JOHANNESBURG (miningweekly.com) - JSE-listed mid-tier platinum producer Northam reported a 21,5% drop in interim earnings, and warned on Thursday that it would report weaker results in the second half of the financial year, owing to lower metal prices.

Profit for the six months ended December 2008, had decreased from R472-million in 2007, to R371-million.

Total operating costs for the interim period were at R970-million, and were impacted by inflationary increases in the cost of labour, consumables, services, as well as the 10,7% increase in production, Northam stated.

Production of metals in concentrates increased to 5 193 kg, and unit sales rose by 10,2% to 4 599 kg, while tonnage milled was 13,5% higher at about 1,1-million tons.

“Production of metals in concentrate is expected to be marginally lower in the second half of the year, while sales of platinum group metals are expected to be in line with those of the first half.

“Given the prevailing uncertainty in the global economic climate, and its dampening effect on commodity prices, the rand basket price is likely to remain at current levels in the medium-term,” Northam, led by CEO Glyn Lewis, said.

At current spot metal prices, the company was cash positive at an operating level, had no debt, and should be able to develop Booysendal from a combination of internal retentions and medium-term loan finance.

BOOYSENDAL STEAMS AHEAD

Lewis said that the lucrative Booysendal project remained on track, and production of first stoping ore was expected in the latter half of next year.

The bankable feasibility study for the project was progressing according to plan, and would likely be completed by September this year.

“Assuring that the go-ahead is given, we will move on to the site in early 2010, and start construction of primary infrastructure,” he said at the company’s results presentation, in Johannesburg.

Lewis added that the surface construction was likely to take around two years, while the decline cluster was established. The stoping ore as well as the ore defined from the on-reef developments would be used to commission the concentrator in early 2012.

A modular design and incremental production build-up remained the preferred method of developing the mine, and should provide maximum flexibility in implementation.

The initial emphasis of the bankable feasibility study focused on a single 120 000 t/m UG2 production unit, that would be replicated as the availability of power and market conditions allowed.

He added that the company also had the intention to establish a second UG2 decline cluster as soon as was possible after the start of the first production. The start of the second decline would, however, be dependent on market conditions.

In October, world number-two platinum producer Impala Platinum proposed a merger with Northam, as well as its majority shareholder Mvelaphanda Resources, for a cash-and-share consideration of around R21,2-billion.

The target of the deal was the lucrative Booysendal prospect, which has more than 100-million resource ounces of platinum group metals.

The Booysendal project has the potential to produce in excess of 480 000 oz/y of platinum-group elements, reaching full production by 2020.

The merger was called off in January, after the companies failed to agree on the price, owing to the world’s uncertain economic climate as well as the ongoing volatility in commodity and equity prices.

“Any deal had to reflect the intrinsic value of Northam, its production, the fact that it is cash positive, the large resource base at Booysendal, and the metallurgical infrastructure that we enjoy. Under the worsening economic conditions, a fair swap ratio, taking the longer-term view into account, could not be agreed to,” said Lewis on Thursday.