Valterra Platinum Limited (VAL) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to Anglo American Platinum's Investor Call. [Operator Instructions] Please note that this event call is being recorded. I would now like to hand the conference over to Theto Maake, Head of Investor Relations at Anglo American Platinum. Please go ahead.

Thanks, Judith. Good afternoon, ladies and gentlemen. Thank you for joining us on today's investor update. We aim to ensure that we can unpack the announcement in the release earlier this morning. As Judith mentioned, my name is Theto Maake, Head of Investor Relations at Anglo American Platinum. With me in the room is Craig Miller, our Chief Executive Officer; as well as our Acting Chief Financial Officer who, today, actually has the easy job of answering all your questions. I do also have Hilton Ingram on the line, our Executive in charge of marketing, who will also fill in the gaps with more information required on marketing. Before we go and open the line for questions, let me first hand over to Craig to briefly highlight a few aspects of the announcement that we had this morning. Over to you, Craig.

Thank you, Theto, and good afternoon, everybody. Many of you would have joined the Anglo American plc call earlier today where Duncan reiterated our commitment to zero harm and how we will work to ensure that each one of our colleagues [indiscernible] return home safely every day. I would like to just take this opportunity to express our sincere condolences to the families, friends and colleagues of the 13 Impala Platinum employees who tragically lost their lives at a terrible incident at Impala Platinum's Rustenburg 11 Shaft last week, and which those injured a speedy recovery. Prompted by the seriousness of the incident and our commitment to prioritize safety and zero harm, immediately after the incident, we subjected all our operating sites with a similar people transport [ finding ] plant to a detailed and extensive audit. The outcome of this work confirms compliance to our own operating standards and industry regulations. Now moving on to the objective for today's call, from a 2023 perspective, I am grateful that we have not had any fatality at our own operations to date and we're making good progress in reducing our total recordable injury frequency rate. Despite many external pressures faced in the year, our M&C and refined production are expected to be within guidance at around 3.8 million PGM ounces. We anticipate that cash operating costs will be at the upper end of guidance at ZAR 17,800 per PGM ounce. And lastly, our CapEx for the year is anticipated to be around about ZAR 20.5 billion. This is about ZAR 1.5 billion lower than our previous guidance. Looking ahead to 2024 and the years thereafter, the PGM basket prices have weakened materially on the backdrop of various macroeconomic factors and the outlook on battery electric vehicle penetration into the automotive market. We are responding to the current low PGM basket price environment, demand uncertainty by implementing a series of measures to protect the long-term sustainability of our business and improve our competitive position by preserving our long-term optionality. We'll do this within the ambit of our value-based and decisive capital allocation framework. Our action plan is to sustain current levels of own mine high-margin production over the guidance period. We're embedding cost optimization initiatives that will enable a ZAR 5 billion per annum cost saving from our 2023 baseline, more than offsetting anticipated inflation. We're reducing our 2024 sustaining capital spend by between 15% and 20% compared to the prior period guidance and maintaining the spend at similar levels for 2025 and 2026. We are focusing on what is critical to the business to ensure the integrity and the reliability of the assets across the value chain, investing in HME to support the increase in waste mining and tailings infrastructure at Mogalakwena, and we're progressing the Mototolo-Der Brochen life extension. The above actions should result in an all-in sustaining cost of just below $1,050 per 3E ounce. In addition, we've reviewed our total capital portfolio with the outcome. This will prioritize and progress Mogalakwena surface drilling and twin exploration declines and the associated studies supporting possible future underground operations at Mogalakwena. The underground operations secure access to higher-grade ore and supplement the open-pit ore, and if progressed, first ounces could be expected from the end of 2027 into 2028 and onwards. We postponed the development of the third concentrator for Mogalakwena until we see a sustainable improvement in market conditions. We will also maintain Amandelbult production at current levels and therefore not continue with the program to ramp up production nor debottleneck the concentrators to 7 million tonnes per annum. And lastly, we noted that we're expecting a reduction in third-party volumes over the next few years as respective agreements reach their contractual conclusion. As a result of the volume changes in concentrate flows and optimizing our own concentrate production to advance full reduction efforts, we will look to streamline our downstream processing footprint. And consequently, we're not able to proceed with the Anglo Converter Plant or ACP debottlenecking project at this stage. We believe that the actions that we're taking will improve our competitive position, enabling us to sustainably remain in the lower half of the cost curve, protecting long-term returns by unlocking value from our core business while preserving our long-term optionality. So thank you. I'll hand you back to Theto and Judith to facilitate the questions and answers.

Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Adrian Hammond of SBG Securities.

Thanks, Craig, for the update. I have 3 questions, please. Just want to reconcile your CapEx outlook relative to your more conservative approach to project development. Given spot prices, you obviously are not generating much free cash, if at all. So how do we reconcile that? There is a bit of inflation creep in these CapEx numbers. I would have thought the CapEx would come down And then perhaps if you can just remind us of your credit lines. And then secondly, I'm quite impressed with your cost reductions next year, the plan around that. Has there been some change in the classification between cash costs and CapEx there, perhaps? Just trying to understand how you achieve that with the lower production outlook. So your unit cost is certainly under pressure from that. But I'd be curious to see where you're pulling costs from. And then thirdly, Mogalakwena has obviously been a very pivotal asset for yourselves. I see you're pushing out the expansion on the concentrator, who knows when that will be, but I suspect there would be a bit of confidence updates on the grades, which I haven't seen. Could you perhaps just remind us when you can confirm a detailed reserve upgrade or update on that so we can get a confidence around the grade recovery there, please.

Okay. Thanks, Adrian. So let me just take the questions in the order that you've given it. In terms of the CapEx outlook, yes, look, we have said that we are reducing our sustaining capital by about 15% from what we previously guided for, for 2024. You would have seen that ZAR 5 billion reduction in our SIB capital, and that's predominantly come through as a result of the work that we've done through our downstream processing and optimizing the capital there. And that's specifically looking at the throughput, and therefore, the sequencing of some of the rebuilds and also some of the investments that we would need to make in SO2 abatement, et cetera, particularly at Mortimer. So we've really optimized the capital in that particular area. As it relates to continuing, though, as I've outlined, so some of the capital, we're still anticipating spending around about ZAR 17 billion in sustaining capital next year. And that is driven by the investments that we will make in Mototolo-Der Brochen and then also continuing to invest in some of the HME equipment at Mogalakwena as we ramp up volumes there as we previously guided from 90 million tonnes of ore moved to about 105 million tonnes next year and then it increases again up to about 120 million tonnes, 130 million tonnes thereafter. And so those are some of the key drivers, but once that investment is made then you'll see the capital come down from there. And then largely, it's -- then we will continue, as we've outlined, really continuing with the exploration work at Mogalakwena from an underground perspective. And so as you know, that's still very much in the exploration stage. So yes, I mean, I think on the face of it, we have really reviewed the capital and particularly our SIB capital, but we'll continue to make the investments in Mototolo and then in Mogalakwena where that's required. In terms of the cost reduction program, we have identified and we have a program underway in terms of realizing that ZAR 5 billion of cost reductions. And that is focused around, first of all, operational efficiencies and driving better productivity from equipment that we have. We're also relooking at all of our overheads. And as you may be familiar, along with the Anglo American Group, we had a -- we implemented an overhead reduction program so we're starting to realize some of the benefits of that. As a result of where we find ourselves from a commodity price perspective, we're clearly obviously stopping a number of studies and exploration work. And so there's savings that come to you [ in the same case ] with that. And then finally, just rethinking through a lot of our supply chain contracts and those third-party contracts where, frankly, it's too expensive for us to continue to operate in the current environment. And that's really what the driver is around that ZAR 5 billion cost reduction. And then finally, just with regards, I can assure you that there's no change in how we're rethinking through unit costs or all-in sustaining costs, they are absolutely on a consistent basis. And then specifically with regards to Mogalakwena, yes, as you pointed out, we've completed the work around a third concentrator. However, just given the current environment and the outlook, we're not going to progress with the third concentrator at this time, but we will continue to progress the underground. That is still at a prefeasibility stage and the drilling results that we've had preliminarily from that are really encouraging and certainly higher grade ore, particularly from the Sandsloot underground. And I think we've previously said that the grades that we're seeing there are somewhere between 4 and 6 grams per tonne, sort of double where you see the open pit today. And clearly, as we analyze the results from that, then we'll start to include that in our reserve and resource statement going forward. But certainly, that's, as I said, at an early stage. And as we get more clarity, we will certainly provide all of you with an update around that.

That's clear. And good job on getting the costs under control.

Perfect. Thanks, Adrian. Sorry, just one last point. In terms of credit lines, Sayurie?

Yes. So Adrian, we do have committed facilities of around ZAR 30 billion at the moment, available committed facilities.

And we haven't utilized them.

We haven't utilized it as yet. So we've got significant liquidity headroom.

Our next question comes from Shilan Modi of HSBC.

Thank you for the update today. Just a bare bones question. How is staff morale at the various operations given the announcement we heard today and the work you did there in the last few months?

Yes. Thanks very much for the question. Look, I think, clearly, as an organization, there is -- we've been pretty focused around ensuring that the business is competitive and sustainable in the current price environment. And I have to say that the teams have really put in a huge amount of efforts to really getting us to the sort of the reset that we've announced today. And I think there is a great deal of motivation in terms of the changes that we need to make. But clearly, obviously, there is uncertainty in terms of how that then transpires as part of our sort of ongoing review of cost bases and activities, et cetera. But it's certainly something that we continue to engage our staff on and bring them along in the journey in terms of how we're setting ourselves up for the future.

Perhaps one more, if I may. How are you thinking about your product mix going forward in terms of your platinum-palladium ratio?

Okay. I mean, the sort of the ratio and given the fact that our production level for the foreseeable future will be at sort of current level, then that will remain broadly the same. So still predominantly weighted towards platinum and then obviously the exposure to palladium and then rhodium and some of the other minor metals.

The next question comes from Chris Nicholson of RMB Morgan Stanley.

I've just got 2 questions, please, around just delving a little bit into the volume guidance you've given. At Mogalakwena, if I go back, I think the guidance this time last year was 2.7 to 2.9 grams per tonne through to 2025, leading to 1 million to 1.1 million PGM ounces. You've now [ commented ] on the next 3-year iteration, we are still at around 1 million PGM ounces all the way through to the end of 2026. Can I just confirm that, that would imply that those grades remain around that 2.7, 2.9 grams a tonne over that time period? That there's nothing different happening on the tonnage? So just understanding the grade volume mix that goes into assumption? And then the second one, just on Amandelbult. So you obviously closed the Merensky concentrator last year and you're running with the 2 UG2 concentrators. Just to confirm, I know you're saying volumes at current run rate. But just to confirm the constant -- the capacity of those 2 UG2 concentrators is around 5 million tonnes per annum, is that right? And what should that give us, somewhere just short of 700,000 ounces?

Yes, thanks. Thanks, Chris, for the question. Yes, in terms of Mogalakwena volumes, we anticipate it being around about 1 million mark for the next few years. No real changes to the grade that we articulated last year. I think sort of some of the changes is just really not necessarily you see some of the benefits coming through from the CPR at this stage. So that's really been sort of the adjustment. So that's where we run about 1 million ounces. In terms of Amandelbult, yes, you're correct. We closed the Merensky plant last year, U1 and U2, the capacity there is at about 5.4 million tonnes. At current production levels, we're operating at around about between 4.5 million and 5 million tonnes and so that's where that gives you sort of around about the 650,000 ounce mark that we currently have. And that's really driven by the challenges that we have at Dishaba where we've got -- because of the geological conditions that we have in that particular part of the complex, sort of the development is not where we necessarily need it to be. And so our focus for 2024 and '25 is really in the development, completing the vein shafts. And so once that's up and running, then you'll start to see sort of the benefits coming through. But that's really outside of this guidance period.

The next question comes from Nkateko Mathonsi of Investec.

Thank you for the update. So my question is actually specifically to Mogalakwena and probably follows up to Chris' question. You had previously guided that mine volumes at Mogalakwena would increase from about 90 million tonnes per annum to about 114 million tonnes per annum over the next 5 years to expose the required 1 million volume. So if I look at your waste-stripping CapEx, it still remains around the ZAR 4 billion level, which means from where I'm standing, it means the majority of that increase is actually expensed. And I just want to understand with Mogalakwena now the volume is likely to move sideways and then also the -- maybe a higher expense waste stripping cost, how does the cost within Mogalakwena actually evolve? And I'm trying to marry that with the cost savings initiatives and the ZAR 5 billion that you've actually guided to. So that's my first question. Second question, looking at your volumes, it looks like there's 0 inventory liquidation in the next few years. So I just want to understand the inventory that was accumulated in the past 2 years, when will you actually liquidate that? Those are my 2 questions.

Okay. Thanks, Nkateko. And so just with regards to Mogalakwena, so yes, we previously indicated that we would increase volumes to around about 150 million tonnes as part of some of the work that we've done around the pit optimization. And there's further work ongoing in this particular space. We don't necessarily ramp up to the 150 million tonnes. It's likely to sort of cap out at between 130 million, 140 million. And so that's a bit of the adjustment. But I think our waste capital is broadly in line with what we've previously guided. So next year, it's around about 5 million. And the year after that, we're down to about between 4.5 million and 5 million and in around about 5 million. So there's not significant changes in that particular space. So I think we're broadly in line on that one. As it relates then to the inventory, Sayurie, do you want to answer that one?

Sure. Thanks, Craig. So just in terms of our inventory, we had a build-up -- we guided last year -- of about 100,000 PGM ounces and that was due to the Polokwane rebuild delay. And we indicated that we'll release that over the next 2 years, so that's on 2023 and 2024. So whilst we have reduced our concentrate stocks to about normalized levels, we are seeing a build in our furnace matte stock, and that is also attributable to the increased load curtailment that we've had this year, that added about another 80,000 ounces to our work-in-progress inventory. But we do expect that, that will be released in 2024 largely, and that is again dependent on load curtailment for next year.

[Operator Instructions] The next question comes from Catherine Cunningham of JPMorgan.

Most of my questions have been answered. Just the last one really is just if you could give your assessment on the current demand landscape and just some comments on just general PGM market trends, that would be great.

Thanks, Catherine. So I'll give you a little bit of my view, and then I'll ask Hilton to fill in on some of the details. Look, I think generally, I mean, from a demand perspective just given where we see automotive production for 2023, which is likely to increase around about 8% this year, we're a little bit disappointed around where prices are. But I think that the mine is subdued from a PGM perspective because of some of the unwind in inventory levels that some of the car manufacturers and the OEMs have as a result of the buildup they took in 2022. I think more broadly speaking, I mean, clearly, obviously, rising interest rates and sort of the macroeconomic outlook, I think, is weighing on sentiment, and as a result, that's impacting sort of price. But I think that from a demand perspective and what are we seeing from customers is still relatively robust. So clearly, the business needs to operate at current price levels and how we set ourselves up for it to be sustainable into the future. But I'll ask Hilton just to provide any further color.

Thanks for the question, Catherine. I think in the round, we've actually had a good automotive demand perspective. Car sales are up quite substantially as some of the backlog has been caught up. And the penetration rates haven't sort of been as high as what people were expecting. So we've seen a 6% uptick in PGM demand in automotive, and we're seeing quite healthy premiums for sponge. I mean, as Craig pointed out, the challenge is palladium, in particular, trades on a narrative. And that narrative at the minute is bearish as people see battery electric vehicle penetration rates going up and so there's significant short positions in the market, which means that palladium prices, as a result, have suffered. Going forward, we see demand for light vehicles continuing to increase. But as just pointed out, there's some pressures around the -- on how the consumers are going to react to slowing economies and the current higher interest rates. So those demand could range between [ 0 and 6% ] and we're currently projecting a 3% sort of increase in demand for vehicles. And we're expecting battery electric vehicle share to get to around 16% next year, which means that our PGM demand expectations from automotive are currently flat and we continue to see loadings persisting at current levels. On the industrial side, things have been quite slow as it is to date, but we're starting to see signs of uptick. So with the improvements of the Purchasing Managers' Indexes there, we're quite hopeful for an uptick in 2024 from the industrial side. And then jewelry continues to be a mixed bag with platinum demand in China under pressure, but doing well in other countries.

Next question comes from René Hochreiter of NOAH.

My question is just on the volumes that -- of POC and toll refining contracts that are not profitable to you at the moment. How many ounces are likely to be looking for a new home because I assume that if you don't treat them, the sellers of the POC or the toll kind of sellers could actually go to one of your competitors or Amplats for that matter to be treated. So even though you now say 300,000 ounces compared to what you were thinking of before, how much of that is actually of POC or recycling or toll refining that might actually not come out of the market?

Yes. I think with some of the transition that you see in the refined production next year is we are experiencing some lower POC receipts coming through from some of the operations, from some of the third-parties and we're anticipating that to sort of continue into 2024 and beyond. I think some of the key change is then clearly, obviously, the change of terms for Kroondal, which moved in from a POC to a toll arrangement. And so we continue to treat that very similar to how we currently treat Sibanye's Rustenburg material up until the end of 2026, and that's a toll arrangement. And also then the other point is the -- and then Siyanda is also transferring to -- from a POC arrangement to a tolling arrangement from 2025 onwards. And those are contractual and they'll either come to the end of their contract life or they just transition from a POC to a toll arrangement.

Yes. So the other sort of question I've got is you mentioned that some of your POC arrangements are not profitable at the moment. So at current basket prices, does that mean that -- or maybe what proportion of your POC or third-party contracts are actually not making money for you?

So look, I think, René, I mean at current prices, yes, we still make a margin on that [indiscernible]. Clearly, is the margin commensurate with the margin that we make on our own volumes? No. And just given the sort of the cost inflation that we've seen and particularly in processing and in the capital investment that we need to make in downstream processing, we clearly want to earn a better margin on processing that third-party material.

The next question comes from Chris Nicholson of RMB Morgan Stanley.

I thought while we have the opportunity, I might just have 2 follow-ups. The one is just on Mototolo, so the replacement shaft, you said some CapEx has been deferred from this year into next year or I guess later. So 2 things there. Just maybe what's the reason? Why is the replacement shaft taking longer? If I remember correctly, I think it was originally scheduled to be at full production in '25, '26. So it does look a bit late. Is there any risk that you have a bit of a production at Mototolo so you can't get the new shaft up before you get -- before the existing volumes start running off. That's one. And then the second one is cheeky; I don't know if you'll answer it. But the 50% of Royal Bafokeng concentrates, what have you assumed in these numbers happens to that 50% that's [ at your election ]?

Thanks, Chris. So yes, look, I think just the rollover of some of the capital at Mototolo into 2024, that just relates largely to some of the equipment, et cetera, in terms of deliveries and payments of that. So no real impact on the time line. And so the time line is broadly in line. I think we're tracking about 3 to 4 months behind schedule, but my expectation is that the team will be able to sort of certainly catch that up. So no material impact in terms of the transition from [indiscernible] to Der Brochen. And our assumption is that we continue to treat 100% of the RPM material in these numbers.

The next question comes from Chris Reddy of All Weather Capital.

I've just got a quick question regarding the production outlook. Apart from the production that you've already cut now, what would you need to see going forward in order to review the current production cut and the potential to make more production cuts coming through, assuming still more production cuts.

So Chris, thanks for the question. I mean, clearly, the work that we've done now and that we've outlined today and we need to sort of execute again, it clearly sort of supports us making -- being a sustainable business and moving the assets into the lower half of the cost curve and being sustainably there. Clearly, I mean, we will continue to evaluate what the market is and we'll need to make the appropriate responses. But we feel that the decisions that we've taken and the focus around capital discipline and the optimization that we have from a cost base certainly does support our assets in terms of being positioned in that lower half of the cost curve. We continue to evaluate the market and take particular views, and we'll continue to drive the efficiency and make sure that the business is sustainable and into the future.

If I can, just as a follow-up, please. Just in terms of the safety procedures that have been put in place as well, I mean given what happened at Impala, can you just comment in terms of any procedures that were put in place on AmPlats' shaft to ensure the safety of the mechanism?

Yes. So Chris, specifically following the incident last year -- last week, we did undertake an audit across the company and we have similar systems or similar winder systems to what happened at Impala at our Amandelbult operations. So we undertook a very comprehensive audit and review last week. And following that review, we have seen that we're in compliance with our own standards and procedures and also with what's required from an OEM perspective and also the regulator. And so there's no additional procedures that we've needed to implement. But clearly, we will continue to understand the learnings from the incident and will make the necessary adjustments as and when required.

Our next question comes from Jandre Pieterse of Visio Fund Management.

Just a market-related question. In terms of destocking, do you think we are nearing an end to that? And where do you see PGM inventories globally at OEMs and elsewhere? Are we at normalized levels, still above normal or below normal?

Thanks, Jandre. Let me get Hilton to give a view because he speaks to our customers on a regular basis.

Yes. The inventory question is an interesting one. The -- look, with higher interest rates, you're going to see inventories continue to be under pressure, especially at precious metals prices. And as people buy, they buy on the basis of expectations. Not only for their expectations for the future, but also for inventory. We do -- we've had 2 drivers there. There was the buildup of inventory in expectation of supply-side shocks given the Ukraine conflicts and we've seen those draw down in the course of 2023. And then the other sort of inventory-related shock we've had has been the loading of rhodium inventories from the fiberglass industry. Both of those are tailing off and so the prospects for those are a lot lower in 2024 than they were to date, but that's not to say that there isn't a risk. Did that answer your question, Jandre?

Yes, that's helpful. It sounds like it's nearing an end then or closer to the end than the beginning.

Correct.

[Operator Instructions] Our next question comes from Nkateko Mathonsi of Investec.

It's a follow-up question probably even beyond this update, but I wanted to know how you're thinking about the customer prepayments seeing that the palladium price has pulled back significantly. Are you thinking of even potentially closing it? Settling it, not closing. Settling.

Sorry, just repeat that last --- what did you say at the last sentence?

No. I'm saying settling it, settling. Like would you think of potentially settling that customer prepayment at the current prices?

Nkateko, I mean, I think there's a [indiscernible] obviously benefits from the customer prepayment. We truly -- we value the relationship with the particular customer. It does -- the prepayment moves up and down in unison with prices. It's certainly cash flow and cash that we have available and which we retain offshore and particularly useful for some of our marketing activities. So no, we're very happy with the prepayment and the benefit that's attributed to it. And so have no intention in terms of settling it or anything like that. So I mean, it is just linked to volume and it is linked to obviously the price movement and so very comfortable with that. And when we look at our facilities and what have you, clearly, that's not included. So this is -- that's an additional cash profile that we have. And as I said, is used from a marketing perspective and earning interest in dollars today.

[Operator Instructions] It appears we have no further questions from the lines. I will now hand back to Craig Miller for closing remarks. Thank you.

Thanks very much. So just once again, as we close up the call today, just to reiterate our commitment to operating safely and sustainably. We certainly will remain agile and resilient to the current external environment by deploying a wide range of measures to ensure that we can continue to deliver sustainable returns through our cost optimization and value over volume production and our disciplined capital allocation. And those are the key priorities for myself and my management team. And therefore, just before closing, just lastly, so thank you for joining us today. And please contact Theto if you've got any additional questions, she'd be most grateful to answer them. And then, finally, just to wish you and your family a safe festive season. Thanks very much.

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