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

Welcome to the Impala Platinum Financial Year Results for the year 2021. A special word of welcome to all our participants on the conference call and on the live web stream. With me here today, I've got senior management team from Impala, including our CEO, Nico Muller; our CFO, Meroonisha Kerber; our COO, Gerhard Potgieter; and our HR Executive Director, Lee-Ann Samuel. You would have seen the results being released on SENS, early this morning. You would also notice that with the results, we released a detailed presentation of the results, our annual financial statements, as well as our Annual Mineral Resource Management report. So what we'll do today is, we'll start off by asking Nico to just do a highlight, overview of the results for the year. And we will then lead into Q&A from the participants. We'll probably go to the conference call first. When we get there, we'll give you instructions how to deal with that. But I will also make sure that we face and answer the questions that you might have on the web stream. So you would just be able to tap that in, and we will deal with that. So without any further deal, I'm going to hand over to Nico to just take us through the results at a high level.

Thank you very much, Johan, and from my side, an absolute welcome to everyone. It's my absolute honor and privilege to represent a team that has delivered excellence in a very favorable market this year. I think you'll be delighted with our record financial performance, and I think we've -- you'll see that we've done all the hard yards of the balance sheet. Our growth prospects, consist of very exciting low-cost, near-term projects. And I think on a forward-looking basis, we are positioned very well to continue delivering and improving returns to shareholders. So just before I start, just our usual cautionary against any forward-looking statements that we made today, just to take that into account. I'm going to touch on a few things. First of all, I think it's useful for us to just reflect on how this company has navigated through the COVID-19 pandemic, and then we will look at operational highlights, financial. I'll touch on shared value and ESG before I then conclude with the prospects for the next financial year. So I am very, very delighted in the strong leadership that our medical team has played in the jurisdictions in which we have operated with regards to the COVID pandemic. We have operated with all the authorities to make sure that we position our employees, and our local communities now are in a very strong position. On the top right of the slide, you will see the infection rate curve, and you will see that we are recovering from the third wave and as a consequence of the delta variant, which is more infectious that we peaked at a position much higher than the previous 2 cycles. We had at the peak just over 750 active cases, and that has come down to -- as of yesterday to around 63 active cases. We've got 12 people in medical facilities, of which 4 are precautionary. So we are in a much stronger position now. But to the part of our medical team, we were accredited as mining sites to administer vaccines in -- we are the first mining sites in both South Africa as well as in Canada, and we received a national award in Zimbabwe, for the support that we've given against the COVID-19 pandemic. We've also spent over ZAR 560 million in this effort. And then on the right-hand side, I'm not going to go through all the stats, but the consequence of what we've done, which is as a consequence of very high test rates that have given us early sight of infections, and has positioned our medical team in a strong position to administer the best possible care. We've got a very high recovery rate of 98% and a death rate of below 1%, which compares very favorable to the mining industry. As well as the South African global standards. As of the 27th of August, we have administered 57,000 vaccines, 39,000 of that was first dose and 17,000 of that was the full and completed vaccination processes. In addition to that, we have administered 11,000 additional vaccines to either local communities, or to small neighboring mines that operate in the same area as what we operate. And so as a consequence of that, 61% of our workforce has been vaccinated with the first dose and 26% has been vaccinated fully. Just looking at safety. I am proud of the fact that we have continued with our journey towards zero harm. Our fatalities, we have reduced from 5 to 3 from the previous year. This has translated into a 47% reduction in the fatality injury frequency rate from 0.05 to 0.26. And our total injury figure rate has similarly reduced by 12% from 11.3% to 9.84%. The only area of concern for us is the 8% increase in our lost time injury frequency rate, and we remain committed to visible felt leadership to our presence in the working place to make sure that the decline in the lost time injury frequency rate that we've achieved over the last number of years, continues in the year going forward. An achievement that is really worthy of some credit is the fact that Rustenburg, which employed 40,000 people, operated a full year, without a fatality, and recorded in a process, a record 10 million fatality-free ships. So from my side to the team in Rustenburg, an absolute remarkable achievements. If I turn my attention to the operating performance. And just for information, this should be benchmarked against 2020, which was characterized by national lockdowns for our operations in both South Africa and Canada. Zimbabwe operated more or less stable during this period. So we ramped up better than expected after the national lockdowns, and we were impacted less in 2021, as a consequence of making provision, for example, through the employment of additional people. Notwithstanding, we recorded a 16% increase in the 6E concentrate. And of that, our managed operations, which constitutes 74% of our production increased by 18%. The joint venture operations, which constitutes 17%, and our production days, increased by 10,% and third-party receipts increased by 9%. So on the next slide, it shows the segmental reporting of production movements for each of our assets. And you can see that, in particular, in Rustenburg, we saw a 16% increase from around 1.1 million ounces to 1.3 million 6E ounces, and that was as a consequence of the strong ramp-up after COVID, but also, we had a record production performance at our number 14 Shaft and our number 16 and 20 Shaft, which is in the growth projects, have continued to increase their production. And then for Impala Canada, we increased from 97,000 ounces to 260,000 ounces. It is as a consequence of us having the first full year reporting at Impala Canada. And in addition to that, the successes that Tim and his team are delivering in terms of the ramp-up of the underground production base of that particular assets. So refined 6E ounce production followed the concentrate production and increased by 16% to 3.3 million ounces. Our unit cost per 6E ounce increased by 11%. That is made up of 5% inflation, and the inflation is the weighted average between our South African, Zimbabwe, and Canadian operations. In South Africa, we recorded a 6.4% year-on-year inflation. In Canada, we -- it was 2.3%, and in Zimbabwe, it was 1.9%. In addition to the inflationary cost increases, we have invested additional expenditure into ensuring increased operational flexibility in the form of additional development, as well as improvement in the integrity of our infrastructure. In addition to that, the expenditure with regards to COVID resulted in an additional 1%. And then discretionary, safety and production bonuses at Impala, Marula, and Zimplats, contributed to an additional 1% inflation. Capital expenditure increased by ZAR 1.9 billion from ZAR 4.5 billion to ZAR 6.4 billion. Big contributors to that was the increase of ZAR 730 million at Impala. That was as a consequence of the additional capitalized development, mining infrastructure, maintenance, as well as investment in the smelters. At Zimplats, the capital increased by ZAR 720 million to ZAR 2.45 billion, and that's in rand. And that was as a consequence of the third concentrator. The advancement of our Mupani and Bimha projects, as well as additional fleet. And in Impala Canada, the capital increased by ZAR 470 million to ZAR 1.124 billion, and that was primarily as a consequence of additional capital development as well as infrastructure maintenance. At Marula, we had an increase in capital expenditure in fleet and convertible infrastructure, but that is offset by a reduction in expenditure at the tailings storage facility, and so their capital remained at roughly ZAR 340 million for the year. Let's touch on 2 major growth projects that we communicated in terms on [indiscernible] with Two Rivers, Merensky project that was a sort of -- the board did approves the projects in June. That was to a value of ZAR 5.7 billion, and that is to ramp up to a production capacity at -- by 180,000. The first production expected in 2024 and full capacity in 2025. That project is in the early stages of development. We're currently doing site preparation for additional concentrator and that's in the form of geotechnical assessments and surveying. And the team at Two Rivers has also initiated procurement for the [indiscernible] development on the Merensky [indiscernible]. On the left, we've got the 2 components of the Zimbabwe, the Zimplats expansion. So this represents the first phase of the expansion, and that is to the value of ZAR 297 million for the concentrator as well as the Mupani and Bimha expansion, and there's an additional ZAR 70 million that was approved for additional fleet. The concentrator will have all the internal mechanics to process 180,000 ounces other than the front-end, required to treat -- or in addition to 80,000 ounces. But in order to do that, all we have to do is provide facilities to receive the additional concentrate and the funding, which is -- which comprises of a crushing circuit. The expansion of Bimha and Mupani accounts for the [indiscernible], and we are currently evaluating different options for the additional 100,000 ounces to bring the full expansion eventually to 180,000. We estimated that the cost of that will be around $100 million. So if you add $100 million to the -- they say circa of $300 million, you get to a total value of $400 million. And if you convert that to rand, it's around ZAR 6 billion, which compares to the ZAR 5.7 billion approved for Two Rivers. If I just cast my eye further down the line, and I touch on the future attention of our capital, it consists of 3 parts. The first part has got to do with further growth, and we are particularly focused on increasing our downstream beneficiation in the form of additional smelting capacity, as well as increasing the capacity of the BMR, which currently represents our critical constraint as far as processing is concerned. Secondly, we are looking at life of mine extensions, and the most near-term project is an extension that is in our feasibility study that is being prepared for Board consideration in November. And that involves an extension to the Marula decline that can provide an additional 10 years to the current 13 years life of mine of Marula. And then lastly, we are looking at ESG capital investment and most really is sulfur abatement at Zimplats, and our ambitions towards carbon neutrality in 2015 will include consideration of increased consumption of renewable power generation. So based on that very strong operational performance, we saw a 17% increase in refined 6E ounces up to 3.27 million ounces. This was supported by a 59% improvement in the rand basket price for 6E. Ounce, a net to rand up to ZAR 39,478. The combination of increased volumes, combined with improved revenue per 6E ounce resulted in an 86% increase in gross revenue to ZAR 129.6 billion. This translated into an EBITDA that increased by ZAR 32 billion from ZAR 29.4 billion to ZAR 61.4 billion at an EBITDA margin of 47%. This, in addition, resulted in a free cash flow of ZAR 38.3 billion and an increase in gross and net cash to ZAR 23.5 billion, which combined with our undrawn revolving credit facility of ZAR 6 billion plus USD 125 million results in a total liquidity headroom of ZAR 30.9 billion. This strong financial performance has resulted in a final dividend of ZAR 12 per share, which combined with the interim dividend of ZAR 10 per share, results in a total dividend for the year of ZAR 22 per share. The next slide showcases also again on a segmental basis. On the left-hand side, for each asset, it shows the total cost. So that's cash operating costs combined with capital, and it compares that to the revenue per 6E ounce, achieved as a consequence of the full split in each operation, and we can see there a very strong operating margins, which ranges from 46% in Mimosa to 61% at Marula. Of course, Marula benefited from a very high basket price as a consequence of the contribution of, in particular, rhodium as well as palladium. These strong operating margins on the right is translated into a cash flow contribution, and you can see each other assets contributing cash to Group. And just for noting, the cash reflected for Two Rivers in Mimosa is based on the dividends declared for those 2 joint venture operations, and not necessarily the cash that was generated as a consequence of operating activities. If I turn my attention to how the capital was allocated. So I said that we have made a free cash flow of ZAR 38.3 billion. Now from that, we deduct ZAR 3.3 billion nondiscretionary expenditure, and that is -- that comprises of ZAR 0.7 billion [ or 700 million ] for foreign exchange adjustment as well as ZAR 1.6 billion invested to purchase shares for the incentive scheme. So that results in ZAR 36 billion of discretionary free cash flow. Of the ZAR 36 billion, ZAR 9.1 billion or 25% was allocated to balance sheet strength, and that was in the form of debt reduction, provision for rehabilitation obligation as well as retaining cash of ZAR 3.7 billion. ZAR 26.7 billion or 74% of the free cash flow was allocated to shareholder returns, and that comes in 2 forms. First of all, ZAR 17.9 billion or 50% of the free cash flow was awarded to cash dividends and the remaining ZAR 8.8 billion or 24% was directed towards the repurchase of the shares and convertible bonds. Lastly, 1% or ZAR 0.2 billion was invested in our participation in AP Ventures, which aims to promote PGM friendly technology within the new hydrogen economy. So this record financial performance has resulted in a lot of value for not only the shareholders that we have just explained, but also for other important stakeholders. So if I look at government, communities and employees, in total, there is ZAR 44 billion in which these 3 key stakeholders participated. Our taxes and royalties increased from ZAR 3.1 billion to ZAR 19.1 billion, and that is a meaning contribution to the [ fiscus of the sea jurisdictions ] in which we operated. Communities participated in around ZAR 3 billion. The bulk of that was in our Tier 1 local community procurement to the value of ZAR 2.7 billion. And then also we have invested in social expenditure and contributed to the program to combat the COVID-19 pandemic in local communities. And then lastly, our employees participated in roughly ZAR 22 billion, and that was in the form of normal salaries and bonuses earned as well as equity, and profit participation, combined with our social level plan, which focuses on skills development, the improvement on housing and living conditions, and then all the investments that we have done to combat COVID-19 internally within the company. So I just want to focus on the communities and showcase 3 projects that we have been involved with: On the left, we see a contribution to the refurbishment of the Kutlwanong school for the deaf, which is [ Kutlwano ] village in the Rustenburg district. The construction resulted in employment for 129 people, and there's 144 learners that will benefit through improved education facilities in that particular community. In the middle, we have our contribution towards local enterprise development in Zimbabwe, and this is in the form of a joint venture commercial cattle ranching project that we've embarked on with the community. We have committed $15 million over a 7-year period. And at full completion, this project will be the 10th largest dairy milk producer in that economy. So that's something that we are very proud of and just going to the entry last week. The project was presented by the President and our Chairman of Zimplats. On the right-hand side, we have partnered with a really very interesting nonprofit organization, which is Roots to Harvest. They are founded on food education employment for the use, and they are promoting dignified access to food. And so they are based in Northern Ontario and in particular, assist to alleviating food insecurity in the Thunder Bay Area, which is the principal location of where the bulk of our employees are allocated, and we have contributed CAD 20,000 to that particular organization. Now similarly, we have made similar contributions to gift other givers in South Africa and to other funds that have promoted support for communities in each of the jurisdictions in which we operate. From an ESG perspective, the company has committed to a carbon neutrality position in 2050. And to this extent, Gerhard, and his team have initiated a number of feasibility studies we've previously spoken about 185 megawatts power generation facility in Zimplats. And in addition to that, the 10 megawatt facility at the Marula operation. But there is a range of projects that we are evaluating that hopefully will translate into initiatives that will drive a significant reduction and elimination of carbon footprint by 2050. In support of this, we have improved our water recycling from, I think, around 47% last year to 51%, and we have shown a 6% improvement in the carbon emission intensity. Very proud of the fact that for the 7th year that is running, we have added zero material environmental incidents, and we had 63% reduction in minor incidents. So that's Level 1 to Level 3 incidents. So is a significant improvement. In addition to this, we have been recognized by several ratings agencies for either sustainability or ESG. And several of these, we have improved our ratings. We have also been recognized as a responsible source of platinum and palladium by the London Platinum and Palladium Market. In addition to this, we have committed and we are supportive of the task force for climate-related financial disclosure, and we will -- we have marked on ability to align our reporting and to incorporate the requirements of the reporting within our own reporting going forward. II would like to conclude by just paying attention to our outlook for 2022. Our refined production is guided at between 3.3 million and 3.56 million ounces at the midpoint, which is 5% above the performance delivered in 2021. Now this will be supported by leveraging the increased operational flexibility achieved at Impala Rustenburg, continuing the optimization of our Impala Canada operation, advancing the growth projects at Two Rivers and Zimplats and the processing of an additional 80,000 ounces of excess inventory. Group unit cost, we've guided at between ZAR 15,600 and ZAR 16,300 per 6E ounce, and that consists of 2 components. We are guiding an inflationary increase of 5%, and in addition to that, a 2.5% increase as a consequence of a once-off discretionary bonus that the Board has approved that will have a value of ZAR 1.1 billion, and account for ZAR 450 per 6E ounce. So the combination of the 5% inflationary and the 2.5% because of the discretionary bonus results in the capital guidance as stated. And then lastly, our capital expenditure is guided at between ZAR 8 billion to ZAR 9 billion, and that represents a peak there, you know once 2022 has reached, our capital guidance reduces to around ZAR 6.5 billion per annum for the 2 years after that, mainly return it down [indiscernible] down to ZAR 5.5 billion thereafter. The increase in capital is associated with increases at Impala Rustenburg as a consequence of capitalized development, mining infrastructure as well as investments in our base metal refinery expansion. Secondly, at Zimplats, it's dominated by the growth project at Bimha, Mupani and the third concentrator. And in Canada, it is as a consequence of infrastructure, and in particular, a decoupling project to create more flexibility between the within the processing division. So on that note, I think that brings us to the end of my conclusion, and I'm very happy for us to open ourselves to Q&A. Thank you, Johan.

Thank you. Thank you, Nico. We are ready to move over to Q&A. I'm going to hand over to the facilitator on the conference call now, and we can start by taking questions from the conference call. So if I can just hand over to the conference call facilitator, please.

[Operator Instructions] The first question comes from Chris Nicholson of RMB Morgan Stanley.

2 questions from me, please. So the first question, just -- I note that there's been a 12% upward revaluation or increase to your reserve base. You bought some reserves back in at Impala Rustenburg, and you've talked to some optimization at Impala Canada. Could you just talk to both of those in a bit more detail, specifically what this means for the life of mine at Impala Canada? I think we were about 10 years last time we spoke, and then at Impala Rustenburg, what that means kind of for that outlook in terms of the back half of this decade? And then just the second one, could you also just touch a little bit more on the base metal refinery expansion. I'm understand, you're quite near capacity there as we currently speak. Is this a critical path kind of item for the expansion at Zimplats? And how should we think about that?

Thank you, Chris. I think I'll ask Kirt to comment. But yes, I mean I'm personally very excited about the statement of the reserves. And if you look at it, if you look at the increase in reserves, notwithstanding the 1 year of depletion and increased by more than 5 million ounces, which is equivalent to another Two Rivers. At Impala, it is as a consequence of the reversal of the impairment, in particular, 1 Shaft. And so this provides us not necessarily with -- and you can comment, it provides us not as with a significant extension in the overall life of mine, but what it does do is, it provides us with a more steady production rating in the life, like 7 years. In Marula, in Zimplats, the reserves have been increased as a consequence of the inclusion of some of the steps. And so that -- we've got such a significant reserve base in Zimplats. I think the benefit, but the way I look at it is, it provides more optionality, it will provide more flexibility during the operation. And at Two Rivers, of course, the increase in reserves associated with the declaration of reserve on the Merensky and that will result in 180,000 ounces of additional production. So I'll leave it at that. If you want to fold in other comments on the reserves as well as the BMR.

Nico, I think you've covered it, except for the question on the life extension on Impala Canada. You would recall that at the time of the acquisition, Impala Canada had an 8-year life. It is now 2 years on, and it now has a 10-year life. And it means that we've added 4 years, and depleted another 2 years. So the intention is still for us to get it at to 15 years, and I think it's quite feasible for us to do so. As far as the base metal refinery capacity is concerned, it is currently the constraint in our capacity to produce more ounces through the precious metal refinery because as you would know, the [ met ] goes to the base metal refinery first. Take out the base metals, then it goes to the precious metal refinery. And if we want to get our beneficiation capacity up, it is the first point where we need to open the throttle. It can be done in 2 ways. Our current base metal refinery in Springs can be incrementally increased as a first debottlenecking exercise, whereafter we can add for the capacity. And another quick win for us would be that in Zimbabwe, where we have a half refurbished base metal refinery, that we can refurbish to the extent that it can assist with some of the base metals emanating from the Zimbabwean operations. So we are busy with feasibility studies with that. We believe that some of the quick wins can come within the next 18 months, but it will probably take 3 years for us to get to a capacity increase, that we aim for currently with studies, that could possibly double the base metal capacity that we have.

I left out 1 small component, and that's, of course, the inclusion of [ Wedza West ] at Mimosa. Have maybe you just want to talk about that. That has provides some life extension for Mimosa.

Yes. At Mimosa, what was referred to as the Anglo Claims. It's ground adjacent to Mimosa. We've made -- at Mimosa, we've made an offer and acquired those properties. It means that we can continue to mine across the [ farm friends ], but it adds only about 2 years to Mimosa's life. Mimosa's product capacity to mine longer, if we bring in the North Hill, which is another deposit on the property, that's being evaluated at the moment.

The next question comes from Patrick Mann of Bank of America.

I wanted to ask 2 questions. The first 1 is just on costs. So if I look at maybe where we were in 2019, and skipping the kind of COVID impact, and then looking now where we are for guidance for FY '22. It feels like there has been quite a significant step up in total costs. And I hear what Mark was saying earlier on, increasing the flexibility at the lease area and kind of reinvesting and making the business anti-fragile. But I'm just trying to figure out what sort of cost inflation we should be thinking about going forward? Is it still a kind of CPI plus 1% or 2%? Or is it going to be structurally higher than that? And then the second question is just, how do you think about bringing on increasing production when there's continuous news flow about electric vehicles and that possibly threatening the main demand for PGMs?

So Patrick, thank you so much for those questions. Firstly, I'm very confident that our cost increase over the next number of years, want to exceed inflation. The cost increases that we've seen over the last years have been very delivered. They have been essentially driven by our investment team. I mean, as you said, to increase operational flexibility, [ infrastructure integrity ] and in particular, to combat the impact of COVID. So we've employed additional employees to provide capacity. We've seen an increase in the absenteeism rate as a consequence of the pandemic. And I think as that journey plays itself out, we are in a very strong position to curtail our increase in cost in a very efficient way. So personally, I am very confident that over the next number of years, if you do a compound increase in cost, it will match inflation. Even this year, we were forecasting a cost increase of [ 4.5 ]. That's [ absenteeism ] of the ZAR 450 per ounce impact of the profit share bonus. And then secondly, bringing our production online with long-term future demand, we are very confident that there is going to be continued demand for our metals. The only metal that we have seen, softening is essentially palladium, but we have tied up with industry partners. We are looking at -- we have successfully broad technology to the market to have substitution between platinum and palladium, and we continue to do further research to look at substitution between palladium and rhodium. So we believe that there is a really strong and sustained demand for our metals. And the areas that we are looking at as an expansion, will not result in a major disruption to the current supply/demand dynamics. [indiscernible], if you want to -- Johan, would like to comment?

I think that's okay. Patrick, does that answer your question? Let me just take that first.

Yes, that does.

Do you have a follow-up question? Or can we move over to the webcast?

That's all from me.

It doesn't look like we've got further people cut on the conference call. Let me just check with the facilitator, then I'll move over to the webcast.

There are no further questions on the line at this stage.

I will then use to convert them and covert to the webcast questions. The -- let me start with a question from Steve. See, firstly, congratulate Mark on excellent production and safety performance. So Mark, that's from Steve Shepard. The question from Steve specifically is, could you give us an indication on cash you'd like to keep on the balance sheet? And how you foresee returns to shareholders going forward? Specifically, would you prioritize share buybacks versus dividends? So let me just hand that over to the team.

I think, Meroonisha, if you could present our test. We appreciate it.

Thanks, Nico. So I think in terms of going forward and predicting it, so let me start with the buyback first. I think our clear preference is to return excess cash to shareholders in the form of dividends. Obviously, the binary projects we did, there was a particular strategic outcome that we wanted to achieve, and which we did. But going forward, the preference is on cash dividends. In terms of looking at our cash flows going forward, I think we've done a lot of work on the balance sheet. There's a few minor things that we would like to still do, which is build up the cash buffer and continue to fund our environmental rehabilitation obligations. Our growth projects do not require large capital going forward. So I think going forward, we're well positioned to increase on -- make a significant increase to the shareholders. If you look at H2 of this financial year, you'll see that between the repurchase the bonds, and the cash dividends, essentially, we've returned 100% of free cash flow for the half to shareholders. So I think that should give you an indication of our intention going forward.

I just want to reaffirm that Meroonisha, when I look at our current position, year-to-date, and when I look at the potential -- the project pipeline. All the growth projects that we have in mind is well funded from operating cash flow. So I view this initial that I think we're going to see a very strong allocation of capital towards shareholder returns. And II again agree that dividend is far less complex than share buybacks. And so that's, I think, what's lying on our door for the next 2 years.

I'm going to go to the Mark. There's a couple of questions from the people on -- but specifically, the question is all around one area, which is, we've seen a reduction from the auto sector, specifically with microchips. And there are lots of questions on chip shortage and just what we're seeing in the market? And how we see that playing out from a broader demand, and specifically, auto and the impact of chips? So maybe, am I, I know you're on the line, you're probably at best positioned to just give a high-level overview on the demand side. And chips, so if I can ask you from the zoom side to just come in and maybe just give an overview of that.

Yes. So obviously, auto buying is huge. As we look at the makeup of demand for primary products, which is over 80%, 85% of palladium and rhodium coming from the auto market and over 40% coming from platinum. And I think the chip shortage, is a situation that kind of continues to evolve. And it's fair to say that the impact and the timing of the impact has been underestimated by market commentators. So it's a bit of a moving target. I think it's also coincided with what is traditionally, a reasonably strong period of refined supplier from the industry, a kind of managing results into year-end, and we've had a couple of issues with the industry in terms of releasing pipeline. So now we tend to look at these balances on an annual basis, but actually, into quarter, into months, you can have quite big mismatches in terms of the metal being offered, and the metal being demanded. And that's definitely something that we've seen play out. When we look at our customer base and what we're seeing, we always think it's important to caveat that ultimately we sell our production basket. So we won't sell an auto basket, we'll sell what we can produce. And we do think that in the current market environment, where you've got huge but often spreads, and you had big interruptions to liquidity since COVID. That our customers are very comfortable taking metal from us on a monthly basis in terms of those annual contracts, because essentially, it's smooth, some of the price volatility that you're seeing in the spot market. So suffice to say that we continue to see very strong demand from our customer base on the metals that we produce. As I said, I think the timing is tricky. We buy and also forecast. We obviously speak to customers. We've seen increased downgrades to 2021 production forecast. I think what's really important is that the bulk of that has seen a deferral of increased volumes into 2022, 2023. And the bigger picture auto story is of a market recovering from the impact of COVID, which is obviously positive for volumes, over the medium term. And it's also the market which is benefiting from tightening legislation. So it's a bit of a perfect form at the moment. A couple of very specific demand and supply factors, but it does create increased demand, we think in 2022, 2023, as that we see that basket, auto industry recovers production levels to kind of pre-pandemic levels, inventories normalize across the supply chain. So we see this more as a short-term issue, and it certainly hasn't massively impacted our medium- to longer-term view of auto, which, as Nico mentioned, is reasonably positive, despite at the very well-recognized headwinds of longer-term electrification of the light-duty fleet global trend.

Thank you, Emma. As always shortened to shrink. We had a lot of questions on that. So that was really good. So hopefully, you've dealt with that quite comprehensively. I'm going to move over to capital guidance. Nico, you mentioned some numbers on capital guidance. The question is specifically around, a sort of view over the next 3 years for capital guidance. You have mentioned some numbers. And then just a gut feel for some of the approved studies and work, how much is that likely or not likely to lift that number?

Okay. First, I think we are from the best position?

Okay. Thank you for that question, Johan. What we see in spend, on our stay-in business, and replacement capital, will normalize, as Nico said, to about [ ZAR 6 ] over the next few years as we've now strengthened our operation. Then obviously, the biggest expenditure for us as new capital, a growth capital will be on our beneficiation facilities. Now there are quite a few projects. And as I said, they're all in the feasibility study stage. So the numbers, of course, might still change, but I think what you're looking for is a ballpark. The new furnace at Zimplats $220 million. Asset plant, $290 million. South Africa, and in Zimbabwe is about $200 million and increasing our precious metal capacity about [ 80 ]. So if you take that and you put it into rands, about [ ZAR 12 billion ] to be spent over the next 5 years, basically evenly spread. So you add about ZAR 2.5 billion top of the -- ZAR 2.5 on top of the [ ZAR 6 ]that we normally spend, and it means that if we approve all of those projects, the [ ZAR 6 ] will become [ ZAR 8.5 ], which is what we're forecasting for the coming year as well.

That's, of course, that is underway, and that is a position that if everything gets approved. And obviously, we are still doing work to see how that could be sequenced or optimized. All right. Thank you for that. There's a fair amount of questions as well about our trajectory to carbon neutrality in 2050, and some pathway is underway. And specifically, whether we're considering solar projects in South Africa beyond Marula and Zimplats. I know that [ Okani ] is on the line as well. So I'm not sure if anybody in the team here wants to start off or whether [ Okani ] can unmute himself and also provide some context.

First to colleagues at the [indiscernible] leads us into this.

Our pathway to neutrality will be largely in 3 phases. We'll be looking for electricity supply chips. So we'll be looking for those opportunities to go renewable, and we're strengthening and integration with energy efficiency, making sure that we embed that. And also in the next phase, we'll then be looking at the fuel switching, and looking at opportunities to progressively reduce our fuel there. And in the long term, we are also looking at substitution with hydrogen as a fuel in some of our applications, and that takes us into the zero carbon intensity. So those 3 characterize our phases, if you will, on the pathway. And significantly under each phase, we have a project that we are in process some, and in the stage of prefeas that are looking at renewables significantly. As the CEO has said, also looking at gas as a transition gas in between, by positioning ourselves for consumption of hydrogen as a fuel as well as electrification of technology on our demand side. Thanks.

There's also some questions from various people coming through on specifically Impala Rustenburg. And Mark, you're probably also on the line and well positioned to answer that. The question specifically is around the improvement in your upgrade, noting that you've done really, really well to lift that. The question is, how sustainable is that? And then equally, you've increased the number of labor there, and you've kept some older projects that are due for closure into production. And then also 12 and 14 Shaft that were high costs, where are they now? And most of the questions is around the excellent results achieved, how sustainable it is? And how you see that sort of unfolding in the near term?

Yes. Thank you, Johan. Now 12 and 14, obviously, back in the life and have significant lives. They are currently not our highest cost producers. Our highest cost producers are for 16 and 20. The 2 capital projects are ramping up and then 1 Shaft is a higher. The 12, is specifically, is 1 of our better performing Shaft [indiscernible] . They're well outside that marginal zone where they were -- where they are dramatically influenced by the price alone. So I think the -- on the grade, I think around 4 grams a tonne, yes, was a significant or an improvement on the grade. But remember, we were adding waste tonne since the ore system at 16 Shaft. So that is now out and won't be repeated. So as we fix those all basis for waste that is now out. So I believe our grade is sustainable, not just adding the extra development, keeping another raises, redevelopment of all of that, which still targets with the grade a bit. But I think the grade is sustainable in the future. And also the recoveries on the ground, there's a [ 40% ] on the recoveries as well. So I believe that will stick there.

That's perfect. Thanks, Mark. While we had operations, there's also some questions here on Impala Canada. I know Tim, who runs the operation there is also on the line. Tim, the question specifically is around your operation that was impacted by COVID at the early stages. And then last winter season, you also seem to have some challenges. And the question is just where are you positioned? Have you been able to get over those challenges and the outlook in the near term for Impala Canada?

Thank you, Johan. We did -- as everybody remembers, we did have an outbreak at lack of sales. In early 2020, Canada is currently undergoing the fourth wave, primarily due to the delta variant as everybody will be aware. We have about 85% of our workforce fully vaccinated, and we're working on the last 15%. We have continued with our safety protocol, so we feel we're in a good position to manage the current outbreak or the current wave, pardon me, the delta variant outbreak Our operational issues have been adjusted. We did have an issue with our ore handling system underground. This year, we have undergone some preventative maintenance to ensure that infrastructure, the integrity of that infrastructure remains. And we are planning that we had a record production in the year last year, and we expect to have another record to match that production again this year. I hope that answers the question, Johan.

Yes, that's great. A further question on COVID, now that you've opened the door. I know Dr. Jonathan is also on the line, but maybe people in the room will also like to just start the answer. Specifically around vaccination, how the vaccination rollout is going? Where are we seeing, people not wanting to take vaccines? And then how do we deal with sick leave and people being impacted? Do we apply normal sick leave provisions? Or is there challenges with sick leave, when people become infected with COVID?

Thanks for that. So that notion are going exceptionally well. As Nico has said, in our operations, it's above the 99% of the people have been vaccinated there. Canada has still at rate of, as you have said at 85%. South African operations, we've had a run in line with government's program, but we're at 60% now. [indiscernible] saw over 80%, I think, going extremely well. The -- in terms of sick leaves -- so we're using Pfizer in the Southern Africa operations and Sinovac, Sinopharm in Zimbabwe. We've had no issues with reactions there, but should a reaction occur then normal sick leave and parameters apply. We haven't made any special arrangements for sick leave. Thank you.

Thank you, John. There's a question on [indiscernible] Zimplats specifically, the growth project there. The question is, we have decided to go 80,000 ounces and then only later target the 180,000 ounces initially contemplated. What's the thinking about that? What informed that decision to do it incrementally?

Underlying -- but essentially, Alex can add to this. Essentially, it's driven by the mining production potential at Bimha and Mupani. It is easy for us to increase the production by 80,000 ounces, but to increase by the last 100,000 ounces, that additional ore has to come from an alternate source. For that, there are different opportunities that are being evaluated. And so as a consequence of a final decision to be taken on what additional source of ore will constitute a 180,000 ounces and that, that work is still in progress. If Mr. Mhembere would like to comment?

Yes, Nico. I think you have just answered them. We have no longer support. We're getting the initial ore from the ramp-up that we are doing in [ taming mine] and we have to evaluate the opportunities for quarter [indiscernible] we had been mining. So that work is to progress at the moment.

Thanks, Alex. A question, perhaps to Lee-Ann, on headcount and the number of employees. So clearly, with the COVID impacts, you have increased labor complement, specifically at Impala Rustenburg, also little over Zimplats. How should we overall think about headcount in 2022, and beyond 2022?

Thanks, Johan. So yes, we have increased head count, but that is specifically to deal with COVID, and the increased sick leave, and absenteeism percentages. But it also addresses our natural attrition, which I'm sure you're all aware, is about 150 employees for maintaining Rustenburg. I mean, in line with the business plan buildup at Zimplats, 16 Shaft and 20 Shaft. So given the pandemic and the fourth wave, we will continue to have the additional labor. But once everybody is being vaccinated, we may go back to normal numbers.

Thanks, Lee-Ann. Nico, do you want to add some?

Yes. I mean I agree with Lee-Ann. It's going to be to know our continued learning and experience with the vaccination process. I mean I discussed this with our doctor, Dr. Andrews often. It's very difficult to predict when the world is going to get rid of the impact associated with the COVID pandemic. So I think it's realistic to accept that for the next 2 to 3 years, we are going to have to -- have protocols in place. And I think providing additional labor is probably going to be part, part of that to the extent that the vaccination program results in a lower impact. We will inhibit to respond to that and reduce the buffer of additional labor to account for this flexibility required immediately, but my personal guess is that we're going to see it as being part of our business for the next 18 months at least.

We're almost at the end of allotted 1 hour. There is 1 more question that I'm going to try and fit into the time slot and maybe it's a good place to start. The question is quite broad is, we've seen good times in the platinum industry over the last 6 months, particularly. We've seen some pullback recently. Nico, how do you see the current state of the PGM industry? How are you positioned? And are there any opportunities for further growth or M&A? Just sort of a broad view of where you are and how you see the future?

Well, firstly, we are firm leaders in the PGM market for the next 7 years. We think that we are going to be have highly supportive pricing environment. In particular, we see continued strong demand for rhodium, and an exchange between platinum and palladium pricing. As an industry player, we are confident about the markets for the next 7 years. Now having done all the hard yards on the balance sheet and the initial progressing well off with a requirement of having [ ZAR 20 million ] -- so it's probably a market thing [ ZAR 20 million ] cash buffer, I think we are ideally positioned. I think that we can -- we have the option, the flexibility to act on any value-accretive opportunity that we see. But similarly, I think that we'll be able to offer significant shareholder returns. In terms of how we see the path forward, I think the -- I mean, as we've seen with Two Rivers and Zimplats, our focus -- we believe that we've got great opportunities within the group, and so that's our first part of call. We own world-class shallow mechanized assets. We believe that smelting and refining is a critical part of the value chain, and we see significant opportunities in that area. So I think that is our immediate short-term focus. We also -- we are a 15% shareholder in [ Wedza ]. So it's not that we are not looking at potential additional projects. We always contemplate the potential impact on overall market balances. And I think that there are 1 or 2 opportunities. We do need to look at opportunities where we can further strengthen the business. And as I said in the interim, it is not part of our immediate plans. We don't have a rich pipeline of projects, but we do recognize that the global demand patterns are potentially shifting over the next decade. We do recognize that. And to that extent, we are developing a radar scheme to educate ourselves in terms of how this commodity demand patterns are going to shift, and we want to be ideally positioned to tap into that, and we will be evaluating that as part of our growth plans going forward.

Thank you very much, Nico, and thank you very much for everybody who joined us today. We've unfortunately run out of time, but we are going to be spending a lot of time with you on the road over the next couple of days. And to the extent that we didn't get to answers that or questions that you wanted to put forward, please feel free to send that to us. We will endeavor to get back to you as quickly as possible and look forward to catching up on a one-on-one basis with more of you on the road over the couple of days. So with that, I'm going to close this session. Thank you very much.