EXISTING OPERATIONAL BUSINESS UNITS

At Northam we consider our established operations, their infrastructure and associated activities to be the major components of the group’s manufactured capital stock. Core activities are conducted at the following long-life, low cost business units:

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  The established, mature, deep-level Zondereinde mine

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  The processing and smelting facilities at the Zondereinde mine

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  The shallower, long-life, modern and mechanised Booysendal North mine

Key group operational statistics

		F2017	F2016	Change %
Total tonnage milled	tonnes	4 450 111	4 186 028	6.3
Equivalent refined metal – own production	oz 4E	474 007	436 960	8.5
Equivalent refined metal – purchased	oz 4E	30 953	27 618	12.1
Total refined metal produced	oz 4E	452 468	453 228	(0.2)
Total refined platinum produced	oz Pt	273 432	270 902	0.9
Chrome concentrate produced	tonnes	581 385	538 405	8.0
PGMs sold	oz 4E	453 581	452 393	0.3
Total revenue per platinum oz sold	R/oz Pt	25 050	22 566	11.0
Cash costs per equivalent refined Pt oz	R/oz Pt	19 736	18 877	(4.6)
Cash profit per equivalent refined platinum oz	R/oz Pt	5 314	3 689	44.0
Cash margin per equivalent refined platinum oz	%	21.2	16.3	30.1

Both the group’s operating mines posted operating profits in F2017, in spite of volatile and weak metal prices, moving group operating profits higher by 60.2% to R614.0 million. This reflected the benefits of the group’s growth into shallow orebodies, in line with the stated strategy.

The solid operating performances at both operations were accompanied by good cost control, resulting in cash costs for the group increasing by only 4.6% to R19 736/oz, placing Northam in an excellent position on the industry cost curve.

Wage negotiations at both operations are due to start in the second half of the 2018 financial year. Also, for the foreseeable future, project execution will be critical as we aim to deliver our expansion projects to benefit from a rising metal price environment.

ZONDEREINDE

Zondereinde performance

Zondereinde’s operating performance was affected by the discharge of 357 employees subsequent to labour unrest at the end of the previous financial year, which resulted in a reorganisation of the workforce. The effect of this disruption was demonstrated in the 0.9% drop in equivalent refined metal production to 282 172oz.

Zondereinde’s overall mining performance measured in square metres mined was good at 344 927m². In line with the operational strategy, the Merensky mining performance improved, albeit marginally, over that of the UG2. Access to the more conformable Merensky reef on the mine’s lower levels in the decline section contributed some 47% to the higher proportion of Merensky tonnages. Nevertheless access to Merensky ore remains a key management focus, with the goal of shifting the ore mix back to a ratio of 55:45.

Total operating costs came in at R3.7 billion (F2016: R3.5 billion). The unit cash cost increase per refined Pt oz was held to 7.6%.

Expansionary capital expenditure for the period of R619.2 million (F2016: R294.3 million), combined with sustaining capital expenditure of R187.2 million (F2016: R259.8 million), resulted in total capital spend of R806.4 million (F2016: R554.1 million). The F2018 expansionary and sustaining capital expenditure is estimated at R325.7 million and R198.6 million respectively.

Looking ahead, Zondereinde’s capital spend will abate significantly in the next year as the new drying plant and furnace reach completion. The drying plant has been commissioned and with the commissioning of the new furnace some 70 000oz of concentrate should be destocked, at a value of approximately R1 billion.

Over the next three years, Zondereinde will start benefiting from the Tumela acquisition, and thereby raising its production profile to 350 000oz (4E).

BOOYSENDAL NORTH MINE

F2017 saw another creditable performance from the North mine, with metals in concentrate increasing by 24% to 199 000oz (4E) owing to the higher production volumes and sustained recoveries in the concentrator. The Merensky mine was brought into production ramping up to the designed run rate of 25 000tpm. The UG2 mine produced 2 326 460 tonnes at an average grade of 2.8g/t. On a monthly basis, the average mill throughput was higher by 15%, reaching 207 000 tonnes. The total tonnage milled included 160 000 tonnes of Merensky ore.

With higher production volumes, operating costs at Booysendal climbed to R2.0 billion. On a unit basis, the cash cost equivalent per refined Pt oz achieved was R15 747 (F2016: R15 297), only 2.9% higher, and placing Booysendal in a particularly favourable position on the industry cost curve.

In aggregate, capital expenditure amounted to R773.8 million (F2016: R616.4 million). Project expenditure absorbed the major part of this spend, with R120.8 million spent on the UG2 deepening project, R325.6 million on the Booysendal South project, and R202.3 million on the Merensky North decline. Sustaining capital absorbed R111.9 million.

Looking ahead, management estimates that expansionary and sustaining capital expenditure will amount to R1.2 billion and R108.9 million respectively.

PROJECTS

Zondereinde smelter expansion

The smelter expansion is on track for commissioning in December 2017. Project construction started in February 2016 and the drying plant was commissioned during the second half of the 2017 calendar year. The commissioning of the drying plant will contribute to reducing the accumulation of concentrate ahead of the smelter. Once the expansion project is completed, some 70 000oz will be destocked.

Total capex for the project was R671.6 million, with R466.4 million being spent in the reporting period.

Booysendal North Merensky mine

This project was initiated in February 2015, and the first phase is now established. Resources and reserves measure 2.3Moz and 1.8Moz respectively. Run-of-mine tonnages of 25 000tpm have already contributed to the North mine’s output of concentrate. Work continues on the decline deepening and ore reserve development.

The Merensky mine lends itself to modular production growth and will be an important swing producer in the Northam asset suite, which can be used to satisfy any spikes in market demand.

The Merensky mine decline system absorbed a total of R202.3 million during the year. Total capex for the project is R300 million over three years.

Booysendal North UG2 deepening project

Two new levels have been established, and ore handling equipment is currently being installed. The UG2 deepening project’s output will amount to 30 000oz (4E per annum). During the review period capex of R120.8 million was spent. The total three-year capex programme is pegged at R270 million.

Booysendal South project

The South project was initiated with the purchase of the Everest mine in June 2015. The mining right was transferred in November 2015. The acquisition of the Everest mine included the concentrator plant, the tailings storage facility (TSF), workshops and offices, and existing infrastructure such as power and water supplies.

During the year, work progressed well on the central boxcut which is nearing completion. Development work has started on all seven adits, and work has started on an ore silo, with a storage capacity of 4 000 tonnes. This ore will be fed on to the aerial rope conveyor system to be transported to the concentrator plant.

Access roads are currently being established. The total road length is 12.5km.

During the year, the Booysendal South project absorbed R325.6 million of the R5.6 billion six-year capex programme. Cumulative capex to date has reached the R733.1 million mark.

Booysendal South tailings retreatment project

The R100.0 million capex project entails the hydromining and reprocessing of the TSF at Booysendal South. The TSF contains 8.7Mt of waste to be reprocessed, with a plan to extract approximately 1.3Mt of chrome concentrate. The plant is currently being recommissioned. Hydromining and chrome spiralling will start in September 2017, and by April 2018 the entire plant will be commissioned and PGMs will then be processed.

ACQUISITIONS

Tumela

In October 2016 Northam announced the acquisition of the Tumela resource from Anglo American Platinum Limited for a cash amount of R1.0 billion. This 16.7Moz resource is contiguous with the Zondereinde mine’s north-western boundary and will translate into additional ounces for Zondereinde, lifting its production profile to 350 000oz per annum.

Ministerial consent has been obtained for the approval of the section 102 mining licence amendment relating to this transaction. The transaction will be concluded with the finalisation of the accompanying administrative processes.

Eland Platinum

In February 2017 Northam announced the acquisition of the Eland Platinum mine from Glencore Operations South Africa Proprietary Limited for R175.0 million in cash. In addition, Northam entered into a long-term marketing agreement with Glencore to market and sell all the group’s chrome output.

The transaction includes Eland’s two mining rights, a resource of 21.3Moz (4E), the surface and underground assets and equipment, a 250 000tpm concentrator plant, and an entire mining fleet of more than 100 vehicles.

The mining right transfer approval process remains pending. The Eland UG2 orebody has similar characteristics to that at Zondereinde, and plans to restart business activities are being put in place.

Recycling asset

In a transaction valued at USD10.7 million (R141.4 million) Northam has acquired a suite of metal recycling equipment and premises in Croydon, Pennsylvania, in the United States of America. The recycling business is a key component on the supply side.

The purchase, announced after the year end on 28 July 2017, includes multiple ceramic catalytic converter processing lines, ancillary equipment including sampling and separation systems, transportation and a materials handling fleet.

This is an excellent platform of strategic future importance and provides exposure to the broader PGM market. The business is easily scalable in order to meet growing demand in this area of the PGM sector.