JOHANNESBURG (miningweekly.com) – The platinum group metals (PGM) market may be heading for three-way price parity, Northam Platinum CEO Paul Dunne pointed out when the company presented a 60% rise in operating profit to R614-million in the 12 months to June 30, reflecting the benefits of the company’s growth strategy, mechanisation at the Booysendal mine and improved palladium and chrome prices.

A higher PGM basket price and higher chrome revenue translated into a 44%-greater year-on-year group cash profit of R5 314 per equivalent refined platinum ounce, on a sales revenue of R6.9-billion. (Also watch attached Creamer Media video).

Dunne remains confident that, over time, PGM demand will grow and supply will shrink, resulting in a more positive price environment for PGM metals. 

The company’s mechanised Booysendal – which has an operating margin of 17% – produced well above its nameplate capacity at just under 200 000 oz, with progress at the Booysendal South project adding promise.

Despite labour unrest at the Zondereinde mine, output of 280 172 oz was within a hair’s breadth of last year’s 282 765 oz, at an operating margin of 3.6%.

“The company represents the best risk-adjusted return in the platinum sector,” Dunne told Creamer Media’s Mining Weekly Online at an investor and media briefing where he emphasised the importance of cost control to maintain the company’s competitive position “in this very difficult market”.

Group costs of R19 736/oz of platinum were 4.6% higher, while perating cash flow increased by 17% to R981.5-million and the cash balance at year-end was R1.8-billion, CFO Ayanda Khumalo reported.

While the platinum price struggles below the $1 000/oz mark, the higher palladium price has provided some support for the basket price as price movements suggest a move towards three-way parity with rhodium.

“However, we must say that overall price performance remains lacklustre and continues to be a source of great concern to our sector,” cautioned Dunne, who described the negative sentiment towards platinum and PGMs in general and the emphasis on the emergence of battery electric vehicles as being overdone.

“Today’s internal combustion engines are clean, efficient and economic to run. In our view, the adoption of battery technology will remain constrained owing to the inherent fundamental chemistry of the battery itself,” he commented.

Capital expenditure (capex) is estimated at R1.3-billion in this financial year, comprising R109-million on sustaining capex and R1.2-billion expansionary capex as Northam grows production down the cost curve, both organically and through acquisition.

Acquisitions include the Tumela block’s mineral resources from Anglo American Platinum for R1-billion; the acquisition of Eland Platinum mine from Glencore Operations South Africa for R175-million; and subsequent to year-end, the PGM recycling assets in Pennsylvania, US, from A-1 Specialised Services for $10.7-million.

At operational level, the company’s record three-million fatality-free shifts at Booysendal reflect the benefits of the mechanised mining method, with a graphic flashed on to a large screen showing the huge magnitude of safety difference between the conventional Zondereinde and the mechanised Booysendal.

Milled tonnage for the combined operations increased by 6.3% to 4.4-million tonnes, largely on the back of growth at the mechanised Booysendal.

The production of chrome in concentrate increased by 8% to 581 000 t on higher upper group two (UG2) tonnage milled at Booysendal and chrome has become “a very important segment for Northam”. Total revenue per platinum ounce has increased 11% owing to higher chrome and palladium pricing.

UG2 has a relatively high chrome content and has a higher rhodium weighting than Merensky reef, which is high in nickel and copper.

In Northam's case the difference between UG2 and Merensky reefs at Zondereinde and Booysendal is marginal at 2% to 3%.

The higher production failed to translate into a similar increase in sales volumes, but this will end with the commissioning by year-end of the new furnace at the Zondereinde smelter, where a new drying plant and furnace have to date absorbed capex of R671.6-million.

Capex in the current financial year is expected to reach the R1.3-billion mark, with R109-million of it sustaining and the rest expansionary.

The operational outlook for Northam is healthy. It has a stable production base at Zondereinde and a growing production profile from Booysendal, which holds a particularly strong position on the cost curve.

It is envisaged that Zondereinde will benefit from the Tumela acquisition over the next three years, raising its production profile to 350 000 oz. 

Booysendal South is expected to boost the total Booysendal production profile to 500 000 oz, with the Eland operation contributing 150 000 oz on a five-year ramp-up. 

As the company still has a large capital expansion programme ahead of it, project execution will be key to meet its rising market expectations.