In his half-yearly address to shareholders, CEO Paul Dunne highlighted the normalisation of production following the Covid-19 associated disruptions. “Our production statistics bear testament to this. Especially significant is the first meaningful metal contribution from the Booysendal South mine.”
“We are currently operating at close to full production. However, Covid-19 remains a threat to the health of our employees and we are still following the risk mitigation protocols implemented during F2020. We will continue to closely monitor the situation,” says Dunne.
Notwithstanding the 15% growth in group metal production, sales volumes declined by 4.4% to 315 320 ounces, owing primarily to Covid-19 associated disruptions. Lower production volumes in Q4 of F2020 together with logistical hurdles resulted in reduced metal volumes sent to Northam’s refinery in Germany, thereby creating a refining backlog.
In turn, this impacted available metals for sale during the period under review, owing to the restocking of the inventory pipeline. The varying lead times for individual PGMs impacted rhodium in particular during the period. The resultant rhodium surplus in the pipeline should be released in the ordinary course of business and the relative contribution of rhodium to sales is expected to normalise during the remainder of the current financial year.
Nevertheless, sales revenues grew to R11.9-billion, attributable predominantly to a 49.7% increase in the average 4E basket price to USD2 160/oz, and a 9.0% weakening in the average ZAR/USD exchange rate.
Operational growth projects, initiated in a period of lacklustre metal prices, are now coming on track, and delivering valuable contributions into a rising metal-price environment, thereby vindicating the company’s growth strategy. Projects which were temporarily scaled back have been resumed, reducing the impact of the stoppages on the group’s strategy.
As at 31 December 2020, Northam’s holding in Zambezi had reached 80.4% of all Zambezi preference shares in issue. Subsequent acquisitions post the reporting period have taken the Northam holding to 87.5%.
The rationale of these acquisitions is to:
- reduce the preference share dividend expense and liability included in Northam’s consolidated financial results; and
- reduce Northam’s potential financial exposure under the guarantee it provided in favour of the holders of Zambezi preference shares.
Also, if Zambezi were to redeem the Zambezi preference shares through a distribution of ordinary shares in Northam held by Zambezi, then the redemption of the Zambezi preference shares held by Northam at such time will result in a distribution of Northam shares to Northam, thereby reducing the number of Northam shares in issue, tantamount to effecting a share buy-back.
A further benefit would be the reduction of Northam’s financial exposure in terms of the guarantee provided to Zambezi preference shareholders, should the guarantee be called upon.
The transaction with Zambezi, along with the new holding of 87.5% of all Zambezi preference shares, has created significant value for all Northam shareholders. This development, together with the inherent share buy-back implied by the holding, provides a unique opportunity to unlock permanent value for our shareholders, whilst maintaining Northam’s BEE ownership.
Commenting on these developments, Dunne said today, “At the corporate level, we are pleased to have been able to continue the purchase of Zambezi preference shares, returning significant value to shareholders.”
Looking ahead, the major factors which are likely to affect future financial results, are:
- the safety performance and health and wellness of our workforce;
- dealing with an unreliable energy supply;
- effective cost control;
- exchange rate and commodity price volatility;
- management of production and performance targets to ensure the successful execution of our business strategy; and
- effective project execution
The global economic outlook remains uncertain. “We are confident that the group’s strong financial position, prudent financial controls and the successful execution of our expansion strategy will position Northam favourably in continuing to take advantage of improved market conditions going forward,” concludes Dunne.