Valterra Platinum Limited (VAL) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Anglo American Platinum Investor Update. [Operator Instructions] Please note that this call is being recorded. I would now like to hand the conference over to Emma Chapman. Please go ahead.

Hi. Good morning, everyone, and thank you for joining our Anglo American Platinum update call, as well as in this short notice. Given the information that we provided in the SENS release this morning, we thought that we should provide an opportunity for you to be able to ask management any questions related to the spend ahead of the year-end and before we go into close period. I have on the line with me, Natascha Viljoen, CEO of Anglo American Platinum; and Craig Miller, Finance Director. We will quickly take you through the information disclosed this morning. We will then have an opportunity for Q&A at the end. And with that, I will now hand you over to Natascha.

Thank you so much, Emma, and good morning to everybody. And again, thank you for joining our call, as I must say, at such short notice. So, before we discuss the SENS announcement released this morning, I think it is important for us just to consider the current and continued impact of COVID-19, the impact it has on our lives, our colleagues at work, operations, family and friends. And as we are all very aware, this new variant is resulting in a quite an uptick in positive cases across South Africa, and things are no different at our operations. We remain steadfastly focused on keeping our employees and communities safe, though, to protect the lives and livelihoods in our approach from the start of the pandemic. So, we are intending to introduce a policy that requires COVID-19 vaccination for access to all of our sites and offices, with a continued objective of protecting our colleagues at work, the families and communities as much as we can. It is in support of the work that we've done in the last 18 months, where we had strict health and testing measures in place across all of our operations and offices. And we've been strongly encouraging our employees to be vaccinated at the earliest opportunity, as vaccines become available through the year. And for this reason, we also set up our own vaccination facilities to make it as easy as possible for our employees, given the breadth of our own health infrastructure and make these vaccines, really -- easily available to them and their families. So, requiring vaccination for access is the next step. And given that vaccination remains one of the best things we have available. And important to know, that we will be doing this through a comprehensive engagement process with our employees and other stakeholders. And once this is complete, we will look to implement the policy, taking obviously into account the feedback that we have received from these comprehensive engagement processes that have actively tipped off in the last 2 weeks across our operations and through the [indiscernible] in South Africa. So, moving on from COVID. We are proud to announce today that we've obtained board approval for the Mototolo/Der Brochen life extension project. And this project delivers on our strategic priority of maximizing value from our core portfolio of assets, by utilizing the existing Mototolo infrastructure and enabling mining to extend into the Der Brochen resource. This will extend the life of this asset beyond 50 years. Now, as you are aware, Mototolo is fully -- is a fully-mechanized operation, and this will be replicated into the Der Brochen operation, which should position the mine, not only from a safety and commitment to safety point of view, but also at the bottom half of the primary PGM producer cost curve. Following the completion of the Mototolo concentrated debottlenecking project earlier this year, we will be able to maintain a mining rate of 240,000 tonnes per month to produce approximately 250,000 PGM ounces per annum. So, moving on to our other major project, which is currently in feasibility study, namely, the future of Mogalakwena. We work in -- for this project, on all 6 work streams, are making good progress. We have discussed the 6 work streams at length in -- at previous opportunities. And each of these work streams have a number of steps to unlock value. Whilst the work in the 6 work streams are integrated to really develop this future, our proceeds allows for separate approval stage gate, which creates an optimal development pathway for us, considering that what we're doing today is starting to take the next steps in shaping the long-term future of a 50-plus year life asset. So, it is really important for us to ensure that these work streams are fully developed and well understood, and include the impact on each other to ensure we deliver the highest value creation for all our stakeholders over the life of the asset. Now, the third concentrated feasibility study, which focuses only on the capital decision making, on the timing, the size and the technology of the third concentrator, will continue into H1 in 2022 and will be submitted for Board approval once completed. Now, importantly, this revised approval timeline does not impact the execution schedule of any of the work stream, but rather allows us to -- for the required discipline and with the aligned -- with our capital allocation framework that we often talk about. Now, finally, we've updated our guidance for 2021, and we provide a 3-year outlook to 2024. Our PGM metal in concentrate production should be within guidance for 2021 of approximately 4.3 million PGM ounces. We've upgraded our refined production guidance, again, to between 5 million to 5.1 million PGM ounces due to the continued strong performance from the ACP. This has meant that we have -- we filed the majority of our buildup in work in progress inventory, following the ACP repairs last year with the balance to be refined in 2022. So, reflecting on 2022, then. So, due to the strong refined production performance this year, we've adjusted our 2022 refined production performance to reflect our expected metal in concentrate production performance for the year, and the small remaining release in work in process inventory. Our metal in concentrate production is expected to be between 4.1 million and 4.5 million PGM ounces, and it's a slight revision down, as we undertake some planned maintenance at Mogalakwena South concentrator. And we've aligned that this maintenance with the first full Polokwane smelter rebuild, which will happen in the second half of the year. I think it's important to note that this planned rebuild is in line with our asset management strategy and our strategic priority of embedding resilience across the asset base and the business, including through a detailed program of planned maintenance for all of our assets. If we quickly look ahead to 2023 to 2024, we should continue to see a steady metal in con production. Our operational efficiencies from P101 efficiency programs and the impact of the modernization of Amandelbult will offset Kroondal and parts of Tumela up at Amandelbult, which both will come to the end of their life. We will see an increase in mining volumes at Mogalakwena due to our P101 programs. And during this period, we will be mining through a particularly high base metal area for the next few years. And this create a short-term constraint at the ACP, which will lead to a temporary buildup in PGM work in process and the inventory, again. So as a result, we have revised down our arrived refined production guidance for 2023 and we should see a recovery in refined production in '22 -- '24, and we're exploring ways in which we can release this work earlier than expected. So at this point, I'll hand over to Craig Miller to talk us through our capital at Brochen and our unit cost guidance. Thanks, Craig.

Thanks, Natascha, and good morning, everybody. And as Natascha mentioned, we have -- we are pleased to announce the approval of the Mototolo/Der Brochen extension project. Execution of the project will commence early next year, with the total capital investment of ZAR 3.9 billion in nominal terms, with the majority of the capital spend between 2022 and 2024. The financial returns of the project are expected to be robust, with an IRR of over 25% and the EBITDA margin over 25%. The payback period of the project is around 6 years from first production, which is expected in late 2023, and these numbers are based on under consensus prices. In terms of unit cost, in line with the high level of inflation that we've seen globally and are cost effective, we continue to experience higher-than-anticipated input cost inflation. This has largely been driven by increases in diesel and fuel costs, which have impacted costs, particularly from Mogalakwena. And we've also seen a rising consumable input prices due to ongoing effect of COVID, and both on the supply chain, as well as some of the logistics issues in South Africa in terms of bringing in imported goods. As a result, we've had to increase our unit cost guidance for the full year to around about ZAR 13,000 per PGM ounce. And we do anticipate inflationary pressure continuing into 2022, coupled with an increase in physical mining activity at Mogalakwena. And therefore, we're guiding unit costs in 2022, up between ZAR 13,800 and ZAR 14,500 per PGM ounce. I'll hand you back to Natascha.

Thank you, Craig. So, just in conclusion then, I think our update today illustrate again the high-quality and low-cost expansion options we have available in our existing portfolio of assets. It also highlights the strong performance by our processing operations over the period and illustrates the significant work we have been doing to improve asset reliability in the business. We are not blind to the challenges of cost and inflationary presence, but we believe that the business is well positioned to continue benefiting from the strong market fundamentals for PGMs and continue to deliver industry-leading returns. At this stage, I will then hand back to Emma and -- to take -- and to help guide us through our question-and-answer session. Thanks, Emma.

Thanks, Natascha. With that, I will please hand over to the operator, Irene, just to explain how anyone can ask a question.

[Operator Instructions] Our first question is from Chris Nicholson of RMB Morgan Stanley.

Could I please just ask a question around -- well, 2 questions around the refined production guidance, in particular. So, the first one, if I look at the numbers, you have raised the refined production guidance by about 100,000 to 200,000 ounces this year in FY '21. But for FY '23 -- FY '22. So you've cut it by 500,000 ounces. So, net, it actually looks like you've lost some refined production between this year and next year. So, I mean, maybe putting that differently, in total, are you still going to get through that 1 million PGM ounces that we talked to about at the ACP board. So that would be the first question. And then, the second question, also, on the refining side of things. Just trying to read between the lines of what you've said there. Is the reason that the ACP issues in 2023 that you've highlighted, is that primarily because of the high base metal content of Mogalakwena, i.e., you can't get it all through because of ACP can't, I guess, process those base metal, that -- right? Because obviously, as you alluded to, it doesn't really seem like those volumes are subsequently caught up. So, maybe if you could just provide a bit more detail on that.

Thank you, Chris. And I think to your first question on refined ounces. The -- we will continue to see a buildup. And I think, we've spoken before as well. To -- we will be broadly releasing all of the last little bit of work in progress from the buildup, the ACP rebuilt last year, early in the new year. But as we see, 2 things happening in the next couple of years. We see the continuous furnace rebuild cycle that's all planned. And we see an increase for a period of time on base-metal loading from Mogalakwena. This does mean that any stock that we built will take us longer to get through, and we do run, again, some bottlenecking in the process at ACP. And we're all looking at twice to unlock that ACP bottleneck that is created. So -- and that is what you see in the flow-through of refined ounces. I think it's also just important to note and we've touched on that, that we do see a reduction in metal in comp coming through. We see, as [ Jack ] indicated, areas in Amandelbult dropping off, we also see Kroondal going out. So, I think that's -- it's lower MNC, WIP buildup that will take us slightly longer to get through in those years. I can probably just ask Craig, if you want to add to that, please.

Yes, it's a 6-digit reflecting on 2021, we clearly revised our refined production to between 5 million and 5.1 million. And so -- as Natascha said, we have worked through a significant proportion of that buildup of that PGM and material that we had ahead of ACP and at the end of 2020. So -- but I just wanted to point out, that this year, we've -- obviously, we've got the M&C production coming in at 4.3 million ounces, which is lower than what we were and that was when we started the year. And so, if you just take the delta 4.3 to between 5 million and 5.1 million and you get to 700,000 and 800,000 ounces and extra as -- and we find this year, and that's really been anything in between 300,000 or 400,000 ounces from -- that we were planning to do in 2022 and into 2021. Hopefully, that answers your question on the sort of the movements that you see in 2021 and 2022.

It does. I think it's understood because just to put it differently, there's 2 separate effects, because you've also got the Polokwane rebuild at the second half of next year. So getting through the answers early this year, but then there's the Polokwane rebuild, et cetera. But completely understood. Thank you.

Our next question is from Patrick Mann of Bank of America.

I suppose, my question is a little bit around the Mogalakwena expansion. I mean, I understand that the constraint coming in '23 has been -- because it's a particularly high base metal area. But then my question is, if you were to expand Mogalakwena by 50%, do you not -- doesn't that suggest that the ACP would not be able to handle that as well? So that's the first question. And then, the second question, also just around refining capacity. If Sibanye-Stillwater was to take the Rustenburg production that's currently going through a lot. Would that free up any capacity for Mogalakwena? Or would that be because of UG2 and it's just a completely different concentrate with higher PGM grades so it did not really make that much of a difference? Thank you.

Thank you, Patrick, and good morning. So, as part of the 6 work streams in the future of Mogalakwena, you will remember that one of the work streams is considering the downstream impact of Mogalakwena. So certainly, the -- we have identified a couple of bottlenecks in the downstream process, as we've -- as I mentioned earlier to Chris' question. ACP is one of them, and we are actively busy with the process of debottlenecking ACP. And then, to your question around Sibanye, so obviously, if Sibanye would take that concentrate untreated themself, it will open up capacity for us. So in that work stream, looking at downstream capacity, all of these options are being reviewed and considered.

Okay. And then maybe, sorry, one other follow-up, I forgot to ask or maybe a different question. You spoke a little bit about securing -- consumables being part of the cost inflation that you're experiencing. Is there any difficulty in actually securing anything? I mean, could we see operational disruptions because of the difficulty in actually getting the consumables required? Or is it just the cost? I mean, is it just a cost issue? Is there also an availability that could possibly impact operations?

Patrick, we've definitely seen periods of time where we struggled to get some of our consumables. We've also struggled, for instance, with the ACP be rebuild quality of deliveries. We've had a quality challenge with some of the refractories for that rebuild. But generally, with our global supply chain, we have been able to maneuver through that, with the additional associated costs. Saying that, however, we continue to keep an eye on the broader supply chain challenges due to COVID, I think if we just consider the chip shortages, that's definitely another indication that we shouldn't underestimate the broader supply chain challenges. What we also see is that some of our local suppliers being challenged in the same way that all of us are with carbon inflection rights and maintenance challenges that their reliability of their assets are under strain. So, it's a number of different contributing factors.

Our next question is from Arnold Van Graan of Nedbank. Arnold, your line is live. It seems there's no response on that line. We'll go to our next question. Our next question is from Wade Napier of Avior.

Thank you very much for the call. We really appreciate it. I just want to talk about the Der Brochen/Mototolo life and mine extension that you approved today. I'm just trying to reconcile the sort of ZAR 3.9 billion in CapEx that you sort of announced, with what you sort of presented back in February. I think in February, you presented that project with a 25% increase in sort of production by 2025, yet that doesn't necessarily seem to be the case now. So, maybe you can just help me reconcile that? And then the second question of mine, and this just speaks to the sort of unit cost guidance in 2022. I do appreciate that sort of production volumes you sort of shift these things around a little bit. But if we assume, sort of, like-for-like concentrate volumes year-over-year, can you maybe just sort of shed some light on your underlying cost inflation sort of assumptions for labor, energy, fuel and consumables?

Perhaps I can jump in on the first portion of the question, and then Craig can comment on some of the cost questions as well. The part of that increase, if you consider the concentrate expansion that we've just -- or debottleneck that we've just concluded, that makes part of that additional throughput. And this, from a Der Brochen point of view, here then becomes a pure life extension to make sure that we can maintain this increased throughput and production that we will get from the debottlenecking of the concentrator. The cost and capital, I will hand over to Craig.

Thanks, Wade. So secondly, I mean, what we are anticipating and as we've seen in 2021, is obviously a bit higher input costs, particularly sort of diesel. We've seen diesel up another 15% in the second half of this year and from when we last spoke. And it was a year ago electricity increases. And so we've assumed around a 15% increase for next year. And then in addition to that, you've got wage negotiations, in terms of, the next, sort of, settlement agreements as following next year. So those are some of the key drivers around where we see some of the cost increases coming through into the new year. And then in addition to that, as we -- as I pointed out, we've obviously got increased physical in mining activities as increased drill -- drilling increase and movement of material at Mogalakwena and next year. And those are some of the key drivers around some of that increase in our unit cost for next year between 6% and 11%.

Maybe just a follow-up on the Der Brochen, just so I understand this. The concentrator expansion has not been approved within the current life extension project. Is that what I'm understanding correctly there?

Yes. That was already done. We've completed that work this year.

So you've debottleneck that?

Yes.

That you haven't expanded it to the 320,000 tonnes per month?

The 320,000 is an expansion option that we have available. And that expansion option will be considered as part of our broader portfolio optimization. So, what we've discussed at the time that you referred to, is to point out the additional opportunities that we have in all of our assets.

Okay.

So what we thought -- sorry, just -- to then make sure that we -- that I've answered your question appropriately. So what we have approved -- and I do apologize for the background noise here. What we have approved now is a life extension. So -- and it's a life extension because of the areas -- oh my goodness. This is very noisy. I don't know if you can hear me.

I can hear you.

There is multiple alarms coming towards mine. I'm just going to give that a second. I am in hotel quarantine at the moment. So, apologies, I can't do much about that noise. Craig, do you want to just continue that one?

So, Wade, just following up on Natascha's point. Here, we've got the opportunity around expanding up to 300 -- going beyond the current capacity. At Mototolo, that project is underway. So, that capacity ability study is underway for us to evaluate what those options are. And then -- and clearly, we've got that within the portfolio. And I think in terms of the Der Brochen expansion is very much -- so Der Brochen replacement is very much around extending the life of assets of Mototolo and which is part of the rationale for us when we purchased again goes -- date back in 2018. And then obviously, as Natascha has spoken about, there is additional throughput coming through as a result of the concentrated debottleneck taking that to 240 tonnes per month, and that was completed earlier in the year, and we should start to see those volumes -- start to see come through over the coming year and then augmented by the replacements coming to from Der Brochen.

Apologies for the background noise, Wade, we're extremely so loud at sometimes. I think, just to add, I think it does point out -- it does point to the optionality that we have in many of our assets. Just as a final point. Thanks, wade. Thanks Craig.

Our next question is from Arnold Van Graan of Nedbank.

Two questions, one probably for Craig, and then one for Natascha. Craig, the additional ounces that you refined this year, have you sold all of that or most of it? Or will there be another buildup for final inventory? And then Natascha, you did explain the various work streams and how that works. But what I don't understand or maybe just give you some clarity on that. If there's a delay in one of these work streams, like you have now, does that delay the entire project? Because in my mind, it should, because all of those things need to come together in the way you anticipate at the same time for it to actually deliver the project as scheduled initially. Thank you.

Craig, you want to go first?

Okay. Certainly. And so -- we certainly are not seeing a very significant buildup in inventory. And what we will do is, and as you can appreciate, if you compare it versus where we were in 2020, we clearly drew down quite significantly on our initiative inventory level. And so, we've been replenishing those. And as we've seen, sort of, the stability coming through, the ACP and the production happening. But no, not necessarily building out very significant amounts of inventory. So sell is probably will be in line.

So Arnold, on your question around Mogalakwena, I think that's part of the beauty of this project in my head, is that if we consider that we are developing an asset with -- well, if you go and look at the full extent, it's 100 years life, but that's way beyond certainly my -- how I can think about this asset. And how are we shaping this asset, at the moment, is going to set the direction of really extracting full value. Now, the 6 work streams, whilst they integrated and supportive of each other, they don't necessarily need to go in a specific sequence. There are a couple of prerequisites that we need. The biggest prerequisite for us, probably, for the mining side, is the work that we're doing with our communities. And that is really time-sensitive. And because it's time sensitive and we know that it is a process that we need to deal with, with domestic care and respect and take time with it, we've already started with the relocation process of 2 of the communities, and we need to have that process done by 2028. So, we've given ourselves ample time to work through that process. As far as the concentrate is concerned, if I step back for a moment, the why -- because this is such a long life asset, we have been quite deliberate in doing a resource development plan for this asset, where we have literally run hundreds of thousands of different options on how we can develop this ore body to its full potential. And that's where the underground opportunity was also identified. When we look at the sequencing of what the RDP give us an indication on the full NPV, we only needed the third concentrator later after 2025. The RDP, however, because it's a long-term plan, does not necessarily take the short-term kind of practicalities into consideration. And if we start to pull that short-term practicalities into a life of asset plan, the indications were, that we should probably bring the build of that third concentrator forward. But we do have some time. And this decision -- the delay in the decision does not impact the total timeline for this project at all. And to the contrary, it just gives us a little bit more space to obviously consider a number of other aspects that is playing a role, making sure we've got the appropriate downstream capacity sorted, and making the right technology decisions, and in the size decision closely linked to the work that we want to do with underground. So it gives us that opportunity to just make sure that we refine that final decision.

Just one last quick one, and you don't have to spend too much on it and go into too much detail. But If you go for the underground option, would that significantly reduce your requirement to move people and the -- I guess, the extent of that process and the process involved with moving that. So, is that one of the big benefits of underground?

Yes, that is absolutely -- that is part of the main reason is to involve to absolutely limit our service impact, and its higher quality mining. So it's more capital efficiency than from a concentrate and downstream processing point of view and then the realized water and energy impact as well. So it aligns very well with our ESG, I believe, in the process.

We have a follow-up question from Chris Nicholson of RMB Morgan Stanley.

I've actually 2 follow-up questions. Can I just ask the Mogalakwena, I guess, debate or question in the negative. I know everything is focused on doing a feasibility for the third concentrator. But is there an option where you just don't build a third concentrator, where you sit with the infrastructure downstream, infrastructure you have, and you look to optimize it through other means. So that's one. And then, the second one is just to ask at both times, are you and Sibanye really going to run Kroondal down to nothing over the next 7 years or so? Because clearly, that's now weighing, I guess, on the production profile.

Thanks, Chris. The -- not building the third concentrator and just running south is absolutely one of the scenarios or options that we have evaluated. If you consider the life of the asset, the age, cost and recovery profile of South, that would be part of the benefit of building a new concentrator. And those are still all in the mix around taking a final decision. So, very appropriate questions, I would agree with that. And now I...

You're going to run Kroondal down together with Sibanye.

Yes. Craig, do you want to take that one?

Yes, certainly. And yes, look, we are evaluating what's the best position for ourselves, and we're in conversation with Sibanye around that. And so we -- at the moment, we have the working hypothesis is, it will continue to be involved in Kroondal, and we'll concentrate on that.

Our last question is a follow-up question from Patrick Mann of Bank of America.

Very quick one, sorry. Just in terms of the rundown of the refined work in process inventory or the refining the extra inventory this year. Craig, can you maybe just give us a bit of guidance on what we should think will be expense in cost of sales against that. Just so -- I mean, it's quite a big number, obviously. So, I just want to check we're not all over the place with earnings. Just how to think about it, maybe. If that's...

Okay, Patrick. Yes, let me just come back to you. But I mean, it's not -- maybe we'll come back to you with the number that you can use, but it's not massive, one way or the other.

Would that be, because I suppose you've also -- your POC amount would have gone up quite a bit market price?

Yes, exactly. We have had revaluations of the inventory in the year. Well, I'll have a look at that and see how can -- what we can do to give direction even in stuff that's already up there.

Thank you. I would now like to hand back to Natascha for any closing comments.

Thank you so much, Irene. And just again, I want to thank everybody for joining our call at such a short notice. We felt that it is appropriate for us, with some of the announcements, some of the changes in guidance to rather take questions directly than just putting a SENS announcement out. And we will obviously be able to talk about quite a bit of this in way more detail when we talk again in February. So, thank you, and thank you for -- Emma and Craig, for your support.

Thanks very much, everybody. Nice to speak to you.

Ladies and gentleman, that concludes this conference. Thank you for joining us. You may now disconnect your lines.