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

Good morning, ladies and gentlemen. Thank you for joining us today for the presentation of the African Rainbow Minerals, ARM, results for the 6 months ended December 31. Without any further delay, I'm going to hand over to the ARM Executive Chairman, Dr. Patrice Motsepe, to take us through the results. [Operator Instructions] I'd like to now hand over to Dr. Motsepe.

Thank you so much. I thought I should first come wearing my mask and then take it off because -- so that everybody can see that wearing a mask is very, very important. Let me start by thanking everybody for joining us, Mike and the management team for the excellent work that they do. And welcome, everybody, who's here from ARM as well as the -- we all have posses in our lives. I've got Dr. Precious Moloi-Motsepe who's here and some of my other boys who are here. Thank you so much for coming. You have the results with you. I'm going to go quickly through the presentation and take questions, as is usually the case. Headline earnings increased by 134% to a record ZAR 5 billion, driven mainly by iron ore and PGM operations. Mike will take us through the operational issues and give more details. And we're excited to declare an interim dividend of ZAR 10 per share, which is 100% higher than the corresponding interim period. This is the industry that we've all been part of. I remember in the '80s when I was specializing in mining law and went to America and, I don't know, went to different parts of the world to see how the mining industry was working. We've learned over the years, and there are times when things are fine and we've got to invest and also look after our shareholders as well as all our other stakeholders, the communities that live near our operations, the workers as well as the obligations we have to inclusivity and to make sure that the mining industry contributes to a globally competitive industry because for the mining industry in South Africa to continue to be globally competitive is critically, critically important. And also to ensure that we work with our stakeholders, with the government to continue to create an environment that is globally competitive. The usual disclaimer. And I'm going to go through some of the more broader issues. And as I said, Mike will deal with the details. Our safety and health record continues to be good and we have to -- there's a focus to ensure that the commitment to 0 fatalities becomes a reality. Lost time injury frequency rates, down 17%. We had 2 fatalities at Modikwa, and the total recordable injury frequency rate went down by 17%. And we've been operating in a COVID era, and I'm very, very proud that the management team and the approximately 25,000 -- Mike, 25,000 employees at ARM?

Yes.

Yes, the approximately 25,000 employees at ARM at all of our operations did an excellent job in complying with the strict COVID-19 protocols and to make sure that we -- the work environment is safe, is healthy. And we bring COVID under control, and with the vaccines that are going around that will be -- that are being there injected and made available, we think that the mining industry and the economy should go back to normal in the -- hopefully, in the medium -- short to medium term. Headline earnings were up 134%, as I said, ZAR 5 billion. And ARM Ferrous headline earnings went up by 60% to ZAR 3 billion. Segmental EBITDA, up by 235% to ZAR 5.1 billion. ARM Platinum headline earnings, up 313% to ZAR 2 billion. The commitment to be a globally competitive company, critically important. And also to be able to let our track record speak for itself. And a commitment to grow the company as well as for ARM to be a competitive dividend payer with an increase in share price. Interim dividend is 100% up on the similar period last year at ZAR 10 per share. And the dividends received from Two Rivers were up by 380%, which is ZAR 432 million. Net cash at December 31 was up by 29%, and it was ZAR 4.8 billion. Dividends received from Assmang, ZAR 1.5 billion. The major challenge with the mining industry is the imperative of growth. You've got to replace the ore body that we are mining with equally world-class and an equally competitive ore body. And Mike is really and Tsu and Jongisa and André and Thando and the rest of the team have done a great work in focusing on the growth of the company, but also to make sure that we build a track record of having been a responsible allocator of capital. And more importantly, having the capital allocation results in the creation of value for our shareholders. Testing and screening, 85 -- sorry, 82,000 COVID-19 health screening. 4,200 COVID-19 tests were conducted. We had approximately 1,200 positive cases. But what is encouraging is the 96% to 98% recovery rate. I was listening to Bloomberg this morning, and they were talking about how Africa has relatively come out better. And I remember last year when COVID-19 started, we were all worried with the global philanthropists that we work with, but also the global companies because the medical infrastructure in Africa is average to poor in many countries. And we were concerned that COVID-19 was going to result in many of our people losing their lives. But what they are saying is that the problems and the challenges we had with Ebola and malaria as well and various other diseases have prepared us to be in a better position to deal with COVID-19. So we must keep the course and retain, in fact, stick to the strict protocols. Five of our employees have succumbed to COVID-19, and we express our sincere condolences to their families and friends. Through the Minerals Council of South Africa, ARM is supporting government over the national COVID-19 vaccine rollout. If you look at some of the companies in the country, Checkers and a few others, they've got a world-class system of delivering cold and even frozen products, world-class distributive network. And the mining industry has a very proud history in dealing with challenges, whether it's HIV and AIDS, TB or various other challenges. And this partnership between the Minerals Council and the government as well as the discussions with the private sector and to make sure that there's a unique role for the private sector in the rollout, whether it's a Pfizer vaccine or various others. But we have the skills and expertise and the resources to make sure that we can effectively roll out the vaccine in partnership with government. As I said, the mining industry and companies in the private sector, like Shoprite, Checkers and various others that have got this excellent global -- the excellent distribution network in the country. I think Pick n Pay as well in this company where the Ruperts are involved in, which really has an excellent network in the country. And we all should work together. Headline earnings. If you look at the headline earnings for this period in comparison with the similar period last year, it was ZAR 2 billion. This year, it's ZAR 5 billion. The increase in the prices of commodities is it's a period, as I said, when we should really maximize on productivity. And Mike will talk about the issue of costs because whether there's a focus to make sure that the prices and the increase in the prices do not conceal deficiencies or weaknesses in terms of cost increases. Dividends per share, ZAR 10 and ZAR 5 for the similar period last period -- last reporting period. It's a good story. And it excites me that ARM and many of the companies in the mine industry can deliver good results and maintain the global confidence in the mining industry. Headline earnings analysis by operation. The Platinum, ZAR 1.5 billion; Ferrous is ZAR 1.1 billion; Coal, Corporate and the slide speaks for itself. But the adjusted headline earnings exclude remeasurement gains and losses for the period. The table on Slide 36 summarizes these gains and losses for a current and corresponding financial period. The adjusted headline earnings are included for illustrative purposes and other responsibility of the Board of Directors, they should be considered in addition to, and not as a substitute for, measures of financial performance, financial position or cash flow reported in accordance with IFRS. Diversified earnings. This is where the benefit of being diversified comes to the fore. André and [indiscernible] have done excellent work in the past and continues to do excellent work. And I'm proud that Thando and the Platinum team are doing excellent work, and Mike is providing excellent leadership. But the importance of diversification had come to fore in environments like these. And the one other mineral that we have spoken about previously and that we are looking at very seriously is copper. And we're looking at some opportunities, but you've got to be very careful that particularly when you've got free cash, that the allocation of that free cash is not only responsible but creates significant value for shareholders. The growth projects. Current and future growth projects, Two Rivers Merensky Project, additional 182,000 6E PGMs, 1,600 tonnes of nickel and 1,300 tonnes of copper per annum. Plant commissioning is in the second quarter of financial year 2023. Two Rivers plant expansion, there's a Modikwa chrome recovery plant, Black Rock and Gloria. And the slide speaks for itself, but we are -- we continue to assess and reassess value-enhancing internal and acquisition growth opportunity. And we find that sometimes the best growth opportunities are internal based on the assets that we've acquired many, many years ago. But we're also in discussions to look at what we refer to as acquisition growth opportunities outside. The ARM strategy. We operate our portfolio of assets safely and responsibly. We allocate capital in a manner that creates value. We focus on value-enhancing integrated growth. And our primary strategy is to deliver competitive returns and create sustainable value for our shareholders and for all stakeholders. We are owner-operator. We've got to an entrepreneurial culture. And we invest in our employees and have got obligations and partner with our communities and other stakeholders and put a lot of emphasis on technology and the role that technology can play in the future. I'm going to hand over to Mike Schmidt, our CEO. Thank you, thank you.

Thank you, Patrice. Thank you. Good morning, ladies and gentlemen. I'm just going to take my mask off. And I see, in attendance, we do have Dr. Precious Moloi-Motsepe and KC. Dr. Precious, thank you for your continued support. So the mining industry, I've always said, goes through 2 phases in life, very, very short summers. And I think we ended some, I hope it's going to be longer than we anticipate. However, we have very long winters. And in those long winters, you've always been a really strong supporter of ours in terms of supporting in difficult times. And certainly, when things go well, you're out there. And if there's one thing, if I may say about you, is always your caution on humility. Because what comes up will always go down, and we just need to be mindful of that. But thank you for your attendance this morning. Overall, we're very, very pleased with the results as a management team. The performance and results of the company are good. The doubling of the interim dividend is being well received in the market. And certainly, it's in line with our capital allocation principles, which balance giving money back to shareholders, well deserved, but also mindful of growth, as alluded to by our Executive Chairman. A very big thank you and really a sincere appreciation to every one of our employees. Without them, this would not be possible. We've come through a challenging COVID period. And the way they've responded and saved lives has been exceptional. To the management teams, to the leadership, thank you. I would want to express our congratulations and thanks to our partners, our Executive Chairman and our Board. Thank you for the support and confidence that you've shown this management team to deliver what I believe is a great set of results. The operations function on key 3 principles, and that is, I believe, our success. We maintain a safe, productive working environment key. We continue to drive productivity and efficiency. Our core focus is on costs and the grade of the mine. I'm going to elaborate a little bit about costs because I think that is probably one of the areas that needs a lot of attention. We're also very mindful in the use of appropriate technology and mechanization to improve our profitability and the sustainability of our business. And our focus is undoubtedly on value-enhancing accretive growth. And I think the previous slide, which Patrice alluded to, those 4 projects, most of them internal, will add significant value to the bottom line in the next couple of years. But we're also very mindful of our ESG requirements and obligations, and a key focus going forward is on renewables because of the cost of energy to remain competitive. If I move on to the headline earnings position. It's self-evident. All the operations have done exceptionally well. I'm going to move on to the EBITDA. So there is a positive trend year-on-year on margins. Iron ore remains exceptionally robust, and we also see an exceptional PGM price recovery. And we think it's quite sustainable for a number of years. The Ferrous division. The Ferrous division continues as usual to deliver exceptional results. Strong iron ore prices was undoubtedly the main driver for the increase in profits. Sale volumes are in line with the allocated rail capacity, which was also constrained by COVID. The production volumes were, however, impacted over this reporting period, primarily due to COVID, and not only at the operations, but in terms of Portnet and Transnet, we did have a number of challenges in getting that back to capacity. I'm very pleased overall, all the parties have come to the table and things are going pretty well. The unit costs on Black Rock will improve over time. Once the underground ore handling systems are in place, this will increase volumes and undoubtedly have a big impact on reducing our unit costs. A little bit about the iron ore division. Khumani mine, steady state, doing 14 million tonnes per annum. It's a 25-year life of mine. It's well positioned on the global cost curve and has world-class safety standards and management teams in place. Beeshoek, we said it's got about a 7-year life yet. It provides about 3.5 million tonnes per annum, and we are looking at enhancing that life by additional studies with surrounding satellite ore bodies and retreating low-grade stocks to increase the life of mine. Also, exceptionally world-class standards in terms of all ESG requirements, but particularly, their safety compliance. I think André, they've gone now 9 years?

15.

15 years, apology, fatal-free and had an entire year without a single lost time injury, probably unheard of in the industry as it stands. But production volumes were impacted over this period. So whilst we had good stocks, where our sales volumes were all right, we did have a challenge with regards to COVID and getting and producing. So our production volumes are down 20%, and commensurate to that, you would find that your unit costs of production are not where we'd like them to do. We want to get them below mining inflation. But I have no doubt, as we're seeing now, as we're lifting out volumes, that those unit costs will come back to some level of normality. On the manganese side, other than the price, which affected up our volume constraints, there were logistical constraints. But we also had manganese prices coming down substantially. But we see in the current couple of weeks, we've seen a good improvement in manganese, and I'll touch on alloys in a minute. Maybe a little bit on the project. So a couple of years ago, we announced what we call a modernization and an upgrade or expansion of the project today, and that was ZAR 10 billion. It's more than 90% complete as we stand. And once the underground silos and ore handling systems are in place, the mine will realize the commensurate efficiency productivity and volume increases, which will put us in a very positive position going forward. This will also allow the mine, which 2 years ago was selling 3 million tonnes up to 3.7 million, comfortably up to 4 million next year and allow us to get to 5 million tonnes per annum. Very, very good project. I think we're going to see good returns coming from there. In terms of the alloy business, alloy has been under a lot of strain with regards to pressure supply, and particularly, the raw material and the input costs have been very high. And with COVID, the demand came down. So we actually had an extended shut on some of these business to curtail production to preserve costs. That being said, both Cato and Sakura continue to deliver world-class operational efficiencies. There are a number of interventions in place currently to improve the situation. And I'm pleased to say we're also seeing a recovery in not only in the manganese ore price, but the alloy price has gone up in recent weeks by as much as about 25%, André. So all good for the next 6 months, I think. Very, very positive message. Platinum. Well, Platinum is really, I think, is coming to the party. But it was a little bit trailing behind us, but we'll get to in a few seconds. The increase in profit is driven primarily by the increase in PGM prices. But volumes were an important contributor, Two Rivers has really come to the party. The [ big ] cost increase from Modikwa was primarily due to our COVID closure. It's labor-intensive with lots of people on the mine within close proximity of the communities. And we had to be mindful, respectful that safety and the interest of our people come first. Added to that, we have the unfortunate 2 fatalities, back-to-back fatalities, which really shook all of us. And then we had a 2-week delay in operations due to industrial action. I believe it's all behind us. I look at the last 2 months, Modikwa is doing exceptionally well. I think all of us can look forward to a really good set of results in the next 6 months. Two Rivers is in the process of ramping up. I'll touch on that going forward. And obviously, commensurate with that, we will see a reduction in costs coming from Two Rivers as early as the next 6 months as we ramp up production and keep going. TR team, I want to just spend a few minutes on that, is busy with the plant expansion currently. That will increase our ounces by 50,000 ounces per annum by 2022. We also have, as you've seen announced, the Merensky Project, which is 180,000 ounces at steady state. And we start processing that by 2023 with a rapid ramp-up to steady state by as early as 2024. We're dovetailing that. We've got sufficient power. We've got sufficient water, the tailings dam. Those were the 3 constraints. Prices have supported us. We've announced the project will have superior returns. It will be positioned on the lower end of the cost curve, and undoubtedly, will help get Two Rivers as a whole down the cost curve. Modikwa is currently accelerating its development and actually improved the ounce profile from an annualized basis of 320,000, pushing us up to over 400,000 ounces by 2024. We're also in the stage of building a chrome plant, which will be commissioned down to the end of this year. And certainly, we will ramp that up within 12 months to a steady state, doing 280,000 tonnes of chrome. That's a by-product, comes literally for free, it really will serve us exceptionally well. I think the message I'm [ explaining here ] is that if we look at the combined approach that ARM has moved on, it's growing organically it's dovetailing off the assets it knows, using its own people and it comes very, very cost effectively with huge margins and position us well in terms of growth going forward. We are in the process of evaluating a number of other options, but they have to follow due course. We cannot announce anything until it's signed on the bottom line. So I mean, I did touch a little bit on the growth. And I just want to say that if you look at the combined growth over the next 3 years, we will be doing another 300,000 ounces of PGMs by 2024. If you take that currently, on an attributable basis, we have 350,000. We're just about doubling the ounces on an attributable basis, but we're moving from as an operation from 650,000 to over 1 million ounces of PGMs within the next 4 years. That's going to realize. It's coming. I'm very proud of what we're going to achieve. And I have no doubt that we will deliver on those on time, within budget and with the result and impact on our business. Black Rock. I've alluded to it. We announced that [ 10.3 billion ]. We're already touching 4 billion. Within the next couple of years, as the market allows us, we can get those operations up to 5 million tonnes per annum. So significant growth within the group. Nkomati. We've been cautioning the market a long time that the open pit has come to the end of its economic life. We will curtail all operations by the end of March and continue with care and maintenance. And then we're under discussion with our partners as to the way forward with Nkomati. There's a lot of moving parts, a lot of things happening there. But for now, it's really care and maintenance. It's done exceptionally well in the ramp down. Many, many operations struggle in the industry once they announce closure to keep people focused, motivated and to keep your cost down. And you'll see in these results is that in this period of closure, we significantly reduced the costs and improved the profitability way beyond a lot of people's expectation. And I'm sure the market is going to be pretty surprised and -- pleasantly surprised with the outcome of what we have achieved. In essence that the profits that we that we've summed out of this will go far away in terms of maintaining our care and maintenance. We also are well provided in terms of the NEMA requirements, and the accounting has all been provided for. So been an exceptionally good outcome in terms of going down to care and maintenance. The ARM Coal business. Thermal coal prices have remained largely depressed in the first half of 2021, and there's also been a decreased demand out of China, and particularly, out of India. So with that in line, we also extended the closure of those mines over December. Where we normally close for 2 weeks, we extended closure for 4 weeks just to preserve based on the lack of demand. Things are picking up now, pleased to say. The mines are in a position. They have ramped up. They've overcome most of the challenges. Prices have picked up. So I'm looking forward to a better set of results over the next 6 months. We also did struggle a bit with logistics and Transnet and the port, but I believe that's all behind us as we stand. So overall, I think the Coal business will pick up in the last couple of months. With that, that concludes my presentation, and then we're going to hand over to Tsu to do the financials. Thank you, Mr. Tsu.

Thank you, Mike. Thank you, Chairman. So this slide is a graphical representation. This slide is a graphical representation of our consolidated statement of cash flows, wherein it basically depicts all the cash flows from our operations and investments and how that cash was deployed or allocated throughout the business. So during the 6 months ended 31 December 2020, the most notable cash inflows comprised on managed operations generating cash of ZAR 2 billion. We received dividends of ZAR 2 billion from our joint venture in Assmang of ZAR 1.5 billion. There were net transfers of ZAR 850 million. These financial assets are cash and cash equivalents that had been invested in fixed deposits with maturities longer than 3 months. During the period, the review period, these financial assets matured and have now subsequently formed part of our cash and cash equivalents as at December 2020. Notable cash outflows in the business during the period included: taxation paid of ZAR 800 million; capital expenditure of ZAR 843 million; and dividends paid to ARM shareholders of ZAR 1.4 billion, which brings us to a cash and cash equivalents balance of ZAR 6.5 billion as at end of December 2020. Just to note that this cash and cash equivalents balance excludes cash and cash equivalents at ARM Ferrous. This slide seeks to show the improvement in our net cash to equity ratio. During the 6 months ended, ARM cash and cash equivalents and net cash increased by ZAR 1.1 billion. This is mostly attributable to the financial assets, which I just referred to, which matured during the period and now form part of cash and cash equivalents. Total borrowings of ZAR 2 billion remain mostly flat. These total borrowings, 55% of them are interest-free, being the ARM Coal and Modikwa partner loans. 45% of the total borrowings are interest-bearing, with the majority being the ARM BBEE Trust loan owing to Harmony. The increase in net cash, therefore, led to an improvement in our net cash to equity ratio from 11% at June 2020 to 12.6% as of end of 31 December 2020. If we add back the partner loans, the ARM BBEE Trust loan, the financial assets as well, we get to an adjusted net cash balance of ZAR 6.9 billion, which is slightly up from the balance as at 30 June 2020 of ZAR 6.7 billion. Please note again that these cash and cash equivalents balances exclude those balances that sit at ARM Ferrous. In terms of our segmental capital expenditure, during the review period, segmental capital expenditure amounted to ZAR 1.9 billion and included ZAR 271 million capitalized waste stripping costs at the iron ore operations. We expect total segmental capital expenditure for the financial year to be in line with the Board-approved budget of ZAR 3.6 billion. Just some notable things to consider in terms of our segmental capital expenditure, as Mike has mentioned, due to the COVID-19 lockdown measures, the Black Rock and Gloria projects were delayed by 6 months. However, that capital expenditure is still going to come through. So ZAR 1.4 billion will be spent over the next 18 months on these 2 projects, with revisited completion dates being May and July 2020, respectively. At the last reporting period, we spent a bit of time on this ARM Coal receivable matter, which led to the qualification of the loans and long-term receivables line item in the statement of financial position. So an update. So since then, the management team has done a lot of work in trying to get to the bottom of where this unvalidated receivable, we called it at the time, where it came from. That investigation has subsequently been completed and has been agreed between ARM Coal, the GGV mine as well as Glencore. So what came out of the investigation is basically that, that receivable is indeed a receivable and what -- another thing that came out is just basically that it needed to be reclassified between trade and other receivables as well as long-term borrowings. Because of that, we then had to restate our prior periods, but this only affected our statement of financial position. Because of the qualification of that line item in the previous -- in our previous financial statements, JSE Listings Requirements require us to -- with this set of financials, to go out with a review opinion at the least, which we have done and have completed. The review opinion can be found on our website, and I am happy to say that it is an unmodified review opinion, meaning that we can therefore move on from the ARM Coal receivable matter. And then this slide is just a summary of remeasurement gains and losses. I know a few of our analysts normally like to see it, but we've just included it, but it forms part of our financials as well. And that's it for me. Thank you very much.

Thank you, Chairman. Thank you, Mike, and thank you to Tzu. That concludes the presentation part. And we will move over now to the Q&A session. I have received a few questions on the webcast, which I will read and the management team will then be available to answer. I received the first one, and he sent a few other questions so I'm going to read them together. It's from Tim Clark from SBG Securities. Tim says, congratulations on the results and particularly the dividend. Please share your view of the potential for Modikwa to expand, given the strong demand and large resource base at Modikwa. It does not seem to be on your partner's priority list. That's his first question. His second question is, please, may we ask for more color on closure procedures at Nkomati results. Results were good. And will the closure be self-funded? Or will cash injections be required from the partners? That's the second question. His third question is, please, may we have some color on your plan to use renewable power to offset rising energy costs? At which operations is this being considered and what is the cost? So those are the 3 from Tim. Shall -- sorry, sir? Can I read 2 more questions from Martin Creamer?

I don't know whether you can hear me. Mike, you are in control. And I think André and Thando and Tsu just -- and yourself, Jongisa, just see which of the questions you will answer. Proceed.

Okay, sir. Perfect. Thank you, Chairman. The next one comes from Martin Creamer from Mining Weekly. He says, please provide an update of your green energy plans as well as your research into the development of energy-efficient smelting technology. That's his first question. And then his second question is, please, could you provide insight into the planned ZAR 5.7 billion expansion at Two Rivers mine? What is the CapEx for this? And can you comment on the rhodium richness of this mine? It's his second question. And the third one is, please update us on the amount of capital that ARM intends to invest in South Africa in the next 5 years and the multiplier CapEx when the contribution of the partners is added. And his last one is, for the benefit of the South African people, should ARM, together with the Minerals Council, not put heads together to ensure that the manganese output is managed in the same way as iron ore so as to avoid giving it away because this is a national South African patrimony giveaway prices. And those are the questions from Martin Creamer.

Can I suggest that we take those, answer them and...

Maybe one more.

One more. Okay. So the next set of questions come from Peter Cromberge from Mergermarket. He says, ARM has indicated its interest in copper. Would expansion into copper take the form of an acquisitive or an organic growth strategy? Okay. So that's the one.

Mike? Yes, I think you answer from there.

Yes, you can.

Am I on here? So Tim, thanks for those questions. Jongisa will help you if I didn't capture all of them. You spoke about Modikwa and Modikwa expansion and doesn't seem to be on our radar. So currently, Modikwa is running at about 180,000 tonnes per month, 310,000 ounces on an annualized basis. And we are in the process of ramping that up to 400,000 ounces over the next 3 years. In addition to that, we've also announced the chrome plant, which will push out about 280,000 tonnes of chrome concentrate on an annualized basis. So is that the end of the road for Modikwa? No, certainly not. It has gone through a long difficult process in a depressed market and had to be a lot of work had gone into it. I think Modikwa is maturing. We need to cross this first hurdle, which I've just elaborated, and there's absolutely no reason why it could not expand further. It's rolling down. We're only mining 12 of the 28 kilometers of strike. We've probably got, at the current rate of production, more than 100 years of resources in place. So that lends -- I mean, obviously, says that it has unique and -- opportunities for growth. That excludes the overlying Merensky. And at these prices and with the advent of EVs, very rich in base metals, it is a unique opportunity that also needs consideration. And I think that we first need to see what we achieved with the Two Rivers Merensky. And there's no doubt the lessons learned out of this can be expanded on to Modikwa. So I think Modikwa has a great and a rosy future. We're also looking at appropriate technology and mechanization, knowing that as we get deeper and we need to consider safety and new levels is whether we cannot rather move towards mechanization in those ore bodies going forward. So there's a lot of work, Tim, going on with regards to Modikwa. Your next question was Nkomati. So Nkomati, there is no call or need for cash from either of the partners for the next -- for this closing or interim period. We are looking at various studies and optimize studies around closure, rehab, water handling and other alternatives, providing from an accounts point of view, it's all being provided for that they would, ultimately, in the long-term closure, depending on where we go, there could be a further -- there will be a further requirement for cash. But a lot of work is going on in that area for now, Tim. Tim, I believe those were your questions. Jongisa?

His other question was around plans to use renewable power to offset rising energy costs.

I thought that was Martin Creamer's, but that's fine.

They're very much alike, yes.

Both teams, being the Platinum and Ferrous, are in discussions and a lot of studies are ongoing. We have not yet landed on anything, which I can announce. Otherwise, I would have announced it. But there's a lot of work going on in terms of energy efficiency and particularly around renewables. And I know in -- I know it was Martin who asked the question about alternative smelting technology. I think André is in a position this time around to tell us. We've made significant progress in that regard, but it is still early days.

Thank you, Mike. Can I sneak in one way of question that's coming from Tim. He says, please remind us where the ARM Coal debt is, including at PCB. Thank you. I think maybe 2, if you can have...

You'll take the 2?

Yes, I shall.

Yes, from there. You can answer it?

Yes. Sure. So the ARM Coal debt as of December 31 is ZAR 1,680 million. So that increased slightly from the June 2020 year-end figure. So we're currently at ZAR 1,680 million.

André?

Yes. Martin, I think the question that you asked about the smelters, we are -- as Mike said, we've progressed very well with that technology. We've proved that we can do the melting and that project was really, really successful and concluded successfully. The process that we're going now -- through now is to test the materials of construction. And I guess before midyear this year that we will be in a position to give further updates on that. And then your question on the green energy. As Mike has said, we've advanced quite far in the Assmang business in terms of using -- because we are in the Northern Cape. It is an ideal area for sunshine and electricity there. And we're in the process -- we've done a conceptual study on that, and we're in the process now to start a feasibility study on a hybrid electricity project, which includes Eskom power, solar PV power and battery storage facilities. And then -- and we will most probably, by the end of this calendar year, have a good insight on that in terms of how that can add value and reduce costs for Assmang. Thank you.

Thank you, Chair. Just to answer the question from Martin with regard to the rhodium content on Merensky. It is generally around 3%, just over 3% percent, and that is actually lower if you were to compare to UG2. However, I think it's important to point it out, though, that Merensky comes with a higher load on the base metal. As we've indicated on the slides, we expect about 1,600 of nickel and [ 1,300 ] of copper. It also, compared to UG2, has a higher content on gold, about 6%. So those metal balancing, I think, gives you also additional diversity in terms of the product that we'll be producing out of Two Rivers. Thank you, Chair.

Are all the questions answered?

Martin Creamer's ones. He asked us, please update us on the amount of capital that ARM intends to invest in [ SA ] and the multiplier impact when you consider the contribution from the partners. So Tsu will take it, yes?

So I alluded to it when I was going through the slide on the segmental capital expenditure. So for the current financial year that we end, we're expecting to have spent ZAR 3.6 billion, but that's just attributable to ARM; then ZAR 3.4 billion in the next financial year, 2022; and ZAR 2.7 billion in 2023. And in the 2021 and 2022 financial years, most of that amount will be the same business capital of around ZAR 2.4 billion each year with the balance being more on expansionary projects.

Fantastic. And then the last one for Martin that maybe was a comment more than a question. It was the one where he said, for the benefit of the South African people, should ARM and the Minerals Council not put their heads together to ensure that manganese output is managed in the same way as iron ore to avoid giving away what is a national South African patrimony giveaway prices? I don't know if André wants to take on this.

I think as André comments, just keep in mind that there's competition as well as antitrust requirements. So whatever we do is within those legal requirements and make sure that there's compliance in that regard.

I wanted to start off by saying the iron ore business is not controlled. And as it is really not controlled, it is a question of capacity that South Africa has. And Transnet is doing a lot of work at this point in time in terms of opening the Port of Saldanha, Cape Town, Durban and Port Elizabeth for the manganese ore export. There's a lot of -- a study is being done on that. But we have to realize that the proportion of manganese ore exports that we currently do in South Africa is much lower than what the ore reserves in South Africa is. So we're still lagging in that regard. And I think we will deal with this in a very responsible way. We don't have any organization or any single companies that I think can really dominate the manganese ore market. And it's not an area that I'm certainly going to venture in, in terms of trying to manage that or control that.

Can I take the next batch?

Yes.

There was one more from Martin about the ZAR 5.7 billion capital for Two Rivers.

Yes, the capital for Two Rivers.

I'll take that one. So Martin, the planning is and the outlook is that Two Rivers would be able to fund that project over the next 3 to 4 years with no need for either of the partners being ARM or Impala to contribute to that, albeit that there would be some dividend sacrifice.

Fantastic. Thank you. Can I take the next set? So in the next set, there's a few from Patrick Mann, who comes from the Bank of America. He says, what was behind the big increase in management fees for the period? His next question is, there were negative working capital flows during the first half. What should we expect in the second half of the financial year? And those are his two questions. If I can please take questions from [indiscernible] from [indiscernible] Capital. He says, good morning, Chairman and the team. A massive congratulations to your team for a sterling performance. Three questions from my side. Number one, have you ever considered having a secondary listing, in other words, on the NYSE, on the London Stock Exchange or Shanghai to raise your international profile and access foreign capital? His second question, could you please comment on your capital allocation priorities going forward? His third question is, has there been any geographical shift with regards to your major shareholders over the past 6 months? And then if I can add to those questions from Brian Morgan from RMB Morgan Stanley. He said, thank you for taking my questions. Could you share your confidence that the Merensky project is viable throughout the pricing cycle? Would it be viable throughout -- would it have been viable throughout the last 10 years had it been in place? It's his first question. The second one is, the manganese recapitalization project was intended to stop the big increases in costs. But now we have double-digit increases in unit costs. Could you shed some light on this? And his third question is, are you planning to announce a Paris Agreement net zero carbon emissions target, like most of your peers have done? And shall we take those, sir, and then we can move on to the next, sir? Should I take more?

Yes. So that we can...

Okay. All right. The next...

And then, of course, we're available afterwards. And anyhow, if we don't answer all the questions, they can contact you directly or Mike and everybody else. How many more questions have you got there?

I've got another 5 questions.

Okay. So let's take those as the last.

Shall we take those? Okay. The next ones are from Thabang, which is 3 questions in 1. He says, well done for the excellent results! The Chairman mentioned ARM still being interested in copper. Could we get more color on this? What technology would you be looking to use to process the low-grade ore at Beeshoek and Khumani? Would it be WIMS or UHDMS? Has there been any progress with regards to the discussions with Kumba? And Sakura has largely been a bad investment. Is management considering disposing its share? Or does the current price environment to not allow that consideration? So that's from Thabang. And then [indiscernible] from NOAH Capital says, congratulations on the great set of results. Can you please give us CapEx numbers for the expansion project in the PGM operations? And then can you give us more detail on the [ RE ] project under consideration? I'm not sure what RE refers to. So [indiscernible] if you could update the question and give us what RE refers to so that we can answer that. And the next one is from Felix Njini from Bloomberg News. Could you please give us more details on plans to venture into copper? How is this likely to be done? Which jurisdictions are you considering? What are your views on copper opportunities in Zambia? And two more questions. One from Warren Riley from Bateleur Capital. He says, what does the ramp-up of the Two Rivers Merensky Project look like? In other words, how long does it take to hit the 182,000 ounces? Do you have sufficient processing capacity for the additional volumes you will be bringing to the market through 2023? And what is the IRR on the Two Rivers Merensky Project and payback period at spot and on your internal assumptions? And one from Peter Cromberge -- no, we've read that one. The last one is from Siphelele Mdudu from Excelsia Capital. He says, what is the criteria for ARM M&A activity? Which commodities do you view as attractive? And are these greenfield projects or are they already in production?

So those are the last questions, yes?

Yes.

Thank you so much. And I mean, we'll answer those questions. And as I said, Jongisa, you and the team will be available for the rest of the day and any other time thereafter.

There's a detailed conference call in the afternoon today.

What time is it?

So that is at 2:00.

Okay. Thank you so much. Mike?

The first one is really about capital and capital allocation and secondary listing, I thought maybe appropriate if Tsu touches on capital and capital allocation, and the shareholding shift with Jongisa.

Deal with all your questions and...

Can I deal with mine?

All yours, and then we'll deal with the others.

Okay. So I'm going to take them at random. I'm going to take the questions at random. So then Brian, I move on to your questions about the viability of the Merensky and had they been viable over the last 10 years and going forward. And let me touch on that, you spoke a bit about the unit cost, double digit. I'll come to that. But let me, if I may, just get on to the Merensky. But that's a very good observation in general, Brian. So firstly, Merensky is applying bord and pillar method of mining. So it's fully mechanized. So if a person takes today that a conventional mine, typically like Modikwa, runs at about ZAR 1,800 a tonne; TRP, which is a bord and pillar; UG2 runs at ZAR 900 a tonne. So it's 50% lower than the conventional approach. So the Merensky is always premised and has always been premised on co-extraction, sympathetic concurrent mining of the overlying Merensky. That, by implication, has reduced overheads. And due to the shared services structure, that has quite a significant impact on the bottom line. That alone reduces the overhead cost or the costs on mine costs of Merensky a further 20%. Then understanding that the Merensky channel is 3 meters thick, it's a high-profile equipment where the UG2 uses medium-profile equipment or low-profile equipment. So the low-profile equipment on the UG2 ore body runs at about 18,000 tonnes a month per fleet. And the high profile, which we intend to introduce, delivers about 25,000 tonnes of -- per month per fleet. So that's a 40% improvement on the output productivity efficiency and volumes relating to -- comparing that to the UG2. And then geo-technically or structurally, the Merensky is far less complex and stable than the UG2. It also as a homogeneous hanging wall, with the result on that the support costs compared to UG2 are substantially lower, the support requirements. That also adds to reducing the costs. So you have much higher labor efficiencies. So in general, your operating costs on Merensky is 60% lower than conventional and 20% lower than the current UG2 base. So then if you add that up, the rand per ounce, although it's a low-grade of 2.9 and the UG2 is sitting at 3.5, the cost per ounce are very similar based on the cost profile. And hence, it gets us down the cost curve. Your other question, well, why didn't you do it 10 years ago? Well certainly, the prices didn't support this. But most importantly, Brian, is that we did not have power, we did not have water, and we didn't have tailings capacity. All that now is in line. So I think on those fundamentals, we have a very robust, good project. Someone asked, what's the payback on this? The payback is likely to be 2.5 to 3 years at the current prices. Now I want to qualify, when we do a project with no ways that we'll do the project assumption on current spot prices, we take a long-term view. The long-term view is probably 20%, 30% to 35% lower than the current spot price to support the fundamentals of the project going forward. Jongisa, I'm not sure if I've missed out on anything that I should have reported on.

Just the one thing about...

Oh, the doubling of the costs. So Brian, I mean, that is a concern to all of us. But you've got it. I think there should be an appreciation that all of us went through 6 to 8 weeks of no production. So it's the production costs that are compoundedly escalated. And Modikwa, in addition to that, had some challenges regarding safety stoppages and the industrial action, which compounded the problem. We're already seeing in the 2 months subsequent to that, that there's been a pronounced drop in costs. I have no doubt it's very similar on the Ferrous, is that we did not deliver on volumes and commensurate with that, your new unit costs are higher. Going forward, I do see a big improvement.

Thanks. Tsu?

So one question was on the management fees received, as to what caused the increase in the fees. So this was mainly due to revised fee arrangements at Assmang, which aligns the management fee that ARM earns, aligns that to the performance of Assmang. So as Assmang's performance increases or improves, so then that does the management fee increase that ARM earns. That was the one. And then the other one was the negative working capital, I believe. So that one is due to an increase in debtors at the PGM operations, which is commensurate with the increase in the sales revenue at the PGM operations. So we saw quite a spike there towards the latter part of the period. But this is really just timing, and you'll see, as those debtors pay, then it flows through -- right back into cash. So we're not too concerned about that at all at the moment.

André?

The question that I think fired at me was the one about the technology at Khumani and Beeshoek. For now, with both of those operations, Khumani was a 20-year life -- a 25-year life of mine. We're going to stick with our washing screen for the high grade material. And then the jig plant, which is not the same as the UHDMS process, where we have a much finer cutoff point which we can really control very well, so we're going to stay with that technology. And then the ultra fines portion, we still treat with the WIMS plant. So we're going to continue with that for at least the next 25 years. Beyond that point, when we start to treat our, what we call the jig discard, then we will certainly look at milling the material down and then using the HDMS (sic) [ UHDMS ] process or the WIMS process, which we will do the trade-off at that point in time. At our Beeshoek mine, also the same. We're going to continue with the technology. We've investigated. We've done feasibility studies on that, on the WIMS and on the UHDMS plant, and we concluded that the best way forward will be -- is it will still be the washing screen and the normal jig plant. And we've done a lot of on-mine exploration work at Beeshoek mine. And we, at this point in time, doing a feasibility study to see if we cannot extend the life of Beeshoek mine by -- we're not certain about the number, but at least doubling the life of Beeshoek mine at this point in time. Sakura, you're correct. Sakura was a disappointment from an investment perspective. But from an operational perspective, that plant is really performing well. And as Mike alluded to, the alloy prices have picked up quite significantly. Since November until now, it's almost 30% improvement in the pricing. And from our forecasting and the numbers that we're doing, it will -- Sakura will most certainly do a lot better. And then the manganese ore prices, on Brian's question again. Mike touched on that, but I just want to remind you, Brian, that the capital project that we've done is not finished yet. Specifically now, we're in the underground infrastructure construction phase, where we also had to get deliberate decision to delay the contract so that we don't have -- when we brought people back for COVID and their exposure to each other and the social distancing, we took a deliberate decision to hold back on the contractors in bringing them back. For that reason, we've delayed the project slightly. And the cost increases that you see is really still due to the inefficiencies of the project not being completed. But when that project and underground infrastructure is installed, we will see a very good improvement in the unit cost performance of that mine, and of course, as the volumes also increase. Thank you.

Thanks, André. Thando, is there anything on your side?

So I think one question that was asked by [indiscernible]. In terms of the additional processing capacity, yes, we can confirm that we've secured additional processing capacity for the Merensky concentrate. Thank you.

Thank you.

Thank you, Chairman. I think all that's left is for me to answer the latest question around the shareholder base and whether we've seen a movement. We still have a very solid shareholder base in South Africa, many loyal shareholders. We have seen, though, in the last 3 to 6 months increased buying offshore, the U.S., the U.K. and on the Singapore side. So there is increased interest from international institutions as well. Chairman, with that, I'd like to just thank everyone for their time and for your attendance today. And as mentioned earlier, we do have a conference call where the management team will be available to answer questions at 2:00 today. The link is on the website -- sorry, the links to join that are available on our website. So if you do have any additional questions, we will be available thereafter. Thank you very much, Mr. Chairman. And that concludes our presentation for today. Thank you.

Thank you. Thanks, Jongisa. Thanks to everybody. Thank you.