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

Good morning, and welcome to the Impala Platinum Interim Results Presentation for Financial Year 2022. With me in the room today are our CEO, Nico Muller; our CFO, Meroonisha Kerber; and our COO, Gerhard Potgieter. Welcome to everybody that's participating on the webcast and also people that have dialed in on the conference call. There will be an opportunity, after Nico has done a short presentation of the results, to ask questions. I will give preference first to the people on the conference call. We will prompt you, and you can then dial directly into the room to ask your questions. Equally, if you are participating on the webcast, there's an opportunity to ask us questions. We will receive it once you've typed it in, and we will endeavor to answer as many of the questions as we can in the short period of time. So without further ado, I will now hand over to our CEO, Nico Muller.

Thanks, Johan, and welcome to everybody to our results presentation. I'm just going to do a high-level overview to provide initiation for discussion. There is a detailed presentation and full disclosure on our web page that was disclosed this morning. I hope that we'll come through this -- during the presentation is that Implats is a resilient, high-value mine-to-market PGM producer. But even with a 4 -- 5% reduction in refined 6E ounces and a base price that has declined from the peak in the early part in 2001, that we continue to operate in a benign market with strong future prospects, that we continue to operate with cash margins that are for the group average at 43% and that we continue to generate strong cash flows. And that, combined with a very strong balance sheet, which has got no debt, has allowed the company to continue to invest in its future sustainability and competitive position as well as growth while, at the same time, returning healthy returns to shareholders in the form of dividends. So before I get into the meat of the presentation, this is our normal cautionary statement with regards to any forward-looking statements that may be made today. I'm going to touch on 6 areas. I'm going to start with a few macro issues. Then I'm going to turn to operations and finance. Thereafter, we will go to growth in investments and pay specific attention to RBPlat before I go to our guidance for our future prospects. Regrettably, we have seen a regression in our safety performance following a sustained period of continual improvement and record safety performances at Implats. In the group, during the reporting period, we recorded 5 fatal incidents, all of which was at Impala Rustenburg, and 1 at Two Rivers. The fatal injuries at Impala was associated -- 2 of them were at 16 Shaft; one was a tramming accident; the other one occurred when a rock drill operator drilled into a misfire; and then we had 3 fatality injuries associated with the inundation at the bottom of our 6 Shaft. The fatality at Two Rivers was associated with a fall of ground. Now having said that, we are committed to our vision of zero harm, and we will examine the factors that are impacting on our decline in safety performance. We are encouraged by the fact that the lost-time injury frequency rate, which is a more general guidance of performance, has declined by 25% period-on-period. And if you look at the 2021 full year, it's declined by over 20%, so that is positive. We also take note of all the safety performances that have been achieved in world-class assets across the company. And we believe that a rapid improvement is definitely possible for the company. Sorry, I had -- I was talking about safety performance. I was on the wrong slide. Anyway, so I've dealt with the slide following the -- I missed one slide, so I'll just return -- turn to the macro environment, and I won't repeat the safety performance. I'll just continue in the operations. So from a macro perspective, it is interesting for me to see that the world is normalizing after COVID. You see less and less restrictions, movement of people, and goods are becoming a lot freer. However, COVID has had material impacts on the global economy. Specifically, we saw a slowdown in the shipping and massive disruptions in supply chains across the globe. I'm told that half of the world's mariners originate from poorer countries that do not have access or sufficient access to vaccination, and that has contributed to it. Anyway, we saw a disruptive supply chain environment, and Implats was not immune to this. And we have had several instances of operations being constrained by disruptions in each supply chain, and that is goods as well as skills. The secondary impact has been, if there's less supply because of supply chain disruptions, we have seen rising global inflation. And that, too, has had an impact at Implats' reporting period. Sorry, there's someone talking. Hello? Sorry, can you just quiet, please. The last issue that I suppose one has to touch on right now is the geopolitical tensions that are raging in Europe. The invasion of Ukraine by Russia has had a material impact on the global economy and probably will -- that will evolve as the situation is unfolding. And it is potentially -- given the prominence of Russia as a PGM producer, there are fears that it may have an impact on the global PGM supply. It's important to take note that Russia produces 2.7 million ounces of palladium, which accounts for 38% of global supply, but only 10% of platinum and palladium and then only 8% of iridium and 4% of ruthenium. In addition to that, we have not seen sanctions imposed on the purchase of energy, such as gas, or raw materials. So no restrictions has -- no sanctions has been placed on PGMs. And to the extent that they do, it's also important to note that China's consumption exceeds the total volume of PGMs produced by Russia. So we have seen an amplification in the PGM prices, but from our perspective, it's too early to conclude definitively that the world is facing a disruption in the PGM supply. From a basket point perspective, PGM prices peaked in the first half of the calendar year of 2021, and then we saw some softening in the second half of the year, which overlaps with this reporting period. That is as a consequence of the constrained auto sector as a consequence of the semiconductor chip shortage, which coincided with inventory release that had been built up in prior periods by some of the peer group. At the beginning of 2022, we have seen a recovery of the PGM prices, and that was even before the Ukraine situation unfolded. And we attribute that to a recovery in auto production, combined with guidance that have been issued by 2 of the peer companies in terms of potential supply constraints in the next year. In the long run, we believe that the fundamentals remain supportive of the PGM pricing environment, and that will be supported by the auto sector as well as the evolution of the hydrogen economy. We are well aware that electrification and hydrogen are 2 technology streams that are evolving, and we are learning as we're going along. Just taking note that it may have an impact, and we will adapt the strategies of the company to suit future world requirements. Then we get to the safety slide, which I have now already dealt with, so I will skip this and go to the operational performance. Our refined 6E concentrate reduced by 4%. If you look at the contributions, managed operations, JV, third parties, they were all 4%. There are common themes that have accounted for this. The common themes include: COVID; supply chain disruptions; and in South Africa's case, we have seen disruptions as a result of power outages from our national supplier. And then on this graph, it shows the variance in concentrate production from the various companies. I will touch on particularly 2. At Impala, in addition to all of the mainstream contributing factors, we had the impact of the 5 fatalities, which resulted in the safety stoppages [ in currently ]. So in addition to that, we had a period where there were inter-union challenges for -- we saw [ NUSA ] trying to recruit membership, in particular, with our contractors, and that has had an impact on the labor climate. And then I think just on Impala Canada, in addition to the main themes, they suffered particularly from skill shortages that is very specific to Canada and North America, where they made use of quite a substantial portion of immigrant labor. So we've seen shortage of -- massive shortages in truck drivers and mining professionals in particular. In addition to that, they had supply chain issues, which affected the ability to maintain infrastructure and mobile fleet. On the contrary to all of the other trends we have seen, Marula, we had a challenging period in the previous reporting period, and they have really shown their mettle, and they've come through with a stellar improvement. And we welcome the 11% increase in volumes at Marula. So the reduction in 6E concentrate translated into a 5% reduction in refined 6E production that ended the period at 1.62 million. Unit cost increased by 17%. And that was as a consequence of a 7% increase due to inflation, another 5% due to a reduction in volumes and then a profit share bonus of ZAR 656 million that was awarded to employees as well as another 2% cost due to the 7% increase in labor that we have recruited to account for the increased absenteeism, given COVID. In addition to that, capital expenditure increased by 34% to ZAR 3.57 billion. That was largely as a result of increased expenditure in 2 areas. At Impala, the capital expenditure increased by 58%, and that is primarily as a result of lower spending in the corresponding period in the previous year. So when I look at where the increases have happened, it happened at refineries, at the concentrator and smelting as well as some of the key mining projects. So it's not as a consequence of any particular investment strategy. It's just really as a consequence of lower capital spend in the previous financial year. At Zimplats, we have seen a 35% increase in capital expenditures to ZAR 1.25 billion. And at Zimplats, it's primarily as a consequence of the expansion projects. And that includes the third concentrator, the increase -- or creating readiness at Bihma for an increased production as well as infrastructure and fleet associated with ramping up production. If I go to the financials. We see a commensurate reduction in refined 6E ounces sold, that declined by 5% to 1.55 million ounces. You'll see that the 1.55 million ounces is less than the 1.62 million ounces that was refined, and that is as a result of us making a strategic decision to not sell all the refined ounces. As a consequence of the softening of prices, and that has been reserved for sale in the second half of the financial year, that comprise in total 71,000 ounces of refined stock: 48,000, which is primary metals, platinum, palladium and rhodium; and 22,000 that makes up the secondary metals. Rand basket price increased by 2%. That was as a consequence primarily due to the increase in platinum and rhodium. The rand -- the dollar prices increased by 10%, but the rand strengthened by 8%, and the consequence of that is a 2% increase in net rand revenue basket. The reduction in refined metal by 5%, combined with the increase in the basket price, resulted in a 4% reduction in gross revenue, which ended at ZAR 55.6 billion. Notwithstanding that, the company was able to continue operating at an EBITDA margin of 43%, resulting in an EBITDA of ZAR 24.4 billion. If I just go to the following slide, it shows the cash margins at all of the operations. We can see healthy margins across, the lowest being at Impala, which is operating at about 30% and 43% average for the group. And when we look at the cash flow, we see that all of our businesses have been cash positive. And notwithstanding the lower margins at Impala given the volume, they continue to be our most significant cash generator. The EBITDA translated into a free cash flow of ZAR 15.1 billion, and I will talk to you about the dividends in a second when I look at the capital allocation. But the ZAR 15.1 billion free cash flow resulted in net or gross cash. They are the same because we've got no debt of -- we ended the period with net gross cash of ZAR 18.5 billion, which, combined with our undrawn facilities, amount to a total liquidity headroom of ZAR 26.5 billion. So just touching on the distribution of the cash flow. Our capital allocation framework identifies primarily 40% allocation to balance sheet strength; and 30% to dividends to shareholders, and our dividend policy is in line with that component; and then 30% allocation to growth and investment. However, given the fact that the balance sheet has been materially strengthened and we got no debt, you see in the reporting period, only 5% or ZAR 0.8 billion was allocated to the balance sheet. And then again, given the RBPlat transaction, you can see that a disproportionate amount, which is ZAR 9.6 billion, of which ZAR 9.2 billion is the -- associated with RBPlat, was afforded to growth and investment. And that allowed us to return 31% or ZAR 4.7 billion to shareholders, which comprises of ZAR 200 million to minority shareholders in Zimplats and a ZAR 4.5 billion dividend to Implats' shareholders, and that amounts to ZAR 5.25 per share. So I just want to touch on some of the growth and investment projects that we spoke to at the last presentation. The first 2 are the Zimplats' capacity increase project as well as the Two Rivers. Zimplats' expansion was approved in February 2021 for a total value of $296 million. It comprises 2 parts. One is the mining increase in production volumes, and the other is the third concentrator. The total project was approved to increase ounces by 80,000 6E ounces, by 80,000 per annum, with the potential to further elevate that to a total of 180,000. These projects were approved in February 2021. I'm not going to go to all the time lines. It's on the sheet here. I do want to give some feedback in saying that the construction of the third concentrator is well advanced, and we are very confident of commissioning that concentrator on or before September of this year. And that the production footprint, the increase and the commissioning of all the infrastructure for the -- for increasing production is similarly -- that's at the more early stage. It happens over a longer time period, but that is on track and on schedule. And then at Two Rivers, we approved ZAR 5.7 billion increase to expand production at Two Rivers on the Merensky Reef to -- by another 180,000 6E ounces. That was approved in September, so not a lot of time has gone by since the approval, so it's a very early stage of development. The initial design and feasibility study was completed. But what's happening now is we are preparing for procurement and continuing with the detailed designs. As far as the concentrate is concerned, I'm very pleased to report that the first blast was taken in the Merensky boxcut last week, so that was in February 2022. So that's just feedback on what we spoke about the last time. In addition to these projects that were announced at the end of the previous financial year, the company has continued to commit into further value-accretive opportunities. And I want to touch just on some of them. On this slide, there are 4 projects, 2 of them are associated with growth, and that is the Zimplats smelter; and the second one is the Impala BMR expansion; and then there's one project at Marula, which is both an expansion as well as a life-of-mine extension; and the last one is associated with ESG, and that's got to do with the solar power plant at Zimplats. So I'm very pleased to announce that the Board did approve $521 million investments to build a smelter with an SO2 abatement plant at Zimplats that will be completed by August 2024. And that will elevate our group's smelting capacity by 600,000 ounces. What that will do is it will afford us the opportunity to smelt Zimplats as well as Mimosa concentrate in Zimbabwe and, therefore, qualify us for dispensation against the export levies for unbeneficiated concentrates. What it will also allow us to do is it will free up capacity within our South Africa smelting capacity that will provide us with additional headroom for our existing operations, but it will also provide headroom for future expansion to increase total group production. Part of the total processing expansion also includes the approval of ZAR 496 million for debottlenecking the base metal refinery. That's primarily the base metal circuit and a few other components. That will -- is estimated to increase our capacity by 10% or roughly 350,000 ounces. And we expect that project to be completed in financial year 2024. At Marula, we approved ZAR 5.1 billion for a 40,000 ounce expansion and the addition of 70 years -- 17 years life-of-mine at Marula. That's just an extension of the existing mine down there. The project expansion will occur over an 8-year period from 2022 to 2030. We expect the first production in 2023, with full capacity being achieved in 2028. And then lastly, at Zimplats, we have approved the first phase of our renewable energy full scope. We -- that is for 35 megawatts of an eventual power generation capability of 185 million -- or 185 megawatt, for which a generation license has already been approved. This project is expected to take no longer than 2 years to complete and, on completion, will provide at least 1/3 of the total energy required by the Zimplats operation. So part of our investment also includes the offer that we extended to acquire shares in RBPlat. So we made the initial offer in -- on the 29th of November and had achieved at that stage 24.9% shareholding. Given the shareholder support that we've received, we have already gone through the 35% threshold and are currently at 35.66%. Kirthanya will answer all the detailed questions pertaining to the process, but we are currently involved in the Competition Commission process. We did file the process with the Competition Commission in December. And the completion of that process is subject to the Competition Commission's ability to address all the public interest areas to their satisfaction. We are currently engaging with important stakeholders, such as communities as well as unions. We have received overwhelming shareholder support, and we are very confident that this process will be concluded very successfully. And I just want to reemphasize, this is a very high-value opportunity for both shareholders in RBPlat as well as Implats. It is unique in that it involves 2 contiguous operations with a high number of operational synergies. It will create huge extension to the tail end of our Western Limb assets and provide strategic optionality for the exploitation of long-dated RBPlat ounces in the sales of 2, and we believe that is in the national interest to extend employment and to continue driving community benefits as well as contribution to the fiscus for an additional at least 15 years. I'd like to end off by looking at the group outlook, our guidance. So we -- in our detail, we have spoken about the furnace rebuild that is required at our #3 furnace. And so this guidance takes account of the impact that, that may have on our production for the second half of the year. Based on the operational performance in the first half of the year, combined with the furnace rebuild, we've had to revise our guidance down for group refined production. As is shown in the top line of the graph, that is roughly by 8%. It is also based on the contributions from underlying assets. And in particular, 2 of the assets have been downgraded. The one is Impala that has been downgraded by roughly 10%, and the second one is Impala Canada that has been downgraded by roughly 15%. As a consequence of the lower volumes guided, group unit cost has increased from a range between 15,600 to 16,300 ounces to 16,800 to 17,400. That is roughly a 7% increase in group unit cost. And then in addition to that, given the new projects that we have approved, we have increased our guidance on group capital that is elevated by roughly ZAR 500 million for -- from ZAR 8 million to ZAR 9 million to ZAR 8.5 million to ZAR 9.5 million for the year-end. I think that concludes my presentation. I will now open the floor for questions and for the team to assist in answering them. Thank you so much.

Thank you, Nico. Thank you very much. There's an opportunity now we'll go to the conference call first. So to the extent that you have questions, just ready yourself. I'll hand over to the coordinator on the call now. And then after that, you are also welcome at this time to start typing in on the webcast questions that you may have. Just as a reminder, the presentation and the voiceover will be available on our website soon after this presentation if you want to go back to it. With that, if I can then hand over to the Chorus Call coordinator, I see there's already 2 people that have queued for questions.

The first question comes from Adrian Hammond of SBG.

Nico, so a couple of questions. Firstly, I see there's a premium to the RBP share at the moment to your offer. Will you be willing to increase your price to RBP minorities? Secondly, I'd like to chat about Rustenburg lease area. Obviously, you pointed out issues in H1. Could you update us as to how those issues around safety, community unrest in Eskom are playing out in H2 so far? Do you expect Rustenburg lease area to recover? And I'd like to follow on into the third question with that. And you've given us a lot of projects that are on the cards with some growth attached to them and expansions. Are you able to paint a picture for us as to how the production for the group will look over the next few years? You've upped the capital. Do shareholders get anything in return? And just perhaps on dividends, I mean, you've held back on the dividend for some time now at the end of FY '21. You held back for a cash buffer now again. And I appreciate the need to accommodate for the RBP deal. But how long must investors wait to see dividends in excess of your policy?

Thank you, Adrian. Johan, if you don't mind, I'll coordinate. Firstly, let's just talk about the premium to the RBPlat. Again, we are going to see some variances between the offer price and the RBPlat's price. But just to be clear, I mean, I've worked at the operation for a number of years. We have conducted a full and detailed due diligence. We believe that we have come up with a value proposition that serves shareholders on both sides as well as employees, communities and other stakeholders. It is not our intention to alter that position. We have received support from the RBPlat's management that have recommended the transaction to their Board. It is not our intention to make variations to our -- or for that matter to get into a competitive price war with regards to the acquisition of any further shares. Secondly, let's just talk about the lease areas. Is Johan on the line -- Mark?

Mark's on the line.

Yes. So let me leave that to Mark to address. Mark? Is Mark on the line? Okay, so Mark is not on the line. So let me then just talk, and if Mark does get on the line, please just help me. So I think the -- from my perspective, the most important issue that we have to remedy in Rustenburg is the labor climate. There has been a lasting impact from [ NUSA's ] attempts to recruit, in particular, our contractor employees into their membership. And that has made -- had a material impact on the labor climate. It is also contributing to the change in language, which can be detrimental to the overall safety performance. And I think this is something that will require astute leadership and engagement between ourselves, in particular, Mark and his team with organized labor with all of the employees to provide direction and certainty and calmness. The other -- so when I look at Impala Rustenburg, the one thing that I am pleased about is generally when we have had issues in our businesses. They are associated with structural weaknesses. You don't have sufficient wasting capacity or sufficient mine face length, or you don't have capacity in the business. In Rustenburg, I can assure you that there is no structural deficiency. Our face length is advance, so the factory floor space is at an all-time high. We have got sufficient people. In fact, we've got -- we're carrying surplus people. So structurally, Rustenburg doesn't have an issue. I think we have to deal with the labor with the labor climate. Secondly, the Eskom impact has been severe in Rustenburg. So when we operate at the moment now that we've lost a furnace and for an extended period, when Eskom ask you to shed your load, it's from wherever you operate. So at the moment, so when you have got multiple furnaces operating, you have flexibility in how to curtail your consumption. When you have only one furnace operating, if you have to reduce your power consumption, it now impacts on the mining operations. You are far more constrained in terms of how you can navigate through that process. And then secondly, and this is -- or thirdly, another issue that we have to deal with in Rustenburg, as we have to deal in many jurisdictions, is the economic and social scarring that is left by COVID, and the fact that there's been a massive decline in employment and, therefore, an increase in poverty. So we have seen increased expectations from communities. We have seen an increase in theft and crime in the area. And my personal view is that, that probably is not something that we are going to resolve immediately. So it is my personal opinion that is going to take Mark some time to restore the full efficiency in Rustenburg similar to what he had a year or 2 in -- but I've got no doubt. I mean, if I look at what Mark has done in Rustenburg since 2017 and the continual improvement in performance that we are poised to get there, I just don't think it's going to happen overnight. My personal estimate is between 6 to 18 months. But Mark, I see you are on the line. Do you want to comment? Okay. I could see Mark, but he's still silent.

Seems to me I'm on the Zoom call and not on the podcast.

Okay. So don't talk too much, Mark. Is there anything that you want to disagree with or add to what I said?

Nico, you said it very, very well. Thank you.

Okay. So we can then go to Adrian's third question, which talks about what the production profile of the company looks like. And I think it's also important for Gerhard to just to touch on what the net consequence on capital expenditure is and to what extent that is going to impact on the distribution of the cash flows or what portion of our forecasted cash flow the increased capital expenditure does make up. Gerhard?

Thank you, Nico. So let's just start with the base capital expenditure we've had over the last few years. And that used to be about ZAR 6 billion when -- per year. When Canada joined, that lifted to ZAR 6.5 billion to ZAR 7 billion. We then announced about a year ago that there will be 2 years of higher-than-normal spend on strengthening the business. That got our base to about ZAR 8 billion, ZAR 8.5 billion. We have now announced a sufficient expansion and extension capital to satisfy the needs of the company, which in the next few years will take that capital expenditure to, as you've seen for this year, close -- just below ZAR 10 billion. It goes up for ZAR 12 billion. ZAR 12 billion goes back to about ZAR 10 billion, then back to about the ZAR 8 billion that we've seen before. So what do we get for that money? The projects that we announced have all got a fairly short return on them. As soon as by 2025, we will be producing and beneficiating more than 300,000 ounces more from our operations. Obviously, what we also get is added capacity, as Nico explained, at our refineries and smelting furnaces, which will free up the spare capacity we need to maintain our furnaces appropriately. But it will also provide us with capacity for growth. So we have got all of these projects approved based on the NPV and IRR that meet our investment committee requirements.

So just to be clear, that's 300,000 ounces on current levels of production? Or is that 300,000 ounces from new sources?

It is 300,000 ounces from new production. I can just list them quickly for you. We've announced 180,000 ounces at Two Rivers; 80,000 at Zimplats; and there's about 40,000 coming from Marula.

Thank you, Gerhard. And then the last question, I think quite rightly, Adrian, we are running with buoyant PGM prices. So the question relates to dividends and when are we going to go beyond the 30% policy. I mean, clearly, during the last reporting period, it was impacted by the RBPlat acquisition, and we have to retain some cash for the financial guarantee to underpin the transaction. So if you want to ask how long is it going to be, because I really believe that that's the material hurdle, the last big barrier between the company and increasing dividends materially. Our closing period for the deal will fall after the end of this financial year. And so my guess is that you're probably going to see the 2 -- that potentially impact on 2 reporting periods. But I believe that even within that -- those periods, we are going to see a significant ramp-up in dividends. But I'll ask Meroonisha, who is our dividend expert, to perhaps provide more color on that.

Thanks. Thanks, Nico. I mean, just to put it in context, in H2 FY 2021, essentially, we returned 80 -- sorry, 100% of free cash flow to our shareholders, both in the form of cash dividends and, obviously, the bond buyback that we did. If you look into this half, we -- despite the big cash outflow that we required for [ Aster ], we did maintain our 30% of free cash flow dividend. So as Nico indicated that the RBPlat transaction will impact FY 2022. But obviously, we would like to maintain at least the minimum dividend in this period. Going forward, and you'll notice in this period and going forward, largely the work that we've wanted to do on the balance sheet has been done. We've basically reduced all the debt, and we think we've got the flexibility that we need. So going forward, allocation to the balance sheet will be minimal. And the free cash flow is likely to be split between our growth aspirations, so both organic and M&A and returns to shareholders. And as Gerhard has alluded to, even with the increased capital for expansion, that is still less than -- so I'm talking just about the expansion capital. That is less than 20% of our free cash flow. So there is ample opportunity for us to increase dividends into the future.

Sorry, can I just add to that, Meroonisha? Would I be correct to say that the funding provisions for the RBPlat acquisition are broadly in place, and it would be a surprise if we didn't see an increase in the proportional share of cash flow towards dividends even in the second half of this year?

Yes, so exactly. I think maybe the point that I should have made as well is at the interim dividend, obviously, when we were looking at the quantum of the dividend, we had to take into consideration the future outflow for RBPlat as well as the fact that we have got -- we have provided guarantees to the TRP. And as a result, we've got minimum liquidity requirement. So once there's more clarity on the offer and the cash outflows, there will be scope to increase dividends in H2.

The next question comes from Chris Nicholson of RMB Morgan Stanley.

Three questions from me. So the first one is just on cost inflation. Clearly, I understand that prices of consumables are high, and there's been a production impact. But I just want to ask, are you worried? And what can you do to help mitigate some of the double-digit increases that we have seen coming through? That's the first one. The second one is just the Zimplats smelter expansion. The numbers you procured, you're increasing capacity by 600,000 ounces, so it looks like you're doubling it. Is that correct? And I guess the question then would be is that you would then have more than enough capacity to do Zimplats, Mimosa and some of the expansion plans. How do you plan to monetize some of the additional surplus capacity? Would it be other PGM sources, maybe other metals? And then just the final one is the dividend. Did the terms of the RBP deal impact the size of the dividend? And I'm not talking about in terms of what you've kept away for the takeover review panel. But the way the deal is structured is the cash component reduces by the amount that RBP declares as a dividend, but there's no adjustment for what you declare as a dividend. And so ultimately, RBP shareholders will be receiving Impala dividends or Impala shares after the payment of this dividend. So by paying a smaller dividend now, I guess it increases some of the value in the shares that they will receive. Does that impact the dividend decision here?

Thanks, Chris.

Thank you, Chris. I will start with the cost inflation, and then Gerhard can deal with the Zimplats smelter, and Meroonisha can talk to the dividends. We are acutely concerned about a 17% increase in period-on-period costs. And quite frankly, it doesn't really matter what's happening in the industry. For us, it is a strategic concern. There are a number of things that we can do. The one is that we, of course, have to produce the right amount of volumes, which has not been the case in the last period. But secondly, we are -- we have incurred additional costs as a consequence of COVID. So we are carrying 7% additional labor. Now I do think the time has come for us. I mean, as I said in the beginning, I think the world is starting to normalize. Jon Andrews, our doctor, has done exceptionally well in making sure that 88% of our workforce is fully vaccinated, and 92% of the workforce has at least received the first booster. So the extent to which we are carrying additional labor and therefore cost, which is justified on the basis of COVID, I think that is being reviewed. And then it is to find better ways to navigate through the impacts, such as the load shedding, the community impacts. I think that to the extent that we can become more effective in creating stability, the performance of the business will definitely improve. And of course, lastly, I've never seen a business in which safety events take precedence, perform well. And so that is another key focus. And I think we can address those things, then there's a big chance that we can curb with the current rise in cost. Gerhard, do you want to do the smelter?

Yes. Thank you, Nico. I think the way to look at smelting capacity ideally shouldn't be to say that's X amount of ounces, but this is indicative. We are going to add our smelting capacity by 20%. If you take Zimplats' production plus Mimosa's current production, you could easily see that there's another piece of headroom on top of that. But I think at the time when we spoke about increasing Zimplats' production by 80,000 -- 180,000 ounces, of which 80,000 ounces is the confirmed and approved production improvement, it means that we will have furnace capacity in Zimplats not only for current production but an additional 100,000 ounces that Zimplats could ramp up over the coming years. And we've identified sources for that. We also have to cater for the times of that furnace, which is a single furnace in Zimbabwe. When it's down, we will stockpile the concentrates and have capacity on top to catch up again, which means we will be independent in Zimbabwe from the South African operations. It does then obviously, with the removal of the Mimosa concentrates from our Rustenburg furnaces, create headroom in Rustenburg. It is headroom that's dearly needed because our furnaces are full. Every time we maintain one of our furnaces, we have a stockpile. It's not ideal. Therefore, it will create a headroom in Rustenburg for us not to have a stockpile problem again in our beneficiation. And of course, if there are other production sources in South Africa that we can treat, there will be a headroom in South Africa for that.

Thank you, Gerhard. And Meroonisha, if you can talk to the dividends. Thank you.

Yes. So on the dividend, there is no adjustment to the equity consideration under the RBPlat transaction. So this didn't impact on our dividend decision. I think the key drivers for our dividend decision was really our liquidity requirements in terms of the guarantee and our ongoing operational needs as well as being able to settle and fund the cash consideration if the tender offer closed shortly.

Thanks, Chris. I see the one is Nkateko.

The next question comes from Nkateko Mathonsi of Investec Bank.

Look, my question is also around cost but related to Impala lease. And if you look at the cost inflation year-on-year was 26% in Impala lease. And for me, the way I look at it is that operation, it shows the impact of lower production from Impala lease and the bearing it actually had on cost. So I would really appreciate a bit of guidance in terms of your production profile specifically related to Impala lease in at least the next 2 years. And what I want to try and determine is whether the good performance has been in the past 2 years, we are likely to see that continue in at least the next 2, 3 years. I think on the report, you also attributed the lower production in Rustenburg to negative variance in talking to developing ratios. A bit of color will be appreciated in terms of when we expect to see some positive variance on the stoping to development ratios as far as Rustenburg is concerned. So that's my first question. And then secondly, I think I would appreciate color in terms of Impala's strategy as well as other commodities beyond the PGMs are concerned. In case you are looking at other commodities at this point in time. And then the last question is related to the expansion on processing infrastructure in Zimbabwe. Is there a potential offtake [ type of ] processing beyond just the Mimosa material in terms of -- and I know Gerhard was just talking about the 20% increase. But does that give you a bit of [indiscernible] to process for other mines? Or does it only just restricted to Zimplats and Mimosa?

Thank you very much, Nkateko. I'm just going to -- I'm not going to answer your questions in the order that they were asked. I'll go with the strategy because I'll deal with that, and then I can hand the floor to Mark and to Gerhard. Just in terms of our strategy, you will see from all the investments that our current strategy is to strengthen our business for the future. We believe that there is fundamental support for the platinum group metal industry, and we want to make sure that we enhance our future competitive position and make sure that we create a sustainable business that can operate very competitively into the long term. So that is -- I mean, that is who we are. That is our core business. We also believe that there is some time required to evaluate the technology evolution between electrification and the hydrogen economy and all the competing strategies. We did previously acknowledged that we are aware of the existential threat potentially of electrification, and therefore, we have said that we will evaluate opportunities. We do not believe it is in our best interest or in that of our shareholders for us to rush into this and to do things haphazardly. And we will be taking our time to make sure that we have got a systematic and well considered response before we take the first steps. And so I do not believe that there is anything that is in the pipeline in the near term. It will probably -- it's probably something that will be advanced over the next 12 to 18 months before there is anything that is ready for us to start talking about. Then I'll hand over to Mark to talk to his 26% increase in cost and what he can do to improve his performance and his negative development to stoping ratio.

Yes. Thank you, Nico. You can hear me? I'll start off with the stoping to development ratio. One must note that despite the interruptions to our business at 16, which is a growth short, and our contractor strike we had in the beginning of the financial year, which are primarily responsible for some of our key development ends, we actually maintained a very, very good face length. Now square meter to meter ratios is actually the tool that you use to develop our face length. So we've done our face length very well. And currently, our face length at Impala is in a very strong position. We still had a 7-year high, so I believe we will maintain that and improve it slightly 16 and 20 ramp up some more as well. Obviously, later on, your 6 and your [ EM for that ] in 2 to 3, 4 years' time, and that will negatively impact that later on. So I don't think that's an issue right now. On the costs, I think, yes, as was previously said, we did have the safety interruptions, and then we had a strike in the beginning of the year as well. Now between those disruptions, I think we lost about 45,000 ounces alone. And when you have those disruptions, you actually maintain most of your costs. So I think that alone answers that a big portion of the cost increase we've seen is temporary in nature. And we certainly believe that given our safety track record, our trends and our lost-time injury frequency rate, that we believe the future looks much better than in the past in that area, and therefore, the cost performance will improve going forward. Must -- however, there is the inflation. And the mining inflation has hit us significantly hard especially in the processing environment with some of the chemicals over there. So we are coming under inflationary pressures over there that we'll be able to mitigate some of them, but definitely some of them will come through those of Eskom and some of those other inflation points. But I think those are key ones where we lost production. We don't intend repeating that. I think definitely, we'll claw back a lot of the costs next year and in the next 2 to 3 years going forward.

Thank you, Mark. What I hear you saying is that you will improve productivity and return back to normal performance, and that will mitigate cost and you were coming below inflation. Thank you very much for that. Gerhard, do you want to talk about...

The [indiscernible] are added in there, Nico.

Okay. Gerhard, do you want to talk about expansion in Zimbabwe [indiscernible] and what capacity that provides for third-party processing?

Thank you, Nico. Nkateko, yes, when you create extra space for beneficiation, it is expensive. But it's something that we required and that we've built, and there are extra capacity. But I don't think our intention was to build capacity to treat other people's concentrates for a small margin. It does give us -- the capacity does give us the ability to treat other people's material, but I don't think we would benefit from it in that way. We would rather benefit it for being there and being able, together with other parties' mine and beneficiary because that will add the growth that we can see going forward. And it is one of the reasons why we've agreed to increase that capacity in Zimbabwe. Zimbabwe is -- it is our playing ground. We know how to mine there, and we know how to make money there. So it just makes sense for us to also beneficiate there.

Thank you, Gerhard. So again, what I hear you say is that the extra capacity does provide us with an opportunity to consider third party -- or increase third-party processing. And if you look at the history of Implats, you can see that Implats often has converted that capacity to join hands with its partners and to acquire an equity stake and to share in the risk and to co-develop. And Two Rivers is an example of such a development. Thank you.

We're running out of time, but perhaps we can still do the 3 people who got their hands up on the conference call.

The next question comes from Dominic O'Kane of JPMorgan.

Nico, I'll try to be quick. I've got 3 quick questions. So Impala Canada, there seems to be a recurring jam tomorrow type story. And it's been over 2 years, and you failed to get the tonnes up. Can we -- can you maybe just give us some insight as to when we should expect to see that asset fulfilling its potential? Second question, can you just maybe give us some insight into the kind of real-time Eskom disturbances that you're having, if any? And then final question, just on the recent budgets and the change in the carbon taxation, can you just maybe talk about how you're planning to navigate, mitigate those future liabilities?

Thank you so much, Dominic. We have Tim on the line as well. So can I ask Tim to respond to the concern that suggests that Impala Canada has benefited from the palladium price but that operational performance has not quite met expectations and when we can see that from happening? And then Gerhard or I can always add to your comments, Tim. Thank you.

Certainly. Thank you. Can you hear me okay? The network seems to be broken up a little bit here. I just want to confirm that you can hear me all right.

We can hear you, Tim.

Okay. So for the last 2 years, we've been investing at Lac des Iles to increase the underground production rate, so -- which had so far increased by 40% since the time of acquisition to 10,500 tonnes per day. Our plan is to continue increasing underground production to 12,000 tonnes per day. This project requires not just an increase in our skilled workforce at Lac des Iles but also relies on contractors to perform much of the expansion work. Our contractors have struggled to fill required roles over the last year, and we are also challenged to fill critical skills within our workforce. This is a challenge that is being felt across Ontario in Canada and for a couple of reasons. And first, we are seeing individuals in their later years leave the workforce. Much of the skilled workforce in Canada are baby boomers, and many of them have decided to retire or at least take a step back during the last year of the pandemic. And second, Canada relies on immigration to meet its workforce needs. Approximately 400,000 individuals immigrate to Canada annually, and this number has significantly decreased over the last 2 years, further contributing to the shortage in the workflow. Now operational challenges, we've also experienced some operational challenges primarily with the mill over Lac des Iles, which is currently the bottleneck. Most of these challenges have been related to the crushing plant, which was originally designed for an open pit operation. As we increase production rates underground, the crushing circuit has struggled with tram steel and moisture and other issues with a different ore content. And for this reason, we are investing in the crushing circuit to decouple this milling -- crushing from the milling circuits. This project is expected to be completed midyear now with commissioning in Q1 and Q2 of fiscal 2023.

So maybe if I can just add to Tim's comment. I mean, so I have to acknowledge the impact that COVID and the skills availability and all that has added on Canada. But I would agree with the comment that we probably have -- internally have had higher expectations of the progression of Canada. There are a number of the capital projects that they have been delayed because of these external factors. It is my view that we're still going to have some variability at Canada for the next year. I'm expecting real performance improvements on the completion of many of these recapitalizing projects that were initiated when we acquired Canada in 2019. So my guess is another year of variability, and then I'm looking at material improvements. Gerhard, do you want to comment on -- or you or Mark want to comment on what the current real position is with Eskom?

I'll leave that for Mark. He's suffering most from it.

Mr. Munroe, do you want to talk about Eskom?

Yes, I think that the Eskom challenge has 2 key components to the Eskom. Obviously, the load shedding or load curtailment as they applied to the mines, that is a challenge. Currently, we've been using our furnace to mitigate that and manage that doesn't go to our mines. Short term, that is a challenge because we have one of our big furnaces down, so that does hit our business very, very dearly. Then the other challenge that we are battling to mitigate against and deal with is the infrastructure failure in the area and the crime, which is impacting everyone in any case from the copper theft point of view. When the micro infrastructure around our mines goes down from Eskom, that does impact our compressors and everything. We have engaged and we are engaging Eskom to work much closer with them. And we're supporting them on issues like security and clearing the trees below the power lines and doing and supporting in some maintenance areas as well to ensure that our system is not affected when we get these challenges. But yes, I think it is something that will stay with us for a while. And we'll have to look at ways to deal with it. We are working with the Minerals Council to change the way South Africa looks at copper theft because that is one of the prime reasons for the Eskom infrastructure challenges. So if we can change that and get better police support in dealing with copper theft along with cable theft, that will go a long way to supporting the platinum industry in general.

Thank you, Mark. And Meroonisha, and this may not be a strictly financial question, but the question is related to the change in carbon tax and how we're prepared.

So with the budget changes that were announced, the increase in the carbon tax for the next few years is it's going to range from ZAR 20 million to ZAR 30 million. I think the issues are really around when they start removing the rebates. And also if Eskom is allowed to push through the carbon taxes to us, that should increase significantly the carbon tax that we're going to pay. I think as a group, we are looking at moving to renewables. And you've seen what we're doing in Zimbabwe. We're busy with looking at Marula. And we're looking at different options for Rustenburg and also our refineries. So the way for us to manage the cost, and not only manage the cost but also on our journey towards carbon neutrality, we definitely are going to move to more of our energy being derived from renewables. And then the next phases would be transitioning to gas ultimately and then to -- we're busy with action plans to try and achieve that. I don't know if there's -- if Tsakani wants to add anything further on renewables.

No, I think that's well covered. Thank you, Meroonisha. Are there any further questions, Johan?

Yes, we've got one from René and one from Leroy, and then we can wrap it up there.

The next question comes from René Hochreiter of NOAH Capital.

Well done with your results. Not bad under the circumstances. Your acquisition of RBPlat, that will extend your life, you said, by at least 15 years of the lease area. Does that mean sort of 25 years life? Or is that just to 15 years? That's my first question. And then what's your longer-term plans for maintaining your production profile? Here, I'm thinking about Waterberg or maybe even Ivanplats in the really long term. Could you just comment on that?

Thanks, René. Just in terms of life, I took a bit poetic license when I spoke about the 15 years because I think that we have publicly said that the acquisition of RBPlat will extend the life by 10 years, but -- so that is 10 on top of what we've got at the moment. But I'm very clear that it will be beyond that. And I think 15 -- by an extra 15 years is not an exaggeration because they have -- and one of the reasons that everyone is interested in RBPlat is they're extensive Merensky resources and reserves. And so I've got no doubt that given the proximity of existing Implats' infrastructure, that we will find a way to make those resources economically exploitable. So I think 10 or 15 years is an understatement of what it does to the life-of-mine. Also, just in terms of what the strategic optionality is in terms of providing life-of-mine extension to Implats or to the group, I think we've previously said that we favor low-cost, mechanized operations. If you look at what is available in the area, predominantly, it's in the Northern Limb to Waterberg. And the other opportunities that we see that fit that class of asset is in Zimbabwe. Now we are active in both of those jurisdictions in the PGM-producing regions. There are a number of hills to overcome in order to find a financially economically viable proposition and to deal with the partnerships and make sure that the businesses are set up in a way that we can pursue them. But then even at -- in Rustenburg, so previously, if you look at the production profile of Rustenburg, it now precludes the optionality of bringing in a 17 Shaft Afplats. Besides the fact that they are also deep complex projects to do, but to the extent that we can add or we can integrate RBPlat with the existing Impala, it all of a sudden brings a whole host of strategic optionality in terms of where a potential sale of 2 17 Shaft Afplats can potentially fit into the future. And you now won't go through this massive dip if those projects become economical and we develop the appetite for investing in projects like that at some time in the future under the right market conditions. Gerhard, have I left anything out?

No, it's fine.

Now just any designs on Ivanplats?

Well, that would be -- I mean, part of the strategic consideration, I mean, as you know, that they have made recent announcements about potential offtake agreements and their ability to pursue. But I mean, certainly, when you look at Ivanplats like Waterberg, those prospects have to be exciting. They are bulk mines with relatively -- there are interesting grades and base metal contribution. It would be senseless to dismiss them as strategic options for the industry growing long term. And now again, Gerhard spoke earlier about our processing capacity and what it means for the company. And again, I would suggest, if you look at those opportunities in all of these new projects, the capital investment required for beneficiation really represents a material hurdle. And to the extent that we would have capacity, it always brings those discussions a lot closer to home.

We've got one more question from Leroy.

That's Leroy Mnguni of HSBC.

Johan, could we please chat a little bit about the kind of steps that should follow for the RBPlat transaction? So what are all the pending approvals that you still need? And if anything, everything goes according to plan, what needs to happen in the time lines you anticipate to close the deal? And then if you could maybe just cover your views on the fact that the uptake initially was pretty good on your offer, but that seems to have slowed down quite a bit of late. Why you think that has happened? And then just lastly, a bit of color on the situation with Russia. So if the situation intensifies and you do get sanctions relating to palladium, realistically, how easy would it be to shift the logistics for Russia to supply all the production into China? I would imagine they've got contractual obligations. Just maybe some scenarios on how you see that playing out over the next couple of months, please.

Thank you, Leroy. I think Kirthanya, our business development executive, is probably in the best position to answer your questions related to the actual processes of navigating through the RBPlat transaction as well as the uptake initially and right now and what we expect going forward. Thank you.

Thanks, Nico. Leroy, in terms of the process, the main condition outstanding from a regulatory perspective is the Competition Commission approval process, which will also need to go to tribunal given it's a large merger. So that is obviously a regulated time frame, but it can be extended at the election of the commission in order for them to complete their work and adequately interact with all the various stakeholders and market participants and address any questions and issues that may arise. On -- as Nico said, we had submitted in December and we've had reconstructive engagements and various rounds of the sponsors, et cetera, to address questions and talk to our various stakeholders, including our employees and the unions, over the last few months. On the assumption that we do close it up in the next -- on the current time frame as estimated in the -- we set out in the circular that we would aim to close the transaction by the middle of June. And that would -- so that would allow us to get competition approval and then give shareholders -- or to give us some time at the end of it. to actually make payment and close from a process point of view. So that's really the only thing outstanding to take us to that June -- mid-June deadline, as set out in the circular. The other point you raised on the shareholding, I think we'd always understood, upfront, we had -- we always understood how we would be able to acquire shares and the level and the rate at which we would be able to increase our shareholding. So when we first went out to market, we targeted the main -- the top 5 or 6 shareholders in RBPlat, the main institutional shareholders who had significant blocks in the company. And we were able to get the majority of those. We then spent the next few weeks to get up to the mandatory to speak to the other significant institutional and retail shareholders, so shareholders with significant blocks. At 35% -- at our 35% shareholding within [indiscernible], a shareholder who is at just under 35% as well as the PIC who holds just under 10%, there's really now only about 10 -- 20% left in the market. And that's a mixture of smaller shareholders, smaller investors, index funds who have to hold RBPlat according to the track -- the funds that they track until there is a rebalance. So we did expect that the take-up would be slower as you go down into 1% shareholdings and even lower. And those amounts -- and those shareholders will make decisions as time goes on and as we receive and as they review the competition process. So it is fully expected, and it is in line with the time lines as we progress the transaction from now.

Thank you, Kirthanya. And then lastly, on the Russia -- the Ukraine-Russia crisis, and the question was really related to logistics pertaining to movement of raw materials and offtake contracts. Firstly, I believe that any sanctions against Russia will trump offtake agreements. So to the extent that Russia is forbidden to sell into existing offtake agreements, I think they will have a rightful choice to sell to any new partner. And to that extent, I'm convinced that China will represent that avenue. And secondly, to -- I don't believe that the logistics required to change distribution of metals is complicated. And I think that could be done in a very, very short space of time. I mean we mostly fly our products, so the only issue is if you've got restricted air space, but I mean, there are many ways to get high-value metals to the right consumers, ultimately. I don't believe that is an issue at all. Thank you.

Thank you, Nico, and thank you, team. I'm conscious that we've run over time, but I wanted to answer as many questions as possible. We will be available over the next couple of days, and I'm going to -- definitely, we'll be having a lot of engagement with investors and analysts out there, so looking forward to continuing the conversation. I am conscious that there's 4 questions that I've received on the webcast that we haven't answered, but I commit to answer that shortly on e-mail. With that then, thank you so much for everybody for their participation and looking forward to seeing you soon and continuing this journey. Thank you so much.