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

Good morning, everyone. Very welcome to the Impala Platinum 2024 Half Year Results Presentation. A special word of welcome to everybody joining us on Chorus Call and also those watching on the webcast. As is usual, we would start the proceedings by a small context of the results, after which we will make sure there's enough time for Q&A. I'll start in the room first here today, and then we'll go to Chorus Call. But there's also an opportunity if you're watching on the webcast to lodge your questions and we'll read that out and we'll try and answer as much as we can. With me today, I've got our CEO, Nico Muller; CFO, Meroonisha Kerber; and also our COO, Patrick Morutlwa. So without further ado, I'd just like to start by reflecting on the tragic events that occurred at our 11 Shaft in the reporting period and the 16 colleagues that passed tragically at our operations during that. But also everybody else that was impacted in the mining industry over the course of the year. So if I can just ask everybody to perhaps just reflect and take a minute silence just in memory of everybody who's been impacted and everybody every day doing their utmost to make our industry safe industry. Thank you. [Presentation]

From my side, good morning to everyone. Diminishing number of people attending these things, most of us attend online these days, particularly welcome to my major, Implats people. So welcome to our first half of the year interim results. What I want to do is, I just want to take a step back and just look at the environment in which we are operating and talk about the major forces impacting on metal prices on our markets. [Indiscernible], I don't want to steal your words, but like the price determination is not directly correlated to market fundamentals. It's the marginal buyer that buys metal in a market where there's an abundant amount of metal available on surface. So it is our experience that you can do these market balances, but there are other factors to consider. So if you stand back far enough and you look at where the global economy is, it's been characterized by super inflation and therefore high interest rates from reserve banks and central banks. And as a consequence, it has added downward pressure on the global economic growth rate. And even now it is evidenced, if you look at the purchase manager index, particularly for manufacturing, in most of the economies that use our products, we'll see that the PMI is just over 50. If it's below 50, it indicates that there's going to be contraction in the growth rate of that particular economy and at the moment, it's just hovering above 50. So it indicates a fairly low expectation of economic growth rates in those jurisdictions. When you have this fairly bearish sentiment on global economic growth rate, it tends to have a negative impact on commodities. And so it's not only the PGA market, but we've seen it in other, even battery metals that we have seen a downward trend in metal prices. On top of that, we are sitting with elections in 64 countries. Half of the globe's population are going to go through elections. We're sitting with conflicts in Ukraine, Palestine, potentially Taiwan. And so all of these things are creating uncertainty. And therefore, if you are a manufacturer and you consume our products, there has been a trend of destocking. We saw it in the fiber glass environment, even the autos, even on the back of, I think, fairly positive automotive sales last year. We have not seen an immediate price response. And I think it would not be wrong of me to say that there's general consensus, not only from across the market that we cannot expect a rapid price recovery anytime soon given the fact that it's heavily tied to what's happening across the globe with macro factors. And so you can see the consequence on the right-hand side, with a significant decline in PGM prices. Our basket price declined by 32%. And that's really on the back of particularly palladium, which went down by 41%, and rhodium. And so in today's presentation, I think what we will find, if you stand back, is a really solid fundamental operating performance across all of the Group's operations, bar one. But notwithstanding that performance, and I'm talking about production of ounces as well as cost containments, but notwithstanding, we are going to see that our revenue declined by over 40% -- or revenue declined by 25%, and we will see the trend in cash flow. And at the end, we are going to conclude that this is necessitating the company to consider a stronger strategic response, and it cannot be just marginal improvements in productivity and cost optimizing at the operations. So I just want to start off by acknowledging the absolutely catastrophic event that we had at 11 Shaft on the 27th of August, and in combination with that, 3 other incidents that resulted in the loss of 16 lives of our employees. I'll talk about 11 Shaft in a minute. But as a team, we have regrouped around 4 key themes: One is organizational culture and behavior. And this is not necessarily only across the entire group. But even in specific work teams or sections at specific operations, we need to look at what the team dynamics are and how we operate in order to make sure that we are safe. And part of that is leadership and communication. So you may have a fantastic position at particular operations, they say Zimplats or Two Rivers, but we need to make sure that we assess our business across all operations, and in each operation, in every section. On top of that, control design. So hazard identification. And once you understand the hazard, we need to review and make sure that we have got a position of strength in the design of controls, such as procedures, designs, safe operating practices. And when you have that, it's not enough, then you have to make sure that all of your people are educated, that their competence in that area is assured. And then we have to make sure that we understand any changes that may happen. And changes could be changes in people, changes in working condition, changes in many things. And we have to make sure that competence is assured through all of these changes. And these things that I mentioned are particularly learnings that we have taken out of 11 Shaft. So just in terms of where we are with the investigation, I just want to touch on a little bit on what we know so far about the incident. There are current investigations underway, but I can safely communicate that the cause of the incident was not a winding rope failure. It was not the failure of any mechanical safety device in the shaft. It was not a consequence of inadequate maintenance or capital investment. The basic cause of the accident is associated with a failure of the control circuitry that controls the winder. And just to make sure that you understand that. We have got safety devices on the winder that will prevent overspeed or the conveyance going too far down the shaft or going too high up the shaft. Those are just 3, but we've got many of them. And at the time of the incident, there had been a trip. The maintenance staff had gone through fault identification and remediation. And based on information available to them, they read a health status, a positive health status, which then allowed the man conveyance winder to be operated and they then gave an instruction to elevate it to the next level. I think there is a deficiency in that the health status was incorrectly recognized by the system. So that's really where the basic cause is. But then there could now be many reasons, underlying causes that contributed to that. And that would go across a wide number of areas. And it is our intention to do a very thorough investigation to come up with a very conclusive set of causes as well as remedial action, because I think it's important that we use this event as a shining light of how to prevent similar incidents going forward. What I can say is that the shaft has been rehabilitated. We have gone through all of the remedial action. We had the DMR there, and the shaft was put back into commission. It is in the process of ramping up production, and it is expected to reach full production in April. Just coincidentally, at the time of the incident, we also temporarily suspended the operation of all of the winders in Rustenburg and we made sure that we went through a full audit to ensure safe operation before we allowed any of our winders to transport any men in any shaft. From an operational point of view, I would like to use this opportunity to recognize the operational leaders in our business. And I'm privileged to have at least one, Moses in the room, and Alex and a few people may be joining us online. But I think it has been an amazing achievement to produce 2%, exclude Impala Rustenburg, 2% more ounces than what we did in the corresponding period in the previous year. We ended up with 1.902 million ounces. And if I look at why that occurred, you see there's only 2 areas where we underperformed. One is the third-party receipts. But that's not an operation. That's as a consequence of the termination, the conclusion of 2 of our third-party contracts. And so it's only Marula, at which we had a 12% decline in ounces produced. So all of the other operations produced more efficiently and higher volumes than last year. When I look at Impala Bafokeng, that looks like a stellar performance, but this is on the back of zero contribution reported. So the 254,000 ounces from Impala Rustenburg is a maiden contribution. So the question is, how are they doing? And I think when we had these results at the end of last year, we acknowledged that it's going to take some time to restore sales to full production. If I just do a year-on-year comparison of that particular operation, you can see if you look at 60% concentrate, it's more or less on par. So that suggests that we have not actually proceeded with the ramp-up, but at least it's not gone down. So it remains a work in progress. What is positive about the operation is that it's managed a 1% reduction in cash cost, which is really important. So whilst production has not grown, we have seen a reduction in cash cost per ounce. And whilst I think the mining is going to take the best part, another 18 months to get to full production, we have seen some positive movements in the recoveries at Maseve and BRPM plants, thanks to fantastic oversight from our group metallurgists. So we've seen a 2% to 3% improvement in recoveries, and that's on the back of more stable operations. We've got better control of the ore mix going into each of these plants, and we have improved on flotation capacity and the reagents that we are using in there. So that's at least positive. So if I look at the ounces refined, that has gone on by 4% compared to last year, and if I include RBPlat's Bafokeng, it has increased by 19%. And then very encouraging operating cost increased by only 3%, or if I include Bafokeng by 5%, and that's on the back of very stringent cost control by all of our operations. And just by the way, that is in spite of a weakening rand, which always has an inflationary impact on our dollarized operations, like Zimplats Canada and Mimosa. So when you convert that to South African rand, it has an upward pressure. So I think that is a fantastic performance, and then our capital in line with our capital program, increased quite significantly to ZAR 6.8 billion, both without RBPlats and with RBPlats. So if I look at where the big spend is happening, it's essentially in 3 areas. If you go through this list, you'll see there are 3 areas talking about processing and refinement in general. So that would be 1 area. And then there is capitalized development, primarily at Rustenburg and Canada. And then lastly, it's the Bimha and Mupani expansion life of mine extension projects that's underway at Zimplats. And I will talk later about what we are doing going into the future with capital. If I just get to the business performance, the refined ounces sold increased by 12%, and so you'll see this is lower than what we actually refined, which suggested there has been a build-up of refined metal in our vaults at our refinery. Revenue went down by 32%, as I explained earlier and the revenue per ounce, and therefore the revenue. And if I look at cost of sales, that has declined by 2%, and that has resulted in EBITDA of I think it's ZAR 8.4 billion. But then if you then look at the cost of the increase in inventory and some other financial wizardry that Meroonisha can talked to more, it eventually translates in a negative cash flow of ZAR 4.8 billion. So you can see this downward curve in terms of cash flow of the company. So if you just look at way what cash flow are happening in the group, I just want to start on the right hand side. It reflects the cash flow per operation. So Implats IRS, Canada, Marula, they are there or they about others just a financial inventory from Meroonisha, which is not a big thing. But the 2 big areas of negative cash flow is Zimplats and Impala Bafokeng. Zimplats is very well understood, and I'll talk a little bit about it on the left-hand side. But that's purely as a consequence of the intense capital investment that is currently happening in the form of the smelter and the Mupani, Bimha extension. So that is finite and that will come to an end. So Zimplats is not a long-term strategic concern. If you look at Impala Bafokeng, massive negative cash flow. But just to mitigate an interpretation, items 2 and 3 are once-off costs. One, if you go to item number 3, it's cost related to the transaction. And just to be clear, it's not cost that Implats occurred, it's cost that Bafokeng incurred. So that's on the share trust, the employee share trust and shares that vested to management in the process. And then item number 2 is a peculiar one. In terms of the offtake agreement, payment is made on the last calendar day of the period, but except when that calendar day falls on a public holiday, then the payment is made on the next business day. So in this particular case, the 31st occurred, not on a business day. So the actual payment only flowed post the reporting period. So we'll see the benefit of that coming into the new H1. But it's really that number one, which shows the operating cash loss. And this is a new business with long-term potential. So there is a lot of work required in order to convert that into a positive position. Not going to talk about the left-hand side, but if we can come back to it in Q&A. The interest of time, I will move on. So when you look at this cash flow trend in the company, it is very clear, particularly given the backdrop that I gave about the global economy in the markets, that a strategic response is required. Besides the operational improvements, the cost management, the company has gone and made decisions that will see a ZAR 10 billion reduction in capital investment over the next 5 years, and that equates to 20%. And you can see on the left-hand side, the bars in comparison to the previous guidance that we gave the market in red. And on the right-hand side, it showcases the breakdown of that ZAR 10 billion, which I'm not going to go through, just to note the 2 bottom ones on joint ventures. And they are typically, what's the right word, equity accounted or something. So they typically don't form part of our numbers. So when you look at them, don't add them to the other numbers. And it's just the managed operations at the top that accounts to the 20% saving. So in addition to the capital investments posture, we also need to change a number of other things. The first is, keeping us to say operating strategy, but just the strategy of the company. First and foremost, our appetite for investment, not only capital, I mean, we have spoken previously about diversification. We're going to do a few things. Our appetite for investment in general has been -- has contracted significantly. So whatever aspirations we may have had to grow the company beyond our current base or to diversify those aspirations has been put on hold. It also extends to investments such as initiating Waterberg. I think that you will find from Implats position, how our appetite for initiating these investments are very low at the moment, and we will have to see a very strong price response or price improvement before that changes. In addition to that, there are a number of operations that are going to have to go through a significant change in operating strategy. Our CEO and his team in Impala Canada have been extremely proactive and perhaps driven by the fact that they have a single commodity palladium. But they have taken action. They've restructured. They've adopted a higher-grade, let's say, not a harvesting strategy, but -- so they have adopted a strategy that will see asset in Impala Canada operating at a higher cost, at a higher grade. The operating costs have reduced from $1,300 an ounce to $1,050 an ounce. They reduced their labor by 21%. And so we hope that they are currently working on plants that will see even a further reduction in operating costs. So I know that there's been quite a lot of concern about the North American palladium operations. And I think Tim and his team has done an exceptional job to give us hope in navigating through this period. But in addition to that, we are also in the process of evaluating restructuring at corporate as well as every other single operation in the group on the back of the market that we are facing. And if you look on the right-hand side, even predating restructuring, we have already seen as a consequence of a decision not to re-employ or not to recruit for non-critical positions, we have seen a 3% reduction in group labor. This does not include any restructuring other than the 200 people from Impala Canada. And if you want to look at what the implications of all of this is on the bottom right, the way to look at it is there's probably going to be a phased reduction in group output. We are going to probably, in the absence of any material change, see a drop off of the production from Impala Canada and 30,000 ounces at the Mimosa. And if you take those days, that amounts to roughly 8% of the production guidance of financial year 2024. And on top of that, the decision at Two Rivers is not one that's taken, it's being currently evaluated. So the way to look at this is ounces that are potentially at risk. But on top of that, we are looking at previously planned expansion of 210,000 ounces, which may or may not happen. If you put it all together, it equates to roughly 14% of our internally planned production. If I put all that together and I look at the group guidance relative to what we did, I think in September, the guidance remains exactly the same, other than one item, and that is the capital expenditure, which you will see third from the bottom. So the guidance reduces from a range from ZAR 12.5 billion to ZAR 13.5 billion. It now has reduced to ZAR 11 billion to ZAR 12 billion. And on that note, I thank you for paying attention. I will now be happy for the team to field questions. Thank you.

Thank you, Nico. I'm going to open the floor for questions to the team now. You can just raise your hand and the microphone will be handed to you. Please just state your name, so people listening in can also hear who's asking or posing the question. And then I will also give the opportunity for the people on Chorus Call and on the webcast, you can type away. I will receive your questions here and we'll try and answer as many as we can in the 30-odd minutes that remain. So let's start in the room. Who's going to open up?

Okay. Arnold Van Graan from Nedbank. Nico, you say you need a strong strategic response, right, which I think is needed. But if I look at your guidance, we're not really seeing that. So the question is, when are we going to see material movements in your production number? Because I think that's really what's needed and we're not seeing that coming through. You're taking off answers on the margin, postponing some growth. But don't you think we need a larger and more swift response? And please don't understand me wrong, I know at the end of all of this, there's people and communities that do get impacted. But yes, looking at this, I'm not seeing that strong response yet, or is it a case of you are working through this and watch the space, you're going to come back with material changes to that number? Because in my mind, I think that is what is needed industry-wide. Yes. That's the first question. And then the second question, we did touch on some of this in Meroonisha's call. I do see you postponing some of the renewable capital, which I understand from a balance sheet perspective. But from a risk perspective, are you not opening yourself up to big risks going forward given that you are then still reliant on Eskom and I think it's ZESA. And relative to many of your peers, where they are moving off the grid. And this question is asked against the background of in your previous reporting period, you lost ounces due to, I guess, the lack of flexibility when it comes to smelting capacity and the impact of power availability on that. So let me just ask those 2.

Thank you, Arnold. So the question of industry discipline, of course, is a long-dated conversation. It's taken us the best part of 2 years to acquire RBPlat when we were hunting for Impala Canada, it took us what, like, I don't know, a year or 1.5 years. So if you look at the investment decision. So the nature of our industry is very particular. It's a long lead time, capital-intensive decision. So the notion of switching on and off based on these variations is decisions with very significant consequences. If we could very quickly decide to put something on care and maintenance or to switch it off and not worry about the long-term implications, it would be a very simple game. So that's the one part. We have to be very specific. So our position is that we will not support loss-making ounces. But we have to make sure that there is no foreseeable opportunity for that to occur. So if there is a possibility of returning to profitability in the event of a short period of incurring losses. And I'll take Marula as an example. Marula was operating from 2008 to 2019, probably in a cash-negative position, and when it turned into profit, it probably paid itself back 10 times over in a period of 3 years. So we take those decisions with great care and of course, in a country dominated by employment concerns, we are equally concerned about the social impact on our employees as well as communities. Having said that, what I can assure to you is we will not continue for another 10 years in a winter cycle and take no action. But we do want to make sure that we do so carefully, deliberately, and in a measured way. So I understand the concern, but that's my response. In terms of the renewable energy investment and the comments that we've made about either stopping or telling it or deferring it. So first of all, peer groups going off the grid, I'm not sure that's entirely possible for 2 reasons. One, we are an industrial consumer of such demand that to go off the grid is not entirely possible just from a peer demand. You also need to look at the demand profile through 24 hours. So I'm not convinced that any peer can entirely go off the market because in addition to the generation, you also have to be able to store the power. Our perspective, it is critical from a number of perspectives, one is to reduce our dependence on Eskom, but also to reduce our carbon footprint to pursue but there are different ways to get to the endpoint. One is to invest capital in building your own infrastructure, and the other one is to partner with entities through off-take agreements. And so I think what we are going to have to do is we are going to have to change our tactics, because as much as we would like to continue developing Phase 2 and Zim or Marula or 180 kilowatts ourselves in a period where you don't have the cash to do that, it just becomes impossible. So it's far better for us and we are sitting with a landlord who has got aspirations of becoming a renewable energy player. And for us, strategically, I think it's far more attractive financially to agree with them, for them to develop renewable energy, and for us to become a long-term off-taker of that. So we are not abandoning our aspiration of increasing the consumption of renewable energy, but the way in which we do it may have to change.

Hi, Chris. Now you can go, Leroy.

Nico, you mentioned earlier that the current metal prices are not a fair reflection of the market balances. What are the sort of catalysts that you are looking out for and that we could look out for that would correct that, so that they start reflecting the market fundamentals? That's my first question. The second one is, you've done really well in cutting costs at Impala Canada, but it does seem like the goalpost keeps moving. So you've come down to sort of $1,050 and now you're going to try and cut down to $950, all-in sustaining costs. How do you weigh up the optionality of keeping that operation open and chasing kind of free cash flow neutral versus the benefits of your Zimbabwean and South African operations from higher metal prices if you were to take those answers out of the market? And also maybe in the context of some of the jobs that are now at risk in South Africa, because you're keeping Impala Canada open for the sake of optionality. If you could please talk us through that.

So I will let, Johan, on market -- contemplate market figures, when there are some of our team members in the audience. But just in terms of your second question. Firstly, I'm not convinced that Impala Canada has got a major bearing on the palladium price in the greater scheme of things. I mean, I think even if you cut right now, given the surface stock, given the threat of switching between palladium and platinum, which I suppose has diminished now with the narrowing of the price, given the supply of discounted Russian material, I'm not convinced that stopping Impala Canada will have a major bearing on the sustainability of South African, Zimbabwean operations, just to start off with. When we look at Impala Canada, it represents multiple things to us. One is potential source of revenue, but also from a strategic point of view, it is geographic distribution. They are entirely based on renewable energy. It is a footprint in North America. So there's a number of other strategic considerations that are of value to the company. And so I'm not sure that in my own mind, keeping Impala Canada open compromises South African and Zimbabwean operations. I think that there are strategic value for the company in making sure that it is represented in all the jurisdictions in which it operates, but to the extent, that we are sure that we can do so without having to burn cash in that jurisdiction. So in terms of the market and any potential triggers that we should look out for, anyone would like to volunteer?

Yes, I think looking at the market, it is our view that pricing is mostly sent on economic sentiment right now, rather than the fundamentals. Sifiso can talk to you after the presentation about some of our customers and ordering, and that's healthy. So we're seeing a healthy underlying market and we're not convinced that if you take 200,000 or 300,000 ounces off the market today that you're going to see any movement. We're also confident that some of that destocking is coming to an end. We're heading into elections in North America, there are early signs that things could turn around. Certainly, an interest rate cycle moderation coming about, even if it's delayed in 6 months or so, will really reset sentiment. So all of these things have to be considered in. But I think the primary thing is that I don't think a fundamental 200,000, 300,000, 400,000, 500,000 ounces is going to move the dial. But I think our position is very clear. We do not support lot-making production. And even in Canada, it's 2 to 4 years life, but it could be 0 to 4, depending on what happens to the palladium price tomorrow. We just need to factor in the strategic optionality and the closure cost and that is something that we look at continuously. But you also have to take note of what the team they have done and the trajectory of travel there and we need to give them at least a fair chance of getting to $950. They've demonstrated excellent response so far. Chris?

Nico, Johan, Meroonisha and Patrick. It's Chris Nicholson from RMB Morgan Stanley. Could we talk about Impala Bafokeng? A few kind of questions here. So I think you've obviously rightly identified it's been a significant source of cash burn in the period. And actually by quantum it actually looks more than Impala Canada. You talk in the release to strategic options secure value, I know when we chatted 6 months ago, there were some actions you laid out around concentrator recoveries, quality of mining grades at Styldrift. Is there anything additional that you think or levers you can pull there that would have changed from when you first acquired those assets? And then linked to that maybe, could you just chat to the labor situation? So clearly, obviously, you had the sit in at the end of last year. Change of ownerships can be difficult. Is there anything limiting your ability to maybe rationalize headcount there in terms of the takeover agreements when you took over the assets? Or anything else that would impede your ability to extract value?

I must first find out that whether I'm permitted to talk about options for my team, because there's quite a lot of nervousness about talking to that given the undertakings that we've given the DTI. So I mean, the fact of the matter is the following. So when we acquired the operations, we gave a number of undertakings for very specific reasons. And one of them was that we will keep the operations separate. We've got different pay structures, we've got different union representation, to be quite honest, a different way of operating and management. And so the definition of success or how to achieve success is quite different. So both the unions, management and for that matter, Implats were very concerned about going aggressively and merging the 2 entities. So for very important reasons, we gave an undertaking that we would keep them separate. And then the metal price drops by 40%. And so let's say you go through all of the optimization, cost, production and whatever, and let's say you do internal restructuring. The question is, does that prohibit you from talking about potential integration between the operations and doing so, cutting all of the shared, the duplicate services? And I cannot -- I've tried to find reasons why one cannot talk to it. But surely if you are faced with the option of having to close something permanently or going and talking to all the stakeholders and engaging on the matter, that at the end of the day must be an option that is retained by ourselves and the 2 operations and all of the stakeholders involved. So it is on the table as a potential option going forward. Prior to that, there is the fact that, in my view, we have resourced Styldrift. So BRPM, no particular issue, efficient going -- carrying on. But at Styldrift, we have resourced a mine for full production and they are operating at 70%. Clearly, that is a contributing factor to cost on the performance, carrying the cost of full production and operating at 70%. So that given the fact that we are in a negative cash flow, clearly suggests that the restructuring at that operation has to be evaluated. I think, and as I said before, it's going to be 18 months to 2 years to get production right. And what amount of cash flow are we happy to tolerate in that period? And the answer is not much. And so I think a fundamental repositioning of Styldrift is entirely required in order to make sure that we don't expose ourselves to the risk of further negative cash flows in that operation. And so I'm not sure if Lee-Ann is dialed in, but I think your question on labor, particularly at Bafokeng, where we had underground setting is a useful question, and perhaps Lee-Ann, if she is available, can just comment on what transpired there? And what the current position is within the company with labor?

Lee-Ann, are you online?

Yes. I am. Can you hear me?

Yes, absolutely.

Okay. So the industrial action that took place in December and then spilled over into January was illegal industrial action. And it was organized by a small group of workers. And I think it's important to note that there was no dispute between management and the union. So we -- with the transition in terms of the transaction, there were some opportunistic things that happened, and we are in the process of working with NUM on this right now. So I don't foresee any problems with it going forward as long as we follow the correct processes and make sure that we go through the consultations.

Chris, I just wanted to add to that. I mean that was a huge disappointment. But as Lee-Ann said, it's not a dispute between labor and the company. There were, first of all, misunderstandings in terms of what had been agreed to on transaction, particularly with regards to the employee share on a trust and proceeds from that. And so I would suggest right now, the relationship between the company and these 2 major unions, and as well as NUM, as far as I am aware, is pretty strong. And even in terms of having to navigate through this price decline and the strategic response, there's a good understanding and constructive collaboration in developing action plans in order to mitigate the possibility of negative cash flow. So I'm not sure I see that as a strategic risks to the company, as may have been evidenced by the sitting that happened in December.

That's very comprehensive.

Thanks, Chris. Any other questions in the room before I go to Chorus Call? Perhaps people on Chorus Call can start preparing themselves. Bruce, just get a microphone to you.

[indiscernible]

Finally, a finance question.

So at a group level, we raise deferred tax on our subsidiary that are in different jurisdictions because the undistributed funds are generally repatriated to the holding company at some point. And because there's withholding taxes in the jurisdiction, we've essentially raised deferred tax on it. So in the past, we had a big, deferred tax charge where we've basically raised the associated withholding tax that would flow. What has happened in the period is that looking at the capital investment profile, et cetera, our estimate of the undistributed profit and what will be repatriated to South Africa has changed. And with that change in estimate, we've reduced the deferred tax that we carry. So the ZAR 1.3 billion that you see there is essentially just a change in estimate, but it's a non-cash item. So it's literally just an accounting adjustment that happens on consolidation, which is why when you look at their financial statements and the group, it's different. So it's not a tax dispute, it's very particular to deferred tax.

And then just it might be too early to comment, but you may have seen that the steel market is in a bit of turmoil. Big moves to put tariffs on to a lot of the imports in order to protect Mittal locally. I mean, do you see potentially any impact on your CapEx programs? Because if what might happen at Mittal could greatly affect the import side of the steel markets.

Do you want to comment?

So clearly, if there is any increase, that will be passed on to our operations, both the capital and OpEx, because we use a lot of steel in the business itself. I don't know if maybe Moses can help me with a bit more detail, because I haven't been following exactly what's happening in the steel.

I mean, maybe what would be helpful? Do you know offhand what percentage of your project steel comes from Mittal?

Not offhand. And I think it is a bit difficult to -- well, we do try and diversify our cost base -- sorry, our supplier base. But clearly, if that has an impact on the whole industry, then everybody's prices are going to increase, unfortunately.

Last question from the audience before we go to Chorus Call. One from Arnold, follow on.

Nico, just on Styldrift, so 18 months to 24 months to fix that. I'm assuming initially when you looked at it, that timeline was much smaller. So just from a mining perspective, what's the issue there? What's needed to get it fixed to get to that 100% production, briefly?

It is a significant list. But to start off with, I mean, I hope I don't bore people talking to the same issues all the time, but you need a factory floor. And the factory floor is not sufficient for the production planned, always refer to IMAs, but you need the factory floor space. Secondly, when you've got the factory floor space, it must be equipped in a way that supports productive operations. And by that, I mean if you look at the infrastructural support in distance from the face, workshop, services, that needs to be in place. And in order to do so, you have to have the right design for your strike on variable spins in order to facilitate rapid forward movements. There are serious issues on that. When you look at the productive capacity of the teams working in the factory floor that has been properly equipped, they must be in a position to achieve the production rates that have been achieved. So if you look at bord-and-pillar operations and a team typically consisting of a drill rig and 2 LHDs, productivity varies from plus 20,000 tons a month at Zimplats operation to probably 50,000 tons a month per team at Two Rivers to barely 10,000 tons per month at our team. So what is contributing to that? The integrity of the fleet. So if you don't have the availability and utilization, then your productivity is going to suffer. I think we've got issues on both of those, both in terms. So in terms of your particular plant maintenance, the equipment schedule, the facilities in order which to do effect breakdown repairs and plant maintenance, spares, stockholding, competence and education of the entire engineering team, combined with a strong operational leader to understand the impact of all of these different things together. So I think that's just a start, then you have to reverse engineer the process back and look at the entire value chain supplying that operation. So you have to look at critical spares or critical supplies, all of the issues, you have to look at the design of shifts to make sure that you've got effective face time. So it's a comprehensive list. So what we have done is we have agreed a number of key metrics as leading indicators with our team in Rustenburg. And so every month at an operation level, but every quarter at a board level, we will be evaluating. So we've identified this is the top key metrics that we're going to drive, and then there are secondary ones. And so we will make sure that we drive those very specifically and have a very keen focus on making sure they improve. An example is, if you look at 16 and 20 shaft, I mean, probably for the first 6 years that I've been part of this operation, we had to talk about 16 and 20 shaft and our disappointment. If you look at the production of Rustenburg in the last 6 months, I suppose I have to give Moses some credit. But on top of that, one of the things that they have achieved is they have achieved success with the key metrics that we design. And, I mean, part of the production improvement is, of course, Moses. But then also the fact that 16 and 20 shaft has finally come to fruition, not at the original design base, but they have improved production significantly, and that's why Rustenburg has performed quite well.

Right, I'm going to hand over to Chorus Call to the operator there now to just take the audience through the procedure, and then we'll take some questions from Chorus Call.

[Operator Instructions] The first question we have comes from Adrian Hammond of SBG.

Nico, I have 3 questions for you. Firstly, you mentioned in the commentary that there are further several actions that may be necessary if pricing doesn't recover. Could you expand on that? Secondly, in the trading update earlier this year, you mentioned 30,000 ounce impact at Rustenburg in 1H and a 30,000 ounce impact in 2H you expected. Is that still the case? And can you perhaps give us an indication of how productivity is faring, cognizant of the incident at Shaft 11, which I appreciate must have had quite an impact on morale, just how things were doing on the ground there? And then thirdly, the BEE deal that was announced, is that -- are you in a rush to do that deal or is that a set date?

Thanks, Adrian. So it's fantastic. It's 3 questions between the 3 of us we can deal with separately. Meroonisha, you can start thinking about the BEE deal, and Patrick, you can start thinking about the potential impact in H2 and productivity in Rustenburg, unless we can get Moses mic up. In terms of further actions, I think we specifically spoke about restructuring that we are now talking about. I've alluded to restructuring a corporate office as well as all the operations. And then in response to, I think, Chris's question, I did highlight that if none of the fields required effect, there is the further optionality in Rustenburg. Specifically, given the contiguous nature of those 2 operations to consider a next step, which would be in how to eliminate some of the duplicate services, protection services and so forth. And then ultimately, and this is not things that we have spoken to, but that was asked by Arnold and that is in the event of failure to achieve success in getting profitability, there is the very difficult but potentially necessary steps, and that is to put on care maintenance or shut down particular operations if it cannot be operated profitable. So those are strategic options. So let's talk Patrick and then Meroonisha.

Yes. Thanks, Nico. So we did highlight that with 11 Shaft out, there will be about 30,000 ounces that will be suffered in H2. So lucky enough, we were able to bring 60% back of the production by taking people down. 11C Shaft and DMR were very kind to give us the use of the rock winder. So Rustenburg is now about 85% of the BP as we speak. Now I believe that now we have 11 Shaft back, we should be able to be back to 100% by April. So the 30,000 will probably still remain, because that's what we've lost with 11 Shaft not at full capacity, but all other shafts coming back from a crisis break, they are back on budget.

So with respect to the BEE deal, obviously, the negotiations have been ongoing. Part of the deal included that they raise a portion of their purchase price through external funding. So in the background, both the Implats team and Siyanda team have been working to finalize all of that and obviously agree and make sure the key terms are settled. Once that process is complete, we will make the relevant announcement to the market. Clearly, we've been busy with our half year in-between, so it is taking a little bit longer.

But that's just to the point, I think it is important for us to have some urgency. I mean, it was an important part of the transaction to promote transformations through the corporate action and, I mean, it is now quite some time after that. So to answer your question in terms of urgency, I would suggest that it is a fairly important priority for us to get to an endpoint on that transaction as soon as possible.

The next question we have comes from Nkateko Mathonsi from Investec.

My first question is on the Zimplats DMR and the deferral of that project up to when are you expecting to defer that project? And my key question is actually around your capacity to process Royal Impala Bafokeng metal when or if it becomes available. And by when do you expect that metal to actually become available? Or what I'm asking is, in terms of the contracts that you have with Anglo American Platinum, when is the next renewal period for the processing of that metal? But yes, my key question is around your capacity to actually process that metal if it was to become available considering that it has a higher base metal content. And also considering that there is the Merensky project, the Two Rivers that will actually increase the requirement for base metals refining within your processes. And then my second question, if you can talk to Shaft number 10, 1 and 6 at Impala Rustenburg, which in this half of the year, we show the reported losses as far as profits are concerned. What needs to be done for those shafts to return to profitability? If you can also talk in line with the life of mine. I think life of mine for Shaft number 1, for instance, is very short. So how are you thinking about that, considering that they're making losses right now and may not necessarily have a normal life? And then also a question for Lee-Ann in line with, I think it was Chris that asked the question related to the sitting that we saw Impala Bafokeng, I think before that we saw a number of labor unrest. Even though, it was on the contractor side within Impala Rustenburg. And somehow it would seem that there are some key underlying issues. Nico, you talked about how you have a good relationship with the union. But considering all the sittings and the labor unrest that we've seen with contractors, it would seem that there are underlying issues that we may not quite understand. So if you can talk to what are some of the key issues that cause this unrest every now and then?

That's a mouthful.

I will schedule appointment with you, Nkateko, maybe a lunch.

Nkateko, I could possibly have missed some of the details. Because when you said, that's question number one, I thought there were quite a few aspects too. But I think you're generally talking to processing capacity. And what's happening with BMR, the potential, the offtake from Bafokeng. What does the terms and conditions relate to, we do have our resident specialist pathologist next to me, maybe she can -- in terms of the dates and times and terms and conditions, somebody -- Kirthanya, you're not miked up, because you probably would have been the best to answer it. But do you want to have a go and then Patrick and I can add, and then Patrick, you can talk on Moses behalf on 10, 1 and 6 losses life of mine, what you see happening there. And then Lee-Ann can try and shed some highlight on the underlying issues at particular contracting firms operating at release.

So in terms of the offtake agreement with Anglo American Platinum, our right to the 50% of the concentrate, we are able to get that from August 2027. And it is our intention, and we have got capacity to take that on when we have the legal right to do that. I think when you look at, there was a comment about the BMR in Zimbabwe. And if you look at the type of material, the material from Impala Bafokeng together with the Two Rivers Merensky material, that doesn't -- that's not base metal-rich. So that doesn't require much higher the BMR capacity doesn't consume as much. So I think with the plans that we have, we think that even with deferring the BMR, that we will have adequate capacity. I think if you just look back at where our real constraints have been on the smelters and I think that's why the rebuild of our 3 smelters and the new furnace at Zimplats has been very strategically important. And I think with the BMR being deferred, I still believe that we have adequate processing capacity to manage through this.

Yes. I can just add, Sifiso. You would see the debottlenecking and the BMR expansion in springs is still very much on the cards, close to completion and performing above design capacity. So I think you might find that, that little plant is running much better than when you were there.

Okay. I think that touches on processing capacity. You want to talk to 10, 1 and 6.

Yes. So I think 1 and 6, as you remember that this marginal shaft about 3 year life. So they have been planned to be marginal in terms of contribution, but because of the 6 days we stopped after the 11 Shaft incident, that's actually what pushed these 2 shafts into rest category. We believe that there will be back all incident cost to be cash positive. 10 Shaft is now second quarter in a row, as we have said, that we did not tolerate loss making. So second quarter in a row, they are under notice. Moses has activated a 10, 11 plant, so they'll be monitored on a monthly basis. And obviously, the work that we'll be doing in terms of other overhead costs might also help both 1 and 6 and also 10 Shaft. But it was actually marginally in the right attention. Moses, anything?

Lee-Ann, you ready to come in on labor and contracting?

Yes. So the labor environment in South Africa is quite an interesting one. It's fluid and there is lots of dynamics that one needs to consider. So if I go back to 2021, 2022, when we had some of the industrial action at our Impala Rustenburg operations, it was largely related to contractors paying, and that was with NUMSA coming in. So when we say that we have a good relationship with organized labor, it's the recognized unions at the respective operations, and we have collective agreements in place with Implats. There are always unions who identify issues that they then use as a catalyst to attract membership. And that's what happened in 2021, 2022. So I don't think that the underlying issues have changed, because now fast forward to 2023, we saw in the gold sector, there was some of these wildcat strikes and underground sit-ins at Gold One [indiscernible] and these wildcat strikes has taken on a copycat kind of trend, which then flowed over into Impala Bafokeng. A that underground sit-in was only at the RPM. So Styldrift was unaffected and so was the concentrator plant. But it wasn't really related to contractors. The issue around the 2023 at Impala Bafokeng was around the ESOT. And again, as I said earlier, it was an opportunity by a certain group of people to create some tension in the workplace relating to the ESOT's and Nico did speak to it. So if we look at the trends and the direction that this is taking, it is imperative for us to get closer to our recognized unions on issues around contractor pay terms and conditions of employment and try to find a way to come up with an employment model that ensures equity in these 2 different groupings of employment models, but align the pain. So with regard to that, we are having continuous engagements with the NUM and AMCU on it, and I do think that it will remain an underlying issue until a clear way forward is established on this matter. But will it affect us in terms of restructuring our businesses? Yes, I think many different things will come in, but as long as we follow the correct processes in terms of consultations, engagement, taking into account the social impact of any major labor reductions, and taking the unions with us on the journey through open honest communication. I think we will be able to forge a positive and constructive path with our key stakeholders as we go about responding to the low-price environment. So I hope that answers your question.

Thanks, Lee-Ann. We will have to conclude there because we've also run out of time. I noticed there are 5 questions still on the webcast. We will definitely respond to those in writing. We're also going to be traveling and seeing a lot of you on the road very, very shortly, and we'll take up those conversations. Let me just conclude by thanking everybody who's joined us today electronically or in person here, the people that are here, we've got coffee ready on the outside. Please join us, spend some time with the management team, and to the extent that we haven't answered your questions, maybe we can continue outside. And then we're looking forward to seeing the rest of you on the road very, very soon. If there's anything else, please don't hesitate to reach out to us and we'll revert as soon as we can. Thank you so much for everybody. With that, I'm then concluding today's proceedings. Thank you.