‘In a league of its own’

Un­der the lead­er­ship of CEO Paul Dunne, who has ac­quired a num­ber of as­sets, Northam Plat­inum is one of the few lo­cal min­ers in the plat­inum group metal space that can boast a strong bal­ance sheet and well-per­form­ing as­sets.

Finweek English Edition - - Contents - By David McKay

ac­cord­ing to scur­rilous ru­mour,

Northam CEO Paul Dunne was be­hind an at­tempted coup of Ter­ence Good­lace when he was CEO of Im­pala Plat­inum (Im­plats). Dunne at the time was head of Im­plats’s op­er­a­tions, but didn’t like some of the things Good­lace was do­ing. He might even have wanted the top job him­self.

These days, it’s highly un­likely the fi­nan­cially and op­er­a­tionally trou­bled Im­plats is a com­pany Dunne would much covet, es­pe­cially given that he has trans­formed Northam in the three years since leav­ing Im­plats.

As Northam rises, Im­plats falls; in fact, in one of those de­li­cious ironies, there’s been a role re­ver­sal with Im­plats be­com­ing the kind of sin­gle-as­set com­pany – a barb most com­monly sent Northam’s way.

Im­plats’s sur­vival is dom­i­nated by Im­pala Rusten­burg, a mine so dys­func­tional that it could ruin the com­pany un­less ur­gent ac­tion is taken. Al­ready, newly ap­pointed

has raised the pos­si­bil­ity that 2 500 jobs will be cut at the mine with more staff cuts to come given that labour is about 50% of to­tal costs.

At Northam, how­ever, long gone are the days when the com­pany’s for­tunes turned on Zon­dereinde, its Lim­popo mine. In fact, an­a­lysts reckon Northam could be­come a 1m-ounce plat­inum group metal (PGM) pro­ducer in sev­eral years’ time.

It pro­duced 474 000 ounces in its 2017 fi­nan­cial year which, over three years, is a 26% in­crease.

Ac­cord­ing to a re­cent note by Citi an­a­lyst Jo­hann Steyn, it’s po­si­tioned to add some 520 000 ounces of PGMs over the next five years. “With mul­ti­ple growth op­tions, a strong bal­ance sheet and well-per­form­ing as­sets, we ar­gue that Northam is uniquely po­si­tioned within the SA plat­inum sec­tor,” said Steyn in a re­cent note ti­tled In a league of its own.

In the main, Dunne has ac­quired the growth through a com­bi­na­tion of op­por­tunism and smart deal-mak­ing, the suc­cess of which has been pred­i­cated on con­sol­i­da­tion. For in­stance, he bought the Ever­est mine for R450m from strug­gling Aquarius Plat­inum in 2015. Ever­est is con­tigu­ous with Northam’s Booy­sendal mine and project. Then in Oc­to­ber 2016, he swapped min­er­als with An­glo Amer­i­can Plat­inum in a deal worth R1bn in or­der to se­cure the fu­ture of Zon­dereinde for 30 years.

This year he sought the moth­balled Eland Plat­inum from Glen­core for a mere R175m af­ter agree­ing to mar­ket the chrome by-prod­uct from the mine through the Switzer­land-based miner and mar­keter. An­other fail­ing com­pany, the US PGM re­cy­cling firm A-1, was in Dunne’s sights in July. The com­pany was bought for a mere R139m.

But he’s also been lucky. Booy­sendal North was a long­stand­ing project of Dunne’s pre­de­ces­sor Glyn Lewis, who did a lot of the spade work. No sooner had Dunne taken his seat at Northam than Booy­sendal was start­ing to pro­duce its first metal. It was also handy that the Northam bal­ance sheet was heav­ily re­cap­i­talised af­ter a R6.6bn BEE deal, which left it with R3bn on the bal­ance sheet – large enough to fi­nance Northam’s growth.

Ac­cord­ing to Christo­pher Ni­chol­son, an an­a­lyst for RMB Mor­gan Stan­ley, Northam is likely to get a near dou­bling in pro­duc­tion over the next three to five years with net debt of only R200m, ex­clud­ing some R700m, which will be re­quired to bring Eland on line – a project Northam has said would be self-funded.

Northam’s net cash po­si­tion was about R1.8bn at its 30 June year-end.

Set against this, Dunne is stead­fast in his be­lief that the plat­inum mar­ket will slide into a large sup­ply deficit in time. He bats away sug­ges­tions the sec­tor is mori­bund. SA out­put is in de­cline, but that’s a good thing; at least for the sur­vivors. ed­i­to­rial@fin­week.co.za

Northam’s Booy­sendal mine in Mpumalanga.

Paul Dunne CEO of Northam Plat­inum

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