Palladium and Rhodium yielding strong growth in metal markets: Northam reports impressive FY figures

South Africa's Northam Platinum Group has reported a remarkable 227% increase in normalised headline earnings per share (HEPS) to 270.1 cents for the fiscal year ending in June 2019. The company attributes a significant portion of this growth to the surge in the prices of palladium and rhodium, rather than platinum. Chief Executive Paul Dunne elaborated on the factors behind their strong financial results in an interview with CNBC Africa. Dunne highlighted a twofold driver behind their impressive performance, with half of the growth stemming from metal price movements and the other half from operational excellence. The substantial price increases in palladium and rhodium played a crucial role in boosting the company's revenue, alongside operational achievements such as a successful large capital expansion, notably at the Boyzendal mine. While platinum has historically been a core component of Northam's sales, accounting for 60% of volume, it now represents less than 40% of their revenue. The shift in favor of palladium and rhodium is driven by global regulations in the automotive industry, particularly in Europe, China, and India, focusing on environmental and health standards related to exhaust emissions. As gasoline engine manufacturers increasingly rely on palladium and rhodium for catalytic converters due to their effectiveness in reducing harmful emissions, the demand for these metals has surged. Dunne also addressed the future of platinum, acknowledging its current softness in the gasoline engine sector but expressing optimism about a potential reverse substitution in the future. Despite the slowdown in the global automotive market, the increased usage of PGMs in each vehicle is expected to sustain the demand for palladium and rhodium, driving further growth in their prices. Looking ahead, Northam Platinum plans to enhance its mining operations through a significant capital investment of approximately 2.3 billion rand in the upcoming year. This investment primarily targets the development of the new Boissenl South mine, aiming to reach a production capacity of 300,000 ounces per annum. The company expects a substantial increase in production, with the potential to significantly boost their bottom line in the second half of the year. In response to questions about wage negotiations with the platinum sector, Dunne mentioned successful talks with the NUM at Zondenda mine earlier in the year and ongoing negotiations with Amcu at Boyzendal. While discussions are in the early stages, Northam is proactively engaging with union representatives to reach mutually agreeable outcomes. Furthermore, Dunne highlighted the company's focus on enhancing shareholder value through share repurchases, indicating that dividends are not on the immediate horizon. Once Northam completes the buyback of shares, the company will evaluate the possibility of issuing dividends, a decision likely to materialize in the coming year or two. In conclusion, Northam Platinum's stellar financial results underscore the robust performance driven by the remarkable growth in palladium and rhodium prices, alongside strategic operational enhancements. The company's proactive approach to capital investments and stakeholder engagements positions them for sustained growth and value creation in the dynamic PGM market.