Announcements Corporate Rating Alerts

GCR affirms National Scale Long term Issuer Rating on Northam at A-(ZA). Outlook changed to Positive on materially strengthening cash flows.

Rating Action

Johannesburg, 24 October 2019 – GCR Ratings (“GCR”) has affirmed the national scale long term Issuer rating accorded to Northam Platinum Limited (“Northam”, “the group”) of A-(ZA) and revised the short term Issuer rating to A2(ZA) (on the change in GCR’s Rating Scales, Symbols and Definitions, May 2019); with a Positive Outlook.

Rated Entity / Issue Rating class Rating scale Rating Outlook / Watch
Northam Platinum Limited Issuer Long Term National A-(ZA) Positive Outlook
Issuer Short Term National A2(ZA)

GCR announced that it had released new criteria for rating corporate companies in May 2019. As a result, the ratings were placed “Under Criteria Observation”. Subsequently, GCR has finalised the review under the new methodology, and the ratings have been removed from ‘Under Criteria Observation’.

Rating Rationale

The outlook change to positive acknowledges Northam’s improving trends in earnings and growing production profile, as well as its conservative debt protection metrics. At the same time, the ratings incorporate its small scale given its limited portfolio of fully operational mining assets and a lack of commodity diversification. Moreover, the group’s operations are domiciled within South Africa’s politically and economically challenging jurisdiction.

At present, Northam has two core producing mines. Zondereinde is the group’s largest producing asset and contributed around 59% of total volumes and 54% of earnings in FY19. Booysendal has a relatively short track record, with the North complex having reached steady state production in FY16 and the South complex only now starting to materially increase production. Operating and cash flow diversity should gradually improve over the medium term by the ongoing ramp up of a few different projects. The group also benefits from its long reserve life at its mines of around 30 years and integrated business model.

The rating also considers Notham’s strengthening earnings profile, where the group is viewed to have a globally competitive cost structure, which provides a level of margin resilience in a weaker environment. This is supported in large by the efficiency of its mechanised mining operations at Booysendal, which compensates for the higher cash cost of Zondereinde. Northam’s EBITDA margin displayed a very strong improvement to 27.2% in FY19, from 16.8% in FY18, as a result of increasing sales volumes together with positive metal prices momentum. GCR views supportive price conditions continuing into FY20, and more importantly increasing capacity at Booysendal (particularly as a significant portion of capex in the investment cycle has already been spent) to drive materially stronger cash flows over the ratings horizon.

Northam’s financial risk profile is considered a credit strength, based on growing operating cash flows and improving financial flexibility. Net debt to EBITDA registered at a lower 1x at FY19 from 2x in FY18, operating cash flow to total debt of 57.7%, and interest coverage of 8.3x, with the improved credit metrics expected to be sustained over the next 12-18 months. This is further supported by management’s publicly stated commitment to maintain leverage below 1x, even as excess cash is retuned to shareholders. GCR does, however, also recognise that the Zambezi preference share liability adds a level of complexity to the capital structure, and adds a persistent element of cash flow pressure.

Northam has a generally good track record of generating positive discretionary cash flows, which strengthened its liquidity position from FY18 levels. GCR expects that growing production will continue to translate into stronger cash accumulation and manageable near-term debt maturities following refinancing last year, improves the group’s ability to manage PGM price volatility or working capital fluctuations. Northam also benefits from R1.3bn available under its revolving credit facility, with liquidity sources expected to be more than adequate to cover cash outflows, primarily capital expenditures and shareholder returns, to ensure it faces no liquidity pressure.

Outlook Statement

The Positive outlook reflects the likelihood of an upgrade if Northam continues to expand its production profile and operating cash flows in line with expectations. It also incorporates an expectation that the group will maintain financial discipline regarding expansionary capital expenditure and shareholder distributions.

Rating Triggers

The outlook could be revised back to stable if the anticipated improvement in cash flows and credit metrics doesn’t occur, due to a reversal in supportive market conditions or for other reasons. Although not anticipated in the near term, the ratings could be lowered on the back of a decline in earnings arising from operating or geopolitical problems, and/or a deterioration in credit metrics or liquidity stress.

Analytical Contacts

Primary analyst Sheri Morgan Senior Credit Analyst
Johannesburg, ZA morgan@GCRratings.com +27 11 784 1771
Committee chair Eyal Shevel Sector Head: Corporate Ratings
Johannesburg, ZA shevel@GCRratings.com +27 11 784 1771

Related Criteria and Research

Criteria for the GCR Ratings Framework, May 2019
Criteria for Rating Corporate Companies, May 2019
GCR Ratings Scale, Symbols & Definitions, May 2019
GCR Country Risk Scores, June 2019
GCR Corporate Sector Risk Scores, October 2019

Ratings History

Northam Platinum Limited

Rating class Review Rating scale Rating class Outlook Date
Issuer Long Term Initial National BBB+(ZA) Stable June 2012
Last National A-(ZA) Stable October 2018
Issuer Short Term Initial National A2(ZA) June 2012
Last National A1-(ZA) October 2018

RISK SCORE SUMMARY

Risk score 13.50
Operating environment 12.50
Country risk score 8.50
Sector risk score 4.00
Business profile -2.50
Competitive position -2.50
Management and governance 0.00
Financial profile 3.50
Earnings performance 0.50
Leverage and capital structure 2.00
Liquidity 1.00
Comparative profile 0.00
Group support 0.00
Peer analysis 0.00

Glossary

Asset Quality Refers primarily to the credit quality of a bank’s earning assets, the bulk of which comprises its loan portfolio, but will also include its investment portfolio as well as off balance sheet items. Quality in this context means the degree to which the loans that the bank has extended are performing (ie, being paid back in accordance with their terms) and the likelihood that they will continue to perform.
Asset A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.
Balance Sheet Also known as Statement of Financial Position. A statement of a company’s assets and liabilities provided for the benefit of shareholders and regulators. It gives a snapshot at a specific point in time of the assets the company holds and how they have been financed.
Cash Flow The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.
Cash Funds that can be readily spent or used to meet current obligations.
Covenant A provision that is indicative of performance. Covenants are either positive or negative. Positive covenants are activities that the borrower commits to, typically in its normal course of business. Negative covenants are certain limits and restrictions on the borrowers’ activities.
Credit Risk The possibility that a bond issuer or any other borrowers (including debtors/creditors) will default and fail to pay the principal and interest when due.
Debt An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.
Diversification Spreading risk by constructing a portfolio that contains different exposures whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.
Exposure Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For a company, its exposure may relate to a particular product class or customer grouping. Exposure may also arise from an overreliance on one source of funding. In insurance, it refers to an individual or company’s vulnerability to various risks
Income Money received, especially on a regular basis, for work or through investments.
Interest Cover Interest cover is a measure of a company’s interest payments relative to its profits. It is calculated by dividing a company’s operating profit by its interest payments for a given period.
Issuer The party indebted or the person making repayments for its borrowings.
Leverage With regard to corporate analysis, leverage (or gearing) refers to the extent to which a company is funded by debt.
Liquidity The speed at which assets can be converted to cash. It can also refer to the ability of a company to service its debt obligations due to the presence of liquid assets such as cash and its equivalents. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.
Long Term Rating See GCR Rating Scales, Symbols and Definitions.
Margin A term whose meaning depends on the context. In the widest sense, it means the difference between two values.
Market An assessment of the property value, with the value being compared to similar properties in the area.
Operating Margin Operating margin is operating profit expressed as a percentage of a company’s sales over a given period.
Origination A process of creating assets.
Provision The amount set aside or deducted from operating income to cover expected or identified loan losses.
Rating Outlook See GCR Rating Scales, Symbols and Definitions.
Receivables Any outstanding debts, current or not, due to be paid to a company in cash.
Risk Management Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.
Shareholder An individual, entity or financial institution that holds shares or stock in an organisation or company.
Short Term Rating See GCR Rating Scales, Symbols and Definitions.
Short Term Current; ordinarily less than one year.

SALIENT POINTS OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.

The credit ratings have been disclosed to Northam Platinum Limited. The ratings above were solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the ratings.

Northam Platinum Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from Northam Platinum Limited and other reliable third parties to accord the credit rating included:

  • The audited financial results for June 2019;
  • Four years of comparative audited numbers;
  • Industry presentations;
  • Detailed facility breakdown at June 2019;
  • Financial forecasts.


ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright 2019 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.