Northam announced on Friday that it would institute a dividend policy to pay out a minimum of 25% of headline earnings in the future — a move its investors have long been waiting for. They also got R3.4-billion back in cash from the company’s 2023 full-year earnings, R2.4-billion in dividends at R6 per share and R1-billion in a share buyback. 

But the backdrop for the resumption of returning cash to shareholders and the unveiling of a dividend policy is unusual.  

Northam’s earnings, like those of its peers, tanked. While sales revenue rose by 16.1%, earnings per share sank by 75% to 654.5 cents. This was in the face of depressed prices which in the space of two years have toppled from record peaks as global economic growth has slowed and China’s recovery has fallen short of expectations.   

There are also market jitters that Russia is selling palladium to China at a heavy discount as it is cut off from the London Metal Exchange.  

“The global economic outlook remains uncertain, resulting in volatile metal markets and exchange rates. Prevailing PGM market conditions and the material decline in the ZAR 4E basket price [the rand price for the four key PGMs] may signal a potentially protracted cyclical downturn,” the company said.  

While other PGM producers have been slashing their dividends as earnings fall from record levels, Northam is bucking the trend.  

“It reflects very directly our countercyclical investment strategy that we have pursued,” Northam CEO Paul Dunne told Daily Maverick.  

“What did people say 10 years ago when we started building mines? They said, ‘Are you mad?’ But we’re countercyclical and so the strategy is coming to fruition. We are out of sync and deliberately so.”  

The company’s flagship project Booysendal, which straddles the Limpopo/Mpumalanga border, is now complete and Dunne said, “It now becomes a cash cow, which is good timing for a downturn in the market. Imagine if you had to build it now — you would be very reluctant.”

Booysendal is the lowest-cost PGM producer in the industry so it can make money even at current prices.  

Northam also has cash on hand after it sold its 34.5% stake in Royal Bafokeng Platinum (RBPlat) to Impala Platinum (Implats) for R9-billion in cash and just over R4-billion in Implats shares, which it has also subsequently sold. That stake was built up as the company wrangled unsuccessfully with Implats for control of RBPlat.

Read more in Daily Maverick: Northam to sell its RBPlat stake to Implats, cites ‘protracted cyclical downturn’ in PGM prices 

“Subsequent to year-end, Northam sold its investment in RBPlat into the Implats Mandatory Offer for R9-billion in cash and 30,065,866 Implats Shares. The Implats Mandatory Offer presented a well-timed opportunity in the prevailing PGM market for Northam to secure a very significant cash injection that materially strengthens Northam’s balance sheet and liquidity position,” Northam said. DM