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

Good day, ladies and gentlemen, and welcome to the African Rainbow Minerals Conference Call for the Bokoni Platinum Mine acquisition. [Operator Instructions] Please note that this call is being recorded. I would now like to hand the conference over to Jongisa Magagula. Please go ahead.

Good afternoon, everyone, and thank you for joining us today. We are quite pleased that we've got quite a strong turnout, particularly as people are winding down for the festive season, and we do appreciate your time. We are quite excited to have announced today ARM's acquisition of the Bokoni Platinum Mine Limited. And the core really is just to engage a bit more on the transaction as well as to allow everyone questions should they have. We've got the ARM team online, and I'm just going to briefly introduce everyone who is here. First we got Mark Schmidt, our Chief Executive Officer. We've also got Tsundzukani Mhlanga, who is our Finance Director. We're also joined today by [ Philip Tobias ] who's joined us as the Chief Operating Officer of ARM; Thando Mkatshana, who I think everyone probably knows, our Chief Executive of Platinum is on the line. And the 2 individuals that have been instrumental in the transaction Jacques van der Bijl, who's our Executive Growth together with Imrhan Paruk, who is the Executive Growth and New Business. And we're also joined by Lucas Moalusi, who is our Head of Legal on the call. Without any further delay, I'd now like to hand over to Michael Schmidt to just take us through a high-level overview of the transaction.

Jongisa, thanks very much and to the people on the call again, just thank you very much at this belated time of the year, and these transactions have their own time of being executed. But we're pretty pleased overall. There's been a lot of thinking and hard work over the last 1.5 years that's gone into this and all the rationale and the detailed work that's going into it and the opportunity, and I have a really good team on board, particularly with Imrhan and Jacques, who can give you a lot of insight and detail as to what the rationale and the understanding and the opportunities that ARM sees going forward. So to the team, they're all here. They've all been part of the process and are quite comfortable in addressing any questions. In line with the [ things ] that went out this morning on our website, we have a detailed presentation on what we're going to touch on. So I am not really going to go word for word because I to trust all of you have seen it or have it front of you so, principally, we've acquired 100% of the shares from Bokoni, the mine. And this -- and this comes from Anglo and from Atlatsa. And so the intention is that ARM will only eventually pursue a new name subsidiary of on ARM Platinum is ARM BMC, which will own 85% and 15% goes then into an SPV, which held 5% by employees, 5% communities and 5% by identified industrialists. The total transaction on Slide 5 is -- was for purchase consideration upfront of ZAR 3.5 billion. And we've also concluded a seller concentrate agreement for a 23-year term, and obviously, that would be renewable at the time. If I just move on to Slide 6, the financing, as you would be aware that ARM has sufficient cash resources. And the capital that we intend to spend over the next 3 to 4 years is approximately ZAR 5 billion. And the lion's share of the capital will be going into the UG2 development to expose and expand on the UG2. Whereas in the past, Bokoni over many years has focused on the Merensky ore body, we are going to transition over time into the UG2. We are --have -- we will commence with a definitive study, which will take approximately 10 to 12 months. And the reason around that is to conclude the mining method, the layout and to enhance the productivity and efficiencies. The focus on the DFS is to do our mechanised on-reef mining method, which is through the layouts, work proven technology and adopt that to get the mine on the bottom end of the cost curve once it achieves steady state. The target is to obviously get the operational cost below ZAR 12,000 per PGM ounce. We intend to mine into steady state production that in approximately 2028 of 300,000 ounces of 6E PGMs per annum. And then we'll also be doing chromitite concentrate in the region of about 230,000 tonnes per annum. I'd like to conclude here and then hand over to Jacques to focus and then Imrhan can interject where -- to talk about the mine itself and then to move on to the rationale on the transaction. So Jacques, over to you.

Thank you, Mike.

I'm so sorry. I didn't mean to say at the beginning in my intro, so I'll do so here. But the presentation is available on the website on our home page. So if you haven't already done so, if you could download it so that you could follow the slide presentation that Mike and Jacques and the rest of the team will be making. Thanks. Please go ahead, Jacques.

Thank you, Mike. Thank you, Jongisa. If I can reference on Slide #8, where we talk about the Bokoni Platinum Mine and provide an overview of BPM. And so if you look at Bokoni Platinum Mine itself, its mining operation that situates in Limpopo Province and it's on the Eastern Limb it's one of the most further western mines located on the eastern end of the Bushveld Complex. It is currently owned 100% by, and has Mike has indicated, by Atlatsa and by [ Anglo Platinum ] Mines. Atlatsa own 51% and [ Anglo Platinum ] Mines own 49% of Bokoni. And what quite excites us about the Bokoni is that it's a very large mineral resource. It's the second largest PGM resource in South Africa. And then there's some further details provider on the mineral resource in Slide #9 so we can move forward to that. So a complete overview of BPM. We intend to complete 153 million ounces. As I've indicated, it's the second largest PGM resource in South Africa with a very high grade of 5.9 grams per tonne which is the third highest resource grade in South Africa. It comprises approximately 64% UG2 and 36% Merensky. And has Mike has indicated, UG2 would be our primary focus of the initial development capital that we would allocate. What we quite like about the UG2 is it's very high grade. And sitting at 6.56 grams per tonne which is the highest UG2 resource grade in South Africa. And it's also got a favorable cross-cut currently of 49%, palladium, 41% platinum and 8% Rhodium. And the Merensky resource that was mined historically has got a resource grade of 4.94 grams per tonne. In addition, Bokoni also got established mining and processing infrastructure which enables us to recommence mining as well as start producing concentrate relatively quickly compared to a complete new greenfield site. And if we can move on to Slide #10 where we provide a slide overview of the shaft and the processing capacities at Bokoni So Bokoni currently is used to -- currently on health care maintenance. When it was still operating back in 2016 and had 2 production shafts, mainly Brakfontein shaft as well as Middelpunt Hill. Brakfontein was a relatively new shaft that was developed by [ Anglo Platinum ] Metals in 2007, and it was primarily focused on mining the Merensky ore body. And Middelpunt Hill was developed in the early 2000s, 2001, 2002 for the extraction of UG2. However, that was still a relatively small shaft little bit smaller putting about 60,000 tonnes per month, and we plan to spend capital to increase the capacity of our shafts to 120,000 tonnes each, which will give us a combined capacity of 240,000 tonnes per month. And currently, those 2 shafts combined has got a capacity of 160,000. So we will be expanding that to 240,000. In addition, the mine has also got a number of vertical shafts, some of them historical as mining there dates back to 1969, mainly a vertical shaft in year 1 and year 2. And in the future, we're just planning to use these vertical shaft for de-watering as well as for information requirements. On the processing side, Bokoni currently has got 2 concentrator plants, the Merensky concentrator plant and the UG2 plant. And the Merensky concentrator plant has got a capacity of 100,000 tonnes per month, and the UG2, 60,000 tonnes per month. The UG2 plant itself requires very little work to get it back into operation. And our plan is to utilize that for early mining of -- to treat underneath development in the second year. The Merensky concentrator plant, we will completely reconfigure from our MF1 circuit to the MF2 to enable treatment of UG2. And we will also increase its capacity so that the total combined capacity of the concentrator plant facilities would be adding 180,000 tonnes per month. Historically, the 2 plants achieved very high flotation recoveries of 87%, respectively, for UG2 and 88% for Merensky. And then in addition, there is existing tailings storage facilities, which can accommodate up 160,000 tonnes per month with an approximately 5 years of remaining life left. As part of the definitive feasibility study that we will commence within the -- or complete within the next 12 months, we will be looking to construct the new tailings facility that would be able to take the new cost added on capacity that we plan as well as provide us with sufficient capacity for the remaining life of mine. If we can move forward to Slide 11, what we've got here is just bar diagrams of industry mineral resource grades and sizes. And you can see there what we've illustrated on the left-hand side is Bokoni's relative side of 153 million ounces which is the second largest BGM mineral resource in South Africa. And for reference, we've also listed the other 2 all-platinum operations of Modikwa which has got a combined capacity of resource size of 71 million ounces and Two Rivers of 42 million. And when we look at the resource grade, also Bokoni is very favorable with a resource grade of 5.9 grams per tonne that compares to Modikwa of 4.6 and Two Rivers of 4.1. What I would just like to highlight here is that Bokoni has got the highest UG2 resource grade in the Bushveld Complex of 6.6 grams per tonne, and that would be our focus area for our capital development going forward. Also what is quite favorable is the savings element of Measured Resource within Bokoni resource of 55 million ounces, which represents 36% of its -- the resource base. And we foresee that for the initial Phase 1 development phase of the life of mine of 23 years, that the majority of those tonnes that would be mined is currently in the measured category. And I've previously identified the favorable UG2 prospects of 49% palladium, 41% platinum and 8% Rhodium, which gives us a very attractive basket price. In addition to that, the UG2 resource has got a relative high nickel grade of 0.17%. And also we would be looking to maximize the chrome recovery from UG2. And if we can move forward to Slide #12, we just give some more detail of mineral resources at the current split between UG2 and Merensky. As indicated before, of notably the high grade UG2 of 6.56 grams per tonne with Merensky coming in at 4.94. The category split there, you can see between measured, indicated and inferred with quite high proportion of the mineral resourcing measured. And then lastly, just to highlight at the bottom there is the full split. You can see that UG2 has got a very balanced approach between palladium and platinum with palladium slightly higher than platinum. Whilst the Merensky has got a much higher platinum percentage of 61% and palladium of 29%. If we move forward to Slide 13. What we've done here is based on the initial work that we've done as part of the due diligence process to just identify for our mechanised mining approach at Bokoni combined with the high resource grade where do we believe that Bokoni would be able to sit on the overall industry cost curve. And the initial work that we've identified looks very favorable, and we're confident in targeting a below the 50th percentile position on the industry cash cost curve. And that's really a combination of the higher efficiencies, higher labor productivity that we obtained with the mechanised mining method combined with the high resource grade, which will translate into a high reserve grade as well. I think then moving on to Slide #15 and perhaps here, if I can hand over to Imrhan to cover just why we believe that BPM is a compelling fit and opportunity for ARM. Thanks again.

Jacques, thanks so much. There's so much to say. I think from our perspective, we've got a very strong Eastern Limb presence and this adds nicely to our portfolio on the page in the middle block. It also implies a very nice increase to our resource base. And a similar message in terms of the top right graph, on Page 15. A nice uplift in terms of the overall grade -- resource grade differentiation as well. I think the last slide on the last page on Page 15 is the bottom right graph, is that once we get a steady state, I think this asset was made a significant impact in terms of our production footprint. I think that's nicely captured if you actually look at the next slide, which is on 16. So I think what we'd like to highlight here for a second is, if you look at where ARM is as we are today, on a 100% basis, the bottom left tells you that we're targeting growing our 100% [indiscernible] And we've got 619,000 6E PGM ounces to about just under 1.2 million. And you can see that depicted on the right-hand side, that takes you to, as we are today, roughly about the fourth biggest producer but obviously, we're not comparing like for like. Our number is a 4-digit number, whereas all the other numbers in that graph are current. So I'm sure the others are growing. We're going to end ourselves around the fourth overall office. On an absolute basis, we just highlighted at the very bottom that graph that on an attributable basis, you're looking at growing to about 650,000 ounces 6E PGM ounces by 2026, and we're just under half of that as of now. So essentially what this transaction does in terms of production profile is that we hope that within the next 3 to 4 years, we're going to be able to double our production footprint once we translate what is a really attractive resource into a mine-closed DFS and then move on to production from there. Jacques, do you want to head back onto Page 17?

Yes, sure, thank you Imrhan. So if we look at our initial parameters looking for the investment feasibility study plan put early into next year, as we already indicated, it would be exclusively focused on UG2 because of the attractive full split which gives us a very good basket price. And also in addition, what we've seen from initial and due diligence basis that the UG2 ore body has got significantly less geological interferences such as potholes structures, et cetera compared to Merensky. So much -- it does provide much more favorable mining conditions to be able to --enable us to achieve higher productivity and as well as extraction as compared to what they've been able to achieve in the past whilst they were focusing on the Merensky operation. As I've indicated before, we are planning to introduce a fully mechanised mining asset at Bokoni and that will comprise of low-profile en-route development combined with a narrow-use equipment mechanised scoping that will be done there. And we will also leverage off the existing infrastructure that we've got at Bokoni, the 2 existing shafts which we increase the capacity of them of to 120,000 tonnes each and then in addition, also the 2 processing facilities as well as the tailing storage facility. There's also good power already available at Bokoni with the total [ as-come ] connection of greater than 40 MBA. So that's also a great plus which will enable us to commence with pretty soon after we've completed the feasibility study. What we've provided there on the right hand side of the graph, you can just see our expectations of the ramp-up of the PGM 6E over the life of mine, the initial life of mine of 23 years. And what I just also want to indicate is that this initial mine -- life of mine only extracts a very small percentage of the overall mineral resource base which enables us an ability for further organic growth at the [ belly ]. Moving on to Slide 18. This is just a continuation of the DFS Plan. So we believe that this new mechanised mine plan will comfortably be able to produce in excess of 300,000 ounces, 6E in concentrate per annum and our position at the bottom of the industry cash cost curve due to recognized mining method combined with the higher resource grade, which we believe will translate into a higher reserve grade as well. We're planning to spend approximately ZAR 5 million in 2021 terms at the operation over the next 3 years which will be a combination of upgrading the cost credit bond capacity, constructing a new tailing storage facility as well as upgrading the shaft infrastructure to 120 kiloton each. And a large portion of our that capital will also be going to on-reef development to open up sufficient flexibility to introduce the narrow reach equipment stoping mine -- mechanised stoping mine. Thank you. I think that concludes the overall presentation. But actually...

Can I just interject. Why don't you interview -- why don't you just level-right a little bit around the DMS and the thinking on that.

Yes, so give me a mic. So what we do see is that with the on-reef mining method that we do utilize, obviously an on-reef mine will produce PGM ounces, but it does come with a portion of [ broximide ] waste that you do take from that. Our tonnage profile roughly between stoping and on-reef development would be approximately 50%, 50%. But to improve the grade feed into the plant and then also to enable us to produce a much higher concentrate grade, what we're looking at as well as part of the process mix and as part of the definitive feasibility study is to introduce a dense media separation plant and where, we will exclusively treat the on-reef development. So we become underground structure point of view, we will set the infrastructure to be able accommodate 2 types of ore. The stoping ore will be wasted separately from the on-reef development. And then on-reef development, we would put for a DMS plant first to separate out the waste from the high-grade reef. I mean the DMS concentrate, which will now mostly contained just the high-grade reef would then go straight into the flotation concentrator plant together with the stoping tonnes. So reporting into the concentrator plant would be the stoping tonnes, which will be wasted from underground combined with the concentrate from the DMS. That allows us to have a much higher grade model into the concentrate plant, which enables us to achieve a higher recoveries, higher efficiencies and also very importantly, much higher concentrate grade. In addition to that, it also reduces the amount of tonnes that reports to the tailing storage facility. And that way, we get around the constraint and what the current tailing storage facilities has got which will buy us time to build a bigger, larger tailing storage facility as per the project execution phase. I think that sort of summarize our current thinking around it. But we do like it. It's very similar in terms the thing that [ Creedmore ] currently does with their DMS plant very successfully. And ours should be a combination stoping tonnes that we'll report directly to the mill. And then the on-reef development that will go through the DMS plant first to separate out the waste, produce a higher grade concentrate that then goes into the concentrator plant. Thank you, Mike.

Thank you, Jacques. So Irene, I think that concludes our presentation and we'll hand back to you. And to anyone who has any questions.

[Operator Instructions] Our first question is from Shilan Modi of HSBC.

A quick 4 questions from my side. The first one is in the notice that you sent out this morning, you mentioned there's a ZAR 1.3 billion liability that transfers with the assets. Can you maybe give us an idea of what that relates to? And is there an assessed tax loss that's in there that you will be able to carry forward to reduce your taxes going -- for the first few years of production? I'll follow on with my questions after that.

Thank you. Imrhan you want to take that?

Yes, Mike. Can you hear me?

Yes.

The ZAR 1.3 billion is a shareholder loan that will as part of our purchase price. So it's -- I mean essentially the one-point -- sorry the ZAR 1.3 billion is the NAV not the -- that's just the financial statement. The 3.3 billion is the share -- that's verify that question, Shilan, it's the NAV is the actual going consent position. The net liability position of the company on its financial statements. The second part of your question -- and just to clarify. I think there's shareholder loan that gets assumed as part of the bridge price.

That helps and the tax losses?

Yes. So look, there are unredeemed capital allowances and there also assessed losses that need to be [ STARS ] verified or solved or to turn off banking or anything. We need to continue and close that process and I get it assessed properly. The short answer to your question person is that, yes, there are assessed losses -- cumulative assessed losses as well as routine capital allowances as well. We'll expand more on that once we close the deal once we know where we stand on this.

Okay. Just in terms of the time lines, and this is just for modeling purposes. Is it correct to assume it's a 3-year both? So 3 years of CapEx and then a 3-year ramp-up? And then with the newer tailings storage facility, is that included in the ZAR 5.3 billion CapEx guidance?

Jacques , take that please.

Thank you, Mike. To answer your first question, there is a 3-year capital vote but we would be starting to produce already from year 2 out. And the reason more we can do that is because we've got on-reef development that we would be producing in year 2 already. So the reef production coming to surface. And then in addition to it, we've got an existing 6 kilotons per month UG2 plant. So the intention is that on-reef development will be processed for the UG2 plant which enables us produce and to cost track from year 2 onwards. That begins in the second year of a 3-year program. And that -- the new tailing storage facility as part of that circa ZAR 5 billion capital program we plan.

Okay. Perfect. If we look at Slide 15 and 16. So on Slide 15, you gave some volume numbers in the bottom right. And then you give volume numbers on Slide 16. What is the difference between the 2? Because both say Bokoni 2026 and there's different numbers [indiscernible] are also different.

I'm sorry. Yes, if I can if you can just -- of course, the slide open has been -- if you can just repeat your question if you don't mind..

So if you look at Slide 15 on the bottom right, where you give the volumes, the 6E ounces for Two Rivers, Modikwa and Bokoni. And then you look at Slide 16 and you look at the volumes, again, for Two Rivers, Modikwa and Bokoni 2026, the numbers are different. So I just wanted to know what the difference.

So on Slide 15, those are the attributable numbers. So those are -- if you take the total production PGM concentrate from those mining operations and you multiply by ARM's interest in those operations, then you get the numbers on Slide 15. On Slide 16, the graph on the left-hand side shows the operations on a 100% basis, building that to circa 1.2 million ounces in 2026.

I think I misread the chart, is that -- on Slide 16, is that just the growth that you're showing on the right-hand side of that chart?

So yes. On the left-hand side, we show the growth going from 2021 up to 2026 and the right hand side we just show it relative to our peers.

Okay. And then -- and my last question, maybe for Mike. I wanted to understand the strategic rationale of expanding your PGM footprint versus some other metals. A lot of the other miners globally are looking at, let's call them, green metal so to fit into the new EV mantra looking at copper, looking at nickel. What was the strategic rationale for PGMs over copper, nickel or some of the other metals.

Mike, you might still be on mute.

Sorry. So we have, over the last couple of years, said that we would like to -- we see a bright future for PGM in the green space. Yes, there will be [ thrifty] within that. So we needed to get -- in the first phase, we want to increase our exposure. I used the word in our announcement about critical mass which allows further opportunity. And secondly, if you want to consolidate more in the Eastern Limb where we can win again leverage on our existing infrastructure plus our management capacity and levels of consolidation whether that being procurement and other synergies. But it's always been a state that we think in terms of our view of PGMs going forward not to say that -- and we do see that as pretty green. So not to say that we have excluded other metals or commodities, which are in the pipeline of consideration. So one is we did say that nickel and particularly the nickel assets we own in at the right time at the right incentive price, we had a fairly large resource. And that could come into the pot, and that's really a very positive outlook in terms of nickel and associated by-products. And then we did also say that we are also looking early days, actually are looking at palladium, which would also be used 4, 5 years into the future into the [ base ] space. So I think it's about timing, but we are not excluded. As per the other player, I think most of them that have gone out had that critical mass in PGMs and now expanding their place. So I hope that answers your question.

Yes, that's very helpful, Mike. One more, if I may. Just in terms of funding. So I mean, you mentioned that you can fund this acquisition from on balance sheet cash sources. There is a big CapEx pool that goes with this acquisition, just to ramp up the mine. You're also spending money at Two Rivers. How should we think about the balance sheet of ARM going forward in light of maintaining your dividend payouts and such, especially given that iron ore's kind of pulled back quite a bit in the last 6 months?

Yes. So in our front, we have put in a couple of years ago, a dividend policy. And we will comply and on the status, perform returning money to shareholders in the form of dividends and growth is still key to us, and we now see a compromising the one or the other. The cash flow generation remains strong even at the iron ore prices which diluted it have come down. Those operations are still delivering good returns and then you referred to the Two Rivers growth which announced last year, that, as -- if the prices hold as intended, that mine will self-fund that and will still deliver dividends. So I don't see this interfering in our policy of balancing growth and returning cash to shareholders. I think they will still complement each other.

Our next question is from Thabang Thlaku of SBG Securities.

Two questions from my side. Obviously [ MTEC ] put Bokoni on care maintenance back in 2016 as you mentioned. And even though we've had a rise in platinum prices over the last 2 to 3 years, they've never gone back and tried operate for their own reasons. So I just wanted find out from you Mike and team, apart from scale, which seems to be one of the key, sort of, changes you guys will be making, what are some of the things that you guys will be taking into consideration that [ MTEC ] hadn't and will make this asset comfortable going forward?

Thanks, Thabang. So I think I wanted to prioritize. Undoubtedly, scale is one so you need to get the right scale to offset over. It has been a significant -- even though there's been a price retraction, the prices today, even discounting another 20% are still significantly higher than they were under the JV. And so pricing was an issue. Scale was an issue. But I think our focus, and that was also identified by the previous Bokoni team and by [ Inclusa] is that time vision into more favorable UG2 as opposed to driving the Merensky which had some of its own geo -- technical and geological problems, potholes being one of them, but in terms of the demand of metal, the composition or the demand in terms of Rhodium palladium today is more favorable. That's what I used earlier, Thabang is that [ 13 ], is inevitable. And if you think about the carbon economy and you think about through fuel cell technology, it's some timing to the future, I can't give exact timing, is that platinum will come back. So there will be a [ 13 ], balance in this. So the focus is sale UG2. I think that is by and large the main drivers and last but not least is to focus on efficient, proven recognized technology, which is now a proven technology. It's not out there in the lands. I think those are the 3 main drivers, but Jacques or anyone on the team, please add if you think I missed a very important point. Jacques?

Yes. Thank you, Mike. Mike, I fully agree with what is -- and the key thing is obviously -- and which we had at some of our other operations is that you need scale because your basis in fixed costs associated with running a mine and if you don't have sufficient volumes to cover your fixed cost it just skews your unit cost quite high. In the past, the Bokoni used to operate and produce about 100,000 tonnes to 110,000 tonnes run of mine per annum. We're looking at doubling that. So in terms of scale, it would be double what was done in the past. And primarily been able to do with a combination on-reef mechanised mining as well as the fact that we are focusing on UG2, which is, as Mike has indicated, much less complicated from a geological and geotechnical aspect gives us confidence that we would be able to ramp up the mine to those required volumes. And then the fact that the mine would be mechanised, which gives you much higher productivity numbers compared to the conventional mining methods that was utilized in the past gives us confidence that this mine would be positioned very favorably on the cost curve for the future. Thank you.

Okay. And then just one more question from me. Are you able to share what sort of prices you were seeing in this deal? When I say current prices is 20% is quite close to that PGM basket pipe?

Jacques, do you have that number, do you want?

Yes. What I can say is that our numbers are 100% aligned with the consensus and long-term prices. So if you look at your average broker consensus prices that has been established recently in the last couple of months, our numbers are 100% along with us. So when we do our feasibility study and analysis, we're always aligned to what is the consensus long-term consensus view. And we are quite comfortable that even as those long-term numbers, which are still substantially down compared to current spot. I think currently, it's probably about 30% to 40% still down for beta spot on a basket price basis that the mine is still making very attractive financial returns.

[Operator Instructions] We have a question from Rajay Ambekar of Excelsia Capital.

Just a couple of questions. Firstly, I just want to make sure I get it correct that you as you say that there's a 3.3 shareholder's loan currently in the business? And maybe you can give some details of whether that's being paid back to the shareholders immediately or is there certain repayment terms? That was the first question. And then the second one was, could you give an idea of total cumulative CapEx spend on the assets you have bought to date? And maybe your assessment of the inherent value of that CapEx? Is a large part of it still relevant and useful or not?

Imrhan do you want to comment?

Jacques, do you want to start with second part of that?

Yes. So in our assessment, and it's only going back over the last 20 years that there's been approximately greater than ZAR 8 billion of total capital spend at the mines, of which there's 100 in CapEx of about ZAR 5 billion left. But like Imrhan I think indicated that we would have to do the assessment ourselves in the future to make sure that we could carry that forward. And we do believe that quite a large portion of that capital would be still be relevant for what we plan to do. And that enables us to come in with a very good capital efficiency. If you get a look at the capital costs that would be required to build a new mine, and I said to produce 300,000 ounces from greenfield site compared to what we forecasted ZAR 5.3 billion. we do get quite a lot of benefits from that historical capital spend at the mine in the past. And that's primarily in the form on the 2 shafts as we've really developed this infrastructure, this mining equipment, there's the 2 concentrator plants, there's an existing tailings system that's got 5 years of life left. There is bulk services and infrastructure and water supply and power supply that's already on site and so the mine definitely does benefit from that going forward.

Can you hear me?

We can hear you now.

To the first part, the shareholder loan is being assumed by in the same terms, and that's included in our purchase price of ZAR 3.5 billion. Is that clear?

And then maybe just on the price of ZAR 3.5 billion. So is the enterprise value the ZAR 3.5 billion plus the ZAR 3.3 billion? So is the net payment the sum of those two?

No, no, no. The net payment is ZAR 3.5 billion. And essentially, if you understood it, then I guess that's comprising a loan plus equity.

Correct. So enterprise value is the sum of the 2.

Correct. Correct.

Our next question is from [ Kiri Ki ] of [ Marototi Capital Markets ].

Could you please elaborate on the current infrastructure and Bokoni? And the second question is, could you please share with us the project management strategies and trends that have been adopted to ensure that the project is actually finished within those committed time line.

Thank you, that is your 2 questions?

The first question is just touch a little on the current structural programs and Bokoni. And then the second one was the project management plans and strategies that have been adopted to ensure that the project is actually finished within the estimated time.

Jacques, can you come in?

So thanks for the questions. The infrastructure, the current course doesn't really have infrastructure challenges. You had more than handful barrels of life to the mine as I indicated before, greater than 40 [ MBA ] which is far big enough for our requirement of what we plan building the capital during the operational phase. It's got bulk order supply in the form of dewatering from the mine itself as well as full water that currently -- water extracts, got water use licenses, approval to licenses in place to extract at water. So I think in terms of bulk infrastructure supply, the mine is well serviced. Combined from an infrastructure point of view, as I indicated has got the 2 concentrator plants. We've got the 2 shafts, Middelpunt Hill and Brakfontein. Brakfontein in the past used to focus in on Merensky. We will reconfigure the shaft to develop and access UG2. Middelpunt Hill itself was designed for a much smaller mining footprint of about 30,000 to 60,000 tonnes. It's got a small added to the top of the mine that it needs to provide access to the mining operations. We are planning to develop a new decline shaft at [ Middelpunt ], which would be equipped with conveyor belts, conveyor belt infrastructure underground as we will convey the reef from underground all the way to surface. We would have capacity to work 2 types of reefs, mainly the on-reef development and the stoping separately. So it will be a complete recognized mining operation, very similar from infrastructure point of view to what we've currently in place at our Two Rivers mining operation. I mean -- your second question with regards to the project planning, as on the pride ourselves in our ability to be able to execute within budget and on time. We've got quite a long history of successful capital projects over the last 15 years, specifically both at our platinum and as well as our ferrous operations. So as part of that overall project plan, we do a, what we call a definitive feasibility study up to a plus/minus 10% accuracy level for that capital to be spent over the next 3 years, and we will commence for that now and to conclude within the next 12 months. That will then go -- go into our ambition committee as well as onboard for approval over that capital and to the extent we will put in place, we've got already a very good experienced project management people and in place. And we will bolster that team internally and we will be appointing EPCM companies to assist us that's got a track record and that successfully demonstrated the ability to develop and build PGM mines in South Africa. So we will be making that appointment in the New Year for both the feasibility study. And then ultimately, the EPCM company will assist us the project execution as well. It's a model that we're quite familiar with, as I indicated. We've successfully adopted that model on a number of projects over the last 15 years, and we've got a very high confidence level that we would be able to develop and build this mine on time and within budget.

We have a question from [ Sadrulak Magaguela of Mtubua ].

I've 2 questions here. The first one is the relating to your results at UG2. It was consisting of how much are you looking to convey the results into the this? If you can put this in comparison to what you already have to results of [ Ombikwa ] if that compares better than the other. And then as the question I think maybe for now, I can pause it, and I can ask the second question after the answer to the other question.

Please go, Jacques.

And so the margin method that we plan to utilize is what we call [ NRE ] mechanised stoping mining process. It does contain in support in the panel itself utilizing probably CapEx as well as combination loopholes as well as [ in-step ] pillars. What does -- that does allow us to have a much higher extraction rate compared to, say, a mechanised modern board and pillar operation. So if you look at the board and pillar operation, so a few of the -- a typical conversion rate from resource to reserve construction structure 75%. The reverse mining method because of that additional drop-back in-step support you're getting an extraction rate of about 85%. So you've got a very good resource to reserve extraction rate. And then in addition to that, because we are utilizing a narrow-reach equipment mining method, we can target an optimal mining cap of about 1.1 meter in mining out which leaves an amount of allusion that we introduce in the stoping that is quite low. And therefore, our stoping reserve grade that we get is very close to the resource grade. So our resource grade is going to be something at 6.6 grams per tonne from the study that we've done as that we're indicating that we'll probably get reserve grade of about 6 grams per tonne on the stoping portion. On the development portion, because of the on-reef development you are diluting with your [ broximide ] in the foothold because you have a median height of 2 to 2.5 meter mining height for your low-profile mining machinery trucker's mining machinery to operate in. Then your reserve grade would be roughly about 2.5 grams per tonne. That reserve grade we plan treat with a DMS plant which will upgrade their development grade before it reports into the concentrator plant. So overall, I think the mining method allows us to have a very good resource to reserve conversion from a tonnage point of view and also minimal dilution initiatives.

And the last question regarding the -- I mean the rationale for the transaction. Of course you indicated why you've chosen the PGM. My question is that we are having a means assessing if we picked the right resources as regards the prices in China. And thus they're saying they're reducing the demand for palladium. And when you look at the exposure of palladium, for UGC -- UG2, it's about -- I think 64% -- 60% of that. Does that really concern you in terms of the outlook going forward for PGMs as opposed to choosing other green metals whereby you know that the growth is up there? If you can just stress the allusion. Now of course, the strong positivity to rationale. Again on the palladium side which is highly skewed to this position, how you put that together? Does this really concern you?

[ Sadrulak ], let me comment and I'll ask Jacques to elaborate. In fact your research end, you're straight on, on your research. But the supply/demand fundamentals, they do change. And I say at upfront and that they will be testing. So what is very careful of doing is not to stabilize the existing shaft infrastructure so that we can swing back to Merensky, to split not swing, split the need requirements as and when the first thing based on future demand. So we're very conscious of that. Secondly, we've done a lot of research about what the supply looks like, 5, 10, 15 years and the prohibitive cost of the deeper and deeper some of the assets. So that balance gives us a fair amount of comfort that the composition of the way we tend to mine and our early focus is the right approach, but not to sterilize the long-term fundamentals of Merensky. And we are looking at of improving the extraction out of Merensky, which historically was a problem. There are other mining methods addressing, which is inherently challenge with geology and potholes in the Merensky ore body. And over time, we'll overcome there. But when do you want to talk a little bit about the supply/demand fundamentals PGM outlook as a basket, not ore, elaborate on platinum and palladium outlook. Jongisa?

Yes. I think Mike, you have captured it. So how we thought about it really is looking at the supply and demand fundamentals and the cheap price. And as Jacques alluded to earlier, relative to spot is trading now, where the actual vehicle fundamentals are a little bit different and expected to evolve over the next couple of years, we've really focused on looking at the medium-term outlook for PGM and looking at the basket. And given your kind of some more stringent requirements in China and in Europe in terms of emission and the role that the entire basket is expected to play is a part of that. And then building into the longer term as the penetration from that electric vehicle comes in and becomes more prominent, our focus has been more kind of on the platinum side and the role that they will play in the hydrogen economy baked into the price assumptions and which we think are relatively by conservatively quite rightly so. And that is why there's been such extensive focus in terms of the positioning on the cost curve of the asset and introducing our mine methodology that will allow us to be well positioned on the cost curve insofar as the asset is concern. Jacques, I don't know if you want to kind of add on top of that, but it is something that the penetration of battery electric vehicle is something that we have been very mindful of and we analyzed extensively.

Thanks, Jongisa. So I fully agree with your views. Over time, we do believe that the margin economy is picking up as well as supply drop off and platinum definitely in the medium to longer term from '26, '27 onwards. We look at the current mines that will come to closure towards the end of this decade, that you would see platinum moving back into deficit and which will be supportive of higher platinum prices going forward. However, we foresee that palladium be more exposed where the prices will come down. So the time inconsistent with the long-term consensus of broker price, we do foresee platinum and palladium prices moving closer together. But the nice thing about the Bokoni , it's got a very even split between platinum and palladium roughly about 41% and 49% respectively, each. So it does give us a nice hedge. Doesn't matter how market swings, that we should have a fairly balanced basket price on the UG2 resource. The Merensky got a much higher platinum loading of about 60%. So if we do foresee in the very long term, that there's a strong demand for platinum going forward in the hydrogen economy because of the way that we're setting up our infrastructure and [ Anglo Platinum ] was mining the Merensky. it would be quite easy for us to reintroduce the mining of Merensky using the new mechanised mining method approach. So that does give us a lot of flexibility to reposition the mine to be able to produce the metals that are in demand in the future. But on our initial investment for the UG2, we're quite comfortable that given we're a long-term basket price where we indicated we'll be and we -- if you look at the cash cost of this mine is that there is a healthy margin in the long term and that this mine will be able to generate sustainably throughout the cycle healthy margins.

We have a follow-up question from Rajay Ambekar of Excelsia Capital.

Just a follow-up on sort of that EUR 8 billion of CapEx that have been spent today. Can you give us an idea of maybe what the replacement cost of that CapEx would be? That's the first question. Second one was just on fees that I see [Audio Gap] But are you able to sort of quantify what and what the synergies are and how big there are? And then maybe lastly, just on the staff component. I presume with the mine being on care and maintenance, there isn't really any staff of significance. Can you maybe just talk about how you plan to build up the staff component and what sort of those normal ramp-up numbers will be.

Thanks. Jacques, please go.

Thank you, Mike. I think it's fair to say that for us to spend ZAR 8 billion or greater than ZAR 8 billion over a period of 20 years, and then if you take into account the cost of inflation over that period without having done the numbers, but on a 20-year period would probably be rated at greater than ZAR 10 billion. It's probably close to ZAR 12 billion in terms of replacement capital that has we've seen in the past. But I think that would be consistent for the size of the mine be able to put that in place or the box surface infrastructure cost to have tailings facilities, underground mine shafts as well as the vertical shafts at the same kind of post I expect you were probably looking at least around ZAR 10 billion. But we haven't done that analysis. I must just caution of what I'm saying is just based on my understanding as well as the time period that's been over. Sorry, I missed your second question, if you could repeat or just to your third question.

Yes. The second was just asking about synergies with your existing operations. Can you quantify any numbers there?

Yes. So obviously, it's quite relatively close by [ rail ] operations. It's, as the crow flies, about 40 kilometers away. And obviously comes in heavily between us and those cost to grow platinum mines and platinum. And then a further 40 kilometers further down the later tailing where we get to the Two Rivers mining operations. So we believe that there might be synergies in the future with regards to coordinating sustainable economic development and SOP projects to have a great impact in the area by focusing our projects together. That may be one opportunity as well as certain opportunities with regards to training, sharing training as well as induction facilities, et cetera. But we haven't built any of those potential synergies in our current evaluation. So at this point in time, you're still envisaging that we go would be a stand-alone operation. But that is part of the work that we would do over the next 12 months of the final feasibility study to see what opportunities for cost saving as well as overall community social development projects that we can do the future jointly between the operations to have a greater impact. And then I think your last question related to labor. So currently there's circa about 100 people employed at Bokoni looking after the care and maintenance activities, which is mostly maintaining the current infrastructure as well as pumping activities to maintain a dry mining conditions underground. We would be obviously looking to increase that complement as we ramp up production. And we have estimated that the overall label requirement once we reach steady state is about 2,500 people often and employees that we -- job opportunities that we would create. In the construction phase, there would obviously be more people that we employ during first years to spend ZAR 1 billion effectively. And without adding details around it, just based on previous projects that we've done, typically, we would have 2,000 to 2,500 construction jobs that have also been created. So that's why we've indicated that jointly, we would probably be looking at around about 5,000 people, of which 2,500 people will be permanent going into so it will be 5,000 people during the first 3 years of construction and operation and then after the 2,500 people start up the ongoing operations.

And maybe just one last one and maybe a question for Mike is the deal's been done today. Could you just explain to us why maybe a deal was not done, say, 2, 3 years ago on this asset? You guys have been looking at assets for a long time. Can you maybe just talk about the timing of the deal?

Yes. I don't think timing was in our hands when this asset came into the market. And we were part of the number of contenders for this. It was really when it was announced, we engaged and this is where we've landed at this time. So I think your real question, well, why didn't we take on the assert before it was announced. Well, I think we didn't see that the asset is for sale. I think both partners had to establish what the future was between themselves. So it wasn't an asset that was for sale.

Thank you. We have no further questions on the line. So I would like to hand back to management for closing comments.

Maybe I can just make 2 closing comments. Jongisa, I don't know if you wanted to comment?

Please go ahead, Mike.

All right. So I think -- It's really fair on the question is about value. In fact, ultimately, all the questions read about execution and rightly so, I wouldn't have expected anything less. It's something we prayed on hard. ARM has both a stellar reputation of project delivery. We've delivered over the last 12 years, more than ZAR 60 billion of projects, which in the Ferrous Platinum combined and ARM has been the executor of those projects. So we have projects, people and teams probably some of the best in the industry. And based on that and our knowledge and understanding and the capacity we built through our partnerships with Anglo in particular and with Impala that we have good knowledge of understand of the ore bodies and want to become part of the value chain and taking on the sort of 100% and execution, execution is the name. And that's with a number of those questions. And I have no doubt that we'll deliver on that. The other side, and it was raised that our ESG masses which are hugely important and out of that, the social assets of the community engagement and the community involvement and structure going forward is that ARM has a really good reputation and understanding and capacity and we intend to enhance that community lives and structure in a positive engagement to address social needs which are quite important along with job creation. But more importantly, I -- The ARM team and the Platinum team, we're confident that we're going to turn -- return money to shareholders. And ultimately the first question is are we going to compromise dividends and the answer was no. This is a balanced approach well thought-through. Dividends are important. Looking after our shareholders and growing our asset base and replacing the assets, and I think we're well, well-positioned going forward. With that, I thank everyone for your participation.

Thanks' Mike, I think that's well captured. And all that's left now is just to thank everyone for their time today and really wish everyone a safe and blessed rest of season. Thank you, Operator.

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