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

[Audio Gap] particularly, well, on both, whether that's the coal or the iron and manganese lines. And we're putting a lot of effort to address it, but it's not going that well at this stage. In line with our capital allocation, so we've obviously declared the [indiscernible] dividend, which is -- was 150% higher than last year. So about -- it is a payout of 112% of the dividends that we did receive from our underlying operation with [indiscernible] 12% dividend yield. So the headline earnings were undoubtedly underpinned by extremely high commodity prices, particularly iron and PGMs. The costs were impacted, obviously, due to a lot of inflation issues. But we did have low volumes, primarily due to logistical constraints. And then, obviously, all of this was and continues to a lesser degree, be exacerbated by COVID challenges. The iron and PGM prices have come down from the highs that we did experience in '21 (sic) [ '20. ] But all of our operations still have reasonable margins and the fundamentals and outlook for the metals we mine remain pretty bullish. We continue to assess value-enhancing growth opportunities, both organic and from an M&A focus. Many of the projects we've announced over the last 2 years are primarily being organic of nature. When we benchmark our assets in terms of our capital allocation, we've always got superior returns from an organic, and that is obviously understandable, you know these assets, you know what you can achieve, you can piggyback on the current fixed overhead. So under these -- we've been pretty successful in ramping up organics. And in the latest one, we've done a lot of work around Beeshoek. If you'll recall, 8 years ago, closed down effectively mined out. We then got another 14 years life, we're down to 6 years. We just rerun the satellites around us, done the optimization studies and back up to 15 years. And that will always be a story of ore bodies you own. We rarely, rarely mine out and walk away that easy. And that's too -- going to be too for iron ore and certainly also too for the commodity, which if there are any questions, I can touch on it. On safety and health, we remained absolutely committed, focused on achieving zero harm to people and environment. And regrettably, we've had fatality and we continued to have disabling injuries, and it's simply not acceptable and how do we get out of it, the systems, processes, but ultimately moving to more and more levels of automation, mechanization and take the contact away where these accidents happen with people. And it's our absolute result to apply all of those technologies and focus on ore bodies that lend themselves to mechanization. And that really goes on to what our capital allocation strategy is. It's about delivering competitive returns and creating sustainable value for all of our shareholders and to operate out our portfolio safely, responsibly, efficiently. We want to allocate our capital in value-creating investments, and we do focus on value-enhancing and integrated growth. In terms of the vaccination program, we absolutely endorsed and supported. Pleasing to say that the corporate office is fully compliant and that we are busy with rollouts at the operations. We've been able to reach a couple of primary sites, some secondary sites and what -- the only distinction finally, we only -- we can vaccinate extended family and community and secondly [ only to the ] employees. So we're in that process of rollout. We have about a 28% take-up and we want to accelerate and encourage people to get through to a critical mass before we encounter more ways that come our way. The industry, in general, has done pretty well with its COVID -- surprisingly well with its -- COVID infection rates. But regrettably, we still lost lives in the group. Since the COVID, we've lost 34 of our employees. Beeshoek, Khumani, pretty much steady state. Khumani is at 14.5, Beeshoek [ 3.5 ] million tonnes. Khumani is at 25-year life, Beeshoek is now up to a 15-year life. Black Rock has got -- its got assets probably 50 years of life. So -- and we are ramping up. We [indiscernible] it's been a long, slow process. We had to change the [indiscernible] change the plans, change the infrastructure, do the development to get out to the ore bodies, install belts, do silos, transition. So all that transition is being done but we still maintain our trucking systems, which are pretty tough in terms of cost position. So only once we commissioned the belts and the silos where we do away with the expensive trucking. So the underground ore movement is a big component of our cost, that we should see coming off over the next 12 to 18 months, and either factor down the label or ramp up production if the market conditions allow. The 2 alloy businesses being both Cato and Sakura really struggle on the back of pricing, nothing else. Operations doing pretty well. Cost performance is not bad at all, but price is not supporting it. [indiscernible] prices have increased substantially. And I don't think we've been able to capitalize on that yet at all. We unfortunately lost one of the furnaces or the transformers. We lost 3 transformers in short succession, still struggling to understand how and why the cause, but these things had to be shipped off-site, repaired and we're going to probably fly 2 back by the end of the month. So they've been offline now about since February. So we're talking nearly 6 months. Modikwa, it's in a slow ramp-up, moving in the right direction, still needs a fair amount of capital, albeit self-funding over the next 4 to 5 years to get it into what we would call an operation which we'd be satisfied with. So although there's been improvements, it's still not where we want it. It's currently ranging in the region of 200,000, nameplate is 240. It needs a lot of development to get there. We started all 3 declines moving in that direction. So moving in the right direction. We have started a trial, very small trial on the Merensky at Modikwa. And the intention is to follow a similar process, which was -- took us a couple of years to get to the answer that we followed with Two Rivers. Now we have done a bulk sample previously. We do have established portals there. And we want to continue some trial mining and optimization study and look at real high-level mechanized and semi-automated approach before making any decision if -- once the feasibility is down. This could take anything between 12 and 18 months before an announcement one way or the another, but I'm just stressing on this to say that our organic opportunities are enormous around our ore bodies, extremely long life. TRP is sort of maxed out on life capacity now. We've got about a 25-year life on the UG2. We've just announced the Merensky, which has similar life, 20, 25 years. And that feasibility is approved. It's a 3-, 4-year ramp-up to full production. Probably 2024, late '24, we should be at nameplate there of 180,000 tonnes per month or 180,000 ounces per annum. Nkomati's care and maintenance, I alluded to the fact that it has a huge underground resource. At the right trigger price, it certainly will be a go. We know what that is. We know what the capital is. We know what the mining method is. So I think it's just -- it's a timing point of view from a sustainability point of view, and that's price dependent. I think [indiscernible] Nkomati's are probably bimetal, so it's got significant byproduct credits in palladium, rhodium, copper and even cobalt. So there's no doubt that we will start that operation sometime into the future. But we don't have specific timing, and we haven't concluded the feasibility. On the coal, we struggled, obviously, again with particularly struggling to get volumes, internal challenges, but challenges that for the last year and even today, we are really struggling to get TFR mobilized and moving to its historic norms, not asking anything special. They were way off the historic norm. So we are, as an industry through Minerals Council and a lot of involvement is working very, very close with [ SOEs ] in terms of how can we help, how can we collaborate. It's in our interest to make them successful so that we can deliver our product growth and contain our costs. With that, I hand back for Q&A. Thank you.

[Operator Instructions] Our first question is from Brian Morgan of RMB Morgan Stanley.

Can we just chat on coal quickly. And I don't know if Tsu's there. But just I was expecting quite a big derivative P&L move on the [ coal bit ] at the end of the period, given what coal prices have been. it's not quite as big as I expected. Could you just remind me on how that whole thing works?

Brian, it's Jongisa here, and Tsu is here. So I'm going to kickstart, and then Tsu will add. So the derivative, which is, I assume you're talking about the remeasurements on the value of the loans, right? Is that what you're referring to?

Yes.

Okay. So we did have some, you're saying you expected it to be bigger, and I think...

Given the coal price [ move. ]

Yes, so with reference to the last time that we assessed and completed the model, so you did have -- you've had movement in the short term's ask of coke. But I think our ask hasn't changed as substantially as the move that you've seen in the spot price. So we had even the last period when we did the measurement of the loans had -- and the prices that make the difference of the ones that are in the long [ distance ] right? And -- so that's part of the reason. And I think even the higher spot prices were partially netted off with -- kind of offset by expectations on the operational side to revise downward [Technical Difficulty] expectation, et cetera. So on a net-net basis, relative to where we were this time last year, your movement in terms of how the progression of those loans are expected have not shifted as substantially as what the spot price [ movement has been. ] I don't know if that makes sense, Brian?

It does makes sense. I just [indiscernible] $160, $170 a tonne coal regardless of how badly the operations are performing and should be generating a huge amount of cash and that cost -- that debt should be paid down pretty quickly, right?

No. Unfortunately, we were kind of hoping the same, and it's what I think Mike and [indiscernible] was alluding to. We haven't been able to capitalize as much as we would have liked to from a cash flow generation perspective on the currently high cost prices because we've had a significant volume impact. And so I don't -- the expectation is that you continue to have volume impact into the next year, albeit less. And then on the longer term, we haven't had significant [Technical Difficulty] in terms of expectations.

But Brian, just on that, I mean, interesting that -- and that's true. I mean, if you look at the various indices that measure coal, and coal pricing varying between 1 74 and 1 41, [indiscernible] and that's the price [Technical Difficulty] we realize. We -- firstly, we're selling to very different markets with very different qualities, and as low as [ 5 2 ] And I wouldn't want to try and second guess what the average -- what we're feeling we do, do a blend throughout the market. That the -- both in the year that passed outside of that we're really struggling to get supply out in terms of demand because of the market conditions and Eskom has not taken remotely what the -- even the contractual commitments [ were. ] And even around this table, the price we get from Eskom is we don't even carry [indiscernible] So that -- it's a blended product, and so it all helps. So pushing out Eskom at very low price. It's even below our cost of production. It is -- the markets are picking up. It is looking better, but we are not realizing even close to 100 in terms of what we get, Brian. Remember, there's also a marketing fee that's quite a knock that we take. So we deliver to port and we do not benefit on that arbitraging who take quite a large marketing fee.

Okay. Cool. Can we just ask on Modikwa? For you -- it's running at 200,000 tonnes a month. And based on the guidance through 2024, if I look at the Slide 24, if I look at that, it looks as though it's suggesting we should be going to 2.7 million tonnes a year. What's the ultimate end game here with Modikwa in terms of tonnes milled. Are we going to stop at 240? Is there room to go beyond that? And how should we be thinking about that mine?

So Brian, I mean, it's such an interesting question [ seeing the ] volatility and changing opinions through the cycle, and we've gone through an increasingly difficult PGM cycle. Modikwa never [ watched this phase -- such potential losses ] and made a hell of a lot of money in the last 2 years. And so [ have the platinum counters, and ] thankfully, it's brought us something. But the fact that Modikwa started for so long is it does not -- it consciously did not [Technical Difficulty] Just to put it into perspective, we've got 3 decline shafts there. From 2017 to 2020, we didn't move [Technical Difficulty] capital. So the replacement of expense has accelerated there a year ago. But we got to catch-up [ playing this. ] That target to get to 240 in 3 years is extremely a terrific thought to say the least. [Technical Difficulty] partner is self funded and [Technical Difficulty]. Your next question is, okay, we [Technical Difficulty] is there opportunity to go beyond? Well, undoubtedly, there is. That ore body, we're mining 13 out of our 23 kilometers of that strike, let alone the deep extension. So we could address [Technical Difficulty] license permitting, we could continue to mine for over 100 years. So obviously, then you do have that opportunity, all things taken into consideration. But our big, big drive is to get to nameplate capacity, and then to reconsider whether the plant would justifiably ramp up. Now the challenge you're sitting with, Brian, is the atypical decline, which is first generate shafts. If you go throughout the history of South Africa, in all the declines, I'm talking conventional declines, not mechanized mining. You will struggle to find over the life of -- cycle of a decline [Technical Difficulty] to exceed on average, 80,000 tonnes per month per decline. That's where we get to the 240. To try and -- as you get deeper and further in and you become highly inefficient with conventional labor, and that's what the ore body for now lends itself to, I would premise to take a guess and say 240 is probably as good as it gets. Unless we can transition that mine in the next 10 years into an appropriate level of mechanization if that equipment, I would stick to 240. And I would rather do what we've done at Two Rivers is to see if we can capitalize or optimize on the overlying Merensky, which would lend itself to a higher mechanization, higher volumes, higher tonnes, low cost, pretty [ safe, ] using high-profile equipment, and you can go green on that equipment. And there, you can sort of offset the overall dynamic of that mine. Mindful, you got to look at tailings today, which is a challenge. We're embedded inside of 7 communities. And you know the challenges we face there. Added to that, there's not a lot of space in the market today to take up base metals and primary smelting. And if you take your partner you know well has got an understandably big ambitions to grow the existing and fill up that capacity. So these are all serious things that have to look in a sustainable way. 240, long -- that is a long story, 240, I think, is good as it gets, '24, '25, 2025.

Okay. That's great color. Thanks, Mike, appreciate that. You spoke about Two Rivers doing 180,000 tonnes a month. Could you give me a split there between Merensky and UG2 as you would envisage it and also sort of grades in recoveries between the two?

So the UG2 should do, on an annual -- I'll give you on an ounce basis, on an annualized ounce basis, Jongisa's got the slide, about 380?

Yes, 360,000 PGM ounces, and this is including the additional [ found ] capacity, Brian.

And that should happen in the next 12 months.

Start commissioning in November of this year of 2021 and then it could like a 6-month ramp-up period from what I understand is cost efficient stockpiling.

So the form's in place, the tailings in place, the tower is not there yet. So what are the challenge working on it. And certainly, the plant is in a position to do it. So I think 12 to 16 months that -- the 360 is [indiscernible] And then by 2024, the Merensky because the ramp up is so -- I would call it seamlessly because it's a high profile equipment, we should ramp up about 180,000 ounces per annum, which is also, overall, we're talking 500,000 ounces. And that's about with the best Two Rivers could do, and we can sustain that for about 23 to 25 years.

Our next question is from Thabang Thlaku of SBG Securities.

Can I please ask for -- I'm sorry, this might be a silly question, but I'm trying to -- can I please ask for the breakdown of the ZAR 20 dividend in terms of the cash received from the underlying businesses?

Happy to. So Tsu will just answer that.

Thabang, so the dividends that we received during the year, we received 4 billion from Assmang. We received 1,431 million, so 1.4 billion from Two Rivers. And then we also received 289 from Modikwa.

So that doesn't include -- so you guys don't include the Harmony dividend and the dividend that you didn't pass on to your own shareholders?

We do. We do, Thabang, 82 million.

Okay. So Tsu, I get that calculation. So I get to about 5.8 billion and a bit, and then I divide that by the number of the outstanding shares of 224, but I get to ZAR 25.85, right? So even if I reduce the ZAR 10 from 1H, I'd only get to ZAR 15. I still wouldn't get to the ZAR 20 that you guys have declared for this half. So I'm not sure what I'm doing wrong.

So Thabang, we did mention in the presentation that we actually paid over and above the dividend that we received. So we paid 112%. So while the dividends received during the year totaled ZAR 6,018 million, we paid -- if we include the interim, we paid a total of ZAR 6,637 for the year, or to be clear it's 6,637.

Okay. And maybe just as a follow-up to -- obviously, these underlying subsidiaries are not lifted and neither is Assmang. So forecasting this dividend is a little trickier than if it was based on like some sort of earnings multiple. How can we think about the dividend from Modikwa and Two Rivers going forward? And even Assmang because they seem to be paying a slightly higher dividend than in the past?

So could I start, Thabang. So in terms of the Assmang dividend, we've been working on it for the last number of years to get a more formalized way of determining because the shareholders, as we mentioned quite clear that the idea is to maximize dividends to the shareholders, taking into account the outlook, the capital requirements of the business, et cetera. So there's reason you're probably seeing Assmang pay a higher dividend than historically is because we've been pushing quite hard to have a formalized way of approaching what maximization is. So looking at how much cash is needed based on the capital requirements and really focusing on giving all of the excess over and above that out to the shareholders. So that's where we are with the Assmang one. In terms of Two Rivers, because of the high capital requirement phase that Two Rivers is going to be going through for the next 2 to 3 years, while it self-funds the Merensky, you're probably going to see very limited dividend coming out of Two Rivers. But once that CapEx because we are working very hard to ensure that it is funded at the operation by the operation without a need for cash flows from the partners or Impala and ourselves. So -- and that comes at the price of dividend. So you're going to see very limited dividends coming out of there. Where you will see increased dividend coming out is really at Modikwa. The reason it was relatively smaller in the current period is because the first thing Modikwa did in the period was repay its partner loans, and Tsu must help me with the number, which is about ZAR 580 million...

Yes, yes.

That they repaid and then plus the ZAR 289 million dividend that we received. So there is going to be an improvement in the dividend outlook for Modikwa. Modikwa also has its own CapEx requirements, but they're not quite as high as what Two Rivers is at the moment. I don't know if that helps in terms of how to think about it.

Yes. So Jongisa is absolutely spot on, but I probably just put a little bit of caution, albeit that is not in the budget, the latest thinking is to accelerate all 3 declines development. And to that effect, albeit that we haven't made a final decision, I believe in this environment that's the right thing to do to get to -- it's got a very, very high fixed overhead component of that business. And we need to get to nameplate capacity. And whilst Modikwa can fund itself without going back to the partners, albeit at the cost of relinquishing the proposed dividends, that's the route I would start an engagement process with our partners. If we fail in that, then to Jongisa's point, we will see improved dividends coming up.

So Jongisa, I'm just going to push a little bit here. So just looking at the -- and all these subsidiaries, would you say it's prudent to sort of like look at our estimated cash generated [indiscernible] for capital over the next 12 months, [indiscernible] assume anything over and above that may will be -- and by CapEx, I mean both growth and maintenance CapEx, [indiscernible] assume that any leftover cash is likely to be paid out?

Yes. I think that's a prudent approach too, Thabang. And just flagging that with Assmang, it's -- there's going to be a little bit of a timing difference. So with Assmang, it's going to look like there is a little bit of cash that gets left behind at the Assmang level to fund the CapEx that's coming. So there is a little bit of a timing difference. But I think that's the right way to think about it.

Okay. And then, Mike, I just wanted to find out if you'd be willing to commit to some sort of a number on the rand per tonne number for Merensky at Two Rivers. Is 1,000 too cold or too warm [Technical Difficulty]

Well, I'm talking blind because the work's done, the feasibilities are done. We've got all that. I'm just -- was caught offguard about the number. Now I haven't gone back to that number. But that number, I would think is in the region of about ZAR 900 a tonne, Jongisa?

Yes, it would be less than ZAR 900. So in the current period, the UG2 was mining at ZAR 905 per tonne.

That's going to be lesser.

And the Merensky will be less than that.

No. So I'm going to go back to the -- just to the feasibility, and I'm just going to add inflation, but I think Jongisa is right. It's probably between 700 and 800.

Yes. I'll get you the exact number.

So I'd rather stick to your conservative number and it still makes good, good sense. Easy achieve those numbers. The volumes are there easily.

Yes. So I've already modeled Merensky. And really, the only thing that's outstanding for me is that rand per tonne number. So Mike, are you still of the view that the NPV is around ZAR 3 billion to ZAR 4 billion or do you think it could be slightly higher than that, given that PGM prices seem to be holding up?

Yes, it's certainly between ZAR 3 billion and ZAR 4 billion.

Yes. And Thabang, I know that -- I mean we saw -- I saw your note and that evaluation was higher. I think the differential comes from the PGM price assumptions. We were very conservative in terms of our price assumptions. And at that time, I think we had taken a view of a 40% discount to spot relative to where the long-term prices that we were using for assessing the project. So that ZAR 3 billion to ZAR 4 billion NPV is based on that conservative outlook. And it will be quite leveraged to the change in the PGM price. So if you -- you're probably at a higher NPV because of the PGM price assumptions and outlook because we were conservative.

Our next question is from Justin Brown of Miningmx.

I just wanted to find out, in the presentation, there was a graph showing capital expenditure out to the end of the 2024 financial year to about ZAR 17.3 billion. How much of that is growth capital? And how much of it is to sustain business or operating capital?

Justin, so this has always been a question that we get over and over again. And it's a bit tricky to answer. But if -- so at least 5.7 of that which relates to the Merensky project will be classified purely as growth, okay? So that's the simple one to answer. We then have a significant portion of CapEx that is going into completing the Black Rock project, which is the -- almost the [indiscernible] 6.7 billion that was approved. But then there's also the Gloria project, which is 2.7 that was approved. Now the reason I say the split is not as simplistic is because a lot of that CapEx for the Black Rock project as well as the Gloria project is a mix of expansionary and [ aside being the sense that ] it's refurbishment of existing production systems for improved efficiency and cost. And so there's -- it's quite difficult to split that one very purely. In my non-mining speak, it was explained to me in a way to say, to replace a winder [Technical Difficulty] but you can get a slightly bigger winder, which is going to be x plus 10 and, that allows you to increase production, but it would have required replacing anyway. So the cost of that winder would you classify that as SIB CapEx or expansionary. So this is the reason why I said quite difficult to split. And then you'll see that, that CapEx is higher than what we had previously guided over and above the Merensky. And some of that is related to this extension of life at Beeshoek Mine. So we've got to do additional waste stripping, which will be capitalized for the purpose of that. So it is -- I'm sorry, I don't give you a clear number of the 17 billion circa what the split is going to be. But at the very least 6 billion to 6.5 billion of that will be expansionary and the rest is quite difficult to split. Some of it is extension of life, which we view as expansionary. I don't know if that helps, Justin.

And -- so what is the mine? Is it Beeshoek Mine you mentioned just a moment ago?

Yes. It's the Beeshoek iron ore operations. This is the one that Mike said that we have done additional drilling, and we've increased the resource -- the reserves quite substantially. We were initially on 6 years of life remaining, and we've now increased that to 15 years of life that's remaining. But there is some CapEx that needs to go with that because the approach of the life of mine is now different. So we need to strip. In addition, the complete replacement that we are having to do because initially, when we thought we had 6 years left, we were kind of going to run the current fleet for the rest of the period. But now we are considering some fleet replacement for improved efficiencies, et cetera. So it's Beeshoek Mine, the iron ore operations.

Okay. Sorry, and it is the financial director speaking? So -- I'm not sure.

No. It's Jongisa here.

Sorry. Jongisa, sorry, I just wanted to make sure who was talking. So I came on a little bit late on the call.

Thabang, that number is ZAR 800 a tonne.

[Operator Instructions] The next question is from Jandre Pieterse of Rezco Asset Management.

Just a bit of a question on the profitability on the coal side, and apologies if I missed this earlier. You mentioned at some point that the cost of production is above what you would receive from Eskom. Maybe just some color in terms of how you think -- where the profitability lies between the 2 different parts of the coal business as well as would you ever consider closing or downsizing any part of the coal business? Or what is that thinking about the future there?

Yes. So maybe if I can just clarify that statement or that comment, which you heard correctly, is when you mine a coal seam, we get different grading, and the top-quality grading is where you normally demand quite a good premium over and above your cost. That historically has been exported. And that's where you make your money. So it doesn't really matter what you get for the remaining cost of seam. So if you have to sell everything and you simply exclude or ignore the high quality and that seam and you sold it all on to an Eskom basis, you would -- the mining cost would exceed the cost of sales. But historically, you've made, let's call it, your profitability or the lion's share thereof out of quality in export sales. And then the lower quality seam material, which was suitable for Eskom, you would then negotiate term contracts, which are generally very low, and there's a lot of pressure understandably on Eskom to deliver, particularly with rising electricity prices. So I think -- I hope that qualifies. So as long as you've got that mining proportion, it's fine, where you can get different prices for different grades within the seam you're mining. It's not the operation. Did that help?

Yes, that's very helpful. Just maybe if you have any kind of indication in terms of the export split of the business going forward, just percentage-wise for PCB and GGV there? Any idea what that split looks like?

No, we've got it. And just turning to the page on...

I want to take you to the page because we do -- so on Slide 50 of the presentation and this is in the sort of bottom right hand corner, we show a split of what the export sales are going to be for the next 3 years, and what Eskom and local sales are. But I mean, obviously, the bulk of Eskom and local is just Eskom. But we do show it there.

That's very helpful.

Yes, have [ you been able to ] access it. Jandre, have you been able to access it?

Yes. Yes. I see the slide. I see the chart. That's helpful.

So just to confirm -- sorry, I think Mike was trying to say while the operator was speaking, Thabang, that rand a tonne number for the Merensky cost was ZAR 800 per tonne.

Our next question is from -- a follow up from Thabang Thlaku of SBG Securities.

I've got 2 more follow-up questions. On coal guys, it just seems to be quite problematic. We've gone through, as Brian mentioned, a high price environment, and it's just not coming through. Can we get an update on the operational issues that you guys have experienced with contractors and so forth? And is that largely behind you?

So I do know that because that's a difficult question, Thando's on the line, and I'm going to [Technical Difficulty] And if I could ask the operator to open Thando Mkatshana's line, so he can speak to some of the challenges -- operational challenges of coal.

Can you hear me?

Yes, I can hear you clearly, Thando.

Okay. Thank you so much. So Thabang, I got the end of your question, but I think it's related to -- on mine operational challenges that we face. I will start with PCB. As you know, PCB -- actually Tweefontein mine, which forms part of PCB, we are mining old and the current [indiscernible] there. Somehow a year ago, we reported a free [ tunnel ] that came out of explosion -- explosives combustion and exploding prematurely. Since then, we had, had to really space the blasting holes away from areas that have been hot while we were looking for a solution. We have since found a new sleeve that you could insert and that is able to withstand temperatures up to about 250, 300 degree Celsius that we can blast the hot holes. Unfortunately, in the meantime, while we were looking for that solution, we have areas that have not been blasted very well, and we've been struggling to expose coal there. We're going to be out of those areas by the end of fiscal -- actually this month, we believe, will be out of those areas. So we will sort out that part of the operation. We also have had planned the second pipeline that was supposed to come in around the first quarter of the last financial year. However, due to COVID and delay in the supply of [indiscernible] that pipeline got commissioned late in around November last year. Those were the main really challenges that affected the coal operation at the mine. However, the biggest contributor, the total business on the coal, we lost production of about 4 million tonnes as a result of stockpiles being full. When the stockpiles are full because TFR is not performing, we have had to stop operations and do other work. In December, we also took a longer break than we normally do. Normally, we'll have 5-day breaks. In this case, we took 2.5 weeks breaks to accommodate the movement of coke. So our main [ inhibit ] in terms of being able to produce has been the TFR performance that has resulted in the sales not -- rather coal not been moved, hence, the stockpiles were full. Thank you.

Okay. And then I have one more follow-up question. Jongisa, how should we think about that management fee from Assmang. Obviously, you guys have renegotiated on -- commodity prices are higher, how can I model that fee going forward? Jongisa, are you there?

Please make sure the line is not muted. [Operator Instructions]

Thabang, apologies about that. I could hear you, but I think we lost sound this side, so I do apologize. Can you hear me now, Thabang?

Yes, I can.

Okay, perfect. So I was saying that we have revised the fee arrangements with Assmang such that the fees that ARM earns, the management fees are more in line or aligned with the profitability and performance at Assmang. So that's how you should think about it. I think based on the profitability this year, and we've had a full year of the revised fee arrangements, you have a sense of what the fees are. And so the relationship will be between those 2 factors.

Since we have no further questions on the line, may I hand back to Mike for closing comments.

Thank you, operator. Tsu will do the closing comments.

Thank you. Thank you, Jongisa. So [indiscernible] we are positive on the outlook of ARM performance going forward. Yes, we have seen a decline in the commodity prices. However, management is doing all it can to ensure that we continue working hard to increase profitability, and that includes continued focus on cost containments across the board, basically looking at seeing what we can control and doing that to the best of our ability. Our balance sheet remains strong, which puts us in a position to take advantage of any value enhancing growth opportunities that come our way. And we're looking forward to taking advantage of those in a responsible manner obviously and not overpaying for any assets or the like. But yes, we're still excited about the business. We are seeing a lot of opportunities within both organic as well as outside externally. And yes, we're just looking forward to getting on with it as management. Thank you, operator.

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