Northam, in an operational update released on Thursday, announced that it expects to report a record operating profit of R1-billion for the six months ended December 31, 2018.

Its operating profit ballooned by 204.3% from the R338.8-million operating profit achieved in the six months to December 31, 2017.

Earnings before interest, taxes, depreciation and amortisation (Ebitda) are expected to increase to R1.1-billion for the interim period – compared with the previous comparable period’s R532.8-million – representing an Ebitda margin of 22.6%.

Revenue increased by 48.6% to about R5-billion, compared with R3.4-billion in the comparable period, primarily driven by a 40.5% increase in platinum group metals (PGMs) sales volumes to 294 823 oz, compared with the 209 861 oz sold in the six months to December 2017.

The average dollar basket price improved by 4.2% to $1 013/oz during the period under review and the average rand/dollar exchange rate weakened by 5.7% to R14.19.

On a per unit basis, total revenue per platinum ounce sold is expected to have increased by 3.8% to R27 524.

Northam’s unit cash costs per platinum ounce increased by 5.5% to about R22 007.

Northam stated that the strong financial performance was underpinned by its growth and diversification strategy, which was on track and well advanced. Further, project execution risk was reducing rapidly.

DESTOCKING OF EXCESS INVENTORY

Total refined metal production increased by 41.1% to 299 323 oz of PGMs. This increase includes a net destocking of 30 000 oz of PGMs of excess inventory accumulated prior to commissioning the second furnace.

The remaining excess inventory as at December 31 amounted to 140 000 oz of PGMs, valued at about R1.9-billion at cost and an estimated sales value of about R2.3-billion.

Destocking is expected to continue for the remainder of the 2019 financial year.

OPERATIONAL PERFORMANCE

Strong operational performances at both the Zondereinde and Booysendal mines boosted Northam’s production by 4.1% to 256 461 oz of equivalent refined PGMs.

The Zondereinde mine’s equivalent refined metal increased to 154 078 oz of PGMs, compared with 152 487 oz of PGMs in the prior comparable period.

Metal in concentrate produced at the Booysendal mine increased to 105 285 oz of PGMs, (96 650 oz previously), representing an increase of 8.9%. The group stated that this was a “pleasing outcome” as the mine had transitioned to an owner-operator model in 2018.

DIVERSIFICATION STRATEGY

The group invested R1.5-billion in capital expenditure (capex) over the six months under review, of which R877.3-million was spent on the continued development of the Booysendal South mine.

By the end of 2018, Northam had invested R2.8-billion into the development of the Booysendal South mine, which is well advanced, ahead of schedule and within budget.

The Booysendal South rope conveyor was commissioned in December, with the first ore being transported to the receiving pad at the Booysendal South concentrator.

The Booysendal South mine is designed to sustain yearly production of up to 300 000 oz of refined PGMs for more than 25 years, increasing the total production for the greater Booysendal complex to about 500 000 oz of PGMs.

Expansion of the group’s smelting capacity (the second furnace) was well timed and is more than sufficient to handle the projected mine volume increase from Booysendal.

Northam continues to grow down the industry cost curve as Booysendal’s low-cost production volume increases.

Capex during the interim period was funded by operational cash flows and available debt facilities, with net debt at around R2.9-billion as at December 31.

However, the sales value of excess PGMs inventory as at December 31 is estimated to amount to about R2.3-billion.

The audited interim results are expected to be published on or about February 22.