Northam Platinum Limited, today, 21 February 2014, posted results for the six months ended 31 December 2013.
The most significant feature of the reporting period was the loss recorded by the company, the first since 1998, reflecting the damaging effect of the strike at the Zondereinde operation, which at 11 weeks was one of the longest in the South African labour environment.
Commenting on the strike, Northam CEO Glyn Lewis says, “It is probably worth reminding our stakeholders that by the time employees proceeded on strike action on 3 November 2013 our offer was already equal to or better than any other settlement the NUM had agreed to in the mining industry. I am sure that, after 11 lean weeks, a lot of questions remain about the wisdom of this move, given the final settlement. Apart from the serious losses incurred by the company and shareholders, employees also lost ZAR151 million in wages.
“We hope that common sense will prevail sooner rather than later in the current impasse in the platinum sector. Perhaps there is also some merit in an overhaul of some of the legislation surrounding industrial action. We believe, for example, that this should include the introduction of an independent strike ballot process, and that strike action should only proceed if the overwhelming majority of all union members vote in favour of strike action. Furthermore, the validity of a strike certificate should be limited to one week.”
Operations – Zondereinde
Production at Zondereinde was slashed by almost 30% to 3 477kg (H1 F2013: 4 889kg); PGM sales however were less severely hit owing to release of inventory build-up during the Zondereinde smelter rebuild which took three months from June to October 2013. The additional revenue from these sales contributed to the mine breaking even at an operating level.
Mining conditions at Zondereinde continue to be impacted by poor ground conditions particularly on the Merensky reef. This has been exacerbated by the downtime occasioned by the strike and requires slow and careful mining start-up activities. Steady progress has been made with the decline project including initial stoping from 15 level.
The industrial action had little effect on the rate of capital expenditure which consumed R243.5 million, with the smelter rebuild and the deepening project being the main capex items.
Wage negotiations at Zondereinde started on 31 July 2013. From the outset the negotiations were challenging, and marked by disputes. Following the intervention of third party facilitators and extensive talks, the NUM was granted a certificate of non-resolution and proceeded with strike action with effect from 3 November 2013. The strike continued for 79 days beyond the end of the reporting period until 21 January 2014. Losses amounted to 48 000oz of PGMs, revenues of R750 million and employees lost ZAR151 million in wages. The settlement reached included increases ranging from 7.5% to 9.5%, along with an ex gratia payment of R3 000 per employee.
Operations – Booysendal
Booysendal came into production on 1 July 2013, and the ramp-up continues. Mining averaged 102 000 tonnes/month, but the mill throughput was significantly higher at 145 000 tonnes/month, supplemented by the surface stockpile in order to produce as much metal as possible to mitigate the effect of the strike at Zondereinde. At 31 December 2013 the surface stockpile contained 197 000 tonnes of run of mine (ROM) ore. Total tonnes milled in the six months amounted to 870 072.
This strategy of adding stockpile tonnes to the mill resulted in unit costs for the period being artificially low. This will normalise as run of mine tonnages build up from underground. A more realistic impression of Booysendal ’s cost performance will become apparent once the mine ramps up to steady state production and the initial stockpile is depleted.
Booysendal recorded an operating loss of R131 million for the reporting period.
Capital expenditure in the first half of F2014 was ZAR270.1 million (H1 F2013: ZAR761.8 million). A further ZAR314.6 million is expected to be spent in the remainder of the financial year on the underground capital footprint.
Since inception the total capital expenditure for the development of Booysendal mine is ZAR4.3 billion against a projected total expenditure of R4.6 billion. The original capital budget for Booysendal was ZAR3.9 billion in June 2010 terms.
The group ’s total debt facilities currently amount to ZAR2.77 billion. This includes a revolving credit facility of ZAR1.4 billion and ZAR1.37 billion in a domestic medium term notes programme. In the current reporting period the group also raised an additional ZAR1 billion through a ZAR600 million claw-back rights offer underwritten by Coronation Asset Management (Proprietary) Limited and a ZAR400 million additional revolving credit facility from Nedbank. Further, certain covenant conditions have been relaxed until December 2014. At the end of the reporting period an amount of ZAR750 million was still available and uncommitted.
Social and economic uncertainty is likely to continue to influence the fortunes of the platinum industry in the near future. Barring any disruptions to Northam ’s operations in the second half of the financial year, the Zondereinde mine is expected to recover to a steady state of production and the Booysendal mine to continue its production build-up. The financial performance of the company for the full year however, will be negatively impacted by the 11 week strike which ended on 21 January 2014.