Despite the negative outlook in the platinum industry, platinum producer Northam Platinum has kept a stable long-term rating of BBB+ and has upgraded the short-term rating to A1–.

A long-term debt rating is an opinion of the relative credit risk of long-term debt obligations. Long-term debt ratings and definitions apply to both issuers and obligations (‘issues’). In terms of issue credit ratings, it is possible that different issues by a single issuer could be accorded different ratings, depending on the underlying characteristics of each issue.

The BBB+ rating represents adequate protec- tion factors and is considered sufficient for prudent investment. However, there is consid-erable variability in risk during economic cycles.

A short-term debt rating rates an organisation’s general unsecured creditworthiness over the short term (over a 12-month period). Such a rating provides an indication of an entity’s ability to honour any unsecured short-term debt obligations, including commercial paper, bank borrowings, banker’s acceptances and negotiable certificates of deposit. Short-term ratings and definitions apply to both issuers and obligations (‘issues’).

The A1- means that there is a high certainty of timely payment. Liquidity factors are strong and supported by good fundamental protection factors. Risk factors are very small.

According to Global Credit Ratings, this stable long-term rating comes on the back of Northam’s support for its black economic-empowerment (BEE) deal, which raised R4.6-billion, and the successful development of Booysendal North, which is a fully mechanised mine.

“Northam’s strong BEE shareholding diverts regulatory scrutiny from the group, at a time when the industry is actively engaging with the Department of Mineral Resources on the once empowered, always empowered debate,” says Global Credit Ratings senior credit analyst Patricia Zvarayi.

She adds that, in a particularly difficult environment, which has seen a protracted slide in platinum group metals prices and major producers mothball capacity, the stable rating is considered to be a positive testament to Northam’s considerably improved credit risk profile.

The short-term rating was upgraded to reflect ample liquidity on the balance sheet. With R1.4-billion in medium-term notes redeemed recently, the group has negligible debt levels.

“Even with another issue of between R1-billion and R1.8-billion on the cards, credit protection factors remain sound and gearing is not expected to breach 35% in the medium term,” Zvarayi mentions.

Improved production saw revenues reach a new high of R6-billion and supported a R596-million operating profit in the 2015 financial year. Owing to one-off costs mostly related to the BEE transaction, however, the group posted a R1-billion net loss for the year.

While mining operations have centred on Zondereinde in the past, Booysendal North is set to reach steady production in October.

“The higher margin mine, based on a more conformable resource, brings more operational stability to the group by reducing concentration risk and labour exposure,” says Zvarayi.

The group is mooting a number of projects to reach an aspirational target of one-million ounces. These include the development of Booysendal South, given the increased access from the recently procured Everest platinum mine.

Accordingly, mechanised ounces will progressively account for the majority of group output.

“The group’s Booysendal operations provide a distinct operational advantage, compared with larger peers that have a number of unprofitable legacy mines.

“For the legacy mine, Zondereinde, some stability is expected to derive from the recently signed three-year wage agreement with the National Union of Mineworkers. That being said, material operating constraints owing to any protracted labour and other disruptions, exogenous cost pressures, or adverse regulatory changes, could lead to negative rating action,” Zvarayi concludes.