Global Credit Ratings has accorded the above credit rating(s) on Northam Platinum Limited based on the following key criteria:
The rating was supported by Northam’s steady revenues and positive cash flows despite the very challenging mining environment. Nevertheless, given the increasingly volatile labour relations and considerable uncertainty emanating from the amendments to the Mineral and Petroleum Resources Development Act, GCR has placed the mining sector on Negative Outlook.
Earnings have come under considerable pressure over the past two years, largely due to significant wage and utility inflation, as well as the rising cost of working a deep level mine. This has been exacerbated by relatively weak PGM prices as a result of weak demand from the key automotive sector. While the market conditions are likely to remain difficult, the commissioning of the Booysendal mine should support some margin recovery given the lower costs of mining its ore body, and the general economies of scale that will be derived from the enlarged group operations. In addition, the new mine will alleviate concentration risk, which has constrained the rating, by diversifying operations from a single mine.
Having funded the Zondereinde operations and sizeable Booysendal capex from internally generated cash, Northam raised R1.25bn in 1H F13 (under a R2bn DMTN programme) to complete the new mine. In addition, a R1bn revolving facility from Nedbank was secured to support liquidity requirements, particularly in light of the volatile market. R250m had been utilised post 1H F13. Nonetheless, net gearing is projected to be moderate, and is not expected to exceed the range of 25%-35%. Covenants are not expected to be breached. While the specific timing of the planned deleveraging is predicated on price appreciation and the achievement of annual production targets, debt serviceability should remain sound.
Positive rating pressure would derive from the scheduled ramp up of capacity at Booysendal to projected levels. Coupled with PGM price recovery and stable performance at Zondereinde, this should drive improved internal cash generation, and is supportive of strong overall credit protection metrics. However, continued labour unrest has the potential to significantly disrupt the sector and could adversely impact the rating. Persistently weak PGM prices, protracted disruptions due to inter alia; safety-related stoppages, power cuts, plant and equipment failure could constrain profitability, delay debt repayments or lead to covenant breaches on the bank facilities. Regulatory ambivalence or adverse policy changes could also place downward pressure on the rating.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Jul/2012)|
|Long term: BBB+(ZA); Short term: A2(ZA)|
|+27 11 784 1771|
|Sector Head: Corporates|
|+27 11 784 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
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.
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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 info received was considered adequate and has been independently verified where possible.
The credit rating/s has been disclosed to Northam Platinum Limited with no contestation of the rating.
The information received from Northam Platinum Limited and other reliable third parties to accord the credit rating included the latest available audited annual financial statements (plus four years of comparative numbers), full year detailed budgeted financial statements, most recent year to date management accounts, corporate governance and enterprise risk framework, capital management policy, industry comparative data and regulatory framework and a breakdown of facilities available and related counterparties.