- Sustained operational recovery at Zondereinde.
- Sales revenues 20% higher year on year at R4.4 billion (F2012: R3.7 billion).
- Increases in operating and cash unit costs contained.
- Operating margin improves to 13.7% (F2012: 9.2%).
- 62.6% increase in earnings per share to 132.0 cents per share (F2012: 81.2 cents per share).
- Successful commissioning of the Booysendal concentrator plant.
- Booysendal South sale agreement lapses.
APPROACH AND STRUCTURE
Based on market capitalisation, Northam is considered to be a mid-tier PGM company. However, unlike many of its peers and smaller producers, Northam is unique in that it has full ownership of its production stream, from mining to processing to marketing.
At Zondereinde, Northam’s smelter complex produces final precious metal concentrate which is processed in terms of a long-term toll-refining contract with Heraeus GmbH (Heraeus). The precious metals emanating from the Heraeus refinery are shipped to Northam’s customers in Europe, Japan and North America. The by-product base metals, copper and nickel sulphate, are extracted at the on-site base metals removal plant and are sold in the domestic market.
The company’s performance in terms of economic contributions is dealt with comprehensively in Northam’s integrated annual report for F2013.
The key developments of the year are listed below:
- 17 production days lost at Zondereinde owing to unprocedural industrial action, resulting in the loss of 17 000oz and R192 million in revenues.
- Section 54 safety stoppages accounted for 18 days lost.
- The Zondereinde smelter was shut down in May after some problems were encountered with the refractory bricks. This is anticipated to absorb some R55 million in capex.
- Zondereinde capex absorbed R349.7 million (F2012: R331.1 million).
- Booysendal commissioned in the second half of F2013.
- Capex at Booysendal reached the R1.5 billion level (F2012: R1.7 billion).
- No significant financial assistance received from government.
- Northam sales revenues reached R4.4 billion (F2012: R3.7 billion).
- Taxes increased by 19% to R169.1 million (F2012: R142.1 million).
- Year on year the value of the rand was 13.5% lower against the US dollar, averaging R8.82/US$ (F2012: R7.77/US$).
- R24 million contributed to the Toro Employee Empowerment Trust (F2012: R10.8 million).
- Continued employment at Zondereinde and Booysendal of 7 059 permanent employees.
- Taxes of R384.4 million paid to national, provincial and local government (F2012: R322.6 million).
- 380 affordable housing units sold to employees to date.
- Corporate social investment (CSI) and LED expenditure amounted to R3.0 million.
|Sales revenue||4 420 977||3 684 000|
|Less:||Purchase of goods and services in order to operate and produce refined metals||(2 218 784)||(1 910 986)|
|Value added by operations||96.5||2 325 896||94.5||1 773 014|
|Add:||Share of earnings from associate||0.4||9 638||0.4||6 734|
|Investment revenue||1.4||33 434||2.9||53 951|
|Finance charges||(0.8)||(17 946)||–||–|
|Net sundry income||2.5||60 108||2.3||43 343|
|Total value added||100.0||2 411 130||100.1||1 877 042|
|46.9||1 130 199||56.2||1 055 805|
|Salaries and wages||47.4||1 143 292||56.4||1 057 780|
|Contributions to retirement benefit funds||3.9||94 050||4.5||84 212|
|Contributions to health-care funds||2.2||52 361||3.0||55 627|
|Pay-as-you-earn deducted||(6.6)||(159 504)||(7.6)||(141 814)|
|15.9||384 356||17.2||322 617|
|Mining and non-mining tax, including capital gains tax||8.2||197 629||5.9||110 767|
|Deferred tax||(1.2)||(28 575)||1.5||27 482|
|Secondary tax on companies/Dividend withholding tax||–||–||0.2||3 824|
|Royalties||2.3||55 798||2.0||38 730|
|Pay-as-you-earn deducted from employees||6.6||159 504||7.6||141 814|
Providers of capital
|Dividends||1.0||21 747||3.1||57 364|
|Finance charges||5.1||123 703||–||–|
|Corporate social investment||0.1||3 002||0.1||2 782|
|Total value distributed||69.0||1 663 007||76.6||1 438 568|
Retained by company
|31.0||748 123||23.4||438 474|
|Depreciation and write-offs||9.7||234 690||10.1||190 287|
|Decommissioning provision to meet statutory obligations||0.5||11 324||0.3||4 907|
|Retained income||20.8||502 109||13.0||243 280|
|100.0||2 411 130||100.0||1 877 042|
BLACK ECONOMIC EMPOWERMENT
Northam’s board and management continue to explore ways of restoring the company’s black equity holdings to the 26% level, as is required by the MPRDA by 2014. The following key principles form the basis of an empowerment scheme proposed to the DMR in 2011:
- Compliance with the provisions and principles of the Mining Charter and the MPRDA;
- The black economic empowerment (BEE) transaction should be sustainable and beneficial for all stakeholders;
- The shareholding structure should be secure so that the BEE status cannot be threatened again in future;
- The participation should be as broad based as possible; and
- Northam’s historically disadvantaged South African (HDSA) employees should participate and benefit from the scheme.
Northam is committed to further engagement with the DMR in this regard, and is optimistic that employees and communities become beneficiaries of the new structure.
PROCUREMENT POLICIES TO BENEFIT LOCAL ECONOMIC DEVELOPMENT
HDSA suppliers to Northam have preferred-supplier status subject to commercial competitiveness. Total procurement spend at Northam reached R2.9 billion in F2013 (F2012: R3.6 billion), of which 43.13% or R1.3 billion, was allocated to BEE suppliers.
Northam has been instrumental in facilitating the development and construction of an independent PGM refinery in Port Elizabeth, owned and operated by the internationally renowned Heraeus group. Northam also continues to supply a percentage of its metal for local industrial offtake.
LOCAL ECONOMIC DEVELOPMENT
Northam’s operations are located in rural and fairly isolated areas, where surrounding communities continue to have unrealistic expectations with regard to economic and employment opportunities.
Local employment remains a key issue in the communities surrounding Zondereinde. Management works closely with the local municipality to manage expectations. Northam has helped in identifying key economic priorities to be developed through small businesses and local entrepreneurs. These include environment and waste management, agriculture and construction. The company hopes that the small medium and micro enterprise (SMME) development will stimulate local economic activity, limiting the dependence of communities on the mining industry and creating a strong economic future after operations have ceased.
|% BEE equity||Capital||Services and contractors||Consumables||ExcIuding custom purchases and toll smelting||Proportion of total discretionary spend|
|HDSA owned||> 50%||47 336 106||35 946 583||20 606 547||103 889 237||4.06|
|HDSA empowered||25% to 50%||528 686 148||311 111 581||276 283 968||1 116 081 697||43.58|
|HDSA influenced||5% to 25%||463 075||62 321 711||–||62 784 786||2.45|
|576 485 329||409 379 875||296 890 515||1 282 755 720||50.09|
|Exempt micro enterprise||Exempt micro‑enterprise||152 610||1 635 650||–||1 788 260||0.07|
|Multinational enterprises||Multinational company||–||–||220 500||220 500||0.01|
|Measured HDSA spend||576 637 939||411 015 525||297 111 015||1 284 764 479||50.17|
|Without HDSA||No BEE shareholding||661 007 828||223 377 715||391 742 433||1 276 127 976||49.83|
|Total discretionary spend||1 237 645 767||634 393 240||688 853 449||2 560 892 455||100.00|
|Electricity||–||9 079 454||–||9 079 454|
|Water||–||357 613 021||–||357 613 021|
|Municipal services||–||10 905 483||–||10 905 484|
|Total spend||1 237 645 767||1 011 991 199||688 853 449||2 938 490 414|