IMPUF - Impala Platinum Holdings Limited (IMPUY) Q4 2023 Earnings Call Transcript
2023-08-31 15:02:10 ET
Impala Platinum Holdings Limited (IMPUY)
Q4 2023 Earnings Conference Call
August 31, 2023, 05:30 ET
Company Participants
Johan Theron - Group Executive, Corporate Affairs
Nico Muller - CEO & Executive Director
Meroonisha Kerber - CFO, Debt Officer & Executive Director
Tim Hill - CEO, Impala Canada
Patrick Morutlwa - Group COO
Conference Call Participants
Christopher Nicholson - Morgan Stanley
Rene Hochreiter - NOAH
Arnold Van Graan - Nedbank
Leroy Mnguni - HSBC
Adrian Hammond - SBG Securities
Nkateko Mathonsi - Investec
Presentation
Johan Theron
Thanks. All righty. Good morning, morning, all. Welcome to Impala's financial year results for 2023. It's such a pleasure to have you all in the room with us today. We're going to be live streaming on the webcast as well, and there was an opportunity for people to dial in on Chorus Call. But as always, when we get to the Q&A side, I will give an opportunity to people in the room to ask questions first, and then we'll go to Chorus Call and Web.
Just has some household issues. We are running off supplementary electrical power, green power, so there shouldn't be issues with power. In the event that there is an emergency, the evacuation is just straight out the back as you come in. But there shouldn't be any issue. So with those few words, I'm going to give you a short video, a little bit of a flavor of our results. After which, I will introduce our CEO, Nico Muller, who would then just focus on a couple of the key focus areas for the results, and then we can jump straight into Q&A. But let me also just welcome Patrick on the stage here. You'll see Patrick Morutlwa. He's recently joined us as the COO of the . He's a strong mining engineer. So please save your toughest questions for him. Thank you very much.
[Presentation]
Nico Muller
Thank you, Johan. Inspirational video. I did notice I wore the exact thing suit and shirt on the day that we recorded that. So I need to be a little more attentive.
Listening from my side, welcome to everyone. One is welcome, Johan, welcome Patrick. I also want to welcome for the first time people from . We sitting in the corner there close see Linde is here. So it's very nice to have you guys part of the family.
It is going to [indiscernible] the last day in the office today. And so we want to wish him all the best with his retirement and hope he continues to be to do great things. So it's not my intention to do a very detailed presentation. We've got this -- on the website, you've got a very lengthy thing. So I'm just going to touch on a few points, really as an opener for us to ask some benign question to the esteemed panel here.
Before I start, as always with a caution on the forward-looking statements, whereas , one thing to make big decisions today. Always risk associated with our information going into the future.
I'll start off on the macro side. We all understand that we have had a significant decline in metal prices over -- particularly the last 6 months. If you look at the dollar prices of palladium and rhodium reduced by 20% and 29%. But fortunately, for our South African-based operations, we've had a weakening rand-U.S. dollar currency. So that will see some of the decline in the dollar prices.
Unfortunately, in Canada and Zimbabwe where did not have the same benefit. So if you look at what is giving cause to this, there is an uncertain and weak global economy that is impacting on demand. Combined with that, we are seeing continued discounted cash flows of metal from Russia. And so what we've seen is a lot of the OEMs and industrial customers be in the process of destocking. They don't believe that there is a strategic and compelling reason for them to continue holding the stocks that they have. So that has started in a bit of a dislocation between what we see as market fundamentals and the actual price behavior.
And we do believe in the near term that we are going to see some strength. I mean, already, we've seen in the last few months, at least in hitting a floor another continual slide. And from our side, from a company's point of view, of course, we have been clear that we do not support any loss-making assets and that will continue to be the position.
So from an operational point of view, this operational excellence, efficiency cost management. And we are a company that has a declared material capital investment program. And that is something that we're going to have the taste with the price. If there's any further decline in prices, we're going to have to prioritize our capital, and we will hold the things but the most strategic value.
And for us, it's capital programs associated with addressing critical constraints and in our business. Right now, it is the smelting capacity. And second to that, it is base metal refining capacity. And so if there is a further decline in pricing, the company will prioritize capital projects and mitigate the prices by reducing the capital expenditure.
Fortunately, when we initiated all these projects, we did define exit points for each of these projects for this exact purpose. If I go into sustainability in the video, Dr. Joe speak about the safety performance. Very happy that all the metrics indicate positive direction. And as Joe said, our lost time injury frequency rate is at a 10-year low. We just really regret the fact that we did incur 5 fatal injuries in our operations, and we will continue to work hard to make sure that we get to a point of 0 harm.
As far as environmental performance is concerned, there's a whole list of metrics on the slide there. I just want to touch on two that have big variances. The first is the environmental incidents. We had 0 Level 4 and 5, that's material incidents, but we did have an increase of Level 3 environmental incidents from 4 to 7, and most of that is associated with uncontrolled releases of water due to unseasonal rains during the summer.
We have instituted preventative action to make sure that, that won't happen again. And then on the carbon emissions avoidance, we've taken a step forward. We increased the carbon emissions avoided from 61 to 121 tonnes of carbon, and that is as a consequence of the 50 megawatts of renewable energy, which was the contract that was concluded between Zimplats and Zesco, the Zambian renewal -- the Zambian energy supplier, and all that entire contract is renewable energy.
If I go to production, we are very pleased that we have recorded notwithstanding load propelment and all the operational headwinds, we recorded a 2% increase in group reduction. This provides a waterfall graph to indicate the movement in various operations. Of course, the biggest negative impact was at a third-party toll refining and as a consequence of a loss of two contracts during the course of the year.
But then if you want to highlight specifically in Impala and Impala Canada, we had two exceptional years. Marula this year was absolutely still completely . But this year, all credit goes to Impala, they were able to increase their production by 5%. And they were able to mitigate the unit cost increase 27%.
And then Impala Canada that really got traction with the multi [indiscernible] project to improve the efficiency of the surface infrastructure. But also they were able to, through the flexibility of the ore body, to mine higher grade areas and to increase the underground production by 17%. And then just last mention of RBPlat, the 43,000 ounces in PC is just by virtue of us not having reported debt before. So this is 1 month from the data which we got control.
And so there's nothing still about that is really the emission of historical inclusion in reporting. If I go from the 6-ounce production, which is really concentrated or next to refined production, you can see that there's a loss from the 3.25 to the 3.96, and that's as a consequence of, first of all, load curtailment because we switched off our furnaces when we are asked to curtail our electricity consumption. That was the one.
The other reason is the rebuild of our furnace #3 and 4, which is going to increase also an effect of load curtailment. The fact that we have to stop and start the furnaces, and we have got these varying temperatures as grades, increased fatigue in infrastructure, and therefore, we are now on an accelerated rebuild program.
If I look at the unit costs, that's probably the most concerning or the stressing part of our results is the 14% increase in unit costs. Similar to what I've seen in the rest of the industry, and this is driven by this hyper global inflation. So our 14% unit cost increase is as a consequence of 9% Inflation.
Then also the weakening of the exchange and always results in a higher rand cost for our dollar-based costs. And so that added another 3%. And then the recovered grade added another 1%. The capital expenditure that was in line with our capital program, it went up by 27% to ZAR 11.5 billion. The majority of that is our staying business capital of ZAR 7.3 billion, and that's constituted by capitalized developments, capital projects associated with our processing as well as future placements.
And then the replacement of ZAR 2.3 billion is essentially a mine replacement, the majority of that, ZAR 1.7 billion, is associated with Bimha and Mupani extensions in Zim as well as 11 and 12 Shaft extensions at Rustenburg, roughly ZAR 300 million, as well as the first ZAR 300 million for our Marula Phase II extension.
And then lastly, the expansion capital of ZAR 1.9 billion. Most of that is associated with processing ZAR 1.7 billion is associated with the concentrator smelt and refinery in Zim, and another ZAR 150 million is associated with the debottlenecking of the Bimha, the base meter refinery in Springs.
I'm going to talk to the projects, but we have communicated that we are -- that we have embarked on a large list of very important capital projects. This slide just demonstrates where we are with most of them. If you look at the schedule of those two columns, it really indicates that most of the projects, all but one are either on schedule or ahead of schedule. The only one that we have experienced a delay in is the Zimplats smelter expansion and SO2 abatement and that's associated with delays because of supply chain procurement.
And then notwithstanding that there's not a single project, which at this stage is forecasted to end will be completed above budget. So generally been most of the capital projects. If we go to the financial side, it's affected by three things. I mean that's the reduction in price, metal prices, the increase in operating cost and capital.
So if you look at the refined 6E ounces sold, that declined by 6%. The rand revenue basket is 4% lower at 36,118. So if you look at the 6% and the 4%, they combine to the minus 10% for gross revenue, which declined from ZAR 118 billion to ZAR 106.6 billion, and that resulted in the EBITDA margin decreasing from 45% in the previous year to 34%, and our EBITDA declining from ZAR 53.4 billion to ZAR 36 billion.
We did record a free cash flow of ZAR 14.2 billion, and that compares to the ZAR 28.8 billion of the previous year, and that allowed us to declare a final dividend of ZAR 1.65, which for the year ended with a total dividend of ZAR 5.85 per share or ZAR 5.1 billion that was reallocated back to shareholders.
We did end the year with a strong balance sheet of ZAR 26.8 billion, which is pretty similar to what it was the previous year of ZAR 26.5 billion. But of that, ZAR 11.4 billion was earmarked for completing the RBPlat transaction. I am happy to say that post the transaction, post the year-end, once we paid for the whole transaction and dividends, we still have a balance sheet of around ZAR 11 billion.
So I think the company is well positioned for the next year. I look at the profitability. The graph on the left-hand side shows the margin. So you can see my at the highest margin. That's by virtue of the price that they received per ounce compared to the cost and capital. And you can see for group, it ends up at a 29% operating margin, EBITDA margin, operating margin.
The only thing that is a concern to us is if we just look at the graph and you take away a spot today, spot is roughly 25,500, which if you look at the group average cost, it is around the same mark. So there is definitely work to be done for the company to make sure that it continues to protect value and cash flows, particularly if you want to allocate dividends to shareholders as well.
On the right-hand side, you can see a distribution of cash generated. And again, interestingly, the contribution of Impala Rustenburg, which is often touted as a problem asset by the industry. But for us, it does contain significant cash value. As far as RBPlat is concerned, I think when we get the interims, we promised that when we came at final year, we would have concluded acquisition one way or another. And I'm just very thankful that this turned out into us finally securing full control of RBPlat.
The process is underway. We for us to delist the company by the 18th of September. As I said, Steve is on his last day today, and Grant will be appointed as Chief Executive of the operating company. He's based in Rustenburg, and he will report directly into our Chief Operating Officer, Patrick. The corporate office, they represented by Vicky also in the audience. They will be integrated into our business.
So for us, there are a number of key things to focus on. First, efficient integration. Every person has got a place to go to. And if we start very quickly on to start optimizing shared services, people, infrastructure in order to start making an improvement in the overall cost efficiency.
Secondly, I think I did mention the two big constraints from operational point of view is the throughput through the concentrator suite, the two of them, as well as the recovery, which I think I had mentioned, which is at 80% compared to 89% or 90%.
And then the other one is the ramping up of Styldrift to its full production capacity. And then there is a long list of synergies. I'm not going to go through all of them. But obviously, there will be a synergy program to make sure that we leverage them as soon as possible. Being just on the last slide, which is the guidance that we want to give for the next year.
If you look at the production guidance, generally, most of the operations are at mature stage and the guidance range is around the production that we achieved during the past year. There are a few exceptions that I just want to touch on.
The first one is Implats. You can see that we achieved 611,000 ounces in the guidance as a range upward from that. And that's as a consequence of the growth that we expect to the third concentrator that has already been commissioned. The next one is Two Rivers. You may know that they have the Merensky expansion project that's well underway. And some of the -- if you look at the production guidance, you can see the early benefits of that expansion project being reflected in the guidance.
And then lastly, RBPlat. As I said, the 43,000 ounces has been reflected is only for the last month of June. And if you look at the guidance, that is now the guidance for a full year. The only area that we are guiding down is the third party contribution through IRS, and that's clearly as a consequence of the existing contracts that we have in place on, the fact that they are now two fewer contracts.
If you look at the refined production, just the way to think about it, it is a group production. But -- and that includes salable ounces from RBPlat well as Impala Canada. But when it goes to refined, we exclude the losses that is associated with the offtake convenience because we don't process in-house, either RBPlat or Impala Canada that's done by external parties. So we deduct the losses that we incur as a consequence of that. So that's how we get into refined ounces.
And then group unit cost is guided between ZAR 21,000 and ZAR 22,000. If you take the midpoint, that represents roughly an 8% increase in unit cost. And group capital is now inclusive of RBPlat. And I just want to caution again and say that is dependent on material pricing. If there is any further decline in the capital will be revised downward, and we'll report back on that at year-end. And that's the story. I would now like to ask Johan to return and to coordinate the Q&A session first. Thank you so much.
Johan Theron
Thank you, Nico. We've got some microphones in the room. So I'm just going to ask that we circulate that. You can just raise your hand and receive a microphone, and we'll first take some questions in the room, after which I also make sure that people on Chorus Call. There is a function you can queue so long. We'll pick up that you are in the Q&A queue. I see there's already two people in there, and I will make sure that I also return there for an opportunity to ask questions. Chris, maybe you can start us off.
Question-and-Answer Session
Q - Christopher Nicholson
It's Chris Nicholson from RMB Morgan Stanley. A few questions. Just two relating to Royal Bafokeng Platinum in particular. I think that the offtake agreement is 50-50 between Implats and RBP. It indicated RBP is one you would like to trigger the process post 2027. The Implats stake, I think, comes up for potential renewal at the end of 2024.
Given that you're constrained in smelting base metal refining capacity, would you have capacity to take that? Should Implats exercise not to process that anymore? So that's the first question.
Second question on RBPlat. I noticed your mineral reserve and resource statement, you've still got Impala Rustenburg is kind of running off in the middle of next decade. With RBP now integrated, is it safe to say that when that is updated, we should be assuming something much longer from Polarasenburg 20 years plus?
And then just final one. So if I may, just while we're talking life of mine. You talked to Impala Canada potentially mining some high-grade areas. What does that do to the mine life at Impala Canada?
Johan Theron
Thanks, Chris. There's three strong questions there.
Nico Muller
So I mean, if you can't ask the, he's still on the line.
Johan Theron
Yes. Temis on the line.
Nico Muller
So maybe if you can start with Chris' third question and maybe Tim can just comment on the impact on the life of mine by virtue of [indiscernible].
Johan Theron
Did you get that question?
Tim Hill
I did. Can you hear me all right?
Johan Theron
Yes, we hear you perfectly. Thanks, Tim.
Tim Hill
Yes. So what we -- our [indiscernible] is unique in that it allows us to choose higher grade zones when the place do not support the lower grade zones. It will have an impact on the life of mine. At this point, we have a 5-year life of mine. And if the price falls further, we will indeed have to increases our cutoff grade that will have an impact to life of mine. I do not have a specific answer at the moment as to what that will end up doing at really low prices. So I hope that answers your question, it does have impact in life of mine, yes.
Nico Muller
And then as far as the life of mine concerned of Rustenburg. So if you look at the life of mine profile is a very long tail, which we would cut off when it falls below a base load required for the smelting complex. So that is what we would have done historically.
So what you will see, Chris, is you will see a significant extension, albeit at a much reduced capacity. But I mean, that was one of the key synergies that we look at when we contemplated the transaction is in the absence of a base load, which RBPlat now represents. As soon as you get -- was it 500,000 ounces or 400,000 ounces, then it would cut off -- it would come to catastrophic end. So now that will be able to continue for a much longer period.
And then as far as the processing capacity is concerned, we do have a constraint as far as processing capacity for the first two years. But our ambition is to sit with [indiscernible], and So we do have these offtake agreements. There's been some movements in terms of [indiscernible]. And so it is our ambition to, as two parties, we do have the offtake agreements that we can rely on. But I think that there is good sense in the two partners sitting together. And if there is overlapping requirements to try and optimize between the two companies exactly how to deal with the concentrate [indiscernible] platinum.
I just -- I will ask more of the team even this morning, a habit of launching to any other questions or I want my team to also contribute to all asking to help.
Johan Theron
Maybe just for the people on the line, just state your name as well so people know who's asking the question.
Unidentified Analyst
You spoke about the integration of RBPlat and what needs to be done. We saw their first half or yes, their first half results. Metal prices have declined since. I'm just wondering what you need to do to get this business where you want it to be? What's it going to cost? And how long do you think it's going to take? I know it's early days, but can you kind of guide us on that?
Nico Muller
Patrick, do you want to mention an answer, and I will support you back in.
Patrick Morutlwa
Yes. I think as Nicolaas said, so far, what we have identified is that we have opportunity to optimize our throughput and recoveries from our concentrators because that already bring some more ounces on the table and later about tonnes a month that will also bring ounces on the table. It is [indiscernible]. It's something that will take us between 1 year or 2 to get it we want it to be. But it is a good asset. We believe that with the help from the technical team from Implats, we should be able to get that operation by on track, like I say, 1 year or 2.
Nico Muller
It is more of processing intervention than of mining intervention. There are 2 things. Grant has messed up these concentration process. And even that is a 2 parts to it. There is a capitalization of the infrastructure. And they -- I mean, they do have a program to, for instance, to improve the logistics and the tipping points because everything in Grant [indiscernible] plant is currently tracked. And so we get all delivered and to get the super data constraints. So they're putting the second tipping point, but there's also capital provided for a conveyor belt.
So in part that is there is capitalization that has to happen. The other part is that the way in which we operate and manage the processing on both the operation as well as preventative maintenance and vital repairs there is improvement that has to happen on that side. If you wanted my honest opinion, nothing happens overnight. I mean so when you took over, when we acquired Impala Canada, it was in 2019, they had a stellar year this year.
So all of a sudden this year, you saw Tim sparkling being 17% up. When we originally acquired -- so when I was at RBPlat. It took us 2 years to do -- to give the IMAs of the flexibility. I think the plant is probably going to take between 12 and 24 months to get to exactly where it should be. If I look at [indiscernible] similarly, so they have to destroy issues. [indiscernible] you can help me, if I'm wrong, but the two big issues there is face flexibility IMS face links. And the other one is infrastructure positioning relative to the phases. It is not an overnight task.
Again, I would suggest a 24-month period is realistically what it takes. I mean I would like to declare next quarter, but I've never been successful in having a very sharp turnaround. I think we're looking to a year, between a year or 2. Anyone who's got better views, [indiscernible] or I can say or so.
Johan Theron
Rene and then Arnold.
Rene Hochreiter
I'll be just as carrying on from point. Is there any way that you can get the grade at further up. That to me seems to be the crux of the whole problem. But the grade it is not high enough, and that there's too much dilution in that operation.
Nico Muller
Patrick?
Patrick Morutlwa
Yes. So we are doing work on improving the grade. And I think we're starting to see some early shoots, green shoots with the more development that we've been doing, there has been a dilution. But most importantly, we have been mining areas of low grade. So we're starting to move into areas of high grade. So it will improve over time as we set up the phase line that is required to sustain the ramp-up.
Rene Hochreiter
So there are high-grade areas?
Nico Muller
Yes, evenly, there are some high-grade areas. But like I said, it's certainly will be the mine. Sometimes you have to mine the low-grade areas, which we find ourselves in some of those. I think on the other side of the mine, a bit of low grade are that we mine. But we're going to be moving to relative high grades sooner.
Rene Hochreiter
Okay. Can we go back to Slide #44, if possible?
Nico Muller
I'm not sure. I have fully -- is it the results presentation on this morning that you saw?
Rene Hochreiter
Yes, the profitability one. Yes, that one. At the moment, the revenue is about ZAR 25,000 per ounce. And as a group, it looks like you're right on that position. I'm sure there are individual operations, which are below that.
But considering that, that is FY '23 and you're going to probably put another 6% to 10% cost on to that. The picture doesn't look very good, assuming that we remain at spot. Obviously, my view is that they're not going to -- we are going to be at ZAR 30,000 or so, which gives you a little bit of headroom. But if it does remain on spot, which are the first ones that you're going to look at starting to shut down?
Nico Muller
So I mean, I've previously spoken. I did make a comment that we won't tolerate cash losses. But also, it is not correct to assume that, that means on day 1, if you have a cash loss for 1 month, 1 quarter, I think we'll take a longer-term position. But the operations that are most on the RBPlat is not on this slide. It should be on this line because the cost per ounce of the last quarter, I apologize, Grant, but that exceeded the cost of our lease area.
And so I would suggest that is an operation that requires significant improvements in order to remain cash positive, particularly given the fact that there is still a remaining capital investment element associated with that. Then I think the second operation of concern to us is Two Rivers, and it's because of the capital of the Merensky project. So as just cash operating cost, the operation is fine. But it's the funding associated with the Merensky project or the remaining funding that has become. And then one cannot have a conversation and not touch on Canada. Canada is under threat by virtue of it being a single commodity business, and that's where we've seen the most significant decline.
And so as an example, the capital investment in the tailings disposal facility, that has been delayed, and that will have an impact on life of mine as well. The only strength of Canada is the significant improvement in performance. And I think there is some potential to take that more. And the fact that they do have flexibility to alter the grade, which we don't normally have in the South African PGM businesses because uniformity of grade and distribution across the ore body.
So I think those are probably the biggest areas of concern. Now if this becomes a longer-term prices, the company will have no other recalls other than to consider suspension or restructuring. And it's not something that we will wait 10 years to get to. By 10 years, I don't mean -- I don't believe [indiscernible] in 10 years. It will be -- no, It's not something that we will tolerate for a long time.
Arnold Van Graan
It's Arnold Van Graan from Nedbank. A couple of questions from my side. The first one, Nico, in talks to your -- the impact of load curtailment on your operation. It seems to me that you've suffered was impacting your peers. So my question is, is most of that related to the rebuild of the #4 smelter? Or does it talk to the general constraint in your processing capacity? And are there any short-term mitigation measures that you are thinking of to address that? So that's the first question.
The second one, I guess, for Patrick. Are you still carrying excess labor at Rustenburg and at Marula as well, there's some excess labor there. Can you just give us a sense of that and the role that could play in this metal price environment? And I'm not referring to RBPlat employees when I asked that question. But I guess, on that trend, are there any restrictions in terms of the outcomes that prohibit you from taking this reaction as you alluded to now if metal prices stay in for an extended period of time?
Nico Muller
So I want to introduce you to our super metalist to deal with the question, which pertains to what percentage of the inventory lockup or last ounces is low curtailment versus the furnace 3 and 4 and perhaps cable theft and so.
Meroonisha Kerber
So in the 245,000 that we ended up at the end of the period was. Remember, we started off with 40,000 exits. So that was there at the beginning of the year. Then there was 111,000, which is really directly as a result of low curtailment and cable theft, 10,000 of cable thefts is in the -- the other remaining, I think it's circa 94,000 ounces. That's because we had furnace 4 down for the full rebuild. It went down in December, came up in April.
The reason probably why we were more affected by load curtailment is that when we done 3 furnaces and we need to drop the load, you can balance the load across 3 furnaces, right? When you have a smelter that's down for a full rebuild, you're now running 2 furnaces on its own. And when we are required to do no curtailment, they look at consumption at that point. So our ability to use those furnaces to buffer the operations and, in fact, to maintain other smelters operating gets limited. So that really is the constraint we dealt with in this year. And going forward with furnace 5 going for rebuild, we're going to have to deal with that again in FY '24.
Nico Muller
On the second question, pertaining to labor. I will just answer one part and then Patrick can talk about how much extra freaking labor you are carrying in the group that is contributing to the high cost. So from the transaction point of view, we gave an undertaking that there won't be a single retrenchment as a consequence of the transaction. And we didn't do that because it was a demand or competition commission or anything. It did not make sense as we have very sufficient national attrition in a business under normal conditions to continue operating to integrate. And so we had no intention either corporate office or the operation to by virtue of the transaction, cut the cost.
By having full transaction -- because of transaction. But now I also want to say there is clearly a difference in restructuring because of the transaction and restructuring because of a change in economics. So then don't confused the two with one another. To the extent that we have businesses running into cash losses, any one of them, it represents a material threat to the company. And the company will consider various avenues, and restructuring or suspension always is one, but the sum is one that we keep always as a last resort. I mean we have loyal people at work for us for 30 years. So it's not our impression that I just wanted to make sure you understand the difference between the -- because of the transaction and by virtual economic fortune.
Patrick Morutlwa
Yes. Thanks, Nicolaas. So let's start with Marula. Marula, you will see there's about 300 people that we bought year-on-year, but it's not necessarily what complements the people we brought for these 2 projects to do the early work. So that labor is really needed get us to head start on Phase II.
Rustenburg, for the last few years, the team has been working to create graze land. So there had to be additional team for that. We have our face land now. So we -- as we have mentioned natural attrition and that replaced the people. So most of that over complement, I think, has been heated into because of natural attrition.
Nico Muller
Can I just add to that there is number of cost-saving mitigations that we're institute in the company. One of them is a moratorium on recruitment. I certainly at corporate office. But in certain positions at the operation, obviously, if you have a Jack, an operator that we require for production, it's something different. But we have already instituted a moratorium on recruitment in various positions across the company. So I do believe that to the extent that there is remaining excess labor, there is a very rapid program towards a corrective action.
Johan Theron
Take one more in the room, and then I'm also going to give people on the call, an opportunity. Leroy?
Leroy Mnguni
Could we talk a bit about the commodity prices. Looking at your market balances, it does seem like you're still forecasting deficits for this year and into next year. But that doesn't reflect in what -- in the price action that we've seen. So I was just wondering what your view is on how long it will take for all the destocking that we've seen over the last 2 quarters to sort of get absorbed into the market and for us to see a price reaction again.
And then my second question, I was quite interested in your comments, Nico, on the accelerated furnace rebuild program and high load shedding has sort of taken its toll on your furnaces. How -- it does seem like these rebuilds are more frequent than what they used to be. You've got another one coming towards the end of the calendar year. How does that sort of feed into your thinking of your capacity? So if you think about on a normalized basis, has your capacity sort of come down? And do you need to do anything about that in terms of allocating additional CapEx to that?
And then I know you've covered it partially, but just sort of your initial impressions looking specifically at Styldrift 2, things have sort of the RBPlat team has under-delivered there relative to what they have guided, particularly on sort of reaching steady state. You were quite actively involved there a couple of years ago. How does the footprint look compared to what you envisaged? And what are some of the bottlenecks there? Are there any sort of low-lying fruit that can drive a sort of a near-term turnaround?
Nico Muller
Okay. So let's start with the markets. Johan do you want to comment on dislocation between price behavior and our market balances?
Johan Theron
Certainly, when -- especially for the mining metals like rhodium, but also for a byproduct like palladium, with our acute shortages and the prices are moving up, we are seeing people buying and outbidding each other and driving these prices up to understandable record highs. Unfortunately, on the downside, the same thing happens. So when you have weak China and you have a weak outlook for the economy in the U.S. and commodity prices got to coming down and people are sitting on these assets that they bought up and probably more than they need at that point in time, you have the selling down trends that happens and you get that dislocation.
Now certainly, we're also seeing metal out of Russia flowing into key areas like China at a discount. So all of these things have conspired where we would suggest that the prices you're seeing today are somewhat dislocated from the underlying fundamentals. But the fundamentals have weakened. But we do see in the second half of the year China picking up. We are seeing some of these destocking has to be restocked again. It's just a question. We kind of pushed our view out by a quarter. So we were hoping or projecting it to be quarter 3, but it's probably only going to be quarter 4 and into next year because I think specifically, China has come out weaker than what we've anticipated. But we certainly see an upward momentum starting to build probably from fourth quarter of this year. I hope that answers the market question.
Nico Muller
As far as the processing capacity is concerned, there are two . So firstly, internally, we've replanned the furnace repair and rebuild program to account for a shorter interval period between [indiscernible]. The commissioning of the Zimplats new smelter will be absolutely critical in order for us to have sufficient capacity. And then the outcome of the concentrate also take agreement of RBPlat, as Chris asked earlier is the second one. And so we are short-term capacity constrained. I think in due course when we got #5 furnace done and we got the Zimplat smelter resolved, not resolved, commissioned, we will have sufficient capacity. Then you have another question.
Leroy Mnguni
Styldrift.
Nico Muller
Styldrift.
Leroy Mnguni
Yes. Just your views on Styldrift compared to what you initially expected if there's any kind of low-lying fruit there?
Nico Muller
So we had to look at the number of performance matrix. When I look at the ore body, the ore body is not disappointed. It's still there. If I look at the safety record associated with relatively shallow mechanized. I mean there is safety performances like twice as I look at the last time in the frequency rate, it's half of ours. If you look at labor productivity, it is I don't say double, but it may be more than a particular. Total labor complement and per tonne or per ounce delivered. So many of the fundamental drivers of our view of value is definitely there.
So it's really got to do with the ability to execute on your exploitation strategy. Now you are feeding into the question. It was an -- and I would suggest that there is probably a hopeful expectation that we can talk about lying fruit. I'm very cautious to do that because in my opinion at least never happened, most certainly not -- I have been involved where you can, in a very short amount of time, make a big change.
What I can comment on is that they -- I mean, Johan, you guys did ramp up to 220,000 tonnes a month compared to the 160,000 or 170,000 whether or not. So there is a history of them having moved up. But then they had this increased loss rate because of geological conditions, bottles and so forth. And it was in that process and the inability to secure a new phase that the production to started decline. I'm not convinced I can sit here with an honest heart and say, lying fruits give us 1 quarter and we will be back. But there at least has been an upward trends over the last 6 months at the operation. Not because of us. But certainly, I know that having said the numbers that there has been an upward trend.
Leroy Mnguni
Understood. Maybe, Johan, just one follow-up. We've heard a lot of comments around selling metal palladium matter discount into China and into some of the other regions. Do you have a sense of what that discount is or just how that mechanism works in the market and how that feeds into the actual palladium price that we see declining.
Johan Theron
Yes. So we've heard numbers. I'm sure you've heard the same kind of numbers. We don't have specific insights. I can't give you a number 20% or 30%. I think it also varies. But I think what people also forget is that U.S. has imposed the importation duties. So Russian metal that finds its way into the U.S. is also discounted by that levy. So cash in the pocket of the producer in Russia is also impacted in that way.
So you can also see when the cash constrained and where the traditional marketing imports have been cut off, that they will find cost in the market. We've got no doubt about that. But it's higher risk metal, some jurisdictions pushing back. And it will come at a discount when it comes to the market. I can't give you an exact number, but we've heard anything from 10% to 30%. But I can't stand by that. I mean, it's likely be reliant on the market networks.
All right. I'm going to get people on the call also an opportunity. I see there's already two people that are queued into the Q&A. So I'm going to hand over to the Bridge. [Indiscernible], if you could just take them through and queue them in.
Operator
The first question comes from Adrian Hammond of SBG Securities.
Adrian Hammond
Yes. I have four questions for you, please. Quick ones. How many months of predeveloped reserves do you have at the lease area and second RBP? Second, will you need to consolidate the RBP assets into the lease? Thirdly, what's the status of the BEE deal? And when will that conclude? And lastly, I still don't appreciate the buildup in stock that you're forecasting when your peers don't seem to have such an issue and furnace repairs is being done by everyone. So the lease did more than 1 million ounces platinum at one point. So why is processing now constrained?
Nico Muller
Patrick, do you want comment on the [indiscernible] or IMS that we have at the lease area compared to RBPlat?
Patrick Morutlwa
Yes. I think at the lease area, we now -- like I said earlier, there's been a lot of workers including to developing the face plant. We -- at the end of the year, we're sitting on 26.5 kilometers of face there. That really give us the flexibility to maintain losses production of 1.2 million ounces.
So compare that to RBPlat. RBPlat, BRPM because -- 2 BRPM, is more conventional. And still with -- RBPlat join BRPM, you have a good face lands that supports the production. That's why that area has been 20 months straight are going above core. But coming to still, it is very tight panel impact ratio, we're sitting at about 1.3. The whole idea is now to try to push it to 1.5. So [indiscernible] in a better position compared to the RBPlat at this point in time.
Nico Muller
Johan, do you want to comment on the processing capacity and what gives cause this constraint?
Johan Theron
Yes. So I think there's two things. I don't think we are more constrained than our competitors. I think we've got more flexibility and more spare capacity. We are certainly robustly ensuring that our infrastructure is world-class and robust. The fact that you have to cycle up and down, up and down, does add a huge amount of risk to these operations. What would be catastrophic is to have an incident on one of these furnaces. So the protocols under which we operate, we build in a margin of safety and security that obviously, we feel is justified in this period of time. It's very unusual for us to do 2 full rebuilds in the same year, which is what we've done this year.
The guys have done a remarkable job. And both those furnaces were put back online at the right time completely right. I think what has impacted us more than anybody is when we were ready to feed both of those furnaces, Eskom delayed the startup. It just didn't have the power available at the time to switch another 35 megawatts onto the network. So we probably lost almost 2 months of full production on two furnaces just because we couldn't buy them into the network. But those furnaces are humming, they are hot. They're working beautifully, and they are being used on a daily basis. And soon, we will have another monster furnace in Zimbabwe. And those big furnaces are clearly going to put us in a renewal position in my view. Sorry, there was another question that we might have missed, Adrian?
Adrian Hammond
The legal consolidation in BEE deal.
Nico Muller
Do you want to comment on that?
Meroonisha Kerber
Yes. So Adrian, we're clearly busy in discussions with the BEE partner to get consensus around terms and value. And once we've completed that, we will make an announcement to the market at the appropriate time.
Nico Muller
On that note, I would like to welcome [indiscernible] and [indiscernible], who are actually present here I just don't see them right now that they are here. I think that process is well under track, and I look forward to making announcements [indiscernible] in due course. And in terms of the legal integration, it is our intention to keep the companies apart for the short term. That's for a number of reasons.
It is driven by the fact that we have [indiscernible] team on the one side, AMCU on the other side. The fact that we have got different model of success in terms of management, methodology, style, community relationships. It is not foreseen to be the position into infinity. There is our integration plan that is being led by Lee-Ann Samuel, our HR Director.
And the point is, at some point, we have the 2 entities combined subject to tax and tax efficiency in all of these things. But the end goal is always to have a lease area or a buffer king in Western limb that will ultimately be integrated. But that will be done very systematically and structured over a period of time.
Johan Theron
We have time for one more question. I see there's one person still in the queue. I'm going to give Nkateko an opportunity, which will then be the last question. I do apologize for the people on the Web. I see there's 3 or 4 questions on the Web. We will certainly come back. But they are in the same line as what we've answered, but we'll certainly make sure we circle back to you and answer. So maybe we can conclude with Nkateko on the conference call.
Operator
Last is Nkateko Mathonsi of Investec.
Nkateko Mathonsi
I have a follow-up question on labor, especially focusing on Rustenburg. If you look at FY '20 compared the total labor continent versus FY '23, there's about 4,500 employees higher. Has the base for Impala Rustenburg listed to the 4,300 -- 44,000 employees? Or is there still room to actually get back to the 2020 level? I always look at numbers and thought you were getting excess labor as a result of the COVID environment. So just help me understand what am I seeing wrong as far as the labor complement of Impala Rustenburg is concerned.
And then I also have a question for Nico as far as the group CapEx guidance and the scenarios that you show on Slide 43. So under the scenario at Feb '23 guidance plus a weaker rand, I mean CapEx does fall significantly, which projects will be likely deferred? And how should we look at it in relation to your production profile if the deferred '23 guidance plus a weaker rand as the matter actually plays out? That's it for me.
Nico Muller
Do you have a comment on labor, Patrick?
Patrick Morutlwa
Yes, I can. It's a bit too far back, .
Johan Theron
Do you want to speak more?
Nico Muller
Do you want to comment on the gain, the exclusive labor?
Patrick Morutlwa
Yes. I can actually. Under the current role but 4 years later.
Johan Theron
Luckily, I got [indiscernible] sitting next to me, yes. I think the way we measure the labor is on the average for the year, for the past year as well. So I think currently, the lease is around 42,000. So the number has already come down. Then the way we also measure the labor is that includes contractors that would come and go. And especially at the lease, you've got the dryer that we're building in the process division, and you've got 2 underground capital projects. The one is coming to an end now, the 12 Shaft with the decline and that equipment.
So those capital people responsible for the coping of that shaft and everything leaving site and the big part of the driver is completed as well. So I think that as with the 42,000 hours already happened, we did carry in the past a bit extra on what we call cadets and the learnerships. So we did beef up there to keep the pipeline full as well, which also paid on a stipend basis. So what you seen a labor number doesn't transfer to a cost number, either. I think if you -- and I think just the way the leases come back to 7% year-on-year cost increase, part of that much lower than you probably expected. Cost increase was attributed to the reduction in labor from the cover times the nurses or by and large outtakes nurses, medical staff capable for all that time have come up the business already.
And of course, on natural attrition, we have about 100 to 150 natural attrition. So I think there's still some refinement to do on the labor and improvement, but by and large, it is where it should be.
Nico Muller
With regards to the capital guidance, I'm being asked a moving target question, what is our ability to curtail capital explain. I think that we -- I mean, if we had to, we can cut the ZAR 12.5 billion to ZAR 7.5 billion quite significantly. What will the impact -- and I'll talk to the project. I did answer that before. But what could be the impact on the production guidance. Absolutely zero. The production guidance that you've given is not dependent on much more. So the capital investment has got to do with future production, not the year on production. So there won't be any impact.
And I believe that the group will be quite comfortable to produce the 3.6 million ounces per year even in the absence of this capital investment. But as I said earlier, it's probably easier for me to answer which projects we won't cut. The smelting project in Zim is critical. And we're talking -- that is a critical constraint of the company. The base metal refinery optimization that we've done in Springs actually has yielded positive results. And we believe that these, in fact, are higher capacity being created than [indiscernible] earmarked that possibly puts the base metal refinery project in Zim at risk or at least this being delayed.
When I look at the life extension projects like Phase 2, 11, 12, 14 Shafts, those are the projects that, I mean, if you don't have the funds to invest in long life, if it becomes important to have a short-term focus on cash preservation and those are typically the kind of projects that will be cut.
Johan Theron
Now maybe just a word from me on the capital guidance, Nkateko. The slide that you're referring to is our capital guidance over the next 5 years, which now is to the best availabilities in the current environment subject to an ongoing market review. And you see that we've incorporated RBPlats into that capital guidance. What you refer to scenario. it is not really scenario. What is referencing is our prior guidance that we've done before. But we're just cautioning there that half of our capital expenditures is in U.S. dollars. And by virtue that the prior forecast was done at , and we're now closer to . That automatically just lift the capital growth by about ZAR 1 billion or so.
And then the next thing is why incorporating RBPlat, which we've had to do, and we wanted to give to the market that sort of guidance to the best of our current understanding. Just by another ZAR 1.5 billion or so over that period. And then hopefully, what you can see is in this year and the next couple of years, that we've already affected some capital rationalization and prioritization. And as Nicolaas explained, that's an ongoing and moving target. But we've got huge flexibility and ability. And we will certainly be robust in the way that we manage that in line with profitability. So it's not scenarios. It's just trying to give you the best forward guidance with some context. I hope that helps.
All right. Then also need to thank you, everybody, on the line, on the webcast and in the room here. We do have some drinks available. So I invite you to come have a drink with the Impala team. This will be an opportunity here for people to ask some further questions formally and informally outside. For the people on the call and on the Web, we hope to see most of you on the road very, very soon. And to the extent that you have any pressing questions or we didn't get to you, please refer back to me and my team, and we will certainly get back to you as soon as possible. Thank you very much.
Nico Muller
Thank you.
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Impala Platinum Holdings Limited (IMPUY) Q4 2023 Earnings Call Transcript