Kumba Iron Ore Limited (KIO) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to Anglo American's Kumba Iron Ore's 2022 Investor Update. [Operator Instructions] Please note that this event segment is being recorded. I would now like to hand the conference over to Penny Himlok, Head of Investor Relations.

[Audio Gap] in terms of our 2023 C1 unit cost and production for the next 3 years up to 2025. The team on the call this afternoon includes Mpumi Zikalala, Chief Executive of Kumba; Bothwell Mazarura, CFO; Timo Smit, Executive Head of Marketing; and they will be joined by Vijay, our COO; and Glen Mc Gavigan, Executive Head of Technical Projects a little bit later. For the first part of the call, Mpumi will provide an update on the operational performance. Timo will cover the latest market developments and Bothwell will take you through our financial guidance. We then open for Q&A where Vijay and Glen will be available to take questions. Before we begin, I'd like to remind you that some of the elements of the call and on SENS announcement are forward-looking and are based on our view of the environment and our business as we see them currently. Please note the disclaimers relating to our guidance and on SENS announcements, which is on the Investors section of the company website. With that, I now hand you over to Mpumi.

Thank you, Penny, and a warm welcome to everyone on the call. Thank you for joining us. Let me start with safety, where I'm pleased to say that our elimination of fatalities strategy is continuing to be effective, and we have extended our fatality-free track record to over 6 years. We've also continued to push towards our objective of 0 harm with our standup for safety program being launched in October during what we call our global safety day. Our aim, as we've already set, is to ensure 0 harm to our people, our communities and our environment. On the production front, during the second half, we've done well to step up run rate production, increased feedstock availability and make progress in returning our operations to stability after the weather and the safety-related challenges in the first half. In the third quarter, for example, we saw Sishen waste mining increasing by 4% and Kolomela's waste mining increasing by 40% relative to the second quarter. We've also been working to improve resilience through our margin enhancement work with an objective to realize the full value of our premium products and optimize cost efficiencies. That helped us deliver an EBITDA margin of around 54% and becomes all the more important as we look at mitigating the inflationary pressures that everyone is currently experiencing. We're also putting measures in place to improve our ability to manage through the rainy season, given the increasing trend of disruption in recent years. Despite the good progress we have made in the second half, I'm afraid that we have been negatively impacted by the Transnet strike and broader logistics performance. And the work that we continue to do with Transnet will be key to future performance. At the same time, the economic slowdowns in some key steel-producing markets has weighed on iron ore prices. But on a more positive note for Kumba, sintering cuts in China to improve air quality have resulted in higher lump premia. And in Q3, this was around 8% above benchmark price. Our focus on premium products, therefore, continues to benefit us and the carbon emission reduction properties of our high-quality iron ore products promises to make Kumba's products an important factor of a decarbonized future. Looking to the longer term, we also continue to work on our projects with the confidence or with confidence in the long-term value that they can deliver for Kumba. However, we are focused on making sure that we are confident that we get the engineering and planning right before we move through the various steps. On that basis, we are going to take a slower pathway in the development of the UHDMS, and I'll tell you a little bit about this as I continue. In terms of near-term guidance, the overall headline is that we intend to continue building from the improved production run rates that we have established in the second half with increased stability and resilience. However, it remains critical for us to continue our work with Transnet and so mitigate the significant constraints that we have experienced more recently. Let me provide more details on our production guidance. Following the strike, Transnet executed its annual maintenance program and unfortunately rail performance has been disappointing since reopening. The year-to-date performance has reduced further to a record low of 81.5% compared to 84% before the shut and the 88.8% that we experienced for the same period last year. The work required to remove the speed restrictions and increase the number of trains allocated to Kumba will only be completed by the end of the year. With rail run rates remaining lower for longer, we have had to reduce production in order to manage down the high stock buildup at the mines, and as a result, we have revised our guidance to approximately 37 million tonnes. Beyond 2022, the logistics environment remains challenging. We have factored this into our planning with a key objective of getting to a stable and resilient operational performance. Over the next 3 years, we've reset our production outlook to reflect lower expected Transnet performance, given the challenges experienced this year. This leaves us with a more conservative guidance over the next few years, but we remain confident in the pathway to deliver on that and building from the -- on our product quality, technology and operational efficiencies. Effectively, this means that next year production will be between 35 million and 37 million tonnes as we continue to draw down on the high stock buildup at the mines to supplement sales at guidance of 37 million to 39 million tonnes. At our operations, our focus will be on improving the HME reliability at Sishen and Kolomela as well as getting to a more stable production value chain at Kolomela. Post the challenging ramp-up, following the annual shutdown at Transnet, rail capacity is expected to step up as they finalize all the remaining work. We will have the benefit of an extra train set that will improve the turnaround time as well as the removal of speed restrictions and the implementation of preventative measures around [indiscernible] and this work has actually started. In 2024 and 2025, we expect to see production increased by 5% to 6% in each year, underpinned by continued improvement in rail performance. Production is forecast at 37 million to 39 million tonnes in 2024. And in 2025, this will increase to between 39 million and 41 million tonnes. From a sales guidance perspective, I'm pleased to say that -- even with the recent rail constraints that we have experienced, these have not affected our sales forecast, and we are on track to achieve our sales guidance of between 36 million and 37 million tonnes. However, that means that opening stock levels at the port will be low at the start of 2023. Once the outstanding work from this year's maintenance is completed from a Transnet perspective, we should see an uplift in rail performance and throughput at the Saldanha Port. In view of this, we have kept our sales guidance for 2023 at 37 million to 39 million tonnes. That is 2 million tonnes above our production guidance. Our key focus areas are firstly to support Transnet to reduce breakdowns, which have resulted in significant lost sales this year. Secondly, to increase dual loading and direct loading rates. Direct loading rates reduce stacker/reclaimer movements and also assist with increasing shipping throughput and therefore, allowing us to maintain healthier stockpile levels. On a more positive note, [indiscernible] should be commissioned next year, which will improve train of loading and reliability. Furthermore, we should also see an end to the major annual port refurbishment program, which will benefit sales in later years. These are absolutely critical, not just for Kumba, for all -- but for all the other users of the iron ore export channel lines that we see a significant and sustainable improvement on rail performance going forward. We are engaging with Transnet and government to improve the reliability of rail and the port infrastructure and ensure stability of both the rail and port network as a matter of urgency. More broadly, for the mining industry to be sustainable and grow and play its critical enabling role amongst local communities in South Africa and in the global energy transition, a fully functioning rail and port infrastructure network is crucial. The loss of economic value to South Africa due to rail and port inefficiencies is concerning -- extremely concerning. We are working with Transnet to urgently and decisively deal with the constraints that it has identified and we continue to offer all our support. Globally, most [indiscernible] infrastructure projects are driven by governments, either through their own investments or by encouraging investments from the private sector including through a regulatory environment that allows private sector to do so. The mining industry in South Africa has indicated its interest in investing in the bulk export tunnel through private sector participation, also cohort concessions. From a project perspective, firstly, looking at Kapstevel South, which is the new pit that is part of Kolomela's current life of mine and contributes to approximately 1/3 of production, this project is located in Kolomela, as I said, and it experienced similar challenges of weather impacts and the safety reset earlier this year. At the half year, we announced a slight delay in this project. However, I'm pleased to say that we are catching up and expect the first delivery of iron ore in the first quarter of 2024. Secondly, our ultra-high dense medium separation, or also called UHDMS, project involves the conversion of Sishen's dense medium separation plant to the new UHDMS technology. The conversion will be implemented whilst the Sishen plant is operating to minimize disruption to production. This, therefore, requires a higher level of precision to prevent safety and operational risks. Since the project was approved in March 2021, we have focused on site establishment and advancing the detailed engineering designs. As we have progressed the level of detailed designs, we identified additional complexities associated with working in an operating plant. This means that we have decided to delay the project and work through the complexities before we proceed. Our project team is working to understand how long it will take us to get a full view of the complexities as well as the impact on the project and how we will actually maneuver through this. Given the complexities of the project, we want to [indiscernible] much more advanced engineering to inform our review of the project plan, and this means that the tie-in and commissioning of the project will now not take place in 2023. We still believe that the UHDMS technology is a game changer for Kumba and will play an essential role in the transition to a low-carbon future. The value drivers for the technology remains intact, and there is lowering the cut-off grade, increasing the quality of our iron ore and extending the life of our mine. Once we have completed the review, we will be in a position to provide a more detailed update. At this point, I'd like to hand over to Timo, who is on the line, to update you on the latest market developments and what this means for us. Timo?

Thank you, Mpumi. I hope you can all hear me loud and clear. After a strong rebound last year, the second half of 2022 and the outlook for 2023 have softened due to the weak global growth. In 2022, China provided an estimated RMB 2.9 trillion of local government bonds, of which approximately 60% was earmarked for infrastructure and a smaller portion of around 14% was directed towards property markets. In spite of this, iron ore markets continued their downward trends during the third quarter, with prices falling to a 33-month low of $80 a tonne at the end of October on increasing concerns about the global steel demand outlook. China's economy is facing multiple cyclical and structural headwinds with 0 COVID policies, weak property markets, declining population and rising youth unemployment. In November, iron ore prices bounced back on China's announcement of 16 measures to support the property sector. The rescue package is aimed at alleviating the financial stress faced by property developers to ensure project completions and instilling confidence amongst home buyers and rental property companies. But it will take some time for property developers to recover financially and to start launching new projects, and for buyers to regain confidence in the property markets. Towards the end of November and into December, China appears to be relaxing COVID restrictions, further lifting iron ore prices. Lockdowns in China may still occur, but will likely be more limited in scope and duration, and we should see less disruption to economic activity, which should be supportive of employment and consumer confidence. The Platts 62 Index has reached a level of $110 per tonne, which is up almost 40% from the low of $80 at the end of October. But it should be noted that the price increase is driven mostly by improved sentiment and general market optimism towards next year. China's 2022 steel production is estimated to fall by 1.8% to 1,014 million tonnes with a decrease in the fourth quarter due to seasonality. However, a mild recovery is expected in 2023 as the tailwind effects from China's infrastructure spending in 2022, a moderate recovery in the property sector and the positive effects of the relaxation of COVID restrictions could lift steel demand. Outside of China, European steel mills were forced to cut capacity and lower utilization levels in the fourth quarter on the back of poor end user demand and high energy costs. An approximate 16 million tonnes of glass furnace capacity or about 15% of total European capacity is off-line as of mid-November. Blast furnaces are less impacted by energy prices than EAFs, because blast furnace mills can offset some costs by selling the heat generated while EAFs rely solely on the purchase of electricity. And as such, metal production as a share of total steel production in Europe increased from June onwards. So moving from Europe to the rest of Asia now. In Southeast Asia, Vietnam's Hoa Phat has also rolled back production with 3.6 million tonnes of blast furnace capacity closures in November. On the supply side, though, prices have been supported by lower Brazilian shipments, down 5% to 340 million tonnes per annum, and India's exports down over 60% due to export duties. India [indiscernible] and export duties have been removed, we expect shipments to further increase. Australian exports are up by just 1% to 872 million tonnes per annum. Rio Tinto is likely to end the year at the lower end of their guidance and risk remains for Vale to miss their annual production guidance. Over the next 3 years, the big 4 miners will bring around 100 million tonnes of additional supply with Vale adding about 50%, Rio Tinto and BHP each around 20%. This increase in supply will likely add further pressure to iron ore prices. But we've seen CapEx discipline from the miners compared to the previous cycle. Structurally, lower iron ore prices could result in less projects being implemented. For example, due to the current weakness in global demand and rising production costs, some junior Australian miners have suspended their operations. Miners including Strike Resources and Mineral Resources have announced the suspension of projects or a cutback in mining capacity as a response to low iron ore prices. It remains to be seen whether this will continue. I think I'll leave it at that for now and hand you over to Bothwell for a financial update. Bothwell, over to you.

Thank you, Timo, and good afternoon to everyone. I'm going to take you through our unit cost guidance, and then I'll also provide a brief update on our capital expenditure for the full year. So if I start with unit cost guidance, 2022 has been a challenging year in terms of cost inflation. As we've spoken about throughout the year, diesel prices have been quite high and supply chain input costs have been rising, and we've also been impacted by the lower production volumes. Although there are some encouraging signs that inflation has started to peak, it is still in the system. At the mining level, Sishen has performed well, and we have maintained our unit cost guidance of ZAR 500 to ZAR 530 per tonne. Kolomela, being a smaller mine, is more sensitive to changes in production volumes, and we saw a significant increase in cost. Full year guidance, however, is maintained at our base unit cost of ZAR 505 to ZAR 525 per tonne. We have also been able to maintain our C1 unit cost guidance for 2022 on an FOB basis at USD 44 per tonne. In 2023, we expect C1 unit cost to remain flat, and this is based on a spot exchange rate of ZAR 17 to the dollar. We should continue to see the benefit of lower diesel prices and, hopefully, inflation will have peaked following this year's round of monetary policy tightening by central banks. Our cost base will remain a key focus area, especially given our revised view on production. Our key cost levers will continue to be operational efficiencies, and we will continue with our targeted cost savings program. We'll continue to look at optimizing how we use contractors, and we'll also continue to look at our fixed overhead base and also our supply chain spend. I will give further details about our view on unit cost at each mine at our year-end results announcement. If I turn on to the balance sheet, CapEx for the year is expected to be at the lower end of our guidance at around ZAR 10 billion. This is largely due to the lower spend on our Kapstevel South project, as mentioned by Mpumi earlier. SIB and deferred stripping make up the rest of our capital expenditure and these have remained similar to our guidance -- to our '22 guidance, which we provided at the interim results. In the medium term, total CapEx is supposed to increase in line with inflation and CapEx will be slightly elevated when our expansion projects ramp up. As Mpumi mentioned, Kapstevel South's recovery plans are being implemented and the project will now deliver first ore in the first quarter of 2024. The total spend for Kapstevel South is unchanged at about ZAR 7 billion. Total spend on the UHDMS project will be updated once the review of the design and the engineering has been completed. SIB will continue to be driven by HME replacements and the capital [ sales ] program to support our equipment reliability as well as our investments in safety and environmental improvements. Just to wrap up on guidance, we are continuing with our cost savings drive, and we remain focused on protecting our margins. Kumba is in a highly competitive position from a quality perspective, and we will continue to optimize this from a price realization perspective. As you know, maintaining a flexible and robust balance sheet is one of my core priorities. At the half year, our net cash position was over ZAR 17 billion. Given the lower iron ore prices, we will continue to maintain liquidity at high levels, and we've only drawn down conservatively on our available credit facilities. We still have ZAR 16 billion of liquidity available to us from our revolving credit facilities. These mature in 2024, as you know. We remain committed to disciplined capital allocation and getting the balance right in terms of our returns to shareholders and discretionary allocation of surplus cash flows. Our dividend payout policy targeting a payout of between 50% and 75% of headline earnings continues. And we remain focused on protecting our balance sheet while continuing to invest in our business for the future. Thank you. I'll hand you back to Mpumi.

Thanks, Bothwell. To summarize, there's no doubt that it's been a challenging year, but I'm pleased that we have regained momentum in production in the second half. The logistical constraints that we have experienced more recently are precipitating, and we need to act together with Transnet to get that right. As we go forward, we have reset our ambition to continue on our progress in the second half and heating that new growth trajectory is our clear priority as we also increase stability and resilience. We will also continue to push to maximize margin across the value chain by capturing the benefits of our premium products and cost efficiencies. As we look out over the medium to long term, the Kumba value proposition remains robust as we continue to deliver our projects and given the importance of our product in helping our customers meet their sustainability objectives. I've recently been spending time with our customers, and it's been great to hear about this first hand. And Timo and his team are working closely with customers such as Salzgitter, Nippon Steel and thyssenkrupp [Technical Difficulty] Okay. I believe we lost connection, but we are now back on the line. So let me restart. As we look over the medium to long term, the Kumba value proposition remains robust as we continue to deliver our projects and given the importance of our product in helping our customers meet their sustainability objectives. I've recently been spending time with our customers, and it's been great to hear about this first hand. And Timo and his team are working very closely with customers such as Salzgitter, Nippon Steel and thyssenkrupp to reduce their carbon footprint through our high-grade products, which help improve the efficiency of blast furnaces. And our best quality products are even more suitable for DRI steel making. With that, I would like to open up for questions.

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

Just 2 questions from my side. Could you update us on the independent review that you spoke about last time we met on the rail and port infrastructure? That's question one. And the second question is, could you flesh out some of the complexities that you've seen with the UHDMS project, please?

Thanks, Brian. So Brian, starting off with the independent technical review, as we indicated last time, the good thing with this is that this is something that we've looked at together with the other ore export China producers and also with Transnet. Subsequent to our call, we did sign off on the memorandum of understanding between ourselves, the other producers and Transnet and we are currently going through the process of selecting the best independent player to do this. But [indiscernible] we said last time is that there is alignment of our business. And as I said, it's critical that we do this simply because what will come out will inform on the additional things that may not have been maintained over time, and clearly will help in terms of carving the path going forward. On the UHDMS project, the key around this is that the technology, as we said, is a game changer. However, if you think about it, this is a red fields project, which essentially means that you do work within the existing plant. It is around stripping out equipment from that plant. And it is an oldish plant, which we've maintained well over time. But as we started doing some work such as drilling to understand the floor conditions, we've understood that there's a little bit more work that we need to do. And we've also looked at the added complexities of working within an existing plant. As you can imagine, we need to do this safely. We need to minimize the impact on production. And clearly, we need to do this with speed. So we've looked at how we will drive from this -- from a constructability perspective as we've done more detailed engineering and [ further ] there are some added complexities, and that's why we are spending more time on the detailed design phase and the aspect of constructability before we continue. But what's pleasing for me is that, one, we have reviewed the economics of the project. And clearly, these are still robust. Secondly, what we've always said, we need to get right from a UHDMS perspective to reduce the cut-off grade, improve the quality of our products, et cetera. That still remains the case. So even though we won't to be doing the tie-in next year because we actually want to do more work before we proceed, it's still a fantastic project.

Brian, does that conclude your question?

Can I follow-up on that? So Duncan in the Anglo call spoke about some issues, for example, with the foundations of the plants that you've identified. Do you have any other specifics of the complexities that you picked up?

So let me -- so if you talk about the foundations of the plant, if you think about it, we're going to have equipment that's going to be spending in the plant. And the foundational piece essentially means we've drilled through to understand the geotechnical elements and look at that from a constructability perspective. I've got to say this because a plant, as it is, is actually a good plant from a plant plan perspective, but we can see that the work that will be taking place there. And more specifically -- I'll say it again, we actually need to strip out the equipment and then build back on the same plant. So it's more around the complexities associated with that and understanding how we'll do that safely without impacting production significantly. And Duncan, if you recall, also mentioned that the economics are still robust. This is about, however, detailing the work that we need to do before proceeding. And we believe it's the right thing to do.

The next question comes from Deon Botha of Fairtree.

First question, I appreciate some color as to the cost guidance for 2023. I appreciate it's difficult. But we have seen, over the last 3 years, quite a strong cost inflation and, sequentially, excluding the denominator impact, also very strong inflation and diesel price is higher than the average of this year. So the guidance of flat unit costs. Could you just isolate a few elements as to how you would achieve that given that we are now in a lower export sales business plan for the next 3 years?

Thanks for that question. And you're absolutely right. We have seen significant inflationary pressure over the last couple of years, and that has impacted our unit costs. I think, as I said in the conversation, our guidance from a dollar C1 unit cost perspective is being supported by where we see the diesel price going but also our view on exchange rates. So that helps the unit cost position from a dollar perspective. But as I said, from a rand perspective, there is inflation in the system. And I will give specific guidance for each mine as well as break it down further in February at the results announcement.

Okay. So you don't have specific controllables right now that you can mention. It's mostly due to those -- to the diesel and rand. I got you.

Look, I think from a controllables perspective, as I said, we continue to focus on our efficiencies. We have seen stability now at Sishen, and we are back on track in terms of going towards our P101 efficiency target. And we continue to work on stability at Kolomela. That still remains the biggest lever from a cost perspective. Clearly, the plant production lever is not there because we are having to limit our production. I think -- our cost savings programs will continue to be key for us, and then we continue to find savings from that perspective. I mentioned a couple of areas just now on the call. Contract optimization are going to be key for us, and we continue to look at the price that we can procure from a supply chain perspective, leveraging the global supply chain that we have [Technical Difficulty] So those continue to be areas that are within our control and we continue to manage carefully. But in terms of numbers, as I said, I'll come back in February with those.

Thanks, Bothwell. And then Transnet published last week that they want to move 2 million tonnes to emerging manganese rail capacity, 2 million tonnes to emerging manganese reducers. So the question is how much is going to go on to the Sishen line? And does your current plan, the reduction in export sales, take that into consideration?

Excellent question, Deon. So we've got the contract -- a current existing contract with Transnet and that contract remains unchanged. We are clearly monitoring what's happening within the manganese space as well. But on our side, we've got the contract which defines what needs to be moved from a logistics perspective.

And that contract is -- to what period does that extend?

The contract takes us to 2027.

2027. And then one last question from my side. Bothwell, you mentioned that you have ZAR 16 billion of liquidity. I recall that number being a little bit higher. It has been quite a difficult half naturally with the working capital build, the bulk of your CapEx spend in H2. So it's a difficult half from free cash in terms of what we've been accustomed to with the low prices. So I just want to understand the willingness to go into a net debt position. If you could just flesh that out for us like the progression for the business as to would you keep that payout ratio, to what level of net debt would you see as unacceptable, as Timo mentioned, in possible low iron ore outlook?

Yes. That's a good question. The ZAR 16 billion of liquidity just refers to the facilities that we have in terms of [indiscernible] facilities and those are unchanged from when we last spoke. You're right. I mean cash generation has been lower in the second half compared to what we saw in the first half driven by commodity prices. And you had Timo view [indiscernible] my view is we will be cautious in terms of how we will use the liquidity that's available to us. The last time I spoke, I did speak about a moderate appetite to use our debt facility to fund some of our expansion projects, being the Kapstevel South and UHDMS. We'll continue to do that in an orderly fashion, but we will take into account the current environment from a pricing perspective as we do that. From [Technical Difficulty] and as I've always said, that range in itself gives me the flexibility in terms of where we are in the cycle to pay within that range. And there's always, if we do generate excess liquidity over and above that range and we don't have other value accretive uses for it, we will declare a top-up dividend. But you are right. It is -- the cash generation is moderated in the second half of the year.

[Operator Instructions] We have a question from Mr. Nkateko Mathonsi of Investec.

I just have a follow-up question on Brian's question around the UHDMS. I'm struggling to understand because the project was due to -- I mean next year was supposed to be commissioning and now it's being delayed because of geotechnical issues, which I would have assumed would have been done at the beginning of the project. So I'm struggling to understand the real reason behind the suspension -- not suspension, the delay.

Yes. Thanks, Nkateko. And I think I need to be clear, it's not simply because of geotechnical issues. So when they approved the project, we have progressed detailed design [indiscernible]. However, as I indicated, what [Technical Difficulty] this year has been around site establishment and continuing to advance our detailed engineering design. Now typically, as you advance that, you do more work and you start looking at constructability as well. Would start looking at exactly how you'll make sure that you'll be able to construct in a safe manner without impacting production significantly and clearly with speed. And as we've been looking at this, and it's clearly backed up by more detailed engineering because now it's getting into the detail of saying how many [ science ] modules do you have? How many [ core ] modules do you have and exactly what will happen by when? And how would you sequence the various pieces of work? As we've been doing that, we essentially have seen that there's more complexity. And if you consider it, part of the complexity is linked to operating within the red fields environment, simply because it is working within an existing plant. And the other plant is a little bit older, which brings its own added complexities as well. But it is around the aspect of detailing. And with that, we've seen that there's more work that we'd like to do and therefore, believe that it is the right thing to do. To slow down, finalize the detailed engineering phase prior to proceeding with construction. We've seen certainly from learnings from other projects that we've done that if you rush into the construction phase without catering for how we will actually work through the various complexities, that would typically bite us from a construction perspective. So we do think that it's the right thing to do to detail significantly more. It's interesting things such as piping, electricals, et cetera, and making sure that we are clear around how we'll do this. And that's why we've asked our project team to continue with the detailed engineering designs and not rush to actually do the tie-in. We were going to close the project, if you recall, actually in 2024. And we have said H2 2024. But the tie-in, which is the main tie-in that would have stopped the plant for circa 60-to 70-odd days is what we would have done in 2023. We don't want to proceed with the tie-in prior to detailing significantly more. And as we finalize the detailed designs, we will come back to give an indication of what that will mean. But we do think that's the right thing to do. Otherwise, we would be rushing and then figure out additional complexities. We'd rather find all of those now, figure out exactly how we will deal with them during construction and then proceed.

The next question comes from Shilan Modi of HSBC.

Just on the UHDMS, while you're working on that project, will the DMS plant be off-line? And if so, what would be the impact to your quality of your production volumes, quality grade lump ratio, all of those things? And do you just correct for this by drawing down on your stockpile?

So Shilan, if you look at it, we've said that the UHDMS includes the conversion, and we have what we call the [indiscernible] plant and also the science plant. But these are different modules. And the plan would be to take 1 module down at a time. So if it's one module within the [indiscernible], the other modules would continue operating. The only time when you stop production in its entirety would be for the main tie-in. The other pits would essentially be modular with production taking place. The main tie-in we've always said would be circa 60 to 70 days. So during that period, the quality of what we produce right now would continue being produced because we clearly use other modules. The key, however, as I've said, is that to put it in context, its' working, we bring the first module of the [indiscernible] with our other modules operating. We have to cater for the complexities of working within the working plant, simply because -- if, for example, the cranes that shift between the running modules and the module that's being constructed, we need to be very clear on what will take priority. So this is more around the detailed engineering design and making sure that we get that right because we have to get the sequencing right. If I go back to it, the essence of the technology is a game changer. We've said this before, but we need to make sure that we sequence everything right. We won't impact the quality of the production during the actual work. However, as we then look at the tie-in, you can imagine, if we don't get that right and we end up having flat extension -- yes, we would have catered for it because -- we've always said that we will build a stockpile to take for that. But if we exceed that period, then it would mean that we would be slightly off. And that's why we need to detail profiling before proceeding. Sorry, Glen is on the line. I just want to check if Glen wants to add anything?

Mpumi, I think you've covered it well. Nothing addition to add.

The reason I phrased the question the way I did is actually with the lack of rail availability, it's kind of like the opportunity inside of [indiscernible] and therefore, it gives you the flexibility to actually extend the scope or do more studies for this project because you already have the stockpiles available, hence the question.

That's brilliant. We also solve it like that as well because we figured -- we've got the stockpiles available. That's actually a brilliant point. And it makes sense for us to detail properly, and therefore, reduce any potential risk from a construction perspective. It's just the right thing to do. That's a brilliant point.

The next question comes from Tshilidzi Rabada of Industrial Development Corporation.

Thanks for the update guys. Mine, I think, is a pretty straightforward one. I'm feeling that the bulk of the revised production guidance is coming from the back of the logistical challenges from Transnet. But previously, some of the weather patterns used to play or factor into the production numbers a bit. Are we seeing anything on the weather front, particularly given some of the isolated heavy rainfall we've seen across the country?

Yes. Thanks for the question, Tshilidzi. You said it. The bulk of it is a reset in line with what we expect will happen from a Transnet perspective. Other things such as the rain-related events, et cetera, as we've said previously, what we essentially have done, and I guess we saw this from a Sishen perspective this year, is that we know that there will be more rains. We plan for it. And we actually prepare for the rain events. It's about making sure that we don't mine in areas that have a lot of clay during the rainy season, ensuring that our [ rooms ] are well positioned to deal with rain, ensuring that our [indiscernible] are in -- particularly in the main pit, so as not to affect us. And Vijay and the rest of the team has been doing a lot of work to ensure that we actually look at what we did Sishen this year and apply this at Kolomela as well heading into next year. So our plan data for that, but the bulk of the reset is actually, as you said, lead to Transnet.

It appears we have no further questions in the question queue. I will now hand it back for closing remarks.

Well, thank you so much yet again for giving us the time. Just got asked to brief you on where we are. We will clearly catch up again in the New Year when we take you through our full year results. As we said, yes, it's been a challenging year, but we have started to see our sales regaining momentum, the waste that we are doing in the various parts of the business will continue. And secondly, we realize that the constraints that we are seeing from a logistics perspective is something that we have got to continue working on with Transnet, and that work will continue simply because we do need to get that right. It's not just about us, it's about other producers as well. Have a wonderful festive break, for those that will be taking a break, and we look forward to catching up with you in the New Year. Thank you.

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