Impala Platinum Holdings Limited (IMP) Earnings Call Transcript & Summary

Can I just have your attention quickly? We're going to start in 2 minutes' time. Just before we start, I just want to sort of -- just security and emergency protocols. So what's very important is, if there is an emergency, we will evacuate through that door where you came in. And we'll go out the front door, and the assembly point is actually in the front of the building. The JSE has got very strong security protocols. There are trained people in the room and outside, so please just follow instructions, evacuate through that door. Should that door will not be available, there are 2 further doors on my right-hand side, and you can just go around the back and out the door again. So that's as far as the security protocol for today is. We'd like to start things on the mine with a safety order, health or wellness comment. So I was thinking about that. And I did what my children did, so I just Googled, and I found this coronavirus thing. And then I looked at some of the things that they report. And so how do you protect your health and wealth against the coronavirus? And the one block that interested me that I saw was very simple. You wash your hands, and you buy more Impala stock. We'll just wait for them to sit down, and then we'll start. Good afternoon, ladies and gentlemen, and a warm welcome as well for -- to everybody on the telephone line on the conference call. We're also live web streaming today, so also a warm welcome to everybody that's joined us through the Internet. So welcome to Impala's financial results for the half year ending December 2019. What we'll do today is I will hand over to our CEO, who will do the presentation. Afterwards, we'll take some questions from the room, and we'll also allow good opportunity on the lines to take questions over the lines. Just in short, our results were released this morning at 7:00. They are available on our website in multiple forms. And we'll also be traveling around in the next week or 2. So I'm sure we'll meet up lots of you in the next week or 2. But obviously, today is an opportunity to engage with you firsthand and to take questions that you still might have. So with that, I'm going to hand over to Nico now to just take us through the results. Nico?

Thank you, Johan. And from my side, most welcome to our interim results. I thank my Chair, Mandla, Board members, really nice to have you guys here. And probably the hero of the moment, Dawn, who has been a big advocate for the dividends that managed to pull us all through that hurdle. To say I just am proud is probably an understatement. Very delighted with my personal timing in joining the industry back because now we all look fantastic. But really proud of the operating results as well. So a good time for us, and I hope it comes through in the results. Just before we start, normal disclaimer. Please invest, but at your own risk. So obviously, it's been a great 6 months for us. So if I look at the key features in the 6 months for you to take note of. Canada, Impala Canada was announced and started contributing to the company on the 13th of December, so that it had an 18-day period. It was included in our results. I'll talk more about 12 and 14, but the rest of the team has done an absolutely outstanding job of that to turn around, and that's helped the lease here tremendously. We have seen still a continued improvement at Marula. They produced 7,000 additional ounces. So from an operational point of view, when I look at the fundamentals at mine level, our tonnes milled increased by 1% to 15.3 million tonnes, and that's taking into consideration the planned decline at Impala lease here. I have to say that we were not in this -- out of the Impala Canada tonnes to do that as well because -- anyway, at fundamental level, that looks good. There were some offsets because of grade and recurring. So if you look at the 6E concentrates, as is produced, they declined by 2%. That is ZAR 13,157. And then there were some areas where we had some negative impacts. We've spoken about this before. At Two Rivers, we had the split reef. The split reef has got a lot of internal waste as hard materials and their analogy is different, and that affected the grade as well as the concentrated product recovery. And at Mimosa, we had a significant mill failure with the [ trending ] of the -- the primary mill failed and that had an impact. So if I look at the contributions of the various operation in terms of metal in concentrate, you can see, I'm going to start on the right at Two Rivers. Because of the split reef and grades and recoveries, we lost 23,000 ounces compared to the previous comparable period. But I think that is something that we are driving solutions for. We have approved the expansion of the concentrator plant that's about to commence in the 18-month construction period, and I think we will then be able to increase the volumes and offset the impact of the split reef. At Impala, we had 21,000 fewer ounces, but that was as a consequence primarily of 1 and 9 Shaft where we had planned ramp-down because of reserve depletion. And then you had one or two issues at some of the other shafts, in particular 10 Shaft where we had operational flexibility issues. And then at Mimosa, as I said, in the first quarter, we lost 12,000 ounces because of the primary mill failure. But that's been restored, and Mimosa is running full capacity again at the moment. For the rest of the operations, they all produced to plan or more. And of course, Impala Canada here is a new addition that wasn't reported on during the last reporting period. And so that went up by 8,000. And then quite a significant event that took place that impacted the rest of the results was the rebuild of the furnace at our smelter in Zim. And so that started in June and it was completed in September, and we restarted in October. And it had 2 impacts on the group. In the first instance, it affected the capacity of the group to smelt. And so if you take a furnace out, then we've got fewer furnaces. And secondly, the concentrate from Zimplats during that period was transported to the smelters in Rustenburg. Because of the higher base metal load in the concentrate of the Zim orebody, it has got a -- what we refer to as a higher matte fall. It has got fewer PGM ounces and it retards the process of smelting. And so it has a negative impact on the smelter, which means you get less material through your refining and you get fewer ounces sold. The second thing, however, as a consequence of that, you find that you have an increase in excess inventory, which is either in process or on surface stock. So if you look at where we were at the start of -- or at the end of the previous financial year, we had 235,000 ounces -- 215,000 6E ounces. So previously, all of this commentary was in platinum ounces, so I'm not going to refer to it. But that's the comparable platinum ounce graph. So we have 215,000. And then during this period, we lock up an additional 135,000 ounces of 6E metals, and we ended the half year with 350,000. The furnace is back up and running in Zim, and we are in the final stage -- not in the final stages. We are in the process of doing a ring repair at another 4 furnace in Rustenburg. Once that is up and running, we will have full capacity. And because of that, we think that we will be able to treat 125,000 of the excess inventory ounces, which will reduce it to 225,000. And then as shown on this part of the table on the bottom left, we will treat the remaining existing inventory over the next 2 years. So given the strong operating performance combined in with a very strong improvement in the markets, we -- I mean we received a 41% increase in our rand basket price. That went up to ZAR 20,888. That's primarily driven by the rhodium and palladium dollar prices, which resulted in a 36% increase in the dollar price, combined with a 4% weakening of the rand resulted in a significant increase in the rand basket price. So the operational performance, combined with the high metal prices, resulted in -- took some of the numbers just now, but resulted in a gross profit of ZAR 6 billion and net -- a free cash flow of ZAR 5 billion. That, combined with the great work that Meroonisha has done in strengthening the balance sheet, then resulted in our share of -- take a convincing us that a dividend of ZAR 1.25 accordingly -- which is in accordance with our policy, was the right thing to do. And we are very delighted to have been able to announce that probably 6 months prior to when we had communicated before. So those are the main features from an operational point of view. And then I just really want to talk about Canada and the importance for us. It really enhances our portfolio. We have previously communicated that we do want to create a portfolio that is biased towards low-cost, shallow, mechanized, lower-risk from a safety point of view and it does all of that, and it is a cash-generating business. I mean we bought the asset for ZAR 10.9 billion. And on the date of effective conclusion of the transaction, we had ZAR 1 billion come back to the company. So very proud of that decision and very glad that it wasn't at the top of a palladium cycle, as some people may have thought at the time. We've got a USD 250 million bond that, I think, if the operating performance remains the same and markets remain the same, you'll have that paid off within the next 12 to 18 months, which I think will be -- then bode very well for the company. And then I've got one interesting slide on Rustenburg. But again, the great work that Mark has done there has created an opportunity for us. And this is partly the prices for one in [indiscernible], but independent of the price improvement, it has resulted in the company having to reevaluate the strategy that we communicated before. And I will -- well, I might as well say it now. We have decided not to continue with the stated strategy of closing 12 and 14 Shafts, the combined producer got 28% of our total volume and during the last 6 months, produced ZAR 800 million of free cash flow for the company. And I will explain later exactly why that is. 1 and 9 Shaft will still be closing over the next -- well, 9 Shaft earlier, but 1 Shaft in three years' time. But that's as a consequence of reserve depletion. So that change in operating performance in Rustenburg has resulted to a review of the strategy, and we believe that we will be able to continue with Rustenburg, including 12 and 14 Shaft. So when I look at the current market conditions, the company performance, I think the company is very well positioned to deliver stakeholder value. And that's on the basis of continued operating improvements; a competitive portfolio; very robust balance sheet, thanks to Meroonisha; excellent growth prospects within our portfolio; and very robust market fundamentals. Safety is always important to the company, and I'm very happy to report that our total injury frequency rate improved by 6% to 11.9 and our lost time injury frequency rate by 9% to 4.83. We did, however, have 3 fatalities during the reporting period, and that has just resolved -- strengthened our resolve to continue with our drive towards 0 harm. And we are going to strive to eliminate all fatalities from our organization. I've spoken about the tonnes milled and the ounces in concentrate. From a cost point of view, cash cost went up by 11%, which is [ above ] inflation, I'm aware of that. And that went up by ZAR 500 million, from ZAR 12.8 billion to ZAR 14.3 billion. When I look at the reasons why it went up, I'm actually not as unhappy with it as you would hoped or think that I would be because some of it was very deliberate. So in Rustenburg, we have exercised a very deliberate strategy to improve operational flexibility, particularly at 16 and 20, but also at some of the other shafts. So there has been an increased in on-reef development. And I think whilst we've seen the cost implication now, we will see operational improvements over the next year or two from an ounce production point of view. And then one -- another part of the cost increase was associated with the restructuring of 1 Shaft where we are going to go into a different direction. The last major contributing factor to the cost increase was the above-expectation performance at Marula where we had record production and higher wages in the form of incentive. So that we figured the cash cost. So if you look at the 11% increase in cash cost, the unit cost per tonne increased by 10% because tonnes were more or less in line with the plan. So they bring up to ZAR 1,157. But then if you look at the stock-adjusted cost, because of the reduced ounces, we had sitting with a unit cost increase of 15%, that bring up to ZAR 13,157. Capital expenditure in the group increased by 13% to ZAR 1.925 billion. I've listed on the bottom right the areas where it occurred. At Marula, it went up by ZAR 171 million. The biggest contributor to that was the initiation of construction of a new tailings storage facility that contributed ZAR 116 million. And then we replaced a significant part of the trackless fleet, and that accounted for ZAR 48 million. Then Impala Canada didn't go up by ZAR 37 million, but we didn't report that previously. So the ZAR 37 million that they spent on capital in the last 18 days is being reported here as an increase. And then lastly, at Zimplats, Alex's capital was more or less in line with what they -- there's $47 million compared to $46 million last year. But as a consequence of the exchange rate weakening in rand terms, it reflects a ZAR 29 million increase in capital. The rest of the group was on par or lower than expected. Refined ounces sold, followed refined ounces. So that went down by 16% to 1.33 million ounces. I've spoken about the 41% increase in basket price. Gross revenue was ZAR 28 billion, up 19%, and I've spoken about the gross profit of ZAR 6 billion and the cash flow of ZAR 5 billion and the dividend that flows from all that. So that's good. This graph just on the left shows the cash flow contribution from all of the operations and a little bit shy with ZAR 58 million loss at Canada. But that was only for 18 days, and all the transaction fees associated with completing the transaction was associated with that. And so I suspect it's the last time that you're going to show a cash loss for Impala Canada. I've been very proud to have each and every part of our business in a profitable position. And if you look at the right-hand side, it shows the total cost of production. So it's operating costs in all forms of capital. And we see in the markets at the top, the revenue, the basket revenue per ounce for each of those operations, and we can see a significant growth in the gap between the 2, it shows healthy margins across the entire portfolio. Just 2 words on the market. We have seen a strong run, we do believe, for palladium and rhodium. Those are driven by fundamental demand, and we believe that that will sustain in the short-to-medium term. We do think that we're not going to see a sudden supply rush to fill that gap. We are seeing investment in our industry going towards extending the life of existing operations rather than an abundance of new ounces coming on stream. As far as platinum is concerned, we believe that the current muted conditions will probably prevail, and to be quite honest, that's where we see the highest risk. Last year, the industrial surplus [ EMA ] was 1 million ounces, and it was taken up by the ETF buying all the ounces. So in the absence of that investor -- investment demand, we may see even the current below ZAR 1,000, the dollar per ounce price be at risk. If we look further in the long term, we are confident that there is going to be substitution. There's a lot of research that has been done and that continues to be done. And in fact, we co-fund part of that. We do believe, in the near term, in the near future, we are going to see some announcements of some of the manufacturers that are going to make announcement in terms of introducing [ high levels ] of platinum in the converts. And then of course, and very importantly, we are seeing a strong emergence of the hydrogen economy. It's getting more air time. You can read more about it in the papers. And that also I think, will support the platinum price in the long-term future. So the key focus areas. This slide shouldn't be a surprise, but we do focus on our social license to operate, business sustainability. We do want to position ourselves in the lower end of the cost curve, enhance the competitive portfolio and the capital allocation. So I really want to focus on the bottom left, which has got to do with capital allocation because I think that is the time period that we are in at the moment. Cash is coming in. The market should understand our thinking about it. I think we've done fantastically well over the last 6 months. We did settle the USD 250 million bond. We did pay the 800 -- or ZAR 680 million debt. We do have a healthy gross cash reserve of ZAR 6 billion at the moment, and on top of that, we've got the RCF that provides further liquidity. But I do think that there is more work to do. So the first step is to make sure that we release this excess inventory, which currently holds a value of ZAR 4.8 billion. And we must use the proceeds from that to assist us to repay the Impala Canada debt, which is also around USD 250 (sic) [ USD 250 million ]. And we've got this ZAR 900 million BEE loan at Marula that has to be repaid towards the end of this year. We'll do all that work, and then we will work very hard to further strengthen the liquidity of the company, both in terms of cash reserves as well as some changes that are required in our RCF -- our credit lines. Whilst we are going to pay a lot of attention to the balance sheet, I do want to impress on the audience that we will retain a key focus on potential value-accretive acquisitions. And to the extent that they present themselves, we will evaluate that. But we will look at the balance sheet, potential growth through M&A or investment within our company. And then on the bottom left here, returns to shareholder in a balanced, fair fashion, which I hope that our dividend declaration is testament to. And then I just want to touch on the repositioning Implats to the lower half of the cost because of operational excellence and the [ last month ] journey is because it represents half of our total production, it's such an important journey. And I want to explain to you this very complex process [indiscernible]. So just a reminder, when we spoke about the restructuring, we had 10 shafts. So this is where we started. We had 10 shafts. We then reduced to 6 shafts, and we had all these consequences. So the 10 shafts were broken up into 4 clusters. Now just touching quickly. We had the core shafts, so those are shafts that were always going to remain part of the portfolio, 6, 10, 11 and E&F. And now showing at the top here. Then you add the 2 shafts, 12 and 14, that we communicated was set up for closure because of profitability concerns. We had growth shafts. So those are the 2 new projects, 16 and 20 Shaft. And then we had the 2 shafts, 1 and 9, that was aiming for closure as a consequence of reserve depletion. So if you look at what's happened over the time period, each of those groupings of shafts. 1 and 9 Shaft, shown at the bottom here, we have seen production decline in line with the reserve depletion. So no surprises there. If I look at the growth shafts, 16 and 20, well, production has grown in those shafts. Again, no surprises. Perhaps we would like to have that grow quicker, but nevertheless, it's going in the right direction. If you look at the core shafts, they are what they are -- they -- so I mean you can see this, at the time, that these shafts will continue, and we'll -- I mean they will fluctuate over time. The one surprise to us has been, in fact, 12 and 14 where we have seen production increase. And I must say, this is not as a consequence of further investment or allocation of resources. This is mostly because of productivity improvements. And maybe the fear of closure has something to do with it, but an absolutely outstanding job. If you see what that translate in cost, I think it's really important. So on this very busy slide at the bottom, we've got the -- so in 2018, when we made the announcement, we spoke about the objective of getting Rustenburg to produce at ZAR 24,500, which was around the basket price at the time. So to convert it into nominal terms where we can continue comparing to it, we have put this green graph. And so this is the aspired cost base for the lease year. Now I just want to compare the various shaft clusters to that. So if you look at the core shafts, which is the bottom graph, they more or less follow the aspirational cost line. So no problem there. Then if you look at the 1 and 9 Shaft, which is the second graph in front the bottom, [ that day ] when we cut costs, but then that escalate. And as these shafts come closer to their time period, to the closure, it is expected, given the reduction in volumes that they all -- the unit cost will increase. But the very important thing here is to see that although the costs have increased, the costs are below the red dotted line, which represents the basket price, and even the cost -- though costs are higher, they are generating cash. And therefore, we will run them through their completion and extract as much and many ounces over as many years from them as we can. The growth shafts, we expect those cost to come down, in line with the increased production. And then very importantly, 12 and 14 Shaft that was earmarked for closure, they started -- this is the dark blue line. It started around the -- close to ZAR 16,000 per 6E ounce. But those costs have actually come down. And actually, at the end, during this [indiscernible] period, in it below the cost are the core shafts. So even if there were no market price corrections, the operational turnaround at those shafts would have justified retention of those shafts. So the improved operational performance, combined with the higher make-up prices that have caused the company to decide not to close those shafts, and we will plan them in for the next number of years. So the restructuring outcome is today changed to a new direction, which will see 8 shafts. It's only 1 and 9 that will close because of the reserve depletion, and this is approximately 2024, 8 shafts that will still operate at a cost that we aspire to here because we can see that we are getting away with the core and 12 and 14, and these costs, we believe, will come down. It's just 1 and 9 that will be taken out. And so we will get to the aspired cost base. And therefore, we think, Impala Rustenburg is in a fantastic direction. We hope that all the improvements that have been achieved over the last year or 2 will continue to create a really compelling and profitable business. I just want to conclude with a forward look, our updated guidance. So just to understand the table. This is the actual for the previous [ line ]. This is the guidance that we gave, but this is all based on platinum ounces at the end of our financial year. This is the update also based on platinum ounces. And then we have converted it to 6E. So the guidance remains more or less the same, other than a few small adjustments. So if you look at the refined production group, the only thing that's changed there is the top end. We were lowered from 1.55 -- 1.55 million ounces to 1.50 million ounces. And that's just to account for the higher-than-expected buildup of excess inventory. Everything else remains the same, other than for Impala Canada, which comes in at 8,000 to 10,000 platinum ounces. They are very small platinum content producers. It was predominantly palladium. And then we've adjusted the unit cost to account for Impala Canada which skews the numbers when you look at it per-platinum basis because they -- I mean majority of the ounces is palladium, as I've said. And we've also added their capital. So when you go to 6E, then the cost impact becomes normalized, and we have made the necessary adjustments to account for the inclusion of Canada. As we reach the end of my presentation, I hope I didn't disappoint by leaving too much out. But I've got a fantastic team here that will assist me to answer any questions that you may have. Thank you so much.

Thank you. Thank you, Nico. If I can ask the rest of the team to join Nico in front for questions. We'll have a couple of roaming mics in the room. So please, if you just lift your hand, we will ensure that you get a mic. Just for the benefit of the people listening in, just state your name before you ask your question. I'll take questions in the room first, and then we'll go on to the line.

So I'm just going to start right here by myself. Chris, maybe you can break the ice for us.

It's Chris Nicholson from RMB Morgan Stanley. Well done. I think that was excellent results, specifically out of Impala Rustenburg. So congratulations. My questions are on Impala Canada. And obviously, when you presented the acquisition to us, I think the numbers that you used were largely based on the technical report that will be done in 2018. Could you give us a feel for how underground costs are now tracking against some of the numbers presented in that report? CapEx, too? And then also maybe -- I don't know if you have any further thoughts or updates around the type of CapEx that's going to involve to extend the mine life there. I think you'd indicated about a 7-year extension.

Chris. [indiscernible] do you want to comment?

Chris, yes. I think the numbers that we have shared at the time of acquisition, we are confident that those numbers will move. Remember, we're going more and more underground. So the cost of production per tonne increases. But the grade underground is higher than the surface sources. So overall, the cost per ounce is not that effective, but the cost per tonne will definitely go up as we go more mining underground. The ramp-up really happens during this calendar year where, at the moment, they're doing about 8,000 tonnes per day from underground. That will go to over 10,000 tonnes per day from underground, and they will be milling about 12,500 tonnes, which means there's still a certain amount of surface material that will be milled. The real sort of stable production profile will be reached the year after this calendar year where most of the production will be from underground. And then we will be -- for the first time, we're seeing the dollar per tonne costs stabilizing. But the numbers that you've seen forecasted before, we've no doubt in those numbers at the moment. Capital-wise, there's been no adjustments through capital since we've taken over the operation. Small numbers change for tailings dam, changes that we suggest that should be implemented. That brought about CAD 20 million over the next 2 years on tailings dams to be spent. Other than that, we are looking at possible investment, which would be deepening of the shaft and a pushback on the pit to get more production from the pit. None of those have actually gone through all the feasibility stages as yet. So you can assume that for the next 2 years at least, capital will remain the same as what we've had at the time of acquisition.

Thanks, Chris. Maybe we can take a question on the other side of the room now. I'm going to hand it over to Arnold.

It's Arnold Van Graan from Nedbank. So guys, I don't want to cry wolf. So what's your plan if metal prices come down? And I'm specifically thinking about coronavirus and the potential impact. So #1 and 9 Shaft, you're running that for longer. 12 and 14 is in productivity improvement. So 1 and 9, are those still under Section 189? And will you have to do new Section 189? And in terms of the productivity improvements in 12 and 14, what's driving that? So I understand you have a fear of closure of mines [indiscernible] but is it sustainable? Are you not just at a point where you're in a sweet spot in those ore bodies, and a year from now, we're not going to see these productivity levels? And then I guess the third question that's all related to this is, I hear your comments around the costs, but my question is will you be able to turn around costs? I understand the once-off costs, but will we see cost just continue to increase? Or will we actually see it coming down once these once-off items are out the system?

Mark, do you want to talk about the flexibility that you've built in, in terms of 1 and 9 Shaft?

Yes. So thanks, Nico. So our long-term strategy remains the same. When we started [indiscernible] [ one-man unprofitable ] answers, palladium could have a 4-year run, a 1-year run or whatever. So it's important that we stick to the overhead strategy of setting Impala up for the very long-term future when it is envisaged that palladium and rhodium could come down. So from 9, we'll come out the business. We've -- it's making money now at smaller volumes. So we'll carry on with that, and then that will probably end July. I think every time I have one of these sessions, I give it 6 months, and that goes on. But it's still -- it's already -- we're really making use of contractors over there, so it's easier to manage. The infrastructure, the shaft is still managed by our engineering, though that's a lot less people. On 1 Shaft, so we are slowly pacing in contractors over there, and the only crews of us that are there are the ones that we actually want to move over to 16 and 20 in the long run. So you can see that the higher-cost mines, we are setting ourselves up to be more flexible should prices come down. I think in the longer term, the same plan that has worked for those will work for the other shafts as they -- as their costs increase. So we will make use of more contractors in our higher-cost mines to retain and install that level of flexibility. Then what we are further doing, we still have the 189 on the engineering staff at 9 Shaft. So when that comes to an end, those people will unfortunately get retrenched if we can't find space somewhere else for them. And then we have reduced our overhead labor. So we've actually expanded at the drillers, the operating level throughout the business. And we will continue to expand at 16 and 20 as they ramp up on the production end of the later spectrum. So the overheads carrying capacity of Impala comes down. That makes us a lot more robust when prices do turn. And I say when prices not -- had turned and not if because I do think it's probably a matter of time before that does happen. So I think long term, from how we structure the business, more efficient and effective from a structural point of view. Operationally, a lot stronger as well. And then on the higher-cost mines, we're bringing this flexibility, and we're using natural attrition to achieve that over time. We -- our natural attrition rates are just over 100 people per month that change out. So we use that to change our field contractors, which are a lot more flexible in our business. I believe that will set us up to manage any issues. Regarding the sweet spot, we're still looking for that sweet spot at Impala. It's -- you don't really get the sweet spots in our business. The grade is quite homogenous across the property.

And I'm talking sweet spot in terms of productivity. [indiscernible] why would the company [indiscernible] sustainable?

Yes, of course, they're sustainable. So I believe we're actually setting ourselves up, and you can see in the 16 Shaft and 20 Shaft numbers, how we're setting ourselves up very specifically. We've sacrificed production at 16 and 20. You can see at 20 Shaft, the phase-in has grown by 66% in a matter of 12 months, which is unheard of, generally. So you can see we've put a lot more money and effort into creating that phased-in flexibility, not ramped up the crews, so that when we start ramping up the mine, I think it will ramp up a lot faster. But also that means we've paid a price for creating flexibility. Now you know flexibility will equal efficiency. Now that's 16 and 20, you can see it clearly in the numbers that have been given under those project sites. But generally, across the property, our phased length over the last year or so has gone up probably about up 2 kilometers, from 20 kilometers to just under 22 kilometers. So we've added flexibility. And you're not really seeing that too much in the production as in shifting around. So that does lead to efficiency. We've also got a key focus on our operating culture. So we've put a lot of time and effort, and time and effort probably equate to cost, into creating an operational culture that really strives around operational excellence, operational discipline and doing what you're meant to do and do it right. So we've put a lot of thoughts into that. That includes training of miner [indiscernible] miner [ risk ], management systems, how we do short-term planning, long-term planning and so the dashboards and things like that. So I believe that coupled to the more phased length you have, giving you the flexibility with your crews, the better systems, the highest-skilled workforce at an operating level. Now we really spent a lot of time putting the building blocks to making Impala sustainable into longer-term future. So it's important for me personally because remember, Nico, every time, he said now he's going to get rid of me or -- so it's important that we build that properly. So when that does happen, we're okay.

So if I can just -- I think the productivity improvements that we are talking at 12 and 14, we actually have seen across most of the shafts. And I do think effective leadership and attentive leadership present in the business, that operational disciplined way has made a difference. I also think that the great work that Lee-Ann and her team has done in engagement with employees and with the organized labor has really made a big difference. Just have a look at the [ other ways ] negotiations we settled without any disruptions. So I think it's a combination. And I actually believe that there is further value to be unlocked by a continuation of that. Just as far as the cost is concerned, Arnold, I certainly think that the restructuring cost of 1 Shaft, I don't think that's going to repeat itself. But I believe that we are going to continue driving operational flexibility, and I think you're going to see, for at least the next year, a continued investment, deliberate investment in making sure. So we've got -- I think we've improved, but we've got specific grades like our 10 Shaft that is [ re-grade. ] So we want to make sure that we've got that across the board in each and every single producing shaft. So I think that investment and that cost will, let's say, for the next 12 to 18 months, will remain part of the business. And then I see -- I think you're going to see productivity improvements go further up, it's going to result in a lower cost escalation.

Nkateko Mathonsi from Investec. My first question is on acquisitions that Nico was referring to, the very accretive acquisition. And my question is do you weigh that with a potential share buyback, considering where your share price is actually trading right now, at very low multiples? And then also on the Waterberg, the [ bank's ] feasibility study was published in September. And do let me know if I'm pushing my boundaries on this question, but based on those numbers, do you see that project -- based on the numbers that were published, is that project really accretive for Impala? And then I also have a question on the third-party metal. You reported a 4% increase on third-party metal. And my question is at prevailing basket price, is there potential for increased third-party metal, especially from the smaller operators that probably close shop when prices where -- when prices will be low? My last question on the dividend. Yes. Yes, it is the last question. On the dividend, the 30% free cash flow, why not a little bit higher? It seems a little bit conservative for me, even if I were to consider that you do invest in the Waterberg project.

So maybe I'll answer some of the -- do you want to answer the first and the last question?

Okay. So in terms of our capital allocation framework, we look at the use of capital in a bit of a balanced manner. Obviously, the first port of call on all our cash is investing in our business, either sustaining capital. And you'll see, over the years, we sort of had a ZAR 4 billion to ZAR 5 billion that's going to be reinvested in our assets at sort of current CapEx levels. The next -- the way we think about it is there is -- as Nico has alluded to, there is still further work we'd like to do on our balance sheet. When we've got the benefit of the prices, it's probably the best time to create some additional flexibility on the balance sheet. And that would be a combination of additional facilities as well as building a cash buffer. There's also other debt that we have. With the Impala Canada transaction, we did refinance the bridge, and we've got a $250 million term loan there. And we still got the ZAR bond. So we would look to reduce that debt over time as well. And we -- so when we then look at the remaining cash, so our intention obviously is to build the balance sheet strength over a period of time. We got to a point where we declared the dividend that we were comfortable that our balance sheet is in a much better position. And that once we resume dividends, we could maintain that on a sustainable basis going forward. When we then look at the residual cash after attending to the balance sheet and creating more flexibility, we do look at it in a balanced manner. So we don't see that we should be doing one at the expense of the other because value-accretive growth obviously enhances shareholder value. And obviously, but -- we need to balance that with the fact that shareholders also expect dividends. So it's very important for us that when we look at projects, not to grow for the sake of growing. I'm sure you've heard all the mining companies say that. But it's very important that we're very disciplined around how we look at the projects, the returns it generates, et cetera. So if we can't find projects that we believe will improve or increase shareholder wealth over a period of time, then we will look to return excess cash to shareholders. So we -- obviously, our optimal frame -- the way we look at it is we'd like to, at the same time, while we have excess -- or cash -- strong free cash flows, attend to the balance sheet and make sure that when the prices do turn, we're in a much better position than we were a few years ago and then in a balanced manner, look at value-accretive growth and returns to shareholders. In terms of the dividend policy, just to sort of articulate our thinking around it, we started off with a 30% of free cash flow pre growth. And our view on that is that we would like to sustain that at the minimum level. So that basically is the minimum we'd like to pay going forward. Take into consideration growth opportunities. If we do not find value-accretive opportunities and we have the excess cash, then we will look to return that cash to shareholders. So we are acutely aware that if we embark on any growth opportunities, it really needs to be in a disciplined manner. And I guess with Waterberg, if we did a big project like that, what we'd be looking to do is to say, well, we wouldn't necessarily embark on a big project if that means stopping and starting dividends as well as the fact that if we did embark on that, we would need to be able to find it through the cycle as well. So our capital allocation framework is trying to balance all the competing uses of capital but with the ultimate objective of optimizing value for shareholders.

And once you got ZAR 200 billion in cash reserve, you'll consider a special dividend?

Special dividend.

I think as we agreed on. Of course, I'm lying, but not great with that. So on the third-party producers, we are seeing a push -- I mean I also do point out that is the one area where we did make an adjustment in the guidance where we pushed that up. We are seeing the small, independent producers flexing their muscles. And I suspect, given the current price environment, that that will continue. As far as Waterberg is concerned, it is exactly the kind of asset that we want to have in our portfolio, shallow, mechanized. We think it will come in at low cost, low risk. The feasibility study was concluded, but there's no mining license issued. So that provides us with an opportunity to do further optimization work, to de-risk the project further in important areas that we believe is useful to do. So I suppose, at this point, it's a moot point, whether it meets the return hurdles that we have. Once a mine license has been issued, we will have 90 days. I mean a decision will be based not only on availing prices and the expected returns, paybacks and all the other financial metrics, but also in the confidence in long-term market conditions and associated project risk.

[indiscernible] the people on the line as well. Just prepare questions if they have any. We'll go back to the lines just now. [indiscernible]

And so my questions have been actually answered by Nkateko's questions. But just the life left in the lease area in Impala. You're running at about 20 million tonnes a year. You're dropping #1 and #9 Shaft. You're going to probably push up or make that up from 16 and 20 Shaft. So it looks like 20 million tonnes a year for quite a while to come. How many years, maybe 10 years, 15 years?

Yes. 10 to 15 years. And remember, we are able to structure ourselves down to lower answers. So even as the peak [indiscernible] in some of the older shafts, I think we'll be able to push that out to probably past 15 years then or closer to that level. And all the big shafts have kind of extensions, and they are neighbors. So there's many opportunities around to extend the business. We're also looking at, for example, at 16 Shaft, how do we get into the 17 Shaft ground. That pushes 16 Shaft out quite some time. So I think there are opportunities to push up there.

Okay. Your AIC costs was up like 29% on last year, half on half. And Nico said that because you're doing some different -- to optimize those things, the cost will stay at about quite high. The sustainable cost was like quite high for 2 or 3 years. So can we expect cost increases of AIC level of about 30% for the next 2 to 3 years?