THE BOTTOM LINE
You’ll get your cream, we’re just working out what flavour
Northam shareholders will get their reward for a great year of growth, but it may not be as a dividend
Northam Platinum CEO Paul Dunne and the board want to reward shareholders, but it’s the mechanism that’s under debate.
Northam has turned in an astonishing year of growth as it realises its ambitions, snapping up unmined resources from Anglo American Platinum, buying the mothballed Eland mine from Glencore, a stalled US platinum group metal recycling business, building a new furnace, and investing heavily in its new Booysendal mining complex.
The company notched up record expenditure of R3.8bn during the 2018 financial year to end-June, pushing its cash holdings down by more than R1bn.
But Northam has more than R2.5bn worth of unprocessed metals lying in front of its two furnaces and this will be processed during the 2019 financial year, restoring the balance sheet. With capital expenditure dropping sharply after 2019 when it spends R2bn, mainly on its Booysendal South mine, the question is what will the company do with what Dunne expects to be strong cash flows.
Dividends may not be as attractive as they once were because of a 20% tax on these payouts. Northam can either reduce debt or it can carefully manage its debt and start actively buying back the preference shares that are in its empowerment structure. Northam has paid upward of R1bn in the past two years as dividends towards these shares, leaving it in a net loss position despite sound operational performances.
Northam would like to buy these 159 million preference shares which are underpinned by 159 million ordinary Northam shares. The strategy will reduce interest payments and generate value for shareholders.