JOHANNESBURG (miningweekly.com) – The current platinum group metals (PGMs) basket price puts 70% of the South African production base at a loss when taking into account replacement capital requirements on top of the working costs.

“The industry at this price is in a very substantial squeeze and pretty precarious position should prices not recover,” Northam CEO Paul Dunne said during the company’s results presentation for the 12 months to June 30. (Also watch attached Creamer Media video.)

Northam, which has just declared a final gross cash dividend of R2.4-billion from income reserves, will be conservative in this market in terms of what it will do from the current position.

“We need to be inwardly focused rather than outwardly focused in this market. This market has changed very significantly over the course of the last 12 months. We are cautious about the forward market condition and we’ll behave appropriately on that basis,” said Dunne.

A contraction in the three main metals of platinum, palladium and rhodium over the coming two decades is forecast.

“If we overlay the current economic headwinds on the natural depletion profile, we can reasonably expect earlier closure of marginal mines and the potential to delay projects.

“This will potentially lead to a dramatic contraction in mine supply should current prices prevail,” said Dunne during the presentation covered by Mining Weekly.

If palladium prices remain as they are, the Johannesburg Stock Exchange-listed PGMs mining company expects significant pressure on supply and the potential for not insubstantial decline from 2025.

The mainstay of production for rhodium is upper group two reef on the western limb of the Bushveld Complex, where operations are amongst the oldest and highest cost in the industry.

“They are vulnerable to a low price environment. We anticipate lower production into the future even if rhodium prices recover somewhat.

“Supply of PGMs will become increasingly constrained and if the world truly needs these critical and strategic metals, then the markets must incentivise additional supply from here.

"If this is not the case, the world’s primary PGMs production base will rapidly shrink,” Dunne forecast.

A fall in the average price received from over R80 000 per platinum ounce to R67 000 per platinum ounce is expected amid a combination of global inflation and consequential rising interest rates, together with Russian metal flows into the Chinese market and automotive original equipment manufacturers destocking.

Prices declined further after Northam’s June 30 financial year end and today’s spot for Northam offers around R53 000 per platinum ounce.

In addition, the fibreglass industry has liquidated rhodium into an already soft market, leading to a fairly extreme price reduction and subsequent negative impact on the basket.

“This depressed price environment may last for some time in our opinion and we will act accordingly, maintaining focus on operational performance and productivity, cost control and prudent management of the balance sheet and liquidity position.

“Current pricing will place great stress on the sector and Northam maintaining its position in the lower quartile of the sector cost curve is a business imperative,” Dunne said.

To manage what could be a difficult period, Northam’s focus will be on safe production, continued project execution and efficient mining at the right cost.

Northam is forecasting a production of 850 000 oz to 880 000 oz in its current financial year to the end of June next year, at unit costs of R40 000/oz to R42 000/oz on inflation experience.

Sales will be higher than production in the range of 950 000 oz to 990 000 oz including material from third parties.

Capital expenditure of R4.5-billion to R4.8-billion allows for continued development of Northam’s Eland PGMs mine, as well as provision for the renewable energy programme.

Growth from the Booysendal and Zondereinde mines over the next few years, together with the progressive ramp-up of Eland, will deliver into the medium-term production target of one-million-ounce production. Adding third parties will allow total saleable metal to climb to 1.2-million ounces over the coming five years.

In the 2023 financial year, operating profit of R15.4-billion was at an operating margin of 39.1%.

The sale of the investment in Royal Bafokeng Platinum subsequent to year-end has strengthened Northam’s balance sheet and liquidity position.

Dunne described accepting Implats’ mandatory offer as a prudent response to a potentially protracted downturn in PGM fundaments and the enabler of the maiden dividend for Northam Holdings.

With the availability, reliability and cost of electrical power among its highest risks, the diesel generator fleet is being expanded to 57 MW ahead of renewable energy initiatives being realised.

Sales revenue increased by 16.1% to R39.5-billion, earnings before interest, taxes, depreciation and amortisation were unchanged at R16.5-billion and net debt improved to R9.4-billion.

In reviewing the financial performance, Northam CFO Alet Coetzee pointed to the group strategy of growing production down the sector cost curve: “We have consistently followed this strategy, while at the same time reducing business risk. This has yielded improvements in our operational and financial results, as well as added resilience for market downturns.”

Coetzee pointed to the current prevailing PGM market conditions and the material decline in the basket price which could signal a potentially protracted cyclical downturn.

“The scale, operational and revenue diversity, as well as our improved liquidity position, will be our best defence against these headwinds,” she said.

The record revenue of R39.5-billion is 16.1% up on the previous year. The increase resulted from a 20% increase in sales volumes, which, along with a 16% weakening of the rand against the dollar helped to offset the lower dollar basket price. Further weakening of metal prices post year-end will place further pressure on revenue.