Release Date: August 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Northam Platinum Holdings Ltd (JSE:NPH, Financial) posted record production and sales volumes despite weakening metal prices.
- The company generated revenue of ZAR30.8 billion, showcasing strong operational performance.
- The group remained fatality-free throughout the year, with significant safety milestones achieved at Booysendal and Zondereinde.
- Chrome production improved by 24%, with Booysendal expected to produce 770,000 tonnes of chrome concentrate for FY25.
- The company has a strong liquidity position with ZAR7.5 billion in cash and undrawn banking facilities of ZAR12.3 billion.
Negative Points
- The environment of higher inflation and weak metal prices has continued, impacting profitability.
- Cash margin decreased to 15.7%, reflecting significantly lower metal prices.
- The company has implemented a moratorium on recruitment and delayed several capital projects to manage costs.
- Eland mine experienced a fatality in August, highlighting ongoing safety challenges.
- The company faces significant pressure from Eskom tariff hikes, impacting operational costs.
Q & A Highlights
Q: Chris Nicholson from RMB Morgan Stanley. Could you explain the drivers behind the higher cost guidance for Zondereinde and the group overall?
A: Paul Dunne, CEO: At Northam, we prioritize expensing costs rather than capitalizing them, and we do not offset costs with byproduct revenue. Zondereinde's costs are expected to rise by 8-9% due to power costs, which are significantly increasing. Labor costs are also rising by 5-8%. Aletta Coetzee, CFO, added that consumables and electricity tariffs are also contributing to the cost increase.
Q: Arnold Van Graan from Nedbank. Is Eland still on track to meet your initial expectations, and what is the steady-state cost target for Eland?
A: Paul Dunne, CEO: Eland is performing well and meeting its targets. It is expected to have lower unit costs than Zondereinde due to its shallower mining depth and lack of backfilling requirements. The ore body is similar to Zondereinde UG2, and Eland's costs will improve as it ramps up production.
Q: Arnold Van Graan from Nedbank. How will you approach a "lower for longer" scenario in terms of capital allocation and cost management?
A: Aletta Coetzee, CFO: We have sufficient cash flow for the next 12 months. If the market declines further, we will utilize funding and trim expansionary CapEx, particularly at Eland. Paul Dunne, CEO, added that they would protect Zondereinde by harvesting Eland if necessary.
Q: Leroy Mnguni from HSBC Securities. Can you provide insights on the rhodium market and the de-stocking cycle in China?
A: Paul Dunne, CEO: The rhodium market is normalizing, and we believe the de-stocking cycle is nearing its end. However, macroeconomic factors and political uncertainties in the US and China are still influencing the market. We are preparing for a challenging period ahead.
Q: Bruce Williamson from Integral Asset Management. What was the CapEx estimate for the Western extension at Zondereinde, and how much higher would it be if started today?
A: Paul Dunne, CEO: The original CapEx estimate was around ZAR5 billion. Due to inflation and other factors, building a new mine today would cost north of ZAR20 billion, making it prohibitive under current market conditions.
Q: Adrian Hammond from SBG Securities. Why haven't you embarked on Section 189 retrenchment programs like your peers?
A: Paul Dunne, CEO: We manage workforce adjustments through natural attrition, which is about 4%. We are still hiring at Eland and fine-tuning at Booysendal, so there is no need for large-scale redundancies.
Q: Adrian Hammond from SBG Securities. Can you provide details on the stockpiles and their cash value?
A: Aletta Coetzee, CFO: We have over 475,000 ounces in inventory. We plan to release around 100,000 ounces over the next three years, adding approximately ZAR500 million to our cash balance after tax, depending on metal prices.
Q: Rene from [Silvano]. What are your thoughts on PGM demand from China and supply from Russia?
A: Paul Dunne, CEO: Chinese OEMs have lower loadings for palladium and rhodium, affecting overall demand. However, industrial demand for platinum in China is strong. Russian supply is expected to continue despite sanctions, with palladium moving to North America, Japan, and China.
Q: Andre Peters from Visio Fund Management. At what level of production will Eland's costs reach parity with Zondereinde?
A: Aletta Coetzee, CFO: Eland will break even at around 100,000 ounces of production. We are close to this target for the next year.
Q: Hetal Bhatia from Wood Mackenzie. What is the sales destination for your chrome product?
A: Paul Dunne, CEO: Our chrome is exported through Maputo to China, specifically to Inner Mongolia, where it is used by large ferrochrome producers.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
