Announcements

GCR affirms Northam Platinum Limited’s rating of BBB+(ZA); Outlook Stable

Johannesburg, 11 September 2015 — Global Credit Ratings has today affirmed the national scale, long term rating assigned to Northam Platinum Limited of BBB+(ZA) and upgraded the short term rating to A1-(ZA); with the outlook accorded as Stable.

SUMMARY RATING RATIONALE

Global Credit Ratings has accorded the above credit ratings to Northam Platinum Limited (“Northam”) based on the following key criteria:

Northam recently concluded a R6.6bn BBBEE transaction, which raised R4.6bn in cash, before transaction costs. The deal increased the empowerment shareholders’ interest in the group to 35.4%, through the empowerment vehicle Zambezi Platinum (RF) Limited (“Zambezi Platinum”, which is owned by a broad based consortium), against a minimum Mining Charter requirement of 26%. To the extent that Zambezi Platinum fails to pay the cumulative liability, which is only payable as a bullet payment at the end of the 10-year lock-in period, Northam has the option to pay out shares or cash to redeem the preference shares issued by the BEE SPV and cumulative interest upon maturity. Inclusive of the shares previously held by Eurasian National Resources Corporation, Northam placed R7.1bn of equity with investors during 2015.

An 8% increase in group production from F14 supported a 7% uplift in PGM sales, which saw group revenue rise to over R6bn for the first time in F15 (F14: R5.3bn) despite the marked downturn in US Dollar PGM prices. Efficiencies from the newly rebuilt smelter, higher Booysendal output and general cost rigour helped offset the rapid cost inflation facing the industry, and underpinned an increase in the operating profit margin to 9.9% (F14: 1.2%), albeit below the F13 review period high of 13.7%. Accordingly, operating profit rose to R596m (F14: R62m), but non-recurring, non-cash costs mainly arising from the BEE deal drove a R1bn attributable loss (normalised: R616m profit).

While mining operations have centred on Zondereinde in the past, Booysendal is set to reach steady production in October 2015. The fully mechanised, higher margin mine brings more operational stability to the group by reducing concentration risk and labour exposure. Its timely completion also speaks to sound management execution and is viewed positively. With development of Booysendal South, mechanised ounces will progressively account for the majority of group output. Northam’s new operations provide a distinct operational advantage compared to larger peers that have a number of unprofitable, legacy mines.

The liquid balance sheet lends Northam significant financial flexibility, and is a distinct competitive advantage in a challenging climate. As such, Northam recently purchased the Everest mining assets to gain better access to its Booysendal South property and acquire plant infrastructure at a fraction of replacement value. Management also acquired the outstanding stake in the chrome smelting operations, which contribute up to R200m to group cash flows. The group is mooting options on how to develop Booysendal South, which may see a R3.5bn outlay in the medium term, with peak annual funding of only R1.5bn. Northam also plans to enhance its overall processing capacity by contracting a new UG2 furnace at Zondereinde, and may acquire other shallow mechanisable ore reserves to achieve its 1 million oz. aspirational target.

The R1.4bn, three-year domestic medium term note (“DMTN”) issued to fund the Booysendal project in 2013 was repaid in September 2015, reducing debt to negligible levels. Another DMTN issue of up to R1.8bn may be made, should pricing be favourable. Albeit net ungeared currently, Northam has a 25%-35% medium term comfort level for net gearing. Net interest cover rose to 8.2x in F15 excluding the preference share interest (dividend) relative to normalised earnings, from 0.5x previously.

The stable outlook reflects strong shareholder support, which underpins ample liquidity and a conservative balance sheet (especially in comparison to Northam’s larger peers), successful ramp-up of Booysendal North, and the recent three-year wage agreement reached with NUM. Positive rating action would, however, be dependent on the ability to generate and sustain strong profitability and cash flows despite the challenging environment. Successful deployment of capital to developing Booysendal South, which would see mechanised ounces make up the bulk of annual group output, coupled with conservative gearing and robust debt serviceability, would also bode positively. However, material operating constraints due to any protracted labour and other disruptions, exogenous cost pressures, or adverse regulatory changes, could lead to negative rating action.

NATIONAL SCALE RATINGS HISTORY    
     
Initial rating (June 2012)    
Long term: BBB+(ZA); Short term: A2(ZA)    
Outlook: Stable    
     
Last rating (October 2014)    
Long term: BBB+(ZA); Short term: A2(ZA)    
Outlook: Stable    
     

ANALYTICAL CONTACTS

Primary Analyst    
Patricia Zvarayi    
Senior Analyst    
(011) 784-1771    
Patricia@globalratings.net    
     
Committee Chairperson    
Eyal Shevel    
Sector Head: Corporate Ratings    
(011) 784-1771    
Shevel@globalratings.net    

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for rating corporate entities, updated February 2015

Northam Platinum Limited rating reports, 2012-2014

RATING LIMITATIONS AND DISCLAIMERS

ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.

GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S CORPORATE GLOSSARY

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.
BBBEE Broad Based Black Economic Empowerment.
Capital The sum of money that is invested to generate proceeds.
Consortium A group of companies that combine some or all of their resources to undertake a joint project.
Corporate Governance Corporate governance broadly refers to the mechanisms, processes and relations by which corporations are controlled and directed, and is used to ensure the effectiveness, accountability and transparency of an entity to its stakeholders.
Credit Rating An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.
Credit Rating Agency An entity that provides credit rating services.
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.
Default Failure to meet the payment obligation of either interest or principal on a debt or bond. Technically, a borrower does not default, the initiative comes from the lender who declares that the borrower is in default.
Dividend The portion of a company’s after-tax earnings that is distributed to shareholders.
Equity Equity is the holding or stake that shareholders have in a company. Equity capital is raised by the issue of new shares or by retaining profit.
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.
Gearing With regard to corporate analysis, gearing (or leverage) refers to the extent to which a company is funded by debt and can be calculated by dividing its debt by shareholders’ funds or by EBITDA.
Interest Scheduled payments made to a creditor in return for the use of borrowed money. The size of the payments will be determined by the interest rate, the amount borrowed or principal and the duration of the loan.
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.
Interest Rate The charge or the return on an asset or debt expressed as a percentage of the price or size of the asset or debt. It is usually expressed on an annual basis.
Leverage With regard to corporate analysis, leverage (or gearing) refers to the extent to which a company is funded by debt.
Liabilities All financial claims, debts or potential losses incurred by an individual or an organisation.
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. 
Liquidity Risk The risk that a company may not be able to meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets. Regarding securities, the risk that a financial instrument cannot be traded at its market price due to the size, structure or efficiency of the market.
Margin A term whose meaning depends on the context. In the widest sense, it means the difference between two values.
Maturity The length of time between the issue of a bond or other security and the date on which it becomes payable in full.
NUM The National Union of Mineworkers.
National Scale Rating The national scale provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.
Operating Profit Profits from a company’s ordinary revenue-producing activities, calculated before taxes and interest costs.
Option An option gives the buyer or holder the right, but not the obligation, to buy or sell an underlying financial asset at a pre-determined price.
PGMs Platinum-group metals.
Preference Share Preference or preferred shares entitle a holder to a first claim on any dividend paid by the company before payment is made on ordinary shares. Such dividends are normally linked to an interest rate and not determined by company profits. Preference shares are normally repayable at par value in the event of liquidation. They do not usually carry voting or pre-emptive rights. Preference shares can be redeemable or perpetual.
Principal The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.
REPO In a REPO one party sells assets or securities to another and agrees to repurchase them later at a set price on a specified date.
Risk The possibility that an investment or venture will make a loss or not make the returns expected. There are many different types of risk including basis risk, country risk, credit risk, currency risk, economic risk, inflation risk, liquidity risk, market or systemic risk, political risk, settlement risk and translation risk.
Shareholder An individual, entity or financial institution that holds shares or stock in an organisation or company.
SPV An entity that is created to fulfil specific objectives. An SPV is normally bankruptcy/insolvency remote and created to isolate financial risk.

SALIENT FEATURES 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.

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 credit rating(s) have been disclosed to and contested by Northam Platinum Limited, and the short term rating was amended following the provision of further material information by the entity.

The information received from Northam Platinum Limited and other reliable third parties to accord the credit rating(s) included;

  • the reviewed 2015 financial statements;
  • four years of comparative numbers (based on audited financials);
  • financial forecasts and cash flow projections for the financial years 2016-2020;
  • corporate governance and enterprise risk framework;
  • the shareholding profile as at 31 August 2015;
  • industry comparative data, and
  • a breakdown of facilities available and related counterparties.

The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.

31 Views

Leave a Reply

Your email address will not be published. Required fields are marked *



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.