Northam Platinum has an enhanced liquidity profile and will be able to meet its capital requirements in the medium term despite persistently low Platinum Group Metals (PGM) prices, noted analysts at ratings agency GCR Ratings.
South African PGM executives are expecting prices of the metals to improve as they keep their eyes on containing costs and ramping up production.
Despite the low prices, China said this week that it would launch its first platinum and palladium futures in the first quarter of next year, with analysts saying SA should regularly feature on the planned exchange given its high endowment of PGM.
GCR - a Moody’s Ratings affiliated agency - said yesterday that Notham’s “ratings outlook remains on stable” while affirming the miner’s national scale long and short term issuer ratings at A+ and A1 respectively.
“The affirmation of Northam’s rating reflects the successful completion of major development activity at its low cost Booysendal mine, which has seen the mine reach its steady state production of 500 000 PGM ounces and supports the group in nearing its 1 million ounce production target from own production,” said Johannesburg based Eyal Shevel, primary analyst for GCR.
This was despite PGM prices likely remaining weak over the short to medium term and negatively impacting profitability as well as reducing gearing metric headroom over the company’s covenants.
“Northam has significantly enhanced its liquidity profile to ensure it can meet all capital and operating cash flow requirements over the medium term,” added Shevel.
Northam’s earnings decreased significantly for the year to 30 June 2024 due to the substantially lower PGM basket prices, with revenue falling to R30.8 billion compared to R39.5bn a year earlier.
The company’s earnings before interest, tax, depreciation and amortisation (Ebitda) also slumped to R6bn from R16.bn, with the overall cost of sales for the period rising 7.6% as a reflection of higher inflation across mining inputs.
However, Northam Platinum’s actual cost per ounce of production rose by a lower 4.3% due to the higher production contribution from the low cost Booysendal mine.
And with PGM prices expected to remain around current low levels for the next 12-24 months, GCR adjudges that containing production costs will be critical to maintaining overall net profitability and positive operating cash flows for the company.
To this end, Northam has initiated a number of projects and investments that GCR expects will help reduce mining costs somewhat and improve extraction yields over the medium term.
“Northam’s gearing profile and capital structure remain robust, although the weaker earnings have had a negative impact on credit protection metrics. The group significantly reduced its net debt position to R3.3bn, following the receipt of R12.1bn in cash from the sale of its shares in Royal Bafokeng Platinum Limited and Impala Platinum Holdings Limited.”
This left Northam’s net debt to Ebitda at a lowly 0.55x, with net interest coverage of 6.8x. Due to continued weak earnings, net debt to Ebitda for the company could rise to 1.5x in financial year to June 2025, said GCR, while net interest coverage could decrease to around 4.5x which would be within its covenant levels.
“Over the medium to longer term, these metrics could improve as production increases and prices strengthen but are still likely to remain weaker than historical levels.
All current debt has been raised under the group’s R15bn DMTN programme, with strong appetite for refinancing from investors demonstrated even during uncertain market conditions,” explained Shevel.
In addition to the R7.5bn in cash that Northam retained at end June, it had also increased its revolving credit facilities to R11.3bn with a further R1bn in general banking facilities available.
GCR said this cash “should be sufficient to meet the R4.2bn debt redemption in financial 2025, as well as the majority of capex costs” for the company.
“Although debt redemptions in financial 2026 and 2027 are moderate, capex will remain around R4bn and should be funded from the revolving credit facility. Even under difficult market conditions there should be substantial liquidity headroom under the revolving credit facility,” it said.
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