Low unit costs, higher prices spur Northam in drive to transform platinum production

Low unit costs, higher prices posts good financial results

NORTHAM Platinum said on Friday that it aimed to transform into a major platinum producer with low unit costs as it posted a strong financial performance for its 2017 financial year on the back of higher prices.

The JSE-listed platinum producer firmed 4.31 percent on the JSE to trade at R45.70 a share on Friday after announcing that its operating profit for the year had increased 60.2 percent to R614 million from R383.3m in 2016.

The group’s operating profit percentage improved to 8.9 percent from 6.3 percent in 2016, reflecting higher platinum group metal (PGM) prices, strong cost control and economies of scale as group production increased, the company said.

Spot platinum prices traded at $1 039 (R13 509) an ounce and rose to reach a peak of $1 182 in early August. This was followed by a steady decline $898 an ounce on the last trading day of December, the company said.

Chief executive Paul Dunne said on Friday that the new lowcost and mechanised Booysendal North and South were evolving to produce 500 000 ounces a year within three years. He said Zondereinde would deliver 350 000 ounces and Eland was expected to produce 150 000 ounces over a 30-year life.

“With these numbers we believe we will have successfully transformed Northam into a major producer with low unit costs and lower operational risk. I should emphasise, however, that we are not driven by size for size’s sake,” said Dunne.

Production would be tailored to meet market demand, while ensuring that the mining and processing capacity responded promptly to changes in market conditions.

Northam had contained unit costs in the period under review into the lowest quartile of the industry cost curve at a group level with group unit cash costs an equivalent refined platinum ounce increasing by 4.6 percent to R19 736, the company said.

“Our success depends on our continuing ability to contain costs at levels that ensure operations remain profitable throughout the market cycle. We are positioning our operations to take advantage of rising prices when platinum enters its next upward cycle,” Dunne said.

Rene Hochreiter, a Noah Capital Markets mining analyst, on Friday commended Northam Platinum for containing its costs below the consumer price index. “If you can contain unit cost increases to below 10 percent in the mining platinum sector, it means you are doing well,” said Hochreiter.

However, despite the strong financial performance, losses widened to R635 million from R508m in 2016, the company said.

Northam has been one of the few platinum producers that has been expanding operations, despite 80 percent of South African operators being under water.

Cash flows from operating activities increased to R981.5m from R839.1m in 2016, largely as a function of lower tax paid and the higher working capital requirements, which reflected unusually high levels of inventory, the company said.