GCR has accorded Northam Platinum Limited (“Northam”) a first time unsecured corporate rating of BBB+(ZA) in the long term and A2(ZA) in the short term. The rating was underpinned by Northam’s strong balance sheet position.
Despite being in the midst of a major expansion project, Northam was ungeared at the time of the rating. To date all capex costs for the Booysendal mine have been funded by internal cash. This has amounted to around R2.5bn of the R4bn needed to complete the project. However, with cash resources largely depleted and around R2bn still required to complete, the miner was seeking alternative sources of funding. Northam had already secured a R1bn revolving facility and had expected to raise further cash through internal cash generations and the sale of a portion of the Booysendal mineral rights to Aquarias Platinum. Nevertheless, as PGM prices remain depressed and costs continue to rise, cash generation is likely to be much weaker in F12 and into F13. Moreover, with the problems being faced by Aquarius, the sale of mineral rights is looking less likely to be completed.
To bolster its balance sheet, Northam is thus in the process of raising a further R1bn via the capital markets. The funding will provide the necessary funding to complete the project, and ensure ample liquidity for on-going operations. In a best case scenario, the R2bn in debt will be repaid within two years of Booysendal reaching full production. Nevertheless, even if weak PGM prices persist longer than expected, terms on the debt will allow for a repayment period of up to five years. Northam’s balance sheet also suggests substantial flexibility to raise capital, through amongst other means asset sales or a rights issue, if necessary.
Whilst the uncertain global environment does increase the risk surrounding Northam’s expansion, the company is a relatively small player in the market and the additional 160,000 ounces will not have a substantial impact on the global supply-demand dynamics. As Northam’s long standing customers have already expressed interest in purchasing the extra production, the new mine will, over the longer term, add significantly to the company’s revenue and earnings, while reducing the risk of being a single mine operator.
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.