Merafe Resources Limited (RZT.F) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Merafe Resources Annual Results Presentation. [Operator Instructions] Please note that this call is being recorded. I would now like to turn the conference over to Zanele Matlala. Please go ahead.

Good morning. Thank you for joining us for our 2024 full year results presentation, we had another year marked by uncertainty and volatility, and this is reflected in our results where relatively good operational performance is not reflected in financial performance due to challenging market conditions. If we move to Slide 5, which summarizes the year in a page really. Our safety performance improved from prior year. Ferrochrome and PGM production was higher, while chrome ore production was lower than prior year. Rising costs remain a concern but were well managed in the year under review. Significant improvement in electricity supply was a welcome development. Negotiated pricing agreements were concluded. Financial close on Sonvanger's solar plant was reached in Q4. Smelting operations are under significant pressure, which has necessitated a business review, which I will cover in detail later in the presentation. Global stainless steel production increased as the demand for Ferrochrome. However, supply of ferrochrome far exceeded demand, resulting in a significant surplus and lower prices. The stronger rand U.S. dollar exchange rate also added to the pressure. These factors resulted in lower revenues and profits. The Boshoek smelter has been fully impaired in the current year. We have declared a final dividend of $0.08 per share. If we move to market review, which is covered on Slide 7, 8, 9 and 10, global stainless steel production increased by 5% year-on-year whilst Ferrochrome followed suit and also increased by 5%. China continues to dominate global stainless steel production and accounted for 64% of this production. China has added significant new ferrochrome production capacity and as a result, increased its ferrochrome production by 25% in 2024. Global ferrochrome production increased by 2 million tonnes when demand was only increased by 800,000 tonnes, creating a surplus of about 1.2 million tonnes. As a result of the increased ferrochrome production in China, promo imports into China increased by 14% and to 20.9 million tonnes. 17 million tonnes of these which is about 81% came from South Africa and yet South African ferrochrome production only increased by 3% and is expected to decline in 2025. On pricing, chrome ore prices remained robust for most of the year but trended lower in Q4. Ferrochrome prices on the other hand remained under pressure as a result of the surplus I mentioned earlier. If we move to operations, which is Slide 12 and 13, sadly, we recorded 1 fatality at Wonderkop smelter in January 2024. The total recordable injury frequency rate improved slightly from 2023. We continue to run safety campaigns and programs as we believe it is possible to achieve the goal of zero harm in our operations. Power supply was stable in 2024 with load curtailment being minimal. Above inflation electricity tariffs continue to be a concern. For 2025, increases of 12.65% were approved by NERSA which is still way above inflation, although significantly lower than Eskom's application. The NPAs were concluded effective January 2024, and these provide certainty around pricing and does cushion our costs, but still not enough to make our smelters competitive, particularly against China's Inner Mongolia. To move to Slide 14, on the renewable energy. We continue to explore various options to reduce carbon emissions. These include on and off-site wind, solar and coal generation projects. We have made progress on an on-site project. However, the development may be impacted by the results of the business review. Financial close was reached in Q4 on the Sonvanger solar project, and we expect construction to be completed in about 2 years. Move to Slide 15. Ferrochrome production volumes increased marginally to 301 kilotons despite Rustenburg smelter being idled for the full year. Post year-end, Rustenburg smelter has been placed on can maintenance. In the Section 189 process at Rustenburg was concluded in December 2024, with the majority of the affected employees being either redeployed to other operations or obtained for voluntary severance. We move to Slide 16 on costs. Cost of production increased by 2% year-on-year. And this was really due to higher chrome ore prices, higher fixed costs and general inflation, which were offset by lower reductant costs. If we move to Slide 17. On the PGMs, there was good operational performance on the PGM front. PGM production increased by 9% due to the inclusion of the Eastern PGM plant for the full year and the PGMX plant coming into production. However, PGM prices were lower than prior year with rhodium prices about 25% lower. Move to Slide 18. Post year-end, we announced the completion of the chrome management agreement with Sibanye where the venture will operate the majority of chrome recovery plants. The agreement does accelerate the delivery of contracted chrome volumes from the legacy agreements with Lonmin. And as I said earlier, I'll come back to the business review. So post the end, we've also announced the business review of our smelting operations. And this step was really taken as a result of current ferrochrome prices being below the cost of production. Various options are being considered and key stakeholders are being engaged in this regard. In the event that the ferrochrome production has to reduce, chrome ore sales will be increased. So for every tonne of ferrochrome, we do not produce, there will be 2 tonnes of chrome ore available to export. I will now invite Ditabe to take you through our financial performance.

Thank you, Zanele, and good morning, all. My presentation starts on Slide 21, where we begin by reviewing our revenue performance. Total revenue decreased by 9% to ZAR 8.4 billion. Trade commodities make up our revenue, and we will look at them individually, starting with ferrochrome due to weakness in the market, ferrochrome volumes sold were lower than in the prior year, reflecting the market owing to China's increased ferrochrome production led to pricing pressure. As a result, ferrochrome revenue decreased by 14% to ZAR 5.9 billion, arising from a 6% decrease in prices achieved and a 9% reduction in ferrochrome volumes sold. Chrome ore continues to be a key pillar of our revenue performance. Average chrome prices increased marginally over the reporting period and marginally higher volumes sold contributed to a 2% decrease -- increase rather in revenue year-on-year. And finally, our PGM's revenue of ZAR 267 million doubled over the period. This performance was made possible by increased production from our PGM's operations, including contribution from the relatively recently commissioned PGMX plant. Production volumes also doubled, the average PGM's basket price was 16% lower than the price last year. And obviously, this impacted revenue negatively. The average rand dollar exchange rate having strengthened over the year was not conducive to revenue growth. On the next slide, we look at our earnings per share. As stated in our trading update, our annual performance reflects a decline in earnings per share. For the period, we achieved basic earnings per share of ZAR 0.267 and headline earnings per share of ZAR 0.429. The main difference between the two earnings measures relates to the financial impact of the full impairment of our Boshoek smelter. We will provide further details on this later. On the next 2 slides, we look at our earnings in greater detail. On Slide 23, the proportion of the 2024 EBITDA variance in percentage terms relative to the 2023 EBITDA as a base are presented. Impact of lower ferrochrome prices is evident from revenue prices variance of 14%. Inflation was the second largest negative variance and rose at 17% from EBITDA due to lower volumes of ferrochrome sold, the volumes variance shaved of 5% from revenue. Foreign exchange effect of a stronger closing rand to the dollar exchange rate led to another 5% reduction in EBITDA. The concluded Section 189 process at Rustenburg smelter led to retrenchment costs that used up 3% of EBITDA. The write-down of ferrochrome finished goods to net realizable value also led to a 3% reduction in EBITDA. Positive contributors to EBITDA were operating efficiencies which resulted in a reduction in unit costs, but real is -- in real terms. This, I guess, talks to the significant effort made by the venture to manage controllable variables and this contributed 15% to last year's EBITDA. Because this year, we produced over the winter period, spending charges and various sundry variances also contributed positively to last year's EBITDA by a combined 5% to make up the balance of the variance. Overall, the 2024 EBITDA from the venture is 27% lower than the 2023 comparative period. The next slide looks at Merafe's proportionate share of the venture's EBITDA of ZAR 1.8 billion and reconciles that Merafe's reported profit after tax of ZAR 667 million for the period. Profit after tax is calculated after the following items are deducted from the venture's EBITDA, and this is in order of size. Impairments of ZAR 575 million. This is made up almost entirely of the Boshoek smelter impairment. It is important to emphasize that we carried out two impairment exercises. The first was to determine whether the entire venture was in accounting balance is called a cash generating unit or CGU for short required impairment. The result of this exercise was that the venture has sufficient value and there is, therefore, no need for impairment at the CGU level. The next exercise was to look at specific assets, which had impairment indicators. Boshoek smelter warranted impairment, and that is for various reasons that we evaluated. These reasons include the size of the smelter which is the smallest of the operating smelters and therefore, is least able to achieve operating leverage. It is also worth noting that the accounting impairment of Boshoek is independent of the business review process that Zanele talked about earlier. The business review will conclude with its own recommendations, which may or may not result in the closure of Boshoek smelter. The second item that reconciles profits to EBITDA is depreciation and amortization of expenses, and the cost here was ZAR 354 million. Next is current and deferred tax of ZAR 219 million, followed by corporate costs of ZAR 84 million and net financing income of ZAR 65 million. And finally, income from equity accounted investments or investment rather was similar of ZAR 20 million. The slides that follows explores some of these items further. Moving to Slide 25. The income statement is presented on this slide. The revenue has been discussed already. Foreign exchange gains of ZAR 29 million resulted from a weaker closing rand-dollar exchange rate. This is against -- a gain of ZAR 99 million in the prior year. Moving to operating expenses line. These expenses were lower in the current year, principally due to lower volumes of ferrochrome sold. The decrease was partially offset by higher production cost per unit, which negatively impact cost of sales; and secondly, by general inflation on both fixed and other variable costs. Merafe's corporate costs were higher than prior year, primarily due to inflation, staff-related costs, higher legal fees incurred and disallowed due to apportionment rules. The depreciation and amortization charge is higher due to capital procured. We've already talked about the impairment loss, high investment in Unicorn Chrome continue to perform well due to the performance of chrome ore. The net interest income amount is higher due to higher cash balances and the current tax expense is expectedly lower due to lower earnings. The resulting profit after tax for the period is ZAR 667 million against ZAR 1.8 billion in the prior year. Next, we review the balance sheet. In spite of capital expenditure of ZAR 662 million this year, noncurrent assets decreased due to the impairment of Boshoek smelter as well as the depreciation and amortization expense. The current assets balance closed lower than the opening balance. The material decreases related to trade and other receivables, which decreased due to lower revenue in Quarter 4 of 2024, arising mainly from lower volumes sold and prices achieved for ferrochrome. There was also the impact of inventories, the total value of which decreased due to lower raw material volumes at year-end. Ferrochrome finished goods marginally increased from last year's closing balance of [ 81,000 ] tonnes to 83,000 tonnes, and this is in spite of the write-down. These volumes represent 3 to 4 months of sales. Cash and cash equivalents increased marginally due to working capital movements. Liabilities include a provision for environmental obligations of ZAR 160 million, and the largest current liability remains trade and other payables of ZAR 894 million. In our financial results, there is reference to a contingent liability that was already recorded in the prior year. The contingent liability relates to a transfer pricing matter arising from 2016 and 2017 years of assessment and which was the subject of SAR audit. SARS finalized the audit and assess the group in the current financial year. The assessment resulted in additional tax of ZAR 406 million payable by the group. This comprises primary and secondary taxes as well as interest and penalties imposed by SARS. The company disagrees with this additional assessments and will lodge an objection against the additional assessments. While the group has applied for full suspension of payments, communication was received from SARS post year-end, partially suspending payment. The amount which has not been suspended and therefore, is payable is ZAR 232 million. Pursuant to Section 9 of the Tax Administration Act, the company has requested SAR to reconsider its decision to partially decline the request for suspension of payment. And accordingly, this transfer pricing is one that continues and that we intend defending. Additional breakdown of these disclosures and numbers is provided in the SENS announcement and in our audited financial statements. Next, we move to Slide 27. Here, we provide a reconciliation of our cash balance. We started the year with a combined cash balance of [ ZAR 166 billion ], we generated net cash of ZAR 1.78 billion from operating activities, ZAR 654 million was spent on capital expenditure, and this is net of proceeds from assets sold and a dividend of -- or dividends rather of ZAR 1.1 billion were paid in the reporting period. Net of all other smaller payments. This resulted in a closing cash balance of ZAR 1.8 billion. This includes Merafe's own cash as well as its share of cash at a venture. This split together with Merafe's headroom shown on the next slide. On Slide 28, Merafe's own cash is shown as ZAR 603 million. Merafe's share of cash at the venture is ZAR 1.2 billion, resulting in a total cash of ZAR 1.8 billion. Cash at the venture includes ZAR 361 million, which has been set aside for rehabilitation obligations and guarantees that might be required from the company. The company was on debt at period end. Merafe's headroom consists of facilities at the venture as well as ZAR 300 million revolving credit facility with ABSA. We move to Slide 30 which is my last slide and covers our final dividend. The Board has declared a final cash dividend of ZAR 0.08 per share. This together with the interim dividend represents 65% of headline earnings and the yield of 20% on the closing share price at the end of the year. Thank you all for your attention. I now hand back to Zanele for closing remarks.

Thank you, Ditabe. In terms of outlook, we expect the market uncertainty and volatility to continue, especially given the trade wars that are currently playing out. Stainless steel production is expected to grow, but this growth is more likely to be serviced by China in the current pricing environment. We are reviewing our smelter operations, which may lead to reduction in ferrochrome production and more chrome ore sales. In this environment, cash preservation will be our focus as we continue to preserve value for our shareholders. Thank you. We will now take questions. We also have Japie Fullard, CEO of Glencore Alloys on the call, and he will be available to assist with operational questions.

[Operator Instructions] The first question we have is from Tim Clark of SBG Securities.

Can you hear me?

We can.

Yes, we can.

Perfect. Well, congrats on the results. I've got a couple of questions, but let's start off with just the sort of review. It creates an enormous amount of uncertainty, as you can imagine, you're a ferrochrome producer and potentially closing down some, if not most or all of your ferrochrome capacity because of China's increase. I wonder if you can give us some kind of assurance or some kind of feeling for whether you run scenarios on what free cash flow might look like? Is this likely once you've paid necessary costs of change, is this likely to be a free cash flow neutral, positive or negative event at current prices without taking a price view into account. I just wonder if you could give us some kind of assurance on profitability, where that might go to or free cash flow based on today's spot prices. So that's my first question. Maybe I'll come back for the second one.

Okay. Thanks, Tim, for that question. Not an easy question to answer because we're still in the process of that review. What I would say is that the reason we're going into this review is that our smelting operations are under tremendous pressure and actually not making any money in the current prices. And therefore, the requirement that we reviewed it and see if we can reduce maybe the number of furnaces that are operating so that we can have free cash because if we continue on this basis, it would be very difficult to have that free cash because you're producing at costs that are higher than the prices that you can achieve.

It's hard because we can't assess from the outside kind of what that impact might be. I mean there's a lot of CapEx. So you obviously have a lot of cash that goes into CapEx as well as cash coming in from operations. I wonder if maybe I can do it differently. If you were to become a chrome ore producer, just under that scenario, what would you -- I mean we can see how many chrome units you would have. But what would your cost of chrome ore production be approximately? Where would you be on the cost curve for chrome more production?

Okay. Japie, are you able to deal with that one?

Am I audible?

Yes.

Yes.

Okay. So I think, first of all, I think it's important. So seeing that there could be quite a couple of questions coming from this perspective. I mean if you have a look at our -- what we've done over the last couple of years and rightfully so we've got 22 furnaces throughout 5 complexes. And as you know, we've closed down Lydenburg smelter. We've closed down or put Rustenburg smelter under care and maintenance last year. And we've done that for a specific reason because, we, as the PSV, are generating more cash for the shareholders by exporting the ore versus converting the ore. So our conversion margin compared to China, it's not the same. And we know all the reasons why. Obviously, electricity, the biggest component of that. So out of the 22 million, we have closed down 10. We did take out furnace 5 and 6 at Wonderkop for the same reason because we are seeing more value at spot by not converting. And I want to make something clear. I mean, in the past, people have seen the PSV as a ferrochrome producer. We are not a ferrochrome producer. We are a chrome unit producer. And that means either selling the ore or converting into ferrochrome. I want to also state that our first price will always be to convert because we believe from a South African perspective, ferrochrome production should happen in South Africa. But it was also make things to shareholders, and I would appreciate -- I'm sure that you would appreciate that from an operational perspective, we, as a team, continuously look at how we can get the best results back to the shareholder. For that reason, you'll also have seen that we -- we have -- we've made announcements that we are most probably going to suspend further operations on ferrochrome production come the early part of May. So that's because we continuously evaluate ferrochrome production versus chrome ore selling. But I just want to confirm that it's all about chrome units. I can tell you that our chrome ore production is in the, I would say, second to third quartile where our ferrochrome production is in the fourth quartile. And for that reason, we make these type of decisions. Obviously, Rustenburg smelter is on hot care and maintenance. So we will be able to restart fairly quickly if we do get incentives to do so. So that means Zanele also explained that in her presentation that we did get the NPA. We did get the negotiated price agreement from Eskom. But I can tell you that even with that, if we compare rather selling the ore versus converting the ore into ferrochrome, it's still much better to just sell the ore. So that's just in a nutshell. I'm not sure if there's any follow-up from that statement.

That helps us a lot on the cost of chrome ore. Maybe just we've never really sort of thought of you guys in terms of life of mine. Can you give us an idea of how long you think you can continue at these kind of run rates exporting? What's your reserve life? Or what should we think of as the life of mine?

So if we do our life of assets, obviously, on a life of mine basis. So that means do we have enough chrome ore, we've got more than 30 years. So I mean the way that we work it out, our life of mine component is quite an extensive component. So that's not where the biggest challenge lies. I mean it is -- if we do the life of assets, would our ferrochrome complexes still be competitive going forward. Hence, the reason why, as already alluded to as well, we did impair Boshoek smelter already just because based on that fact. but things can change. I mean, obviously, we base our ferrochrome production or our life of assets, the NPV of our complexes and your mines based on long-term prices. And I mean, who knows what's going to happen tomorrow. I mean the world can change tomorrow and things can change. But from a long-term perspective, we always put that into consideration. So come back to your question, from a life of mine perspective, we've got quite a good reserve and resource base.

That's really helpful. Can I just flick across on the second question, just to the dividend for Ditabe. You spoke quite a lot about SARS and the case in SARS and the ZAR 400-odd million and then the ZAR 230 million that was payable. Is that why -- if you look at it, you've got ZAR 600 million at Merafe. You've spoken previously of retaining between ZAR 50 million or thereabouts or maybe ZAR 100 million maybe in a conservative scenario. You've only -- you've retained ZAR 400 million. Is that the reconciling difference that we should think about, Ditabe?

I think, Tim, in considering the dividend, the final dividend, the Board does as they normally do, make various considerations. And in this case, the partial suspension of payment would have been one of the considerations amongst other considerations. As I did indicate, it is a matter that we don't agree with, and we will be fighting all the way through. But in spite of that, to the extent that SARS insisted on payment, we obviously must comply with the law and to the extent that there is then the cash available to -- that can be used for that, it does help with cash flow management.

At this time, we don't have any other questions on the conference call. Now I would like to hand over for webcast questions.

Thank you so much. I have a few questions on the platform. I'll start with the first one from [ Martin Prima ]. It's about the smelt direct Merafe Resources through the Glencore-Merafe venture and Boshoek has gone into partnership with the owner of the proudly South African Ferrochrome Technology Smelt Direct, which trial improved -- slashes the use of electricity by 70%, cuts costs, lower emissions and make South African producers or produced ferrochrome globally competitive once more. Please outline what you are hoping to get from this partnership. When are you likely to know if smelt direct can go commercial? If you can, which smelter will be retrofitted with smelt direct first and what other smelters will be under consideration? If all goes well, how quickly can a new ferroalloy era potentially begin in your view? What should be the key takeaways? Thanks for the question, Martin. I'll hand this one over to Japie to take care of.

Thank you. Thanks, Ditabe. [ Martin ], I'm sure you are well aware of the smelt direct concept. And you, as Ditabe said, we as the PSV that entered into an NDA with the IP producers of smelt direct. I can also -- our team from a technical perspective, I spent the week last week at the operation where we investigated the pilot. And indeed, the pilot results are looking great. So we will very quickly within the next couple of months, we will understand if we can take this or upscale the pilot's process into icon -- into a commercial perspective. So I think it's very important to note that it is not a quick solution. It is not a short-term solution. Let me rather say that. It is a medium to long-term solution. On some of the figures, I mean, obviously, we must guard against claiming 70% and those type of things. I think it's a definitely better on electricity. Yes, indeed it is. And these are the type of concepts that we are testing. And I must say the partnership that we've got with the IP company, probably South African. We are really working together well so that we can see if we can get to a solution. I mean, ultimately, as the previous question also came from Tim. I mean if we can convert in South Africa that will always be our first priority. We need to do this for South Africa. South Africa needs beneficiation. And we will do whatever as the PSV to bring our site to always try to curb against job losses and also a multiplier of beneficiation. So definitely something. So the outlook is after our test period and after we had our conversations with our partner, we will then put this into a commercial perspective. then we will add financials. We will add capital cost. You can just imagine that there's quite a huge amount of capital injection that we require, and we must be 100% sure that this technology can be taken from a pilot to a commercial perspective. So that's definitely the outlook that we've got. I hope I've covered the question.

Thanks, Japie. I think you have perhaps maybe another one for you because it's linked to technology as well. Why -- this is from [ Chris Logan ]. Why is China's Inner Mongolia ferrochrome production so cost efficient and the constant improvement in technology, which are constantly reducing the cost of ferrochrome production. I'll leave that one to you then as well, Japie. I think maybe before you answer, suffice to say that I think if you look at some of the efficiencies that we are coming through in terms of EBITDA generation, I think it does talk to efforts that are constantly being made by the venture as well. Let's take advantage of any efficiencies, production efficiencies that they are able to achieve with -- especially around the refurbishment of plant to make sure that they make our operations as efficient as possible. But doing so on an old plant versus building a whole new plant that's cost efficient is different. And perhaps that's where some of these Chinese ferrochrome producers have won up on us. I'll leave the rest to you, Japie.

Yes. Thanks, Ditabe. I think just to come back to your point in terms of technology, I mean all the plants that's currently being built in Mongolia rightfully would be always equipped with the best technology, and that means premise technology. It's based on the Lion complex that we've got in South Africa. As you know, it's the biggest ferrochrome smelter in South Africa that we commissioned Phase I in 2008; Phase II, 2012, somewhere there. So full furnace operation, 720,000 tonnes nameplate capacity, but all the furnaces that's currently being built in Inner Mongolia and also Indonesia, some of them are 1 million tonnes. So obviously, the size is already bringing down the cost. From an efficiency perspective, I can tell you, Ditabe, as you rightfully said, we have seen best figures, all-time figures in almost all our KPIs and your KPIs, as you know, is in various factors, it's tonne per tonne. So that means so many tonnes that we convert into ferrochrome, also reductants per tonne. So there's a host of KPIs that we measure on a daily basis. And I can tell you from that perspective, we are seeing all-time records that we are breaking. So from an operational perspective, the team is really pushing out and doing the best we can. If you ask me about -- and you -- the question was specifically about how is it that they can be so much more effective, especially in terms of electricity. As you know, South Africa electricity price went up over the last 7 years or 8 years more than -- or close to 700%. So obviously, that in itself is already a massive difference between ourselves and Inner Mongolia. If you have a look at their price compared to our price, they are most probably 50% or half of the electricity price that we've got even with NPA. I'm not sure if you also know, but even last year, they've installed more than 200 gigawatts of renewable energy in Inner Mongolia, trying to push down the electricity price even further. So for that reason, and that's what we compare. We compare conversion margin, where we take out the effect of ore, chrome ore, so we take it out and then we compare what is our conversion margins ourselves versus China. And for that reason, they are just much more effective. Also, the cost of capital, I'm sure that you know that the cost of capital is like [indiscernible]. And so it's by far not the same as what we've got in terms of cost of capital. I'm sure I've answered that question.

Thank you, Japie. Thank you, [indiscernible]. Next question is from [ David Fraser ]. Can you please give us an indication of level of profitability of both the ferrochrome and our export business in other for analyst model, the scenario should you decide to see ferrochrome production as a result of the review. I think Japie touched a bit on this in terms of articulating where we sit on the cost curve as far as chrome ore is concerned. Unfortunately, the cost of our chrome ore production is not a number that we will share, perhaps that information that I might be able to share, hopefully that will assist with modeling is to look at this year, already we mentioned the fact that chrome ore sustained operations and that smelting was loss-making. At an EBIT level, if you take the quantum of what we made on the rest of the business versus the loss on our ferrochrome operations is about almost a 50-50 split in terms of absolute numbers, excluding one being a loss and one being a gain in terms of absolute numbers, it's about 50-50. And hopefully, that together response that Japie indicated gives better guidance. The next question also from [ David Fraser ] is can you please provide us with an estimate of cash closure costs if you decide to close the ferrochrome production. And again, difficult to indicate a response to this because the review is ongoing, and the outcome thereof is unknown at this stage. We don't know which operations, if any, will be closed. But I think some guidance can be taken from the Rustenburg closure. So if you look at closure costs, if maybe you split them in 2 in terms of retrenchment costs as well as the rehab cost and the retrenchment costs for Rustenburg, as we've reported, came to about ZAR 69 million based on the staff that was retrenched. And from a closure cost, maybe there can be fair to Boshoek because it's the one that we've impaired. The closure cost, the total closure cost for Boshoek sits at about ZAR 70 million. So that would be the extent of the closure costs that we would have to impair for Boshoek. But again, closure cost depends on when it is that you -- rehabilitation needs to take place. But in total, that's what sits in our books for that cost. Hopefully, that answers the question, David. The next question is from [ Matthew Roberts ]. You mentioned that you can export full tonnes of chrome from, every tonne of ferrochrome smelter. In the worst-case scenario of the business review, what tonnage level with that drop ferrochrome by? And I'll let Zanele take that one.

Yes. On that, I mean, the review is ongoing. And like Ditabe said, no decisions yet is to which operations will be idled at this stage. But we are looking at scenarios where 6, maybe up to 8 of the furnaces could be idled. And as Japie said earlier, we've already got 10 furnaces that are on care maintenance, which is Rustenburg and Lydenburg. So of the remaining 12, there's a possibility of 6 to 8. So that -- I think that would give you a fair idea of in terms of percentage, what may be idled depending on the results of the business review.

Thanks, Zanele, for that. The next question is from [ Salidilla Makagula ]. How does your recent deal with Sibanye Stillwater impact your carbon targets and progress towards decarbonization? Please also allude how this recent deal may impact safety targets and metrics in the coming years. What price of ferrochrome will trigger layoffs? I think in terms of layoffs, as we've indicated, it's premature at this stage to talk about any layoffs that may be required because the review is ongoing, and the results of thereof will then determine what the next steps are. But I think as far as the rest of the questions are concerned, I'll let Japie maybe tackle those.

Yes. Thanks. I mean, obviously, as you all know, decarbonization has got a lot to do with the use of carbon or electricity to convert. And if we do have that, I mean in the Sibanye deal, it's rather Scope 3 than Scope 2 and Scope 1. So it's not really going to affect our decarbonization plan. And remember also the contribution from all from Sibanye or our side is also being separated between the two. So although we've got -- we are going to do it jointly. The CMA, which is the Chrome Management Agreement makes it clear that we, as the PSV will then manage it at from a proportion perspective, Sibanye will still carry their proportion of their urban tax liabilities versus ours or carbon footprint, let me rather say that. Secondly, in terms of the safety side, as per the agreement, we as the PSV will take over all the operations. Now as part of this deal, they've got also chrome recovery plants that we will then take over as the PSV and we will manage it accordingly and it will be managed according to our safety standards. So from that perspective, we don't see any challenges. It is surface operations. You expect it in any way to be very safe operations, but it will be managed via the PSV. Hopefully, that addressed the question.

Thank you, Japie. The next question from [indiscernible]. And the question is, thanks for considering solar energy for powering furnaces. Can the 100-megawatts plant be done in modular form so that power is available earlier than indicated project completion date? What is the power cost to operation compared to Eskom? Okay. Again, I'll let Japie deal with the detail of this. But unfortunately, in terms of the cost of producing, it's not something that we are at liberty to disclose. I think suffice it to say that it would be favorable to what we are paying Eskom, but that's as far as we can go. But Japie can deal with the issues around modular building of the plant.

Yes. Thanks, Ditabe, again. I agree with that. If you have a look at our other behind-the-meter projects, even the Eastern chrome mines, the one that you discussed about, obviously, depending on profitability, we will then decide to execute on that. That's a 35-megawatt plant. That will also be done modular-based. So we're also doing this at [ Rowan ], which is not part of the PSV, but is part of Glencore's footprint. But these are some of the solutions that we are definitely looking at into. But first of all, the power stations or the substations you must always do all of the infrastructure work already to cater for the full 100 and then you can only do it in phases, but I'm sure that's something that we will be looking into. This is now [indiscernible]. You are talking about the IPP and PPA, the one that we signed. Yes.

Thank you, Japie. I think, as expected, a follow-on question is around the additional chrome ore volumes that may result in the event that we reduced a ferrochrome production. And there's a question from [ David Fraser ] deals with this, with logistics -- will the logistics channel be able to handle significantly higher chrome export volumes. I'll leave that to you as well, Japie.

Yes. So thanks for that. I think that's a very valid question. David, thanks. The thing is what we need to understand is that, if we, let's say, export and we've produced, let's say, 1.5 million tonnes of ferrochrome last year, and we exported that. So that means it's an additional 1.5 million tonnes of chrome ore. So it's like double that. So obviously, David, to come back to the question is that the best for South Africa would be if we convert chrome into ferrochrome, because we will to relieve the pressure on our logistical trains. And in my view, that's always the best to do. But obviously, we have investigated and we will be able to export the additional tonnes to various channels. We've got various channels that we, as the PSV are using, and we are 100% sure that we'll be able to do that. Obviously, it will place a bigger stress on the constrained logistical trains that we've got confidence. Yes.

Thanks for that, Japie. The next question is from [ Philip Yutof ]. Exporting the chrome ore means giving the margins away to the converters versus suspending operations to decrease supply and capturing the price impact. What are your views on this?

Yes, definitely. Export of chrome ore does give away the margins to the other converters. But as we said earlier, at the end of the day, our preference would be to produce ferrochrome, but we cannot continue on that basis where pricing is way below our cost of production. I mean that would just be destroying value. So that's why we constantly evaluate what's best at any given point.

And I think also, maybe to add to that is that the current initiatives that Japie talked to of the various engagements with key stakeholders is aimed at precisely that ensuring that we look at ways of ensuring that as much as possible, we avoid the need for suspending smelting operations in South Africa, given that we are the biggest supplier of chrome ore which is a key ingredient in the production of ferrochrome. And the next question comes from [ Chris Logan ]. Why are you only the second or third quartile for chrome ore production? And you want to take that one, Japie?

Yes, 100%. I mean, obviously, you all know that chrome ore is being extracted from South Africa in various ways. So the first one would be by the junior miners. So these are people that -- or companies that's mining all the high walls. It's easily accessible. So their cost of production could be, in some instances, fairly low. Then if you have a look at all the big chrome ore producers, most of them are underground, ourselves, some of our other chrome ore producers like [ Dwarsrafi core ]. It's a bigger underground mine. So fairly expensive to buying those tonnes. And then if you compare this to UG2, that you take out of the PGM producers, that's where they are much cheaper. So as you know, UG2 chromite ore is a byproduct from, if you mine platinum. And for that reason, to then extract PGM or UG2 concentrate, the UG2 from these, but platinum mines is at a much cheaper rate. So that's why you get these different clusters of chrome of unit cost of production. Hope I have explained that properly.

Thank you, Japie. I think Chris also had a follow-up question, but I think you've answered it, which companies and countries are lower down the cost curve in chrome ore production. And if you consider that the bulk of chrome ore production comes from South Africa, I think your answer does cover that question. [ Ray Omberta ] has a question, when do you expect to complete the ferrochrome operations review? Zanele, you want to take that?

Yes. Like we've indicated the review is for 3 months, so that started beginning of Feb, and that should conclude sort of end of April, early May.

And then the next question is why do you not provide segmental earnings disclosure of ferrochrome versus chrome ore? And this is simply because we view the franchise one single cash-generating unit. And then on that basis, there hasn't been a need to segment our profit. In terms of sales, we do provide disclosure of where our sales go through. The disclosure can be found in our annual financial restatements. The next question is from [indiscernible], which actions by government or regulatory measures could help equalize the playing field between smelting in South Africa and China? Again, I'll let Japie take this one.

Thanks, Ditabe. I can just inform the platform that obviously, we have got our NPA, the negotiated price agreement with Eskom. And there's a clause 6.2, the hardships that we've already executed. So we are in discussions with Eskom with regards to relief, further relief. That's the first comment. Then in terms of seeking other interventions. So I can tell you that we had extensive discussions with government in terms of trying to find certain solutions. Obviously, it is the government's responsibility to decide what interventions they will execute on. But obviously, we are in discussions with them with regards to that.

Thanks, Japie. The next question is from [ David Fraser ]. Would you put it -- would your potential closures include the Lion complex? I think to answer that, David, it's premature to make any call on which smelters might be affected. Once the process has been completed, I think at that point, market will be advised accordingly of what the best option is for the venture going forward. [ Philip Rabat ] has a question as well. Any further details on the root cause of the fatality sustained and measures to prevent or repeat? I suppose this relates to the fatality at the beginning of the year. Maybe Japie, you can share some details on this?

Yes, I can. Thank you. Obviously, we have done an in-depth investigation. And obviously, what we found is that, I mean, the [ patrols ] that passed away, he had all the training and the safety gears and unfortunately, he didn't use his safety gear, but we also investigated it much further than that, and we looked at organizational factors that also contributed towards that. And for that, we've got a turnaround plan, and that includes contracted management. It includes supervisory training and uplifting of supervisors. It also have a look at risk management and how do we prepare for certain tasks and then also having a look at our safety culture, why is it that people taking unsafe positions or do not execute on certain actions that they need to execute. So there's a whole turnaround plan on that. Thanks.

Thank you, Japie. Next question is from [ Nick Creeke ]. I hope I'm pronouncing that right. What are your average run-of-mine costs for chrome ore. What are the costs for getting the ore to the port? Which ports do you use? And is there any initiatives in the pipeline that will reduce these costs? I'll let Zanele take that one.

Yes. Ordinarily, we don't disclose the run-of-mine costs. But in terms of cost of getting the ore to the port, obviously, it depends on whether you're reading or tracking and also, in terms of the ports, we use the various ports, the Richards Bay and there's Maputo. And in terms of initiatives, in the pipeline to reduce cost, those we always are reviewing our costs and trying to be as efficient as possible.

Thanks for that, Zanele. From a total power needs, how much does a 100-megawatt renewable project up against the total venture power needs, assuming all 22 furnaces are operational. This is from [ Chile Derabada ]. I mean 100 in relation to our total power requirements is a fraction of what the smelters need to produce, but it is sizable enough to make a difference towards cost reductions and towards our decarbonization initiatives. Our total requirements from a smelter's point of view in the region of 800 to 900 megawatts, if that gives you a sense of the scale of our operations. And the last question is from [ Richard Hassan ]. What is the U.S. dollar production cost currently at the 50th percentile of the chrome ore cost curve. I don't know what that number is. I don't know, Japie, if you have that detail. But as we indicated, we sit in the second quarter, so I wouldn't -- I wouldn't know what that number is. Japie, any comments from you?

Yes. Look, I mean, the Chinese don't have any chrome ore, so you can't compare them to us. If you think about the rest of the world, they got -- let's say China has got less than 1%. We know that Zimbabwe has got 12% of the world's chromite ore, then we've got Kazakhstan, we've got India, but they are all small players. So although we are on the higher cost curve, it's just because of the fact that we are mining this deep underground versus open pit and also compared to like I previously said, the UG2 that's been mined in the first quartile. If I say mine, they have been extracted in the first quartile. So that's why there's that comparison. But if you have a look at our Chinese conversion versus the Chinese or South African conversion versus the Chinese conversion, it's definitely more than ZAR 0.10 per pound. So if that's any indication or ZAR 0.10 per pound cheaper than us from a conversion perspective.

Japie and Zanele, thanks for that. I think that we've gone to the last of the questions from the platform. And it's back to coordinate.

I think from my side, I can conclude. Thank you for joining us for these results presentations. I mean judging from the questions, it does indicate the challenging environment that we operate in. But I think the takeaway for me is that despite the lower profit, cash generation remained strong. And as we move forward, our focus will be on the business review. And as soon as we've concluded, we will then come back to the market with what the direction is. Thank you very much.

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