African Rainbow Minerals Limited (ARI) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to African Rainbow Minerals 2020 Provisional Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I'd now like to hand the conference over to Jongisa. Please go ahead, ma'am.

Good afternoon, everyone, and thank you for joining us for the conference call this afternoon. Before I hand over to Mike, I just wanted to give a brief introduction of who is around the table. I think the joy of doing things virtually versus physically is you can have more people allocated to a meeting like this. So we've got the whole complement of the team here. Mike Schmidt, our CEO, is here; and Abigail Mukhuba, the Finance Director, is also here. Then I think Tsundzukani, many of you may not have met yet, but she has been appointed our CFO, and she's joining us this afternoon. We have our 2 Chief Executives present on the call, Thando Mkatshana, our CE for ARM Platinum; together with André Joubert, our CE for ARM Ferrous. And then we've got Lucas Moalusi, who's our Head of Legal, who is here; and then Jade and myself from the Investor Relations team. So without any further delay, we thought to do a very short introduction from Mike because we'd like to focus most of the call on sort of questions and answers on the results. I'm sure most of you would have seen the presentation, and some of you might have dialed into the webcast today. So we want to just allocate as much time as possible to interaction and Q&A. So I will hand over to Mike.

Jongisa, thanks very much. And ladies and gents, good afternoon to you all. I really thought I'm going to the [ stage ] of going through the slides, so we need [ reference ], other than just 3 points I'd like to note. And certainly, if you want further [ word ], we'll do it in further the slides. But I also agree with Jongisa that if we could move over to Q&A, we thought would be a lot more appropriate. If I could just ask you to page -- Slide 4. And I -- the only one I want to do on this is quite review the top right. We speak about protocols of COVID-19, and I think the mines have really got on board, we've got [ 5 best ], both national and international practices. We've been audited over and over again, and we have been also conservative in terms of our return to work, in terms of our ramp up. Currently, all the operations are around about the 80% mark, 80% of normalized outputs. And we expect by the second quarter or the second half in some operations, and that is to be back to normal. And the reason it may take a bit longer because we are really dependent on the logistics. Transnet supported part of these in terms of delivering our products to the market and getting earnings out of that. So those are some of the areas which may keep us back. None of us can predict whether we have a second wave and what the implications of that is. But needless to say, it is, regrettably, we've had 8 COVID-related deaths in the group. The industry is probably sitting at about 1,000, am I right? It's around [ 1,400 ]. But it doesn't matter in the industry as a whole since [indiscernible] but we have seen a significant flattening off of the curve. And we've seen -- obviously, we've seen a lot of return to work or people that have gone out of it quite comfortably. The majority of our people have not been very sick. We've had very few hospitalized cases. We seen -- we are seeing that the people that have succumbed had other comorbidities. And we've been very conservative and strict about that in terms of identifying people with comorbidities and specified through the best practices to the department of health and international practices. And we've got currently about -- within the group, about 1,200 people who we have not allowed to come back to work as yet. Most of the people who are -- or have been in isolation or quarantine are back at work. And we're dealing with the cases as and when they come up. So I think that has served us pretty well, and we're hoping to get some level of normality within the next 3 months. Yes. Other slide I want to maybe just touch on is we see on Slide 5 -- no, it's slide -- cash. On Slide 6. Our net cash position is ZAR 3.8 billion. So quite a strong and healthy cash balance there. The reasons [indiscernible] this excludes the 1.5 -- this excludes the dividend we got from Assmang of ZAR 1.5 billion. And then maybe I'll close on my last slide, it's Slide 8. And we see through at least a 5-year cycle that the iron ore has consistently delivered the bulk of our earnings. And we've seen quite an inverse correlation or relationship between manganese and platinum. And we've seen through the cycle as the platinum or PGMs -- it's not platinum, PGMs ramp up, we see manganese ramping down. Overall, I mean, the value of diversification is what we -- is quite a good, healthy split. Coal and the others and the others, I think, predominantly, in values the nickel. And the nickel, we are in ramp down, putting the mine on to care and maintenance. And we're busy with all the provisions that are required in terms of governance to do that, albeit that we intend to put this mine on care and maintenance towards the end of the year, to be a bit later than September is what we initially said because we lost some time in production with COVID. And obviously, the ramp up has been slower than what we expected. So we think we'll probably be mining towards the end of -- between December and Feb. With that, I'm going to go straight on to Q&A. Thank you very much.

[Operator Instructions] The first question comes from Tim Clark of SBG Securities.

Can you hear me?

Loud and clear, Tim.

I've got a few questions. So the first one, I was talking to a client earlier today, and they asked me about the long-term receivables and the audit issue. And the question I ask is, is there a possibility of fraud? And it just -- I listened to everything at the presentation. Even as an accountant person, I felt a bit confused at the end. So perhaps you can help me a little bit with what the risks are there? And then secondly, I just wonder if you could address for us the -- you've given us an outlook of your local coal sales -- sorry, local iron ore sales, but it seems as though ArcelorMittal is building its own iron ore capacity, and you got a 7-year life with Beeshoek. I just wondered if there's a sort of off-take agreement or if it's more sort of year-on-year thing with risks to lower sales numbers? And then, sorry, the last one is just on Nkomati. You've raised quite a big provision. It's a closure provision. You're talking care and maintenance, which is not closure. Can you give us an idea of the best estimates for our models of the amount of cash that's going to travel out of your balance sheet to Nkomati for the next couple of years, please?

Thanks for that. I mean I'm going to -- the first question, Abigail, is yours. First one, Abigail, and then I'm going to ask André to talk about on the iron ore [indiscernible]. When we come back to Nkomati, I'll ask Abigail to talk about it as well.

Thanks, Mike. Your first question was on the long-term receivable. I can say, I don't have -- I don't think that it's the case of all -- that there's risk of fraud. I believe that it is -- has in what you call something to improve on in terms of our internal financial controls, in terms of record keeping. So I was going to say, I can't say there's no fraud, but I don't think any of us are suspecting that there's any fraud. It's really just us trying to trace accounting records back to 2011, and that's how far this matter goes back to. So no, I wouldn't say that there's risk of fraud. I think the other thing I just wanted to highlight that Patrice mentioned at the results to say that we are also just as concerned in the sense that all the numbers were externally audited and signed off. So those financials, both on the ARM side as well as the ARM Co side, the financials were audited. So it is a case where you say, in terms of all your levels of assurance, where did the levels of assurance fail the organization, but I do not believe that it is fraud. Mike, should I do Nkomati?

Abigail, can do the Nkomati one as well.

Okay. So in terms of Nkomati, you're correct in the sense that we talk about care and maintenance, but then we are working in terms of the numbers, providing more for closure. I think at the time when we started doing the work, the view was that it is potentially a closure. So we went more back to this issue of us being prudent and conservative. We didn't wait for the worst-case scenario. In terms of the funding, so the cost is estimated at this stage based on the latest calculations with an 80% accuracy level, the cost is about ZAR 1.2 billion. We've got around ZAR 211 million in restricted cash that's already sitting aside, whether it's trust fund or guarantees, that's been set aside. That will leave a shortfall of about ZAR 1 billion at 100%. I actually talked to Thando this morning. If we look at the projections between today and February 2021, we expect the mine to generate about ZAR 400 million in cash that it would then use to fund for some of this rehabilitation cost. So that would mean about ZAR 600 million left, of which the partners would then need to share. So that would mean ZAR 300 million between the partners over the next -- I think we worked it out to be about 5 to 10 years. So part of the reason why the cost went up was because we accelerated the timing of the cash flow. So to the extent that you do go into immediate closure, then you would spend more much earlier. But if you go the care and maintenance route and maybe things change in the future, who knows, it might be a bit of a spread out cash expenditure. But yes, in terms of what cash is going to flow, it would be about ZAR 300 million on an attributable basis over that period.

So Tim, Michael, so you'd also appreciate and Thando can help you. You -- we can -- although we do this liability exercise, it's done in alignment with the proposed new NEMA act. This indicates -- or the supposition that we're going to close. Now you cannot start triggering that until you get a closure certificate from the DMRE. That process takes somewhere between 12 and 24 months from the day you submit your application, and there's lots and lots of questions and before they ultimately issue with the close certificate. And then you then trigger those in terms of some form of provisioning in terms of the NEMA or worse case. That being said, from an accounting point of view, because we're stopping operations, being the open [ cast ] mine, we would, as a worst case, do this exercise and be as pollutant as possible. At the same time, I think it's worthwhile mentioning, Tim, you also appreciate that there's a substantially large underground ore resource, which is under investigation as of now. And because we've been mining there for many years and put it on care and maintenance, we are -- and there's intense drilling being done there, we've got a fair feel for what triggers value at what price and at what volume. And so in the 2 years of care and maintenance, the only cost you then trigger would be in the region of about ZAR 80 million to ZAR 100 million a year on both partners, while we're evaluating the underground in terms of the viability. So it's unlikely that we will apply for closure within the next 24 months. André, do you agree with that comment?

Yes. I agree with the comment. Also maybe to highlight that obviously, the change in the estimation [indiscernible] the current legislation in the [indiscernible] certain cost [indiscernible] of [indiscernible] evaluating that option [indiscernible]

And the last question was?

André, if you can speak to the local iron ore sales and the view and outlook for answer.

Yes. Thank you for that. As you rightly said, currently, Beeshoek does have a 7-year life. In this life of Beeshoek mine, we've allowed for AMSA take a contractual agreement. So what we currently have is we have a 1-year contract that we roll over every 2 years. So currently, we have a contract in place for 3 million tonnes until the end of calendar year 2021. And that -- so that every year, around about this time of the year, we then negotiate for the next financial year. So what we -- so we've just now concluded that contract with AMSA. So we will be engaging with AMSA again for the next financial year. But in reality, they've even asked for more tonnes than the 3 million tonnes. So they're quite positive about the tonnages that they're going to take from us this -- into the future.

The next question comes from Martin Creamer of Mining Weekly.

You mentioned during your presentation that you were looking at effective alternative energy. Could you please elaborate on that? I think you referred to Machadodorp, but you might have effective alternative energy plans across the board. And do any of them -- are any of them sort of unorthodox things that we don't know about at this stage?

Appreciate it and thanks for dialing in. Certainly, I'm going to ask André to elaborate. But certainly, it's a little bit unorthodox. We've been at it some time. We are -- it's put on -- it is R&D work still. Let's just be clear about that. So we have not gone public because you know the statistical reality of R&D. But we have been working on this for a number of years, and we've moved from beyond what we call the table to the bench beyond that. And now we're actually moving into a commercialization or the demonstration [ units ] in terms of what André will tell you, but it could be, I think, Martin, wrong to go out public until we've landed that. But it does bring about 2 concepts. The one is substantially reduce our dependency on electricity, per se. And the other one is quite a unique exposure to some other orebodies being nickel and copper. But more predominantly, we're also looking at quite an interesting commodity in our space, vanadium, which you know, Martin, we're well endowed with vanadium in South Africa. And we think there's a unique opportunity to capitalize not only on the vanadium, but on the contained magnetite and the titanium. And so those are the R&D. And I keep on stressing that. Martin, it's R&D, but certainly, I have no problems André giving you a better explanation. He's a lot closer than mine to that.

Yes. Martin, we've got 2 processes. The 1 process, it's not as if we're going to generate power for South Africa. It is a process where you can do smelting at a much reduced cost compared to what currently is doing with submerged arc furnaces. So in that regard, we've made huge progress. And if -- in other words, you can do ferromanganese, ferrochrome and also iron ore smelting without any additional electricity from Eskom. Due to the COVID situation that we were facing, we decided that we're going to take that project and we're going to divide it in 2 parts. So the one part is the optimized melting, and I'm specifically not saying smelting. It's melting, which is just taking your ore and liquefy that without the use of electricity. And we've made good progress, very, very good progress. I'm much -- I'm very -- through our research and development process, we built the demonstration furnace. We've demonstrated that we can do that. And we're in the process now of setting up a demonstration furnace with a whole -- everything to see if we can convert that into a commercial unit. So we're beyond the demonstration phase, and we're in the phase now of looking if we can turn that into a demonstration -- into a commercial furnace. So the impact of this process that we're doing, let's call it, a half-baked process, which is not going to take the electricity generation into account as well, is that we can do -- for the same electricity output -- electricity usage, we can double the output of ferrochrome. Or the other way that you can say that for the same current output, you use half of the electricity. And we're making very good progress with that. And the Board has given me the go ahead to go and build that plant. And I'm pretty sure, Martin, I'll be able to invite you over to have a look at this plant by the end of -- I would think, by the end of October.

That's really good news.

Yes. And then obviously, from there, we've got to do the numbers and to make sure that the capital that's needed to do this full conversion will make sense on the long run. But it is indeed good news. And I think it will also put South Africa then hopefully back in the mode of that we can do beneficiation again even with the difficulties that we're facing with Eskom. But then the next step, if we can prove this step successfully, the next step would then be to see that we can actually make this unit that it does not need any power from Eskom at all.

The next question comes from Brian Morgan of RMB Morgan Stanley.

Can you hear me clearly?

We can hear you, Brian.

Great. First, just a couple of more modeling sort of questions, if I may. I spoke to you about this, Jongisa, earlier, but just following up here. Modikwa CapEx I've checked, and in the first half, you quoted a number of ZAR 317 million for the 100%. For the full year, you're quoting a number of ZAR 319 million. Kind of hard to believe the mine's spent ZAR 2 million of CapEx in the second half. So is there a story there?

Brian, I'm just going to double check those numbers. But the ZAR [ 319 million ] is not on an attributable basis?

No. They're both on 100% basis.

Okay. Let me just check -- ask next question and then I'll double check.

All right. Cool. Can we get onto the coal op. It doesn't seem to be working very well. Could you just give a bit of story there?

Sorry. Please repeat that, Brian?

On the coal operations, could we just go into a little bit more detail on what's going on there and cost, volumes, et cetera, price realization, et cetera? It hasn't been working well for a while. Perhaps you can just give us a bit more color on what's going on there?

Okay. I'm going to give Thando to answer that one. And in the meantime, I'm just going to double check those CapEx numbers, which you referred to earlier.

All right. Can I ask another one? In terms of the [ cost ] of other income line in iron ore, ZAR 750 million last year. This year, it's gone to ZAR 1.2 billion. Quite a big number. What's going on in that line item? Is there something funny in that? So that's other income in iron ore. And then the fourth question is, if correct, could you just give us a bit more color on modeling that one because you gave us ZAR 137 million equity accounted line item there. Can you just give us some of the maybe revenue, EBIT line items, just so that we can model it?

Okay. I'm just going to talk through some of the coal numbers, volume, cost performance, et cetera. And then I'll speak to the Modikwa CapEx number. And then we can also -- André and myself will talk to you about high-level numbers for the [indiscernible].

And then other income in iron ore.

Other income, I can give to Abigail.

Okay. Brian. So I will go on a mine basis, starting with GGV. Overall, I think GGV had sort of turned the corner around in terms of their volumes. However, we had a challenge with one of our contractor, I think it's now public knowledge, [indiscernible]. That's quite liquidated. Whilst there was -- we had to source a new contractor to take over the part of [indiscernible], which is mainly related to over [indiscernible]. The new contractor took over just before the COVID. And with the [ COVID ] throughout the whole core operations, as you know, they were allowed to carry on operating. However, to also convert costs and also thinking about controls in terms of managing the number of people, we stopped all the contractors across both GGV and PCB. As a result, that brought about a drop of -- in the range of about 10% in terms of our run rate. Challenge has been on the cost side on the unit cost. The huge [ interest ] there came mainly -- so as a result of that changeover of the contractor. Secondly, there was a bit of a challenge during the time of the rainy season, particularly in January, where we experienced a more than normal rainfall in the Witbank area. One of the other things that you will know probably is the reduction in terms of our export realized price. Eskom has been underperforming on the GGV contract in terms of their offtake. As a result, there was -- our stock level were getting a bit [ through ]. So a decision was made to swing some of that coal into the export market. So we had a higher contribution from the local coal being exported as a result of thereof. And of course, that has an impact on the realized service price. We're still battling a bit with Eskom. In the first half of the year, they undertook a full audit of their logistics contracts around that [ half ]. I think that was also announced in the market. That had an impact on GGV. So that gives a bit of accounting on GGV performance. We do believe that in terms of their volumes, those will be realized. We're engaging with Eskom in terms of increasing their offtake from there. And of course, the [ '22 ] contract is also impacted by them not taking some of the allocated coal. Overall, we did realize that we did realize a bit of a better price in terms of comparing that -- exporting that coal than Eskom. However, it also contributed on our distribution costs in -- higher. If there are no further question, I'll move to PCB. If there's something you'd like to clarify there on GGV part?

Yes. If I could just ask, is there a take-or-pay contract at this time or not?

A contract at this time or not.

It is a long-term contract, and there are penalties if they don't offtake. However, we have to give them a notice, a notice of which we have in our [ agreement ] to Eskom. Failing which, then they'll have to pay for those -- for that coal. We are engaging with Eskom at this stage in that regard. On the PCB side, I think the volumes were a bit disappointing overall. Three major contributing factors. When we reported -- number one was the fatal accident that we reported in the first half with the results. That fatal accident was related to initiating of [ blast hole ] -- or premature initiation of a [ blast hole ]. As a result, we had to stop a couple of [ blasts ] while we were investigating and searching out alternative solution. So long story short is that the reaction of the explosives chemical with the coal, particularly the pyrite materials, resulted in a chemical reaction and that initiated the hole. So we sought alternative explosives and we went through a process with all the explosives supplier. That contributed on the volumes. Number two, the [ URO ] also was across -- or rather also achieved at PCB at iMpunzi mine, and that resulted also in them being taken off. I think also maybe to clarify the issue around the [ URO ], it had some legalities, so we couldn't replace them outside. And we had some legal process which were sorted out before we could appoint another contractor. And of course, we are impacted by the rain, but the major other contributor that I could highlight is [indiscernible] with the operation that has started mining ore under [ current workings ]. We're going through, I think, the learning process of mining ore under [ current working ] is taken longer than we've anticipated. However, to also counter that, now we're going to be commissioning a new pipeline in -- around October, so we will able to strip more waste and be able to export more coal. That said, of course, the cost is then, as a result, in the name of lower volumes that impacted PCB. But maybe the positive way you could see is, maybe it's conservative, what we've realized at PCB is that we had some 3 short-term contracts with Eskom. And those contracts, Eskom performed well while on them. And again, I think we should say, while the other -- it's really related at the [ penalties ] out on the short-term contract model. So the focus on the [ travel ] side of those contracts. Thank you.

Brian, on the iron ore, the other income, it's mainly the impact of foreign exchange losses -- or gains, rather. The rand's -- average realized rand weakened by about 12% when you compare it to last year. So that's the main contributor to that ZAR 1.2 billion. Brian, and then looking at your Modikwa CapEx, I've got H1 as being ZAR 159 million on an attributable basis. Full year is ZAR 319 million, which means H2 was ZAR 160 million. So it's about 50-50 between the 2 half periods.

Okay. It must be something [ in the back ] then. Okay [indiscernible]

If you look to Page 31, which is the segmental information of -- PDF for the results booklet [ in F ], then you'll see the CapEx from Modikwa in this report. So yes, it must be [indiscernible]. Okay. And maybe a little bit about Sakura, and André, you're there, just jump in. But generally, this operation does about 240,000 to 250,000 tonnes of high-carbon ferromanganese. The unit costs we're predicting or forecasting, this year was a little bit of an anomaly, and I'll talk to why, between about $920 per tonne to about $960, André, that's kind of the indication.

You're right, yes, Jongisa.

And then the price will do what it does. I mean we've seen -- when I say the price, I mean, for high-carbon ferromanganese. And given where prices are now, you can see how at best, it's breakeven; and at worst, loss making. This year was a little bit different. You'll see the unit costs were down 23%, and that was mainly driven by manganese ore prices, I mean, because that is the greatest input cost on their side. So the price -- the unit costs I'm quoting you are on more normalized manganese ore prices, if I could call it that. So you'll see that it's quite marginal at best and possibly loss making if prices continue to stay under pressure. André, I don't know if there's anything you want to kind of add to that in terms of how to model and think about the [ curve ].

Yes. I think, Jongisa, you've captured it really accurately. And then for this year that we are in, we even -- as Jongisa said, the nameplate is 240,000 tonnes, we had to cut back 20,000 tonnes of that, not because of operational issues, but because of market demand, so specifically from U.S.A. So that's putting a bit of more pressure on Sakura in terms of the unit cost, but there's a lot of initiatives, and we're making good success. Of that, 28% that Jongisa was referring to in terms of unit cost reduction, 9% of that was not related to ore prices. So you can see that there was a good effort done by the team, and we've got 5 other projects identified for this year to reduce the cost even further, to keep the cost down. So Sakura will be at the -- definitely in the lower half of the cost profile -- production profile of ferromanganese alloy producers in the world, but it all depends on the price that we're going to get, what makes -- whether that unit makes a profit or not. But we're definitely pushing down on the cost curve of -- for Sakura.

[Operator Instructions] The next question comes from Thabang Thlaku of SBG Securities. [Operator Instructions] We have a follow-up question from Martin Creamer of Mining Weekly.

I'd just like to get some sort of insight into what you referred to as baghouse dust. You're speaking about manganese alloys, and then you said there was something you were doing with baghouse dust that was beneficial. Could you just elaborate on that?

Sure, Martin. I'll ask André to put together. We've got a BRIX prong where we have nominated to consolidate some of the reject material being super ultra fines, combined with baghouse dust, which is part of the process of smelting which we need to capture and reprocess. Historically, you would throw that away at a cost. But André, can you elaborate on what the BRIX and [ prong ] does and how that helps you reduce your cost? And what are the elements in that [indiscernible] based on that.

Yes. So at Cato Ridge Works, Martin, what we're doing is that we're capturing all the -- when you process anything into a smelter, there's one thing that a smelter does not like, that is fine material. Because all that happens, if you put it into the -- into this furnace, you suck it out. And because we've got to clean the air that we admit, you catch that in your baghouse, which captures all of those dust. So what we've done now is that we've -- we're taking all the material as we feed it into the furnace, and we take it over the screen, and you separate all the fine material out from that. And that includes your ore. It includes -- and it also includes your reductants that you use. And then also, we take this very, very fine material from the baghouse. That very fine dust that you capture and that you filter out before you release the air into the atmosphere, we bring that material back in. And we've got a very, very good and fully automated process to turn that material into BRIX, B-R-I-X, and then we feed that material back into the furnace. And this BRIX, it literally -- if you can imagine sort of a pellet, the size of a normal cup of coffee. If you look at a jar, cup of coffee, more or less that size. And then we feed that material in the same way as you would feed ore into the furnace. And through that process, we're now -- at Cato Ridge, we're now achieving 30% of the material that we're feeding into the furnace is this type of material. And as Mike said previously, the material was too fine to use in the furnaces, and it was also -- we've tried various techniques, and it just turned into dust again once you -- even if you -- we previously made something that we called BRIX, which was the extrusion process, and we put that into the furnace, it just turns into dust again. So we've been very successful with this. And what we're actually achieving now is that we can replace ore with this material. And as I've said, we're running that furnaces at Cato Ridge now up to 30% of this material. And it is having a direct impact on the operating cost and reducing the operating cost of those furnaces in South Africa.

And we have a follow-up question from Tim Clark of SBG Securities.

I'm just looking at Slide 39, and I just want to try and to understand the coal debt better. So you've got long-term borrowings of ZAR 1,512 million there, which is the same amount on your coal slide as the coal debt. So I assume that's your long-term borrowing there. And then you add back ZAR 963 million. Is -- what I suppose I want to understand is how much debt is outstanding to GGV, which is your subsidiary? And how much is outstanding to PCB, the associate? Because I assume the PCB amount is off balance sheet? But perhaps -- I don't really understand that ZAR 963 million number, perhaps someone could just clear it up for me, so we can just see how much debt still is to be repaid in total.

Tim, sorry, I'm still trying to get to Slide 35. But yes, the debt that you refer to is mainly the GGV debt because the PCB one is off balance sheet. I just want to see if I can quickly pull out the number in terms of the split between GGV and PCB. I'll just check it. If maybe we can go to the next question while I'm looking for that split, and I'll give it to you just now.

Thabang, are you perhaps online now?

Yes. Thabang has rejoined the queue. [Operator Instructions] I'm going to open the line for Thabang Thlaku of SBG Securities.

I'm hoping you guys can hear me now.

Yes. A little bit, Thabang.

Perfect. So just 3 questions from my side. So if you look onto your EBITDA from the manganese division of [indiscernible], are you able to give us a split of what portion of that is manganese ore and what portion is alloy? Jongisa said that alloy is significantly loss making.

Yes. So Thabang, the split is included in the commentary. And I just want to get the page reference number very quickly, Page 8. So in there, we've broken it up because I think, over time, the split between these 2 has evolved so much that we thought it's better to just show them separately. So in the actual commentary, you'll see on Page 8, at the top, we've got a breakdown of sales, profit, earnings, EBITDA, CapEx and depreciation attributable to ore. And on the next page, we've got the same breakdown for alloys. So you're able to see that there.

Okay. Just as a follow-up to that, just asking about the alloy business. It's also, similar to coal, has been quite problematic. And I just heard André talk about how you guys have [ measured on pace ] of time moved further down the cost line. But I was just thinking, one of your major issues is probably power costs, not only in South Africa but also in Malaysia. I mean you guys have a vertically integrated business there. So it just seems like it's tough. At what point do you guys say maybe this alloy business is not working out because it just seems to be -- it's actually loss making?

Yes. I think -- I mean the problem with the alloy business has really been around price, right? And this market has come under significant pressure and really has changed over time, even to the extent that it's decoupled with the ore prices because I think the supply has come onstream, particularly in China, is just been, I think, greater than what we had anticipated. So your price is the issue. And I think it was André who quoted a stat the other day, which said, at the moment, even at the current low prices, you've got an industry where 50% is idle of total capacity. So even if you had price coming back, you have a lot of capacity that we potentially sit on and come back onstream quite quickly. So I think that's going to continue to be challenged. And like you said, I mean, you've got a Sakura, which is a world-class operation. It's new. It's -- from an operating metrics perspective, it's hitting all of the targets, et cetera, but it's still [ backing ] to make money. How much more when you've got -- in South African context, where power escalations has been quite high, how does that business evolve? So it is something that we're continuing to kind of think about and see with that outlook in mind what is the best way to approach it. And as André said, I think the best we can do now is interventions to improve our cost position, and we're continuing to -- but I think it's going to continue to be a tough business to be in.

Tim, if I may just go back to you also on the coal question on the debt. I just double-checked it here. Right now, that's the ZAR 1,512 million on Slide 39 is also ZAR 1,512 million on Slide 34. So in total, the coal borrowings are ZAR 1,512 million, and that's the one that's on Slide 34. And then of that ZAR 1,512, only ZAR 963 million is in the balance sheet, on the face of the balance sheet, and that relates to GGV, and then ZAR 549 million relates to PCB.

Tim, I think he might not be on speaker because he would have been muted.

Thabang, can I just ask, are you done with your questions?

I've got one more, please. I'll ask just a technical question. I don't have a technical background. But in terms of the flotation [ purpose issue in CPM ], where there was a positive incident [indiscernible] curtailment. Can those be reachieved? Or are those lost forever?

Thabang, yes. It's Thando. We've -- over the previous months, we've tried to achieve all that we could. I don't think there's any left to now. However, as I said, the [ switch off ] flotation chemicals that we're using now, we don't anticipate that to be happening in the future. So we filled out all our dams, and [ rerouted ] all that material.

The next question comes from Mark Du Toit of OysterCatcher Investments.

Just 2 questions from me. Maybe starting with the share buyback earlier in the year, is there any plan to continue or at what point do you consider more share buybacks? Then my second question is just to know how many rights and why you didn't file your rights issue there, the rights issue.

So on the share buyback, we're always considering it. And I remember Q2 reporting period that we always said we're considering it. But obviously, it goes on when we view the share price to be undervalued. Over the last few months, it suddenly jumped up from where it was in the March level. So yes, we're always considering buybacks. And to the extent that the management team views that the share price is undervalued, we would always buy more to the extent that we do have the cash. You will note, obviously, in the buyback that we've done, we gave there what the average price was for us to go into the buyback. So that should give you an indication of what levels we view our share price to be undervalued at. At ZAR 214, no,we will not be doing a buyback at this stage, but we're always on the lookout for that. And then in terms of how many -- the question was why didn't we file our rights? To be honest, it was a similar time in terms of -- if you look at the share buyback, also responsible cash management. As an ARM management team, we had to look at all the projects that we've got in our pipeline as well as our focus on potential growth opportunities, external growth opportunities that we're currently looking at. And given the uncertainty with COVID, we were not too sure what it will mean in terms of debt funding going into the future. So when we look at the opportunities that we're looking, at at this time, those returns promised better returns than what we would have had if we had put the money into how many at the time. But ultimately, it all came back to cash preservation at the time of uncertainty with COVID.

[Operator Instructions] We have a question from Shilan Modi of UBS.

Congrats on the good set of numbers that you put out this morning. More of taking a step back and looking at the company as a whole and given some of the comments you made around acquisitions and potentially developing your PGM assets, what does the company look like in, say, the next -- in 5 years' time and maybe even in 10 years' time?

All right. Sorry, we're just starting to get this open. So our obviously, the first thing we do is to try and replace what we're depleting and making sure that it actually adds value. We do compare any investment normally against potential share buyback is always a consideration. We use that as a base when we review internal, external acquisitions and with a risk matrix. So what we found and what we're seeing of late is that if you look at our substantial ore resource and reserves in our platinum operations being Two Rivers and Modikwa. Just to put it into context, Modikwa is mining 14 kilometers on strike over 27-kilometer south outcrop [ unset ]. Overlying that, we have -- overlying Merensky, we haven't touched at all. And if you look at the current basket price and some level of sustainability, it does open up unique opportunities, which are quite capital efficient, in that we do own these resources, and those are always considerations. So in terms of [ cost ] to your question, there's no doubt that we could do between a 40% to 60% PGM enhancement, purely on the overlying ore bodies we own without going out and doing an extensive acquisition into either green, brown ore in an ore body we do not know or fully understand. So no doubt, we want to increase our exposure to PGMs. We are and have been [ kicked in ], in terms of looking at copper. Those opportunities are not that abundant and opportune. We continue to focus and look at nickel and nickel opportunities. I think I've touched a little bit earlier about realizing some of our ore reserves that are still underground. That is under evaluation. And then we are looking at where it's possible for us to enter into the vanadium market, and I did also touch on that a bit earlier. So ARM has a very good and robust growth profile ahead of us, so there's absolutely no reason why ARM could not be substantially bigger player in these preferred commodities in 5 years' time.

And just a follow-up, would you not be interested in, say, expanding your iron ore portfolio with your JV partner? As we know, Kumba is looking for exploration targets in the Northern Cape. You guys potentially have a similar type of prospect. I know the rail is a constraint. But barring any rail constraints, wouldn't that be something worth exploring?

No. It's a good question, and I think you've answered it. Our rail constraint is, is the rail constant? And with -- there's no indication -- and André can maybe comment here. So certainly Transnet in their next 10-year vision have got no inclination of expanding that capacity at all. And that is really what our limiting factor is. And all of the major players or the few iron ore players, including ourselves, we do look at satellite ore bodies and replacing our existing ore bodies. We are doing exploration. We are in discussions with satellite ore bodies. And purely, it's to maintain our business and replace what we deplete at the right time, at the right price. André, do you want to add something to that?

Mike, you are absolutely spot-on. Even at our current Khumani mine, if we get capacity, we can do 16 million tonnes a year. So we are capacity constrained and engaging with Transnet. I think as most of you guys know that the Port of Saldanha is a constraint in terms of the air emission license. And so Transnet is looking at optimizing the load out and load -- offloading facilities, et cetera. And with the third tippler that they're bringing in to smooth the process when there's major maintenance to be done. But that can, at maximum, be another 1 million tonnes or something like that, which then has to be distributed to everybody. So we -- in our immediate forecast, there's no expansion plans for iron ore, except, as Mike has mentioned, that we are doing exploration work to extend the life of the Beeshoek mine.

Okay. And one last question, if I may. In that -- first, relating to the first question I asked about the portfolio in 5 and 10 years' time. Does coal have a place in that portfolio? And when I ask this question, I don't necessarily mean from a divestment perspective. But even if the asset became depleted, you would just not look to replenish it. So maybe if you can answer from both perspectives.

Yes. So I think we do have these assets. They are still good assets. They're reasonably well positioned on the global cost curve. We are going through a super low cycle. And to Patrice's comment is that the world and South Africa will be coal dependent for many years to come. But we have no intention of putting more capital or further investments into our coal. And the option of disinvestment is always on the mark. As we look at investments, so we look at disinvestments. We've always said over the last 5 years is that any asset that doesn't bring value, is not on the right side of the cost curve, doesn't bring in good revenues or earnings is we have to fix it or get out of it, and that we've consistently done. So the issues around coal and why we closed in commodity with the nickel prospects in the open [ cost ] and reviewing our alloy business in conventional-type smelting. We continue to do that and put a lot of time and efforts and dedication. We just simply want to improve our margins. We want to improve profitability. We don't want to be sucked into a [indiscernible] and indefinitely hold on to operations that can't contribute to the bottom line and add value. So coal is not part of that long-term portfolio.

[Operator Instructions] We have a follow-up from Tim Clark of SBG Securities.

I've actually got more of just a comment than a question. That is just to say thanks and good luck to Abi because I think, from us as the analyst community, your capital allocation clarity and disclosures has just shown significant amount of continual improvement, and we're grateful for that. And we just wanted to -- I just wanted to wish you well.

Thank you very much. I appreciate it, Tim. Thank you.

And ladies and gentlemen, we have no questions or comments from the line. Do you have any closing comments?

Well, I think if that's it, thank you, everyone, for joining us. I think reasonable to say that we're quite pleased that the business is in sort of steady footing at the moment, and we're cognizant of the outlook and the risk profile, [indiscernible]. And we'll continue to kind of approach with the capital allocation and the safety and health of our employees, the ramp-up, et cetera, with caution and with a conservative approach. So with that, thank you for your time this afternoon, and I'm sure we'll be seeing most of you on the road show. Please feel free to contact any of us if you've got any further follow-up questions that we would be happy to address. Thank you.

Thank you. Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines.