Our opinion on the current state of NORTHAM(NPH)Northam (NPH) is a fully empowered platinum mining company that operates in the Bushveld complex.
In the current difficult legislative environment, where the 3rd mining charter is regarded as unfriendly from an investment point of view, Northam is probably the only mining house that is buying up new properties.
It has come to an arrangement with Anglo American to exploit a property adjacent to its Zondereinde mine (the deepest platinum mine in South Africa). It has also bought Eland Platinum from Glencore for R175m, which it intends to re-start at a cost of R2bn.
On 29th October 2019, the company announced the acquisition of Maroelabult for R20m, which is west of the Eland mine with an analogous ore body. This has accelerated the bringing to production of Eland and required very little capital. With the Eland mine, Northam got a concentrator plant that can process up to 250,000 tons a month. In return, Glencore got the right to market all of Northam's chrome.
At the same time, Northam has recently commissioned a new smelter to try to process its backlog of platinum ore, which is estimated to be worth about R2.5bn.
Zondereinde is a deep-level mine that has all the problems associated with mining at depth, while Booysendal is a shallow mechanised mine that is much easier to manage.
Both mines are profitable, but the empowerment structure results in Northam always reporting a loss because of the preference dividend that must be paid. Once Booysendal is complete, the company should generate strong cash flows.
The appointment of Mcebisi Jonas (former South African Minister of Finance) and Jean Nel (previously CEO of Aquarius Platinum) as non-executive directors will significantly add to the strength of the board.
The company has the stated intention of doubling its workforce as it strives to become a major PGM supplier in the world. With plans to increase production of PGMs over the next few years to 1 million ounces, this is probably one of the better options in the industry.
The company has also sold its Impala shares for R3.1bn.
The PGM industry is currently navigating significantly depressed PGM prices and high inflation, together with a raft of global geopolitical uncertainties and, locally, Eskom load curtailment events.
In its results for the year to 30th June 2024, the company reported revenue down 22.2% and headline earnings per share (HEPS) down 81.6%.
In a production update for the six months to 31st December 2024, the company reported refined PGM production up 3.7% and chrome production up 7.5%.
The company said, "PGM production from Zondereinde remains on target, despite a stoppage during November as a result of a failure of a primary Eskom feed substation. Chrome concentrate production has benefitted from increased UG2 milling and further incremental improvements in chrome recovery."
In a trading statement for the six months to 31st December 2024, the company estimated that HEPS would fall by between 44.7% and 54.7%.
Since April 2021, there has been a steady decline in the share, which has seen it fall back substantially. Despite this, we see a good future for this company in the longer term, but it remains a volatile commodity share.
We recommend waiting for a clear break up through the downward trendline before investigating further.
