Northam Platinum Holdings Limited (NPH) Earnings Call Transcript & Summary

Good morning, everyone.

Good morning.

Thank you for joining us for the Northam Results Presentation for the 6 months ended December 2025. I would like to welcome our Chairman, Mcebisi Jonas; our Board members, Andre, Emily, Geralda, Hester, Yoza and Temba, some of whom are on the line. At this point in time, I'd also like to express gratitude on behalf of the Board for Mr. Glyn Lewis, who served as a Non-Executive Director and retired at the AGM in November. Of course, he also served as my predecessor for many years as CEO. We wish Glyn and his family happiness and health in his final retirement. Welcome to everybody else on the lines and a special welcome to those of you who managed to join us in person this morning. The presentation, together with our interim booklet containing detailed disclosure of the company's performance is available on the website. Thank you once again to Alet and Damian and the rest of the team who have prepared this very comprehensive document, a lot of work goes into it, I must say. As always, we do like to describe the pictures on the slide. This is platinum gauze, which is used in numerous industrial, chemical and medical applications. This specific gauze is used to produce cardiac stents. The broadening market consensus is that supply and demand fundamentals will continue to support robust pricing for platinum. And this, together with our growth profile, places the group in a strategically strong position. Here is the usual disclaimer regarding forward-looking statements that we may make today. Please read it in your own time. Thank you. As always, I'll review some of the key features of the period in which all of our mines have performed well. We've also continued to progress our project pipeline, in particular, the development of Eland, the 3 shaft project at Zondereinde, further upgrades to our metallurgical facilities and the expansion of the Booysendal South tailings facility. We've also made a meaningful step forward in reducing the group's carbon footprint. Alet will then take us through the financials. And finally, I will upgrade guidance for the full year. This is a picture of the works at the #3 shaft, which will be operational if all goes to plan in April. The raise bore rig on the left of the shot has begun to ream our #4 shaft. And this is the next component in realizing full value from the Western extension. Incidentally, this is the largest machine of its kind in the world, and 4 shaft will be a record-breaking raise bore undertaking. Once again, we have posted record production and record sales volumes. And significant appreciation in price for all of our metals led to a material increase in revenue to ZAR 23.3 billion. We maintain our internal focus and continue to place high emphasis on safe production and efficient sustainable mining at the right cost. We will accelerate all of our growth projects as far as we are able. The world needs PGMs and primary supply continues to fall. The benefit of our countercyclical investment strategy is becoming very evident. And the Board has declared a record interim dividend of ZAR 7 per share, indicating confidence in the market and the future of our company. In this picture, we show the expanded chrome recovery circuit at Eland mine, which was commissioned in December. This will improve chrome yields from underground ore to at least 25%. You can see the green tower at the top of the shot, housing additional spirals and the second stacker pad on the left. Eland is coming to life. And you can see we do expect considerably more chrome output there into the future. Eland contributed already in this past period, 20% of our chrome sales. Moving on to the mining operations. And firstly, safety. This remains a key focus area for the Board and all the management teams, and we're pleased to report an overall improved performance. The group remained fatality-free throughout the period. And Booysendal surpassed 12 million fatality-free shifts and remains fatality-free since inception. Zondereinde and Eland recorded 2 million and 1 million fatality-free shifts during the period, and we continue to reduce the number of lost time accidents. We remain vigilant and engaged in all matters related to the health and safety of our employees, and we manage risk in a proactive and structured manner. If I can look at some of the operational metrics, firstly, at group level, square meters and tonnes mined increased at each of our operations. Mill tonnage decreased as higher quality ROM displaced tailings treatment at Eland, with a consequent 3.7% increase in mined metal production. Total refined metal production increased by 15.5% and strict cost control limited cash cost inflation to 7.2%, including for the ongoing ramp-up at Eland. Improved pricing for all the metals led to a near doubling of the cash margin to 39%. Chrome production increased by 15% with improved chrome yields and higher UG2 tonnages treated at both Booysendal and Eland. Moving on to the individual mines, one by one and firstly, Zondereinde. Bedding down Merensky mining in the Western extension continues, whilst UG2 mining which has predominantly been moved to the East, is benefiting from higher tonnage yields. Increased mill tonnage led to an improved production of 170,000 4E ounces and together with good cost control, limited the increase in unit cash costs to a creditable 5.5%. Chrome production of 240,000 tonnes at a yield of 38% is a very pleasing performance. Capital expenditure was ZAR 1.1 billion and applied to work on #3 shaft and the upgrades to the base metal refinery. And forecast capital for the full year is ZAR 3.2 billion, predominantly spent on #3 and now #4 shaft. The completion of #3 shaft in April will lead to improved Merensky grades and further productivity gains in the future. In addition, the reaming of #4 shaft, which commenced during the period, will enable the realization of the full value of the Western extension prolonging the life of Zondereinde well into the future and doing justice to its name. For our international audience, Zondereinde means without end. Moving on to Booysendal. We continue to exceed steady-state volumes and mill tonnage grew by 3%, and whilst grades remained stable at 2.6 grams per tonne. The accumulation of run-of-mine ore remained at around 0.5 million tonnes and work is progressing on the expansion of the South tailings dam. This is the remaining bottleneck for an increase in the milling rate and an 18-month construction program will now follow. Overall, metal production at Booysendal improved to over 260,000 ounces, limiting the increase in unit cash costs to 2.8%, which is an excellent performance. Chrome production increased by 15% to 414,000 tonnes with higher UG2 throughput and improving yields. Capital expenditure was ZAR 876 million, mostly sustaining and in line with our expected ongoing stay-in-business capital requirements. Our forecast for the full financial year is ZAR 2 billion, mainly on machine replacement and the expansion of the South tailings dam. At Eland, the mining ramp-up continues. We now have 47 production teams on the face, and this will eventually rise to 67 teams at steady state. Underground tonnage has increased on schedule and grades and recoveries continue to improve as more run-of-mine is presented to the mill. We produced just under 45,000 tonnes of -- sorry, 45,000 ounces in concentrate, together with a further 26,000 ounces from third parties. Unit cash cost increased to ZAR 42,400 driven by the crew buildup and an overall increase in complement. Pretty much the full fixed cost is now in place at Eland. Eland is on track to exceed our forecast of 300,000 tonnes of chrome in 2026, once again underlying the quality of this ore body. Multi-blast conditions following the successful vent changeover in June is allowing accelerated decline development, derisking the remainder of the buildup schedule. And we thought we'd put a photograph of the vent changeover equipment or the vent shaft equipment here. So you can see what it looks like. Again, Eland is coming to life. That's the, an up cash shaft and the respective ducting, quite a neat installation. We also thought we'd put a picture of the ore body. Because this really is what it's all about. We've shown you this picture before. And I think it's important enough to remind you of the quality of the ore body at Eland. This is, of course, UG2 reef, the dark central band that you can see in the shot. Each square meets a mine contains an ounce of PGM and around 2 tonnes of chrome. And these, together with the other key metrics highlighted on the slide, are crucial success factors to any mine. We continue to roll out our renewable energy program, and this picture shows our first 80-megawatt solar form located adjacent to the Zondereinde metallurgical complex between Northam and Thabazimbi. The site is extensive for reference equal to 160 rugby fields and comprises 150,000 PV panels that track the sun to maximize solar irradiance. Construction is complete. And each year now this facility will produce 220,000 megawatt hours of secure behind-the-meter electrical energy, reducing annual carbon emissions by 240,000 tonnes and reducing Zondereinde's energy costs by 15%. This next picture shows the placing of the nacelle on one of the first towers at Karreebosch wind farm. The nacelle supports a 6.4 megawatt generator, weighing 125 tonnes. And for scale, each tower is 120 meters high and the turbine blades are 80 meters long. The build program is progressing well, and we remain on track for commissioning in the first half of 2027. In addition, work has commenced on the Thakadu solar facility close to Klerksdorp, with commissioning also scheduled for 2027. You can see the Vaal River, by the way, on your right of the shot there. Together, these three power plants, we will supply 900,000 megawatt hours every year or approximately 60% of all energy used at all of our operations with a commensurate reduction in the group's carbon intensity. In addition, we will shave around ZAR 1 billion per annum from our electricity bill, and there's more to come. We have initiated further projects at each of the mine sites, and we'll now progress these as owner-operated installations. They include both solar and batteries, extending the solar benefit into the peak tariff periods, thereby maximizing energy savings. The required investment has been incorporated into our capital program for the coming years. I'll now hand you over to Alet to take us through the financials.

Thank you, Paul. Good morning, everybody. At Northam, we are committed to the seven foundational measures defined by the Minerals Council, which seek to enhance the reputation and the development of women in the mining industry. 20% of our workforce are women, and many of them are employed at the rock face. This is [ Lebohang Maruta, ] a recognized miner at Booysendal South Mine. Providing Lebohang and our colleagues with a working environment where they are safe and supported and allowed to contribute to the success and growth of Northam is something that is very important to me as well as the ExCo team. As a company, we take a very strong stance against any form of gender-based violence that is so prevalent in South Africa. Looking at the key financial features for the period under review. Despite the welcome uptick in metal prices, our operational focus remains firmly rooted in efficiencies, productivity and cost control. In this regard, we have been assisted by our improved scale, flexibility and ultimately, our business resilience. Improvements in metal prices and higher sales led to a 60% increase in sales revenue to ZAR 23.3 billion and an operating profit significantly improved from the previous comparable period. EBITDA was similarly affected and this together with our continuing investments in organic growth led to an improvement of net debt to ZAR 2.6 billion. Basic earnings per share and headline earnings per share for the period amounted to ZAR 20 and ZAR 15, respectively. Looking now at revenue. Revenue for the period was ZAR 23.3 billion. This is an ZAR 8.7 billion or a 60% increase on the previous corresponding period, which was the result of a material improvement in the average U.S. 4E basket price together with a 13.7% growth in sales volumes, in line with our previous guidance and despite the strengthening of the rand against the U.S. dollar. Continuing metal price appreciation during the period in combination with our full year guidance on sales volumes bodes well for second half revenue. The benefits of the full mine-to-market value chain for chrome is clear as is that of the historically termed minor metals, iridium and ruthenium. These together contributed 18.2% or ZAR 4.2 billion to our revenue. Looking now at cost of sales. Sales revenue increased by 60%, while cost of sales increased by 29.4%. This led to a significant rise in our operating profit to ZAR 5.8 billion at an operating margin of 25.1%. Movements in the individual elements making up cost of sales include mining operating cost increasing by 11%. This is attributable to an 8.9% increase in square meters mined together with an average wage increase of approximately 6.5%. Smelting and base metal removal plant costs increased by 19.8% owing to increases in both tonnes smelted as well as a 15.5% Eskom tariff hike. Royalty charges grew by 257% on the back of higher revenue and improved profitability. Share-based payments increased from a low base to over ZAR 1.2 billion as a result of share price appreciation, while contributions to the Toro Employee Empowerment Trust and profit-share schemes benefited from growth in profits. The total cost of purchase concentrates and recycling material increased by 130% to ZAR 3.5 billion due to metal price appreciation, on higher volumes purchased. Refining costs increased by 28.1% to ZAR 267.1 million on the back of higher refined 6E volumes. Depreciation based mainly on the units of production method, increased with the expanded capital base of the group. And lastly, the change in metal inventory relates to an increase in the quantum and the cost of ounces capitalized to the balance sheet. Unit cash cost inflation needs to be considered in the context of our various major cost components. Labor represents more than half of our operating cost and utilities make up approximately 12%, and we've had to absorb double-digit tariff increases for both electricity as well as water. As Paul has mentioned, we are actively pursuing alternative energy initiatives to reduce high electricity cost, and we will start to see the real benefit of these in the coming financial year. Moving on to the income statement. The group generated profit before tax of ZAR 9.1 billion and accounts for a tax charge of ZAR 1.2 billion inclusive of deferred tax, resulting in a profit for the period of ZAR 7.9 billion. Included in these amounts are a ZAR 2.5 billion reversal of a previously recognized impairment charge and the recognition of a deferred tax asset of ZAR 1.4 billion, both relating to the Eland mine and further demonstrating its inherent value. In addition to the tax charge, the group paid ZAR 632 million in royalties. Moving on to working capital management. By the end of December, total inventory had increased to just under 530,000 4E ounces with a carrying value of ZAR 10.9 billion. And after applying the basket price and exchange rates at the end of December, a sales value of around ZAR 25.4 billion, a significant asset on our balance sheet. We expect to destock with the conclusion of various projects, including the freeing up of the Booysendal South concentrator through the expansion of the tailings dam. Working through the furnace lag stockpile at the metallurgical complex and processing excess UG2 from Zondereinde at the Eland concentrator. It is important to note that our inventory has not been sold forward. It's not incumbent in any way and should be considered in relation to the growth in our production profile. Looking at the group's cash flow. Over the period, our cash balance increased by ZAR 2.3 billion. The items impacting the movement in cash include our operations generating ZAR 6.6 billion and demonstrating the leverage embedded therein. Investing activities included ZAR 2.7 billion spent on CapEx, mainly in the execution of the group's growth strategy, building a sustainable business well into the future. Financing activities included a dividend payment totaling ZAR 787 million. We also settled DMTNs and paid interest relating to our DMTN program. These movements culminated in the cash balance at the period end of ZAR 9.3 billion. At the end of December, net debt totaled ZAR 2.6 billion and taking into account a 12-month rolling EBITDA of ZAR 10.6 billion. Our net debt-to-EBITDA ratio amounted to 0.24, well within our self-imposed target of 1:1. Despite the recent rally in metal prices, their volatility and that of our currency requires that we retain a prudent approach to liquidity management. And the increased banking facilities of ZAR 14.3 billion available to the group allows us this and remains fully undrawn. We believe in the special metals we produce and the critical importance to the world. This has been a cornerstone of our strategy informing our capital allocation since 2015. We have consistently invested in our company's growth and sustainability since then. And the benefits of this are evident in our results. During the interim period, we have invested ZAR 2.8 billion in our operations, declared and paid almost ZAR 800 million relating to the final dividend for the previous financial year. And the Board has now approved an all-time record dividend for the interim period of ZAR 7 per share, expressing confidence in our business and returning value to our shareholders, equal to the capital investment made during the period. What has differentiated Northam over time is our continued investment throughout the cycle, delivering on our growth targets and doing all of this via the debt market with our shareholder dilution. This has allowed every Northam shareholder to benefit fully from our deliberate capital allocation strategy. And this is evident from the investment and returns that we have delivered over the past 10 years. Over this decade, we have invested ZAR 38.8 billion, and our share price has appreciated at a compounded growth rate of almost 30% per annum. We now need to consider the next step in our evolution and the current metal price environment gives us an opportunity to do this. We are busy reviewing our options and opportunities in this regard, and we'll update the market in due course. I will now hand you back to Paul to take us through the operational guidance.

This photograph is illustrative to show the expanded footprint of the proposed Booysendal South tailings dam, which will provide a full life-of-mine solution. And just to try and contextualize the difficulty of the project, permitting took over 3 years. And due to regulatory requirements, CapEx will amount to almost ZAR 1 billion. I mentioned earlier, an 18-month construction phase will now follow. This is the final piece of the Booysendal puzzle. In line with our growth profile, our current year guidance is adjusted as follows: PGM production from own operations and unit cash costs remain unchanged. Third-party metal purchases are now expected to increase to 150,000 ounces and our sales number is upgraded to 1,070,000 ounces. Chrome sales will exceed top end of guidance. And given the current price environment, it is in the company's best interest to push forward with our capital program and get the work done. This includes Eland, the 3 shaft project, but now also includes #4 shaft as well as Damian's renewable energy program. To this end, we've revised the full year's capital forecast to ZAR 6.6 billion. The period witnessed a considerable price correction, averaging ZAR 45,000 per 4E ounce for the 6 months. And for reference, today's spot is sitting around ZAR 61,000 per 4E ounce. And you can do a cigarette box calculation on that number. This clearly bodes well for the second half. Today, I would like to discuss the markets in some detail, perhaps more so than we normally do. PGM prices have risen dramatically due to continued tightness in the physical market. This tightness has continued into 2026 as evidenced by persistent high lease rates for platinum, palladium and rhodium. Let's look at the individual metals one at a time. Our view is that the platinum market is in a large fundamental deficit before investment. And this will continue to support higher price levels. Primary supply will continue to fall over the next decade, despite higher basket prices achieved. Projects announced and in ramp-up will not be able to offset declining production from the older sections of the Bushveld. The incentive to recycle more metal is boosted by current prices. However, the car park does not hold a large reservoir of available platinum, since this metal was not extensively used in gasoline cars pretty much for the last 10 to 15 years. Having been substituted by, to a large extent, palladium. Platinum's industrial applications are diverse, and we are encouraged by recent developments in the hydrogen economy, particularly in China, where it is now firmly embedded in central government's plans for the next 15 years. Overall, we see the platinum market in a persistent fundamental 10% deficit. Demand for palladium has remained strong. Cars using catalysts grew in 2025, supported by technologies such as hybridization and range extenders. Recent pronouncements by European legislators as well as changes in policy in the U.S.A. will mean internal combustion engines will remain part of the drivetrain into the future. Car companies are now rethinking earlier strategies that promoted batteries over ICE. Many automakers have had to write down substantial losses related to electrification. And new management teams have been tasked with finding more customer-focused solutions. Most automotive commentators still forecast growth in BEVs, but earlier penetration rates are now being turned down to more realistic levels. Primary supply from South Africa will continue to fall over the next decade, compounded by cuts and closures in North American mines and Russian supply is also forecast lower for 2026. Recycling margins will be boosted by current PGM prices. We have not, except for a quick blip in January, seen this translating into more cans arriving at recycling yards. Working capital constraints, higher interest rates and persistently high inflation continue to put downward pressure on recycling volumes. We believe the palladium market has moved from balance to deficit, and we now expect a better price performance compared to our earlier view. As with platinum, rhodium has a growing supply deficit. Globally, rhodium is mainly sourced from the mining of UG2 in South Africa. These mines are -- some of them at least are amongst the oldest in the sector and future depletion will impact rhodium much more so than that for platinum and palladium. Recycled rhodium is absolutely critical to balance this market, but reduced recycling rates can be expected against lower historical loadings. Evidence suggests that recycle numbers will continue to disappoint in 2026. In contrast, we highlight strong and resilient demand from autocatalysis. And we anticipate that NOx legislation will tighten in some regions of the world. and this will lead to a commensurate increase in loadings, particularly in China. Industrial demand will be further buoyed by fiberglass manufacturers moving back to higher rhodium loadings in higher-quality fiberglass applications. Ultimately, our estimates suggest a fundamental and persistent market deficit of at least 10%. In summary, we continue to believe that solid market fundamentals remain in place for pretty much all the metals that we produce. In addition, the need to secure critical metals is a developing theme across the world that may result in even further tightening of liquidity. We are more positive on palladium, with it becoming clear that the electrification of the light-duty drivetrain has been overstated in the past. Ruthenium, not always realized is our third largest PGM by volume, and we produce at Northam 15% of global supply. Its demand grew strongly over the last couple of years, on the back of the nylon industry. Also, artificial intelligence, social media and the myriad of electronic consumer devices continue to generate large volumes of data that require some form of storage and data storage requires ruthenium for hard disks. The ruthenium market is in a substantial primary deficit and stock sales may be insufficient to bring the market back into balance anytime too. The ruthenium price should do well from here. Iridium will and is benefiting from the renewed commitment of China to expand the green hydrogen economy. Global demand for stainless steel, together with Chinese ferrochrome industry dynamics is supporting UG2 chrome concentrate pricing. Today, just around $300 per tonne CIF. And recent developments in Indonesia are also supportive of a higher nickel price in the future. On this basis, our view is very positive for the metals that make up 98% of our revenue. Over the coming 12 months, Northam will remain internally focused as we approach our historic aspirational target. And additional optionality for growth will be considered as we obtain further market confirmation. We will also pursue our alternative energy strategy in an aggressive manner in order to mitigate the twin challenges of decarbonization and the electricity price escalation that we are experiencing in South Africa. More leg work is required to fully understand the potential of the recycling market against a significantly lower primary supply projected for 2035. We also need to travel more extensively in China as the hydrogen economy emerges. I believe the world has moved from overestimating hydrogen to now underestimating current developments. A bit of excitement is now warranted. Thank you, everybody. Before we go to questions, this is a view of the recently commissioned ore stacker reclaimer at Booysendal South mine. You can see the lighter Merensky ore and the darker UG2 ore on the pad, and the segregation of ores allows control of the blends of the mill which will improve both plant throughput as well as overall PGM and chrome recovery. Ladies and gentlemen, our company is in a very competitive and strategically strong position. Internally, the company remains in a very good state of health with a fantastic team, quality operations, a growth path, and the financial backbone of a strong balance sheet and cash position. This enables sustainable operations for far into the future. That concludes the formal part of the presentation for today. And I hope you found it informative, and we can now move on to the Q&A. If we can start in the room perhaps, followed by the phone lines at the back, and then Damian at the front will help us with the webcast. And if I could politely please request that you introduce yourself when you receive the microphone or when you are called upon and let us know which organization you represent before you ask a question. Thank you.

It's Chris Nicholson from RMB Morgan Stanley. And thank you very much as usual for a very thoughtful presentation. I really enjoy that. Could I ask about the CapEx plans? Obviously, one of the big changes from when you last chatted to us is you're accelerating your CapEx plan, and I think it's understandable into this price environment. Zondereinde at ZAR 3.2 billion a year. How long are you going to need to continue to run at that run rate to support the mine's kind of 350,000 ounce profile? And then the second one, I think I understand what's happening in the tailings at Booysendal, but at Eland the self-build on the renewables, why are you going for that rather than an IPP as you have with the other projects?

Yes. Thanks, Chris. So at Zondereinde, the difference in CapEx is essentially 4 shaft, frankly. And what we have agreed to so far at Board level is we will progress for shaft by reaming and creating the whole, which will give the company an option. Not to maintain 350,000, but actually to grow production above that point. So the reaming, we've completed the pilot hole, which is around about, I think, if I remember correctly, a 280-millimeter pilot hole. That was done during the course of the year. That's quite critical because it's technically challenging. It must be straight because it's a hoisting shaft, cannot be a banana. So that was done. And we've now given the go ahead to ream the hole. Damian is it is 5.5 meters, we will ream this one, which is quite big for a raise bore effort. And it's also from above -- below 1,400 meters. So it's also a long hole. So it would, as I said in the commentary, be a world record in that sense. And that is technically challenging. Will take around if it goes very, very well, 18 months to make that hole. If we struggle a little bit because you can have intersections of geology and water, it can be even 2 years. I'm not saying it will be, Damian, please don't quote me on that one, but it can -- you can -- it's not always absolutely straightforward as many things in mining. So what we have allocated is ZAR 500 million additional CapEx to do that job. And then in 18 months to 2 years' time, the company will have the option to proceed with the development of that shelf, which would be an ore hoisting shaft, which will enable increased production. I know you're going to ask me how much, Chris, but we're not in a position to give you that just yet. But I've got no doubt that the ultimate profile of Zondereinde will start with a 4, if 4 Shaft is -- if we take that option in around about 18 months to 2 years' time. So yes, not only does it secure the life of mine, but it also allows for an increased level of production out of that ore. But it is a very large ore body and it's a wonderful piece of ore body from a geological point of view. There are very few of these near vertical faulted dikes that historically is Zondereinde has experienced. In fact, that block of ground is clean. So we're very excited. We like what we see. We're already mining in the early bits of that block already below 3 shaft and 4 shaft gives us optionality. I think Alet mentioned, we're considering our optionality for the future. and certainly, 4 shaft represents one of those options. The IPP question on why self-build, the recent pricing environment, in particular, for batteries is giving us, if I can say, very bluntly, a 3-year payback. It's very, very attractive. And the reason we want to control or let me put it this way, self-build it and have it under our absolute control is because in this case, when you introduce batteries, what we're actually doing is targeting the peak electricity schedule across the day, the tariff. You will know -- I'll give you a nice fact actually, 40% of the electricity bill is priced against only 14% of the kilowatt hours, reflecting the double peak in the Megaflex tariff that Eskom put forward. So if we can store energy through PV and release into those peaks, you can have quite a dramatic effect on the electricity bill. And we think those projects are very, very attractive. And of course, we've got more liquidity now to be able to do it on balance sheet as opposed to off balance sheet. We don't have any leakage of value in that sense. It's not that we won't continue with the IPPs. Of course, we will, but they will be supplemented by these own build. And that's also -- we've also allocated a ZAR 0.5 billion for that effort. And predominantly, this year, it will be to purchase the batteries, industrial batteries that go with it.

Gerard [indiscernible] CIB. Paul, I want to explore labor costs a little bit. Maybe if you can talk about your labor agreement. Is it linked to CPI. We're targeting 3% CPI in the country. We now but your -- with how profits have evolved, I'm not quite sure that, that is what the labor force is going to be happy with. And so what is your agreement? And how do you see labor costs evolving maybe beyond that agreement?

Yes. Thanks, Gerard. We have 5-year agreements in place for all three main mines. Zondereinde and Eland, that 5-year will come to a conclusion in June this year. And the Booysendal is a couple of years out. So we sort of staggered a little bit on a 50-50 basis if you look at the ounce production from the three mines. I agree with you. We use a base of our negotiation stance going into negotiations, we'll always refer to CPI. But one almost must always consider what the basket price for the employee is as well as CPI. And our basket price at the employee level does get dominated by food, education, expenses and travel or transport costs. So it's not quite CPI. If we are using a mining term, hard ask at CPI, we will not settle. I think let me put it as blunt as that. One has to be realized. One has to realize what the employee experience is, and we will be negotiating in a sensible fashion to repeat a further 5-year agreement if we possibly can with the counterparty at Eland and Zondereinde. By the way, it's the NUM, and Booysendal, it's AMC, just to give you some backdrop there.

Okay. So labor costs well ahead of CPI.

Hopefully not well ahead, but one mustn't expect CPI, Gerard. Let's be honest and fair. It's not the good idea to impoverish the workforce.

Paul, it's Arnold Van Graan from Nedbank. So on your optionality that you're putting in at Zondereinde. What are you tracking to pull the trigger? Is it metal prices at a certain level for a certain period? Or what else are you looking it? You talk about hydrogen, that seems to be quite positive. But what will drive that decision other than the basket price at a certain level? Or is it just the basket price?

Yes. I think, Arnold, already effectively we took a decision to create the option in the first instance. In other words, to make the hole in the ground, that fortunately does take a little time in the sense that you have a chance to assess and get confirmation from the market. I think over the course of 18 months to 2 years, we will get that confirmation or not. But at the end of the day, the company will have what I would consider an extremely cheap option from having, in the meantime, created that hole in the ground. So that's the way we're thinking about it. We have a fairly straightforward technical ability to increase processing capacity and that would, of course, go with a 4 shaft decision yes or no. And just to repeat on that, quickly, mining first, metallurgy second, no good building metallurgical kit, if you can't fill it. So the mining decision takes priority of a metallurgical decision, and that's no detriment to metallurgists, just as important at the end of the day, but from a risk point of view, mining risk is far higher than metallurgical risk. So we work on the shaft first, create the option, yes or no to the option in a couple of years' time. And if we do go, we will increase the size of the kit at Zondereinde. Maybe the question will come later, but let me preempt it. We do have very straightforward technical ability to increase metallurgical capacity to about 1.5 million ounces for you.

Sorry, maybe just a quick follow-up on that. So there's obviously, there's some metal lockup potentially on the back of that. Do you consider that metal lockup or mismatch between mining volumes and plant volumes in that investment decision? And do you understand what I'm saying because, of course, you're going to be over mining and you can't process and you basically had that challenge for some time which does impact the economics. So just how do you think about that? I mean it's a good problem to have, a very good problem, but it's still kind of a financial impact.

I could say a lot about that. And perhaps we probably haven't got enough time. But remember, we have ramped up the size of this business 4x in essence, from below a 300,000 ounce producer. Our guidance now is 1.07 million ounces for the year. It's at least triple approaching 4x run rate. When you do that, you increase your working capital. It's absolutely natural in any business and it must be funded. And of course, Northam points out, it has been funded. That working pipeline, that pipeline that you see there on the books at 10-point-something in real life at ZAR 25 billion has been paid for. One must always remember, it's also liquid. Can be realized if we so choose because you can sell it. You sell it forward, you take a bit of a discount, you can bring cash back to the balance sheet. We don't believe that's the right -- in the best interest of the company. But you do fund the pipeline on the one hand, but it is realizable, if you so choose a number of companies, a very good example, which is not related to PGM, so I can talk about it. You will have seen BHP Billiton has just liquidated or brought forward the value of the silver through a streaming agreement. These things can be done. That is a proper, proper asset that the -- as an analyst, you should value as a liquid asset. It's almost cash, actually, with a bit of a discount.

Nkateko Mathonsi, Investec Bank. And well done on a very solid first half of the year, especially on safety as well. Zero fatality is not a small fit. Maybe I have -- I'll start with a follow-up question on Zondereinde #4 shaft, and I'll ask on the metallurgy side of things. By how much can you increase throughput at Zondereinde before you need to actually increase the capacity on the concentrators? Is the numbers starting with the 4 supported by the current infrastructure as far as concentrators is concerned? And then also on your third-party volume, which has increased to 150,000 ounces guidance for this year, if you can give us a little bit of color as to how much of the Ivanplats Phase 1 is in that number if any? And then I also wanted to ask about ruthenium and the very tight market. Are you not worried about demand destruction? Are you seeing anything right now in development that maybe suggests that if there is demand destruction, it will still be within the PGM metals?

Thanks, Nkateko. I appreciate the comments in particular about safety for the team. Thanks very much. You are quite right. If we were to increase production on the UG2 mill at Zondereinde, we would exceed capacity. In fact, we've already exceeding the UG2 mill capacity at Zondereinde and the excess volume that we are even currently mining is being milled at Eland starting January this year. There's 100,000 tonnes already been moved across to Eland for processing. Fortunately, the Eland is a really big mill, and the transport cost in doing that is a fraction of the value of the metal in the ore. So it's a good option. But in essence, you are quite right. If we take those sort of decisions, we would have to expand metallurgy. But again, I must stress mine first, we're very hard on that point, metallurgy second. You can build metallurgy within 2 years or 3 years at the outside to match mining output, but never do it in advance. It's not wise. On the ruthenium side, we agree that the imbalance in the market is going to present problems to the customers, in our view, clearly. The industrial misbalance at fundamental level has been in play for quite a while now, a year or 2 years, and it's so far been filled by vaulted historical stocks. The industry could not sell ruthenium historically and in some cases, individually new vaults were built to house the ruthenium. It was stockpiled. And I do not know how much stockpile is left, vaulted in the broader industry, we don't know. But we are guessing given the rate of depletion against that fundamental industrial balance that there can't be much left. And when that tightens hits the price, then price has to move if you still want the metal. And of course, that does put pressure on customers. I've got no doubt and may lead to some demand destruction in the weaker hands of the industrial mix.

David Roche Kelly from Phoenix Research. Congratulations on -- across the board, wonderful results from mining operations to metallurgy, of course, to the finances. But I would -- if I could just go back to the safety numbers again. Booysendal at 12 million fatality-free shifts, phenomenal, absolutely phenomenal. And all the other operations fatality-free. And also the various measures of injury rates going down also across the board. And if I could address you in your other role, if I may, as the President of the Minerals Council of South Africa, say congratulations to you and your peers in platinum and elsewhere for that long, long decline in injury rates. The number I saw in your report -- sorry, I beg your pardon, 2 decades of steady work. I mean, prices come and go, they go up, they go down, but to achieve these sort of safety results is quite phenomenal. So an extra congratulations there to you and all your colleagues in the industry.

Thanks, David. I'll pass that on. Let's go to the telephone lines. We can always come back if there's further hand in the room just for the sake of time. If we can start with the telephone lines first.

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

Paul, firstly, your accelerated CapEx plans. Does that mean that you achieved 1 million-ounce target sooner than anticipated? And perhaps you can just explore or clarify the 3 shaft at Zondereinde gives you 50,000 ounces on top of your current profile guidance. So does that mean next year we should expect 380,000 to 390,000 at Zondereinde? And then secondly, your basket price slide was certainly illustrating that your basket price for Northam is materially higher than the average for the Western Limb. And seem that there's obviously certainly a drive there towards certain metals. But are you able to give us sort of a comparison between your average pool over the last few years to what it is now and where it's going and certainly, with -- in mind that you're mining more UG2. And then for Alet, just the non-current inventory of 102,000 ounces, could you just break down where that each sits at your operations and the time line to unwind that, please?

Thanks, Adrian. You're a bit quick on the Zondereinde target there. I would push in 340,000 to 350,000 for Zondereinde next year, bearing in mind the shaft only commissions in April and a lot of things still happen in terms of sequencing people level by level down through chairlifts, the backfill ventilation and all those sort of things. So it's a gradual process, not a step change, but pencil in 340,000, 350,000 for Zondereinde for next year. On the pro split and the way you're talking -- and the best way to think about it, you're quite right. We do have a very strong basket price on a relative basis, and that stems from the fact that we are a very dominant UG2 producer. And the -- in a very broad brush, UG2 revenue is about 30% higher than Merensky revenue at the moment. And that's driven by the base metal difference in UG2, a lot of chrome. Chrome is priced very strong, whereas perhaps nickel is weak at this stage. And nickel, of course, comes from Merensky. So on the base metal side, chrome's doing better than nickel. And then if I can say the sexy metals of ruthenium and iridium and rhodium all come from UG2. And we have a great -- they're already performing well, and we think they will perform well, very well into the future. So it is about the metal split, as you point out. So I just want to make sure the audience knows the ruthenium, iridium and rhodium, which are pricing stronger and should get even stronger come from the UG2 ore mix and our growth profile and the base load at Northam is predominantly UG2. Alet, would you take the last question?

In terms of non-current inventory, it's just over 100,000 ounces. 70% of that relates to recycling material as well as slag, which will take about 3 years to process. Then 20% relates to Booysendal South material. And as Paul has mentioned, that is an 18-month build program. And then the remaining balance is sort of odds and sods, which we refer to as sticky stock, which we'll be able to treat in the next 24 months.

Yes. Thanks, Alet. I think the important realization on stock releases has got actually nothing to do with the smelter. Most of the stock is not hit the furnace yet. It's either before one of the concentrators or before the slag plant mill itself. So that's where the current and non-current inventory as Alet -- that's anything that can't be treated in 12 months, by the way, that's that definition to those who may not know. So it's not a smelting issue. It's milling effectively and the pace at which we can mill it in to the circuit. Thanks, Adrian. I hope we've answered your questions. We can move on.

The next question we have comes from Rene Hochreiter of [ NOAH Capital. ]

Hello, Paul, and team. Great results, well done. Could I just ask about your third-party capacity? You see 150,000 ounces is what you're doing in third party this year. Is that your capacity now? Is that capacity for your third-party capacity?

Yes. The current capacity is about 1.2 million, and we'll refine about 1.07 million this year. So to give you an idea of the headroom and inside the 1.07 million there'll be about 100-something of third-party, as you point out. So there's still a little bit of headroom, but it's tight, Rene. We haven't got endless capacity. And just to expand on the question it's a specific type of capacity and that we are very UG2 dominant. Therefore, our capacity is base metal light capacity. So it's for some -- not all ore bodies are the same. So we have more cases for UGs and MGs and LGs and less capacity for Merensky and Northern Limb. That's a nice way of saying it.

But you're still doing about 100,000 ounces of Ivanplats.

We are contracted for the first 100 in Phase 1. Yes. And just to pick up and Nkateko's last question, which I didn't answer, I do remember now if you don't mind Nkateko. I won't say what the percentage is. I think we will refer it back to the customer. But they are delivering. That is true. Not yet at the 100, Rene, as you point out, but our contract is ultimately for 100 Phase 1. I do believe they will get the 100.

Okay. Just on Eland, if I may ask, the grade, unless I'm mistaken, I saw the grade going up 52%, but also the costs going up 20%. Could you make a comment on that?

Yes. Sure, the grade is very straightforward reflection. We're now beginning to mine from underground. So we're seeing underground grades. In other words, stoping grade. And prior to this, we've been doing a lot of tailings treatment, which is sub-1 gram. So, on a weighted average basis, we're now getting more of the good stuff, if I can put it that way. On the cost side, ramping up a mine, you must put the cost in first. The cost doesn't come second, unfortunately. And when you create a mine like Eland, the base load of the cost goes in and then the ramp-up slowly follows. So in time to come, we'll get the benefit of the full ramp-up. As we are at the moment, the full management team is in there. The full overhead structure is in the -- the only thing that's missing in terms of cost is the variable cost associated with those next 20 teams that may still be employed to take us from 47 to 67 at full production. So it's sort of a variable cost equation from here.

Okay. Great. Also, your U.S. recycling is about 14% negative EBITDA margin. Are you going to carry on with that?

We will carry on, but it's a very low volume, Rene. We're struggling to get business at the right margin there. We will not write business, which doesn't secure a proper risk-adjusted margin. And as you heard me say earlier, times are tough in the recycling industry, it's not yet recovered to pre-COVID levels. I'm referring to 2019. We have a broad estimate that recycling is tens of percents lower still compared to 2019 across the world. So we're struggling to get business. I do want to point out that although it's a small operating loss, it is a very small operating loss, the value of the property is extensive.

Yes. Now I saw that. One last question, please. What's your best performing PGM metal for the year?

Rhodium.

Good. Thank you. And thank you very much to [ Leon. ] I believe he's retiring. Thanks for all the help that he's given me in the past.

He's retiring, but he's not going -- we've retained him Rene. So just before everybody gets excited, he's not going too far.

At this stage, there are no further questions on the conference.

Thanks, ma'am. Damian, over to you.

There's a couple of questions from the webcast. First question from [ Toko Makena ] is regarding inventory drawdown. You've already answered that Alet. And then there are two questions from Shashi Shekhar, Citibank. Thanks for the presentation. What is the normalized level of cash you want to keep on your balance sheet?

Yes. Well, I think we can answer that one very straightforward. We're not unhappy with a small negative debt position running the balance sheet in that nature. I think that is a fair broad assessment of the board's opinion. We do have discussions on this point quite a bit. So we're not unhappy to be slightly negative. And you must put that into context of the huge near cash asset that we're sitting on in terms of the inventory.

And last question. Growth CapEx post F '26 remaining for Eland until study state in '29?

We've done most of the heavy lifting. So probably less than ZAR 1 billion thereafter it will relate to sustaining CapEx. [indiscernible] equipment and et cetera.

It's interesting to note that Eland paid its first accounting tax. Am I right in saying that?

Absolutely.

First accounting tax this time around. So that's a start, it's a start. Thanks, Damian. It looks like we're done with the questions, and I can't see any more hands in the room. So once again, from Alet and I and the Board members, thanks for attending in person and to those of you on the lines, and we'll see you in the foyer for a cup of tea and a sandwich. Thanks very much, everybody.