JOHANNESBURG (Business Day) -- Platinum miner Northam Platinum [JSE:NHM] cut its interim dividend 41% to 145 South African cents a share for the six months to December compared with the same period in 2006, reflecting expectations of reduced electricity supply, cost pressures, difficult mining conditions and future capital spending.
Historically, Northam has been a generous distributor of dividends.
Corporate finance manager Derek Wolstenholme said yesterday Northam had indicated previously that it would increase its dividend cover by a small amount in order to retain funds ahead of the development of a new mine at Booysendal.
Late last year Anglo Platinum [JSE:AMS], Mvela Resources and Northam Platinum concluded a deal that will see Northam acquire 100% of the Booysendal property while Mvela Resources increases its stake in Northam to 63.4%.
Earlier this month Northam CEO Glyn Lewis said the cost of developing Booysendal would be about R7.1 billion ($928 million).
Wolstenholme said the financing of the Booysendal project would be decided upon later this year when the transaction was concluded. Options included project financing, a rights issue or a placement of shares.
More important for the decision to reduce the dividend than Booysendal was the combination of Eskom's cut in power to Northam's mine to 90% of normal power consumption, together with cost pressures and difficult geological conditions, Wolstenholme said.
The group reported yesterday that its production of platinum group metals in concentrate fell 16.5% to 150,755 ounces because of lower tonnages and grades. Tonnages were hit by safety related shutdowns, including a loss of 23 days of production as the minerals and energy department closed the mine after three fatalities and employees were sent for safety retraining.
The group also experienced difficult mining conditions on the Merensky reef, as predicted.
This was partly offset by an increase in production from the UG2 reef. Total tonnage mined fell 18% and the average grade fell 2.2% to five grams a tonne.
The Merensky reef contains more platinum than UG2 reef.
While Northam's basket of platinum group metals fetched a 16% higher price in dollar terms, the strengthening of the rand last year shaved the increase to 11%. This, combined with lower production and holding more metals in stock, resulted in a 17.1% drop in sales revenue to R1.5 billion ($196 million). After total operating costs rose 14.8% to R798 million ($104 million), reflecting general inflationary increases and lower volumes, the group posted a 29% drop in headline earnings to 199 South African cents per share.
Management said if Eskom could supply 90% power, as agreed, Northam's production in the second half of the year would be similar to the first half's. Earnings would be determined by the performance of platinum group metals prices, which were significantly higher than in the first half of Northam's financial year.
Northam has spent R100 million ($13 million) on capital projects in the past six months, mainly on routine items. According to its latest annual report, it plans to spend R219 million ($28.6 million) in total on capex in the current year.
Northam's share price gained 4.2% to R55.75 on the JSE yesterday but was still below the 12-month peak of R61.90 touched last May.
