Northam Platinum, a major player in the mining of platinum group metals (PGMs), has announced that it expects a significant drop in its profits for the financial year ending June 30, 2024. This decline comes despite the company’s strong operational performance. Northam, known for producing metals like platinum, palladium, rhodium, and gold, is bracing for a challenging year ahead.
Northam Platinum has revealed that its headline earnings per share (HEPS) could decrease by as much as 86.6% compared to last year. To put that in perspective, the company reported a HEPS of R24.15 in 2023, but for 2024, it’s expecting this to drop to somewhere between R3.24 and R5.66. This dramatic decline is largely due to a combination of falling revenues and rising costs.
One of the main factors behind this slump is the decrease in the prices of key metals. The average price of the metals in Northam mines, such as platinum, palladium, rhodium, and gold, fell by 35.5%. This price drop significantly affected the company’s sales revenue, which fell by 22.2% to R30.8 billion. Despite these challenges, Northam managed to increase its sales volume by 7.3%, but the lower prices meant that this wasn’t enough to offset the revenue losses.
Northam’s gross profit for the year also took a severe hit, dropping from R15.4 billion in 2023 to R4.8 billion in 2024. The company’s gross profit margin shrank to 15.7%, down from 39.1% the previous year. This shrinking margin reflects the tough economic conditions the company is facing, particularly in a market where metal prices are declining while operational costs continue to rise.
The company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) also saw a steep decline, falling from R16.5 billion in 2023 to R6.3 billion in 2024. Despite these setbacks, Northam remains focused on its long-term goals, particularly its strategy to grow safe and sustainable production while managing costs effectively.
While Northam is experiencing financial difficulties, the company continues to make progress in its operational goals. One of the key achievements of the year was a 10.3% increase in the production of refined metals from its own operations, reaching a total of 892,876 ounces. This increase in production demonstrates the company’s resilience and ability to maintain strong operations even in a challenging environment.
Northam generated R3.5 billion in cash from its operations before accounting for capital expenditures (capex). However, this cash was largely offset by a capex of R4.7 billion, which was used for various projects, including the Western extension at Zondereinde and the ongoing ramp-up at Eland. These investments are part of Northam’s long-term strategy to enhance its production capabilities and ensure the company’s future growth.
One positive aspect of Northam’s financial performance was its ability to reduce its net debt. By selling its noncore investment in Impala Platinum shares, the company reduced its net debt from R9.4 billion at the end of 2023 to R3.1 billion by June 2024. This reduction in debt has helped to strengthen Northam’s balance sheet, giving the company more flexibility to navigate the current economic challenges.
Despite the challenging market conditions, Northam ended the financial year with a cash balance of R7.5 billion. However, the company also faced significant cash outflows, including R2.7 billion in dividends and the settlement of Domestic Medium-Term Notes worth R4.3 billion.
Looking forward, Northam is cautious about the future, especially given the raft of global geopolitical and economic issues that could disrupt the PGM markets. The company is also concerned about potential power shortages due to Eskom’s load curtailment events, which could further impact its operations.
To address these challenges, Northam has taken steps to increase its self-generation capacity, ensuring that its operations can continue even in the face of power outages. The company acknowledges that the current low price environment for metals may persist, and combined with rising inflation, this will put additional pressure on the entire PGM sector.
Source: Mining Weekly
