide on the best way to reward shareholders, CEO Paul Dunne said on Friday.
While its cash holdings by the end of the year had shrivelled to R389m from R1.8bn, Northam had more than R2.5bn worth of metal in concentrate stockpiled in its smelter because the company is treating another company’s concentrate. That revenue will be realised in coming months.
With the strong improvement in the price for its six metals since the end of June, falling capital expenditure and the potential of rolling over debt due in 2019, Northam could start buying back the preference shares in its empowerment deal that set up a company called Zambezi Platinum.
“What we are busy with now is the project execution phase, in particular Booysendal, and once it’s complete the group becomes very cash generative,” he said.
Dividends attract a 20% tax. The intention is to buy the preference shares, which attract a dividend from Northam of upward of R1bn a year, he said.
Northam, one of the most aggressively growing platinum companies in SA, reported that operating profit rose 34% to R823m for the year to end-June compared with the previous year. Normalised earnings were up nearly 6% to R422m.
The profit line was skewed by a R1.1bn dividend payment to holders of the preference share put in place for an empowerment transaction.
Northam recorded a post-tax loss of R705m from a R636m loss the previous year.
Production of six metals comprising the basket of platinum group metals Northam generates increased 4.5% to 571,843-million ounces for the year, with Zondereinde, the deepest of SA’s platinum mines, boosting output by 7%.