IMPUY - Impala Platinum Holdings Limited (IMPUY) Q4 2022 Earnings Call Transcript

Impala Platinum Holdings Limited (IMPUY)

Q4 2022 Earnings Conference Call

September 1, 2022 05:30 a.m. ET

Company Representatives

Nico Muller - Chief Executive Officer

Leanne Billett - Group Legal & Compliance Executive

Mark Munroe - Chief Executive-Rustenburg Operations

Conference Call Participants

Adrian Hammond - SPG Securities

Arnold van Graan - Nedbank

Bruce Williamson - Integral Asset Management

Leroy Mnguni - HSBC

Chris Nicholson - Morgan Stanley

Presentation

Johan Theron

Firstly, let me welcome everybody here. It’s such a pleasure to finally have everybody and the whole team in a live presentation, in a live discussion again. Also, very welcome to people joining us today on the webcast and on the conference call. There’ll obviously be an opportunity to ask questions later in the room and we will also give an opportunity for people on the webcast and on the line.

But before I start, it’s customary in our organization to start all of these engagements with a value moment. It can be safety, health, mental health. I was reflecting on it this morning and I thought, you know with the world where we are in South Africa and economic hardship, we are really privileged as a country to have the resources we do, to be able to mine them during these difficult economic times, to try and substitute what is happening out there through the taxes that corporates like us are able to pay. And also for a company like us, while prices remain so supportive, to also be able to do our little bit around our operations.

So the feedback I would like to leave with you, it's – it might be going well with PGM mining and prices are very supportive and hopefully our shareholders are very happy with their returns, but it's quite tough out there, and I think it's important to also just reflect what companies like us are doing around this. So I'm going to introduce a short little video, just as an introduction, as a values moment on what we are doing around some of our operations, and after that I’ll hand over to Nico who would open the Q&A, just reflecting on the year past and obviously then there will be an opportunity for questions.

So without further ado, let's get it going.

[Video Playing]

Nico Muller

Thank you, Johan. It was absolutely inspirational. I'd like to thank all the teams that are working on all of this wonderful work. I recently had occasion to go to the Eastern Limited to see all the good work that they are doing there, and it's as you understand, the privilege that we have, to have access to resources in order to make this contribution to the community is just very humbling.

So from my side, welcome! Pleasure to see some faces that we haven't seen for a long time. We are being represented by a group of [inaudible] on the side. Most of you here are sitting inside the crowd and they will just assist me in navigating through today's presentation.

So I mean, I'm just – I'm not going to talk a lot. We are going to try and leave you as much time for Q&A as we can, so just a little bit about the macro environment. We have gone through growing uncertainty with regards to what's happening in the world with America economy. The growth rates have been downgraded. We see the IMF, the downgraded forecast for next year from 3.2% to 2.9%, of course closed out of the COVID supply chain issues.

Ukraine tension that's impacting on our European economy and with that this massive global inflation that has impacted, looked at our cost increases, 17%, but I mean that's uniform across the industry, so that's a big concern. And so because of this global uncertainty, these – a growing negative perception about the PGA markets, but I think our view is a little bit different. I mean the prices softened somewhat in 2022, but it only reduced. I mean our bought price only reduced by 4%. And when I look at the number of years ahead, there are a lot of positive forces now listed on this slide that we believe will continue to support the PGM prices.

We think that platinum is probably gone – has gone to its lowest. It was 858 when I checked it yesterday. Lots of excess in ranges, but we have seen an increase in purchasing from our customers. We think Palladium is going to be stronger for longer and I suppose we are fairly neutral on rhodium.

So we believe that there's going to be a very supportive market. I mean even if I look at the last year, our costs have gone up by 17% and we've invested quite heavily, but we were still able to provide a dividend equivalent to a 9% yield, 59.75 – and in fact when I thought about it – you know if I look at the dividend last year and this year, it is double what our market cap was in 2017 and so I think we see a continuation of strong tonnage for the company.

When I look across all the assets – I’m actually running a bit ahead, because I'm not following the presentation, but when I look at all of the assets across the group, we could argue that in Impala’s case, in Impala Canada, I mean Impala production reduced by 9% in Canada, by 4% this year and I suppose they didn’t meet our expectation, but we are not looking at what the causes were. None of it is structural. I mean it marks up – at least here we increased pacing’s by 2 kilometers over the last few years. So structurally the businesses are positioned to do well.

In terms of operation in Canada, we've invested quite heavily in upgrading the infrastructure. We’re busy with an old decoupling project and so I – there have been some parts that have been sticky. We had some labor issues at Rustenburg and I think very disappointing. We had seven fatalities during the year and with fatalities you have safety stoppages. And so to the extent that we can get back to the continued improvements in safety performance, if we can resolve our relationships with our labor and resolve the tension that means of course we are trying to invade a new territory. There’s nothing that prevents this company from not having a significantly improved production in the year ahead.

So when I look at Implats in all of this context, we are a company that came into the year and came out of the year with a very strong balance sheet. We produced 28.8 billion and free cash flow. We ended with a net and gross cash of 26.5 billion, because we are debt free and with our facilities, which is a R6 billion facility combined with our $125 facility. We've got the headroom of $24.5 billion and so from a financial position, it gives the company great leverage to strengthen its long term competitive position and at the same time continue to reward shareholders.

So if you look at the company, we've got so many projects from upgrading infrastructure to key life extension projects; one at Marula, one at Mimosa. In fact our reserves notwithstanding the year’s depletion increased by 2 million ounces because of these life extension projects. On top of that we’ve got expansion projects at some of the based assets; the Merensky project at Two Rivers and then we’ve got Zimplats expansion project.

And on top of that many of these projects are associated with additional concentrating capacity. We are doing a new smelter in Zimplats and we are also doing the debottlenecking of our BMR, the Base Metals Refinery in Spring, and the last big block in this journey is base metal refinery in Zimplats. We are currently doing a feasibility study or actually we’ve done it, finished. We just need to go through an evaluation of that and present it to the Board and I'm quite confident that the rough $190 million required for that project will show materials, our financial returns and will be approved. That will be really the last big block in our journey.

And then I've spoken to – before I get to the share returns, so I’ve spoken about some of the things that we are doing internally and in addition to that, as you are all aware, we are pursuing a transaction to acquire control of RBPlats. We maintain the value proposition given the contiguous nature and the strategic importance for all stakeholders in the Rustenburg area and for the Limpopo province in general.

We do have unanimous support from all stakeholders, and I include the RBPlats management, the employees, the communities. It has been echoed by the successful conclusion with a framework agreement with the Department of Trade Industry and Competition that happened most recently. However, these are contexted process as you are aware and in a contexted process in South Africa there are many legal recourse, we are going through that process. We are awaiting the outcome of a competition, a court judgment with respect to the right of the intervening company, and then the tribunal will then arrange the follow-on process to conclusion in accordance with that. We believe that we are getting to the closing end of it and expect a conclusion in this process within the next number of weeks. So that's what we're doing from an acquisitive point of view.

And then as I said, on top of all of that we were able to distribute R15.75 per share. We announced R13.9 billion for the year and that’s announced to 47% of our free cash flow, which is foreign exchange of the 30% contained in our policy.

From an ESG point of view, firstly from an environmental point of view, I’m not going to go through all of it, but most of the metrics that we track, water recycling for the first time went above 50% this year; energy efficiency improved and I'm very proud to say that for the ninth year in a row we had no material environmental impact incident across our business.

And then from a carbon reduction footprint, I think that it’s useful to just stop at that. Our ambition is to reduce our carbon footprint by 30% by 2030, and to be carbon neutral by 2050. Most of our carbon is generated by consumption of carbon fueled energy, and so we have predicted that our or forecasted that our energy consumption in 2030 will be around 710 megawatt.

And to offset a third, 1.1 million tons of carbon, we need to produce 520 megawatts of renewable energy and so that is being divided as indicated on the slide into the different regions. The most of those, the most advance of those project is probably one in Zimplats, which is now in execution and that is the first phase, which is 35 megawatts of ultimately 185 megawatts. And in the second, the second project that is at fairly advanced stage is Marula’s solar power generation for 30 megawatts and we will conclude the outcome of that study which will then feed into sort of execution in this year.

I am not going to go, in detail through the results that has been published, but just roughly. Refined ounces were actually ounce in concentrate down 4%, refined ounces down 6% and that was because of the rebuild on a number four furnace. But then we had some invention that the sold so that brought up the sales. The sales was 4% down. That combined with, I’m probably going to be jumping to the next slide a little bit, and then I'll come back to this. Our revenue per ounce also declined by 4%. So if you look at 4% lower volumes, 4% lower review per ounces, we therefore had a 9% reduction in overall revenue, which ended the year at a R118.3 billion.

Besides the increase in fatalities, you know from a safety point of view, the increase in unit costs is probably the most disappointing feature of our year’s results and I know this more or less in line with the industry, but it is a concern that our costs have gone up by 17% to R17 364/oz. We have explained the reasons that most of our operations is broadly associated with, firstly a reduction in volumes, ounces, and on top of that the most important factors were global inflation, particularly when it comes to power, chemicals, steel and a number of consumables.

In addition to that, we have seen an increase in labor costs. In Canada for example massive skills shortage and so in order to attract and retain skilled staff, because we are competing against forestry and industrial complexes next to likes and you know our operation, we’ve had to revise our remuneration, and we’ve had to spend a lot of money on recruitment and that all contributed towards this significant increase in costs.

Capital expenditure went up by 41%, but that's broadly in line with the projects that we announced earlier in the year. So I’m not going to go into detail of what contributed. If you want to ask questions, you are more than welcome to.

I spoke about the top seed lines up to the gross revenue. So, in spite of the scenes that the PGM market is weakening, we still produced an EBITDA margin of 45%. Now totaling for the year, R53.4 billion and as I say R28.8 billion free cash flow. That was applied in accordance with what I expressed earlier.

Meroonisha, we can talk more about the gross and net cash, and a big portion why – a big reason for why it was elevated is because of cash required to support the financial guarantees for the RBPlat transition, but I would like to see or expand if there are any questions on that.

And then I spoke about some of the projects that are listed here. I think what is heartwarming for me is that most of the projects are going according to plan. We’ve got one of those too small ecos, but there's nothing that forces me to come back to the market and say that we’ve got a major disaster in any of our projects. Some of them are in the early stages, but for instant at Two Rivers, that Merensky project is going well. They've completed the box cut, they got a number of cruise on the reef horizon, presumably the earth works for the plant and well, the rest of the projects are listed there.

Maybe just to end off this, if I look at the group guidance, it’s more and more less in line with our performance of this year. It appears as if look at the group ounces, if you look at the range that we’ve given, you take a mid-point, that’s not due to similar, but that’s because of two specific points that I’ll just highlight.

Firstly Marula, they – I mean they had an exceptionally strong performance during the last year. They increased their production by 12%. They produced 259,000 ounces, a very strong year. So our guidance is 240,000 to 260,000 ounces. Please take note, if they have another strong year, they will probably end up at the top end of the guidance and I’ll then put it past a billion to even go from strength-to-strength and go beyond that. We just felt we didn’t want to pressurize the asset by overpromising, given the fact that they have had probably the best performance in the history of that asset. I mean, so that will affect the group answers guided.

And then lately is the IRS third party guidance which you will see is lower than what was delivered last year and that’s – the guidance is based on the contractual obligation that we have with third parties and we’ve had one or two of our customers exit and so we’ve adjusted the ounces.

So if you look at all the other operations, we are not expecting any term and most of the production guidance is either in line or better. And then the group unit cost, we are guiding to take the mid-point. It’s around 7.5% up from this year, which you could criticize and say after 17% why would you go there.

The fact of the matter is that we do expect a continuation of global inflation. We do think it's going to impact our operations and our projects and we do think that it would be easy for us to stand here and promise that we’ve got all the answers in terms of how to mitigate it. We do have very specific strategies to manage costs, and I do think that it will play, but we thought it prudent to provide the guidance which is based at around 7.5% increase in unit costs.

And then the couple project, capital investment program which I will elaborate on later. I suggest that there's going to be another two years of high capital investment before it starts declining to I think about R8 billion in the long term years.

And that's really the discussion. Johan, I’m happy to hand over to a Q&A session. Thank you.

Question-and-Answer Session

A - Johan Theron

So for the process today, I’m going to first allow questions in the room. There is a couple of microphones around, so you can just raise your hand and the ladies will provide you with the microphone, and then you can just please state your name and question to the team and we will respond.

For people on the webcast, you are welcome to punch in your questions. We will receive that. I will read it to the team a little bit latter, once we’ve gone through the room. And equally for people on the conference call, we’ll also just queue the administrator on the conference call. You can just let them know when we highlight that opportunity and there will also be an opportunity to ask questions directly over the telephone line.

So without further ado, let's start in the room. Who's got the microphone? Adrian?

Adrian Hammond

I’m asked to stand, this if the first for me. Good morning! Adrian Hammond, SPG Securities. Nico, I just like to – I have two questions for you. Firstly, on the refined capacity. So you’ve lost some contracts for third parties. That obviously opens up some spare capacity which you hadn’t planned for. So what you are thinking about that and how does that change flexibility for you in the future. And you mentioned Zimplats is going to increase capacity, smelter capacity by 600,000 ounces. So how do you plan to fill that? I have a follow-up as well.

Nico Muller

Okay, so do you want to [inaudible]. This is directly in your area if you wouldn’t mind. Thank you.

Unidentified Company Representative

Yes, I think we need to just keep in mind some of our own growth plans. So we’ve already announced the Merensky at Two Rivers, which is 180,000 ounces. All of those ounces come to us, and then our expansion in Zimplats which the first phase is 80,000 ounces. So we already speak of 260,000 that we need space for.

You would have seen that during this past year we actually had stock that we couldn’t process. So in the short term we actually think we are quite tight as far as our own capacity is concerned. So should some of the IRS commitments fall off, it’s actually coming out of our stock and not out of our final metal.

For the longer term, with Zimplats capacity coming online and we are talking about from 2025, ‘26 onwards. We see the next growth probably be coming from Zimplats itself and we also see that if we would take the Mimosa concentrates to Zimplats, it will free up capacity in our South African operations.

I think there is no party out there that can deny that there’s a shortage of beneficiation capacity in South Africa, because there is quite a few projects that could come online if the beneficiation capacity existed. So we are not afraid that we will be sitting with excess capacity in the long run.

Adrian Hammond

Thanks and then just to follow-up if I may on Rustenburg. You had a quite a tough year; your guidance points towards the low-end, a similar number. So just want to understand what we should be thinking about Rustenburg from a long term perspective, and the challenges that you incurred in the first year or the last year. Are they going to – are they getting better or worse? And if you could also just talk 16 and 20 Shaft projects, you haven’t really mentioned any of that.

Nico Muller

Thanks Adrian. Mark, do you want to comment?

Mark Munroe

Thank you, yes. Yes we did have a challenging year. It was a very difficult yeah. I think particularly in the safety area we had a specific incident at 16 Shaft and then 6 Shaft, and they impacted us obviously, the stoppages, and then that reduces your answers and that impacts on your costs directly, so that’s a straight follow through on all those parameters.

We definitely don’t – I’m not repeating it, you must remember just prior to that weekend, the 16 and 6 Shaft fatales happened on the same weekend, one on Saturday and one on Sunday. Despite to that remember, Impala had just achieved 10 million fatality free shits not before that, which is the best in the industry, and we were awarded by our Minister of Mines the trophy for the best mining company, the safest mining, PGM Mining Company in South Africa. So you see the incredible record.

There was this issue where one could say, yes, there is some social economic issue playing out in the workforce. Is there – more focus needs to be put in certain areas. Most definitely we can improve in that. And then you also look at the underlying numbers, the lost time injury frequency rate has continued to improve over the years. The lost time injury frequency rate [inaudible] fatales. So from that point of view, we do not aim on that reoccurring. We do not envisage that presented itself this year again.

But then obviously on the other areas, I think the social economic challenge in the community. We different had less stoppages recently from the community side that has improved. We have stepped up our efforts in engaging the community, communication and the projects that we are doing in the area, so from that point of view.

I think ASCOM [ph] hasn’t impacted as significantly as you might have expected recently and that is a good thing, so I think we are working better in that area. The load shedding that communities get, the industrial side of it doesn't get that. We work closely with ASCOM to ensure it doesn't affect our business.

And even smaller issues like the Zamazama’s and the illegal mining, well we definitely don't have what you have been in the Johannesburg area, we definitely don't have that and nothing could also – we've increased security in that area and we got a much better handle on some of those key issues. So those are the key areas that impacted us this past year. Definitely we've learned how to – we’ve grown out of it and we do not visit thosegoing forward.

Nico Muller

And just from a production profile point of view, I don't think the structure, anything that prevents the mine from producing between 1.3 million and 1.4 million, we didn't produce it this year. I think as soon as Mark can change the conversation from which union and all the violence associated with that and can you know get back to the safety improvements that you showed, I think he's in a very good position structurally to reduce between 1.3 million and 1.4 million. The problem is Rustenburg, is that that doesn't continue forever. You know between five and seven years from now it starts dropping, hence the obvious transaction.

Adrian Hammond

Just to be clear, 1.3 million to 1.4 million is achievable now unconstrained, and is – does that talk to the fact that 16 and 20 is where you expected it to be or not.

Nico Muller

So let me answer that question, because Mark is going to overstate his position. So we don’t continue to report it because the projects, I mean so from a purely project point of view, it’s been completed, but neither of those projects have achieved the steady state production volumes that we aspired to. So it will be fair to say, you know Mark I know between 80% and 90%, we’ve seen most recently a dramatic improvement at 16 Shafts.

But 20 Shaft has always been on a difficult path towards achieving that full steady state and I don't think we've overcome that. It’s a little bit – will take some time. I think two years ago I said two years, so I'm not sure if I can get away with saying another two years now and will it make sense, but that is honestly my sense. Is that it’s going to take another couple of years for us to get into the level.

Adrian Hammond

Thanks.

Johan Theron

Arnold [ph] you’ve got a microphone and then Renee, if that’s okay.

Arnold van Graan

Thank you very much. Its Arnold van Graan from Nedbank. Two questions from my side. Nico, the first one is, I just want to understand your renewable strategy and the sequencing around that. So you're starting off with Zim and Marula and now only starting to do the study at Rustenburg. So what informs that sequence? Is it returns, is it life of mine and how do we look at that going forward?

Then the second question is that you keep on referring back to this issue of the union. So my question is, do you think we're going to see a repeat of the situation that played out from about 2014 to 2015, ’16, where you had running battles as union was vying for membership and trying to increase their membership. How do you see that playing out and what role are you playing to try and avoid a repeat of that? Thank you.

Nico Muller

You can supplement as far as the sequencing of renewal is concerned. I wish I could offer a very small eloquent, you know strategic invasion plan, but to be quite honest, it’s got to do with the readiness at each of the operations. I think we are for instance behind in Rustenburg, because it’s more complex, so we have to balance what we do combined with – and we are also discussing with Royal Bafokeng Nation potential divisions where they set it up and own it. And so you know of the 290 in Rustenburg, 170 is earmarked for solar power. Another 120 is for a potential wheeling arrangement.

So I think Alex, it’s ahead of the curve and that's why we all hit the – it's not because of any specific intervention. What we will do out of each of these projects, we will be looking at what it does mean from an easy point of view. We will obviously look at the financial returns expected and what it is – how it talks to potential energy security.

Not that in the mining industry we can do – we can truly get secure energy supplies, because we have to – we can just provide a contribution to get an increased security, but it is unforeseeable that we are ever going to self-generate the entire load or if you look at the distribution of how the load works in a day. So I don’t know, it’s not a safe answer, but I think it’s got to do with the readiness at each operation.

In terms of the continuation of the conflict, I don't expect a multiyear conflict and I think as the mining right holder, as the employer, we have an obligation. So NUMSA’s had their own internal issues and they were looking at inviting new terrain and so they saw a soft underbelly in the mining industry, in particular with our contractors. So the question is why in that area?

And it's my contention; I think I share the view of the end. To the extent that there are discrepancies in remuneration generally between a contractor firm and mine employees, that presents an opportunity for an opportunistic trade union to come in and to exploit that and to promise to equalize. And so the end is gone through, is going through a very extensive process to look at what disparities if any exist and to what extent we can contribute to closing the gap to the extent required to do to make sure that these [inaudible] and I think that'll take the tension that’s created by NUMSA, targeting specifically the contractors way to a large extent.

Leanne, I'm not sure if you got additional comments to that.

Leanne Billett

You know I don't think there will be a repeat of what had happened in 2012 and 2014, and the reason why I say this is [inaudible] has a strong hold with our own employees in the Rustenburg area and we've just concluded the five year wage agreement. But as Nico has just said, the problem or that approach to dealing with it is two-fold. One from a labor relations perspective in ensuring that NUMSA follows the legal pre-scripts, but then the other one is around align in pay and benefits, which requires some more detailed thinking, and in that we have engaged and can work in partnership with AMCU to find long term solutions.

So the fact that NUMSA can’t – they don’t have access to the workplace, I think is a strong position for us, but it's what happens outside of the workplace in terms of intimidation and we do have strategies in place to deal with that.

Arnold van Graan

Thank you.

Johan Theron

Thank you. Renee?

Unidentified Analyst

Thanks. I’ll just – sorry, just rolled down in your dividend. Very appreciative, thank you. I just got a question on Impala Canada. Your initiative early on said costs about 12 or 13, $1,200 to $1,500 Canadian I assume per ounce going forward, so that's about U.S. $1,000 to $1,200 USD an ounce cost. And then that compares obviously to palladium at about 2,000 odd.

It looks like it’s open pit if I'm not mistaken, not underground. I guess so how long do you think you can carry on? I'm thinking about the sensitivity of that part of the world. How costs are going to go up if you're looking at sort of $1,200 an ounce and the Palladium price doesn't play ball. What is your sort of intention with Canada Palladium? Its 250,000 ounces of USD? Is it really worth all that management trouble going forward?

A - Nico Muller

Thank you, Renee. Thank you for that question. So Impala Canada, the LDI mine started off as an open pit and then moved underground. So currently about 90% of the production can be sourced from underground. It's only being constrained with our capacity of bringing it up the shaft. The way we are now, we are sensing that business for it to do more volumes. At 250,000 ounces of palladium, you are going to battle to break the 1,000 U.S. dollar barrier.

We believe that with the molding company project that firstly create space between our production and our molds, so that we can at least buy stock piles and then bring some more surface material in. We will be able to up the volumes. We currently are running that operation at about 12,500 tons mold per day. That on good days gets to 14,500 tons mold per day. The ideal would be to run at 14,000 plus, which gets us on the short term to U.S. $950 an ounce. Longer term slightly gray drop to $970 an ounce.

We’re very certain of ourselves that we have to stay below the $1,000 palladium per ounce if we want to make money out of that operation. I think we've seen the worst, which is low volume with high cost. Our volume increase and maybe our containment of costs through the strengthening of the infrastructure will take us to that position.

Unidentified Analyst

Just sorry, but what sort of margin would you consider disposing of the operation?

A - Nico Muller

Sorry, which margin?

Unidentified Analyst

If the margin gets to a certain level, what sort of margin would you think of maybe…?

A - Nico Muller

None of our operations will be allowed to run at a loss and I think an option would be if there's no margin, we’ll put it on care and maintenance and wait until the margins recover again.

Unidentified Analyst

Okay, thanks.

Bruce Williamson

Hi! Good day Nico! Bruce Williamson, Integral Asset Management. Just following-on on the Canadian issue is, have you guys sorted out your labor or your fully staffed or you still see a battle going forward?

A - Mark Munroe

Part of the cost increase we’ve experienced at Impala Canada is to try and get ahead of the curve. After COVID we've seen a loss of a lot of skills of people that were not prepared to come back to fly-in, fly-out operations. They found jobs closer to home and so forth, and there was a huge demand for skills in the mining areas of Ontario.

So very early on in the year we did something unusual by offering a 10% wage increase across the whole workforce and then we had a very aggressive recruiting process. Where we find ourselves now is we are fully staffed. We – as part of our cost increase, but we find that some of the neighboring mines are now trying to catch up. I don't think it’s a permanent solution. I think other people are going to try and lure away our labor again, but at least they are with us at the moment and not with anybody else.

A - Nico Muller

Sorry, can I just weigh in on the Impala thing. If you could go back to 2019, would you make the same decisions as we did? Knowing what we know now, absolutely we would. I mean that asset has produced lots of cash. Regrettably because of market conditions and palladium price and also operational performance, so from when we acquired the asset to now, it really has made very, very generous returns.

Also, I think if I – so if I look at any business and look at the way the key constraints is – to see the constraints, to see where is the problem. In my personal mind, its actually in the area that you wanted the big problems. Canada has being the reliability of the – and the capacity of the milling plants, so those lines generally have the problem underground and that's a bit more difficult to resolve.

So I actually am quite confident that we are going to see a continuation of generous returns, but because of improving operational performance, and I say that was quite a level of certainty I think. I mean so what I certainly we have seen in Canada is giving me great courage and I agree with her that we probably won’t consider disposing of the asset, but as we do with any of our other assets, if we’re going to loss making it’ll be a problem.

So just to look at Marula, because I mean in 2017 we tried to, but we couldn't sell Marula for her land. It had a stellar performance lost year and I think Canada has got the same potential, because when we get through reliability of the infrastructure, the plant work, it can be really a good operation for us.

Bruce Williamson

Thanks Nico. Just another question that’s sort of very broad and industry related is that when corporates go and look for acquisitions, and the gold fields you mind is the big one that's being looked at right now. There’s a whole – there’s a bit percentage of investors globally and locally that just rebel against it and I think management are out of line. They don't know what they are doing and they are spending too much money.

When you guys had a look at RBPlats, and I know you can’t really unwind and go back and try and factor in what the cost of discovery and exploration and licenses was all about. But if you guys got a number in your head or what would it cost today, and how long would it take to put all the infrastructure, shafts development to be ready for production, I mean what sort of number would it cost?

A - Nico Muller

Should have arranged this inclusion.

Bruce Williamson

I’m sorry, I just don't believe that the market knows or thinks about valuing assets in the growth.

A - Nico Muller

No, if you say its virgin ground, you have to do all the exploration and capital development; I think will be a frightening number. I think that is why you’re going to see as being scared away from doing investments in the last number of years. I mean we had industry discipline issues you know up until 2010 and then we got to peer, but – and then we are often asked about what is the incentive price to return back to these investments and it's more than just incentive price, because its incentive price over and low enough. But I am going to think the risk associated with a new shaft which is upwards of 15 billion, that's if you understand the order. But you’ve done all the modeling and you know it's a frightening numbers. So I don't quite know what the…

A - Mark Munroe

I can venture a quick answer. If you standard of one is doing about half of the ounces from the whole of RBPlats, double the standard of one and we know from our 20 and 16 shafts, this is going to be on the wrong side of R20 billion to both. So two styles that have one get you to 40 billion, there's no concentrated plant, there’s no infrastructure, there’s nothing, just two holes in the ground. But the much more important factor is, you will only get ounces from that 10 years out and that’s the time value of having ounces being produced from an investment now than making an investment now than banking an investment into the unknown for the next 10 years.

Bruce Williamson

Thank you. I agree completely with what you say.

Johan Theron

Kerber, do you have a microphone there.

Unidentified Analyst

Yes, good morning! [Inaudible] . Nico, you spoke about Marula. I see in the reserve statement you increased the reserve ounces by about 4 million ounces, 60 ounces. So in alignment with your CapEx plan, the CapEx that you spent there and the CapEx that you've announced, can you mine all of that 4 million ounces or will you need to spend additional CapEx to access that increase in the risk in the reserves.

A - Mark Munroe

So that – so the capitalization – well, the capital and the reserves is associated with our Phase II, the decline extension and so that is the – that's all the upfront capital required to develop – find additional five levels on Marula side and I think that is the capital that is required to open up the new block of ground. So it would obviously not include all capital, so let’s assuming you get there and it will be later equipment vehicles and so there’s ongoing SIP, but that's really the capital required to open up that block of ground in order to then become a normalized operations.

A - Nico Muller

The definition of our reserves are we only account reserves if the capital has been committed for those reserves.

Johan Theron

I'm going to take one more question in the room and then we're going to give a chance for people on the call. I see Chris Nicholson is already queued, but we will revert to the conference call after.

Leroy, you got a microphone?

Leroy Mnguni

Yeah, I do. Leroy Mnguni from HSBC. My first question is on your costs. So there have been a lot of drivers that have pushed your costs up over the last two years, a discretionary bonus, extra staff complement to help you cope with COVID, that’s inflated your costs. We are now going into a more normalized environment. When should we expect those costs to come down or should we be looking at current costs as normalized costs and then increasing them over the medium term from that base or is there a rebasing that we should expect.

And then on RBPlats, the team there has been struggling to ramp up Styldrift. Does that affect the way you view the value of the business at all? Are you concerned about that?

And then my third question, probably I'm trying my luck, but you've previously said that you will get to a controlling stake in RBPlats one way or another and that may be interpreted by some as even if it means you have to buy more of them in the process of view, and successful in getting the controlling stake. I'm just curious as to whether you’ve done the numbers on whether or not it's likely that you would get com com approval for a transaction like that, theoretically if it was to happen?

A - Nico Muller

So we’ll start off with the last question, and that is when we are going to buy Northern, I think it was you asking. So from a competition commission point of view it is unlikely that we will ever get approval for a transaction whereby it acquires a controlling position in northern. I mean it’s really being contexted around and so I think that is unlikely to happen.

Now whether that means that we will have no share in Northern forever, that’s a different question and that's just a conversation that I can’t have right now and so we will be laying up all avenues of pursuing what we believe used to be a strategic transaction for this company, and that is to have a high level of control over RBPlats. I'm not saying that – so it is unlikely and we had – I don’t know if you could tell, the [inaudible] view, but it’s unlikely that we will ever get approval for a controlling position in northern. I think given their size and our size, they could be – in view that the competition is contracting to the detriment of the industry.

As far as the cost is concerned, they have cost optimization initiatives at every one of their operations. This is a strategic decision making. For instance, we spent the last number of years deliberately spending more money at Rustenburg and just to upgrade the infrastructure that over many years because the loss making position that the company has been in, to upgrade the infrastructure, to accelerate the development, those things are strategic decisions.

So I think that they are now questions that we need to answer. Mark has employed more labor than he needs and it was with our consent. It was to offset the absenteeism during COVID. Johan has done a fantastic job getting our COVID vaccination rate up from 26% at the end of ‘21 to 91% at the end of this financial year. And so I think that – and I’ve got a Board member that always says, low cost is just a decision. So I think there are a number of levers that we can pull to offset the global inflation.

So now I'm going to give you a conflicting position. So notwithstanding the fact that I am aware that there are things that we can do, and that we are going to do, our guidance is at 7.5%, and so I think that the influence of that regrettably is that it actually established a new base, the new cost as a cost base because 7.5% would typically be assumed to be in line or slightly above what we know as mining inflation.

When we achieve success in reducing our costs, which I'm confident that we are going to achieve, we obviously will come back to the market and provide new guidance which hopefully will be lower.

And there was a third question.

Leroy Mnguni

Still the ramp up?

Nico Muller

We have not changed our position. The initial ramp up is a part of a much of bigger picture, including all of the reserves, resources styled to and long term market foreclose. So it is unlikely that on short term variations from when we made the offer to now to evaluate, that’s the performance of the company over such a short period to make them feel impact on our valuations, so the answer is no, we remain committed.

Leroy Mnguni

Thank you. Maybe just one last question. Are you able to share with us what Northern’s appeal is to the Tribunal? Exactly what is it that they feel is not right or what are they appealing?

Nico Muller

So, I think let’s not go into too much detail. But I mean theories of harm that’s being postulated is that it’s – that it will have a negative impact on particularly junior minus, and that you know we will absorb the concentrate from it, therefore we will not have the capacity to support junior miners as we have done. So the theories of harm has got to do with horizontal and vertical competition.

So of course our position is very, very different and we are investing in additional capacity on all of our beneficiation, but in addition to – I mean if you just look at the fact that in the last three months we’ve had two of our junior miner withdraw from our agreements, it clearly suggests that there is ample capacity in the industry besides Implats who is investing in additional capacity anyway, but I don't want to argue the point. That’s essentially the essence of the appeal.

Sorry Kit, just hang on a second, the people are going to…

Johan Theron

We can amplify your voice.

Leanne Billett

Yes, so the limited intervention rights which were granted by the Tribunal on this initial. So when Northern first took it to the Tribunal to get intervention rights, the Tribunal considered the arguments around the vertical theories of harm and provided them with limited intervention rights. So suggested that there was based on the evidence that they saw and what Northern could potentially bring to the argument, there is only – there is a limited scope on which they can argue, be the case with the – to the Tribunal as part of their consideration of the competition issues.

So the competition commission found that there were no vertical or horizontal issues from a competition point of view, but the Tribunal then on that basis said, on a limited scope you can come in Northern, that is what the appeal is about. Northern is appealing its limited intervention rights in relation to the two vertical theories of harm and once full intervention rights across the competition issues.

Nico Muller

Let me just make a concluding remark on that. You know obviously it’s very frustrating for us, the extension of time, but it is a contest, it’s a transaction and from a competition point of view, if I look at it from a different angle. So if any transaction, anywhere in the world, it is an environmental lobby group or community or any stakeholder that objects. I think it’s the right thing for the arguments to be heard in order for society in general to align with an outcome.

So, I mean for us this is a very time sensitive transaction and we would like to drive it to completion as rapidly as possible. We are working with the competition. Tribunal with the cohort system. I think for a public interest point of view, we support what the competition in Tribunal is trying to do and that is to make sure that all arguments are heard. It is my view that it is driving to an advanced stage, but with these things, these multiple avenues to recourse through the legal system, to higher levels of course and appeal.

So we are just now this week awaiting an outcome from the appeal court and that'll determine the unfolding of the rest of the Tribunal process. We are hopeful that it will be a more speedily process and it will come to a conclusion soon.

Leroy Mnguni

It's very clear. Thank you.

Johan Theron

All righty, I’m conscious that we are running out of time and I think we are only going to have an opportunity for one question on the call. So Freddy if can go to you. I see Chris has already queued himself. So if we can try and hear from Chris Nicholson.

On the web I’ve received some questions from Itmaling [Ph], [inaudible] and Dominic. I think what you are asking has to some extent being answered. But we will certainly revert back to you and make sure that if we cover your questions into detail that you require. So if we can just see if we can hook Chis up.

Operator

Thank you. Chris, your line is live. You may go ahead with your question.

Chris Nicholson

Hi! Good morning gentlemen and ladies. And I wanted to just go back to the statements put in your forward outlook where talked about increasing internal capacity for new businesses, and future facing high value commodities. Could you just talk to me a little bit about what that is, how far advanced are you, what commodities you're looking at specifically. And just with an argument, clearly that they are clearly obviously commodities within your existing portfolio that I guess could be considered high value future facing commodities, for example your nickel exploration, iridium, lithium, etc.

Nico Muller

Chris, I think the first comment I’m going to make is that Implat is a long way away from making a decision on future facing metals. We typically would favor metals that we already involved with, so typically your cooper, nickel we would favor. But it will – so just the point about the comment is that firstly we have high levels of confidence in the PGM markets and please understand that is a very firm Implats position.

Notwithstanding, we do understand the long term strategic fate of electrification. My view is that, that sector has been pushed out of a number of years. I think electrification probably does not have the ability to penetrate at the levels previously forecast, but nevertheless. So when you have electrification of drive trains, the auto industry which affects the highest component of demand for your metals, it’s something that you can't afford yourself to stay blind against that.

So we think it's a long time out. The day that this company decides to be more than just a PGM company, it will be a very big decisions and we understand, see all the positions in wanting the opportunity themselves to diversify into different metals. So it's not a decision that we take light. It is something that will take some time to develop on, so as we need to go through with the Board to align ourselves around that. It's not something that we are eager to jump into.

I think to the extent that we will, it’s probably a number of years out and I suspect the way that the company will do it, will be very systematic and deliberate and with meaningful steps to the extent that we get to a position where we start doing it. So I don’t expect Implats to in the near term, to get into a number of opportunities. And as say, we will do – so at least we are gathering inelegance, we are making sure that we get to understand the market. We need to understand where the attractive opportunities lie and in which commodities that they are, which jurisdictions they are, all of these things have very – and then the closer that they are associated as I said to what we are currently producing and marketing in our portfolio the better for us.

Chris Nicholson

Thank you very much Nico.

Nico Muller

Okay. Sorry I just wanted to repeat, please don't expect an announcement in the next six months on this. This is just a long dated imposition that we are quite comfortable to take our time with.

Johan Theron

I'm conscious that we've run out of time. So I think what remains for me is to thank everybody that's joined us in the room today, and also people on the call and the webcast. No doubt, there’s more questions. We are going to be quite active on the road meeting up. Our telephones and email lines are open and we'll certainly get back to everybody that's launched a question on the web.

So with that, we are closing the venue here now. There is still an opportunity outside to have a cup of coffee with us. So please join us for a cup of coffee. I’m squeezing some more questions there if you like and hopefully we’ll see some of you on the road very, very soon. Thank you very much.

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Impala Platinum Holdings Limited (IMPUY) Q4 2022 Earnings Call Transcript