Good morning, everyone, and welcome to the African Rainbow Minerals results presentation for the six months ended 31 December 2023. Please note, this is a hybrid presentation, so we would like to thank everybody who's dialed in, but more importantly, the people who've made an effort to come be here with us in person. At the end of this presentation, we will go into Q&A, so if you've dialed in over webcast, please post your questions while the presentation is going on. Please help me welcome our Executive Chairman of African Rainbow Minerals, Dr. Patrice Motsepe. Over to you, Chair.
Thank you. Thank you. Good morning. It's good to see Martin Creamer. You're becoming younger and younger. My favorite, somebody was telling me many years ago there were people who make us all proud. Martin Creamer is the salt of the earth. Where's David McKay, my other favorite person? He's not here. Okay. Pass my regards to him. Sorry?
He's joining online.
Okay. Who does he work for now? He works for you, Martin?
Joining Martin. Joining him.
Yeah. Pass my regards to him and all my wonderful favorite people. I'm gonna go as quickly as possible through the results because you've got the documentation. My gratitude to the board members who are here. So thank you so much, Brian, for coming, and all the other board members who are here. And thank the media. Our partners are here as well. Who's here from our partners? Mike? I saw Impala, Anglo Platinum, Assore.
Asssore.
Sumitomo. And, and who else?
I think Sumitomo.
Yeah. Well, the ones that I'm told are here. Thank you so much. As I said, the results are self-explanatory. I was in a meeting a week or so ago, and there was a presentation that the results were good in a very difficult environment. In fact, very good in a very demanding environment. You will see from the presentation the impact that the prices of the commodities that we mine, particularly PGMs, have had on our results. But I think that it's during these challenging periods that the benefits of being diversified come to the fore. And more importantly, that having a world-class management team. Phillip is doing excellent work as our new CEO, and Tsu and Mike Schmidt and Andre Joubert and Thando and Thabang and the rest of the team. I saw Kajal, and every single one of the management team.
I mean, we are very fortunate to really have world-class South Africans who are as good as the best in the world. Okay? The headline earnings decreased for the first half by 43%, and you'll see what the primary costs were, to ZAR 3 billion, and we've declared an interim dividend of R6 per share. In order to be a truly globally competitive company, you've gotta deliver good results, at the heart of which, paying dividends is part of our policy and part of our commitment. And side by side with that, we are a growing company. We've got some exceptional world-class assets that we are mining, but we also have to take a 3-, 5-, 7-, 10-year perspective of what would continue to make African Rainbow Minerals a globally competitive company. ARM Ferrous, there was an increase of 12%.
Headline earnings at ARM Ferrous, y/y the PGMs had, essentially because of the price, decrease of 121%. And ARM Coal went down by 85%. We are committed to sustainability. We are committed to partnering and confronting climate change. And we are; our policies are part of what we call a just and a fair transition. And if you look at the slide, it indicates the impact of the decrease in platinum, the headline earnings, the impact that platinum had. And Andre Joubert continues to do good work. David is here? Is on the mine? David the David?
Oh, yeah.
Yeah. It's okay. That's good. Coal and corporate six-monthly headline earnings. If you look at over the last five years, and you look at 2021 and 2022, we are currently globally in more or less the same environment. As I said, essentially and primarily in relation to PGMs, it's the decrease in the price. I saw palladium increase, Mike, by 10% yesterday, so that's good. But again, our strategies and our focus is medium to long; in fact, short, medium, long term. Part of a diversified mining company is that there'll be times when the prices are depressed, and there'll be times when the prices are very high. It's during those times when the prices are high that you invest to get ready for the next upswing.
Dividends per share, if you look at the dividends we've declared now in comparison with 2019 for the first half and 2020, it's higher than that. And as I said, it's part of our overall commitment to be a dividend-paying company and ensure that at the same time we pursue growth in the minerals that we mine, but also in those minerals of the future. The dividends we received, 14% decrease to ZAR 3 billion from Assmang. No dividends from Modikwa and ARM Coal, 87% decrease to ZAR 153 million. And Two Rivers, a lot of good work has been done at Two Rivers, and in the medium to long term, we will do well there. Safety and health is a key part and a critical component of how we run operations, and Phillip will talk more about that.
The decrease of 14% in lost-time injury frequency rate and a decrease of 19% total recordable injury frequency rate. It's always extremely encouraging that there are zero fatalities, and we've got a huge focus on the safety and health of all of our colleagues and employees. And this is the ARM strategy, what makes ARM an exciting investment company. It's owner-operated. We always talk about ourselves as having an entrepreneurial management culture. The heart and soul of every business is the employees. And we look at universities as well as in the corporate world, in the mines and in the industry to attract and retain the smartest and the best.
Part of that is, not just about waking up in the morning as an employee, whether at the mine or at corporate office, and feeling that, I'm working for the best company in the world, and being respected and growing and having a good future, growth path. But it's also about, you know, we've gotta pay our employees competitively based on performance. We have to; it's part of our commitment over the last 30 years that we want to make sure that working at ARM is in real indeed the best place to work in the South African mining industry. We partner with our communities and other stakeholders, critically important.
I was in Miami two weeks ago at the meeting of the ICMM with the CEOs of the largest mining companies in the world, and I'm very proud of the work that the ICMM is doing, and the commitment to partnering with communities, stakeholders. The mining industry, like any other industry, we have to fight for our position in the hearts and minds, in the first instance, of the communities where we operate, but also in the hearts and minds of stakeholders, communities, individuals, citizens globally. And our commitment to ESG and climate change, as I said earlier, is to a large extent expressing the principles that the top mining companies in the world that are part of the ICMM, BHP, Rio Tinto, Anglo American, Vale, and many others. So communities are an important part.
Technology, I was in, I spent some time in America and met with some of the smartest and the brightest in technology. At Davos, there was a session with most probably the people in the world who lead on the innovative and the impact of technology. It's a huge learning experience, and I always feel comfortable when those who lead the world acknowledge that they themselves don't have a good understanding of the impact of technology and innovation on profitability and on efficiency in the medium to long term. But there's a clear understanding because many can see it, that technology you cannot, in today's global economy, run any company without as best an understanding of technology and the impact of technology on your company.
And I'm very proud of the good work that's been done in at ARM, but also the relationships and the networks that we have with, and the exposure we have and the participation in fora and in meetings with the leaders in technology in the world. But you've gotta be careful as well because you can overspend, and you can, there's a overzealousness, and but the bottom line is a continuous engagement and a continuous learning and partnering and exposure. Segmental effort has spurred by commodity. I think the slide is self-explanatory. But I think the key issue there is that you can see where PGMs now, the contribution of PGMs during the first half, and if you compare it with the financial year 2023 and, as well as 2022. But look at 2019, where it was 16%, and there was an increase in 2020.
Well, again, we are in these businesses for the long term. They'll talk later about Bokoni. I mean, we've spent a huge amount of money on Bokoni, and it's an investment in the future, and it'll create value for shareholders. EBITDA split margins by commodity, you see that, coal contributed last year. I think there was a time when we got several offers to sell our coal interest. And I think part of our focus at the time was this absolute commitment we have to the just transition and climate change, and we recognize that coal is important in the short term because we've got hundreds of thousands, in fact, we've got millions of South Africans whose future and whose lifestyle and whose families depend on coal.
The clear commitment of the transition to zero emissions because that has to be, that is indeed the ultimate objective over time also entails training, educating, and the transition of those who currently depend on the coal industry, new training, new jobs, new opportunities, and I think a good future. PGMs, you can see the margins have gone down, as I said. Iron, again, in relation to iron, the importance of the diversification. And I think, Phillip will talk a little bit about Transnet. I think the new CEO, excellent. I think we're very proud of Michelle, the lady that they've appointed there. It just emphasizes what we've always repeated over and over again. You have to employ the smartest and the brightest and the best. Meritocracy is non-negotiable. Meritocracy is non-negotiable.
And there's no conflict between zero tolerance—let me put it more positively—non-negotiability of meritocracy and the rising and the occupation and the skills and making sure that some of the top positions are occupied by the smartest, brightest women we have in this country. We've got exceptional women, and we've got equally smart, bright Black South Africans, White South Africans, Indian-Coloured. And again, if you look at Eskom and see the really incomprehensible failures and mistakes there, totally unacceptable. But I think they did the right thing by appointing Michelle, who was there for about 20-25 years. Yeah. So if you grow up in a business, you have a solid understanding of what the challenges are.
I may be a smart, bright, financial person in one industry with excellent qualifications, but with no experience in another industry. So we have to focus on those, particularly in this time that we have now, to make sure that those who've got the experience, those who've got the track record, get the jobs. And I think we are moving in the right direction. The Eskom Transnet did good work. Okay. So I'll hand over to Phillip, and let's clap hands for Phillip.
Thank you very much, Che. Thank you very much, Che. Good day, ladies and gentlemen, and a special welcome to those online and also all of you who are attending here in person. Also, just to mention, one of the board members, Dr. Rejoice, as well. I know that, Brian have been welcomed and acknowledged by the Chair, our joint venture partners, the executive leadership team, and our operational management. During the past six months, the industry had numerous challenges operating and managing in a low commodity prices environment together with, a number of challenges, logistics, power, and, above all, inflationary cost increases. Once again, we realized the value of a diversified portfolio. I mean, you can see from, our diversification how strong ARM Ferrous's really performed, not only at the back of, the price but also the delivery in terms of volumes and, also the sales volumes as well.
Cost reduction and cost containment, as we previously committed, had been a key focus area, and to date, we've really made some good progress in three of the four operating assets. We remain focused to enhancing quality mining, quantity in terms of volumes, and making sure that things that are within our control, we really take full ownership and execution of those. I mean, cost being that, the great volumes, creating and enabling environment for our employees and our workforce, that is basically within our control. So looking at the Ferrous, there had been a 23% increase in average realized iron price coupled with 9% increase in terms of, the volumes that and the sales volumes that were delivered. Iron sales volumes, we didn't have the same challenges that we had, the same corresponding period last year.
You would remember that in November 2022, we suffered and experienced the 10-day Transnet strike. So during this comparative period, we didn't have that. So obviously, that added some days to us and created an opportunity for us to improve our deliveries. On the platinum side, primarily negatively affected by the basket price. However, there have been some benefits with regard to the weakening rand. And what has been very encouraging, we saw our two assets, Modikwa and Two Rivers Platinum Mine, basically performing better year-on-year. So even there, the key focus area is still enhancing quality mining, optimizing mining rates and volumes, reducing waste. And on the ARM Coal, the results were negatively affected by the price. In this slide, we can see an improvement in our production volumes. On the iron ore, 1% improvement year-on-year.
And then I said the Two Rivers also 2% and 3% at Modikwa. However, manganese ore and manganese business was negatively affected by some of the challenges that we experienced at the operations. We still remain committed to improving the factors within our control and also driving value-enhancing production. Moving into the ARM Ferrous performance, looking at the top-left variance analysis, you'll see the impact of price, the impact of volume to a tune of ZAR 698 million. And also, obviously, there were some accompanying and appropriate cost increases. However, if you look at the bottom slide, the changes in unit mine cash cost, you'll see that the iron only had a 3% cost increase year-on-year. Regrettably, we've regressed on the Black Rock.
As I mentioned, there had been some operational challenges, and to date, those challenges have been addressed, and we are really. I can really assure you that we're making good progress in really steadying that ship. Khumani, I mean, you would have seen from the EBITDA segment that 80% of our EBITDA came from iron ore. And if we really have to single it out, Khumani has really been the star performer during this term. It remains a Tier 1 asset with more than 20 years remaining of high life, high-grade quality life with a low strip ratio. And in that regard, we have really realized 6% improvement if you look at the volumes, export sales volumes and 23% on the local sales as well. So that doesn't just happen.
There has been considerable effort from the leadership of Andre and his team and also the mine management team. As the chairman has mentioned, with Michelle having been acting for the past few months, we have really seen an improvement in terms of engagement with Transnet. I mean, I would say for the past few months, maybe the past 3-4 months, I mean, we've really been having engagement with her almost on a monthly basis. That's how accessible she has been. She really took the effort, put time aside, brought her team along to come and really engage with very strategic and very important customers to really understand, you know, how we see things and how we can really move forward collaboratively to make sure that we turn this because at the end of the day, it's SA Inc.
That is going to benefit, and we're also going to be the beneficiaries from that improvement. Various cost-saving initiatives have been considered. For example, strategic sourcing of fleet and centralized procurement, basically looking for opportunities, and continuous improvement is the name of the game, just making sure that we can do things better, improve on what we have done today to make sure that tomorrow, it's even a much better position. However, the biggest risks that is facing our iron ore production and operation include among the three the single customer risk at Beeshoek, the water supply challenges. It's ongoing, but we are doing something about it. We're not just lying back. But these are things that we just need to continue to really raise and to mention, but knowing that there are some action plans to address them.
On the manganese side, Black Rock remains a high-grade, low-impurity, long-life ore body with inflated capacity to produce over 4.6 million tons per annum. With a recent investment, that mine is basically set to deliver. However, as I mentioned, we've really had some challenges, including also the issues of skill loss, skill retention, and also basically the mining challenges as well, you know, ground conditions underground. But as I mentioned, those things are really being taken care of. And we believe that next time when we come, we'll come with a much better and improved performance because the ore body's still there, the workforce is still there, and we still have really invested our capital. Moving into the platinum space, this is where we've really had some serious challenges. I mean, all of you would have really been following.
Since May last year, we've really seen a sharp re-reduction on the basket price, you know, so lost almost ZAR 3.4 billion just on which is price-related. However, we've really had some response to that through quality mining focus, through optimization of grade, and through delivery on the volume side, as I mentioned, taking control and executing on things that are within our control. Pleasing to mention and to see, I mean, you'll remember that during the previous period, we reported over 21% and 25% unit cost increase. But for this period, I mean, it was only kept and maximized at 7%. We continue to look for opportunities and to make sure that we maintain and improve our margins. That is basically just the breakdown of that.
You can see the 4% improvement on the head grade at Modikwa. And also that came as a result of having changed our philosophies. I mean, previously, we were doing on-reef mining. So we've basically just gone back to off-reef development so that we cannot really dilute and contaminate our grades. And an effort also went into managing a split reef at Two Rivers Mine. That is basically ongoing. However, we've really been able to sort of break it. We're able to define the cut, the effective, and also the right cut. And at this point in time, pleasing to mention that at least we are mining on the planned mining grade. So a lot of room for improvement, going forward to make sure that at least we can improve that situation.
Pleased to mention that Bokoni's first PGMs were produced in November 2023. You'd remember that we acquired Bokoni with an infrastructure of 60,000 tons of UG2 plant and 110,000 tons of Merensky. Through the board approval process and permission, we were able to invest what you call early ounces capital into the business to basically recommission the 60-kiloton of UG2. And it was pleasing to see, I mean, delivery on time and delivery on budget. And as I said, I mean, in November, we started sending concentrates to Anglo Smelters. So we expecting the production to ramp up to 55,000 tons per month in the second half and to continue to explore other opportunities whilst basically optimizing the installed infrastructure.
ARM and Nornickel entered into an agreement, you know, the share purchase and sale agreement, during this period where we agreed to acquire the 50% stake of Nornickel and becoming the sole owner. So the process is still underway, just awaiting the conditions precedent that will have to be closed so that we can close that transaction. So together with that, I mean, we'll be taking that, their portion of their liability. And they also contributed an amount of ZAR 325 million towards that. Moving into coal, pleasing also to see some contribution, though negatively impacted by the price. But there've also been some positive contribution and also returns, from our coal business focusing on things that are within our control.
You can see the unit cost increase, year-on-year of 1% for our participating coal business and also for our Ferrous, then only 3%. So you can see that within the group, there's that really aligned focus to those things that are within our control. I mean, we took advantage of good prices, and we employed tracking, you know, to complement our volumes. And you can see that as a result of that, there have been 25% improvement on the domestic coals, volumes and also 18% on that. However, at this point in time, we had to really stop it, especially when the price went sub $100 a ton because then it's not really profitable at a certain stage.
But we continue to monitor those prices and also make sure that we are ready to maximize and take advantage of whatever opportunities come our way. And you can see, on your bottom right slide, on the stockpile volumes, how much movement we've really had as a result of that. And that is just a breakdown, summarizing some of the most of the things that I've mentioned, also mentioning as well that we have really seen some increase on the volumes. So the performance is really on the right path and the right direction. Coming to our projects, I mean, a very key and important project, Two Rivers Merensky project. We are now running the last lap of that project. We will be starting our commissioning towards the end of April.
Between April and June, we'll basically be doing the coal commissioning just to make sure that the delivery is in line with our expectations. And then following that, we'll make some other decisions in terms of the long-term view. On the project as well and the capital, I mean, we've taken a stance of making sure that, you know, we review, we scrap, we identify any potential cost that we can really defer. Some of the things, I mean, you can really be able to do without, like, your office structures and other things. So some of those will really be deferred, and we'll execute them later, just making sure that we optimize our capital expenditure and that also we adopt that capital cash preservation mode.
With regard to Bokoni, as I mentioned, we're still confident in the long-term profitability of Bokoni. It's a high-quality ore body. It's the second largest ore body. And we do believe that with the right infrastructure and with the employees and the workforce and the right level of capitalization, we will be able to get Bokoni into a much competitive cost, global competitive, mine. We need to sweat our existing assets with minimal capital outlay. And that's basically what we're busy doing at this point in time, looking at optimal solutions for Bokoni and growth as well. In closing, our key focus area and also in response and prepare ourselves for the future against all these headwinds that we are facing with, we want to ensure that our operations are profitable and globally competitive, very crucial that we maintain a very good position in the global cost curve.
I mean, our desire is for our operations to be in the first quartile, you know. Two Rivers have been there before we intersected and mined Split Reef. And we'd really like to see it really be going back to that position. I mean, Khumani, with the quality delivery results that we have seen, is basically in that position, maintaining a robust balance sheet. And as I said, the cash preservation, making sure that we spend wisely in line with the needs and identifying what the ones, the ones delaying them, but making sure that the needs that we need to really secure the future are actually taken care of, aligning production capacity to logistics and infrastructural constraints. I mean, I mentioned that if you look at Black Rock, I mean, the installed capacity, there's about 4.6 million tons.
But at this point in time, we're focusing 3.7. So the cost structure really needs to be aligned to that so that we can really improve our our profitability and our margins and ensure the sustainability of that business, exploring value-enhancing growth opportunities. We continue to look for opportunities. And then we'll make the the right decisions when those opportunities come our way because we do believe that by diversification is the way to go. And we've really seen it that, it has enabled us to basically weather the storms that we have really gone through. Thank you very much. I'm going to hand over to Tsu.
Good morning, everyone. In these challenging times, sound capital allocation is more important than ever. When we look at capital allocation at ARM, we prioritize investing in our existing business. Now, when we talk about our existing business, I'm referring to our sustaining capital expenditure, or some people call it stay-in-business capital. That's what I mean when I say investing in our existing business. We then actively seek to grow our existing business, all of them, as well as pursue acquisitions that make commercial sense to us. Now, when we look at these opportunities, they battle it out for capital where we look at a number of different metrics, which include return on capital employed, payback period, hurdle rates depending on the maturity of the project, and so on and so forth.
We, however, remain committed to paying dividends and returning capital to shareholders, which we have demonstrated over the years. This slide illustrates how we generated cash and how that cash was allocated in the six months ended 31 December 2023. If you look there, we generated cash of ZAR 449 million from our operations. If we look at this compared to the same period last year, this was a decrease of 92%, compared to the prior corresponding period, which Phillip has mentioned really is a function of the lower PGM basket price. And that cash generated from operations also takes into account a ZAR 786 million increase in working capital during the period. If we look at our dividends received, we received ZAR 3 billion in dividends from our Assmang JV, which is 500 grand, ZAR 500 million, my apologies, lower than the dividend received in the prior corresponding period.
We also included in that amount is a ZAR 56 million rand dividend from Harmony. If we look at how we applied these funds, we paid our tax, our taxes. So we paid our dues, to the tune of ZAR 302 million and invested ZAR 3.1 billion in capital expenditure, which was for both stay-in-business capital as well as expansionary capital. When I speak about expansionary, I'm really speaking about the Two Rivers Merensky project, as well as Bokoni, the early works project. If we look at the largest outlay or outflow of, of our funds, that was the dividend paid to ARM shareholders of ZAR 2.4 billion, which was a 40% decrease, when we compare it to the ZAR 3.9 billion that we paid in the prior corresponding period. If we look at our net cash, so our total borrowings reduced by ZAR 49 million during the period to a balance of ZAR 193 million.
The balance relates to the ARM BEE Trust loan that's owing to Harmony, which is interest-free, as well as our IFRS 16 lease liabilities at a number of our operations. This means that ARM has very low interest-bearing debt and closed the period at a net cash-to-equity ratio of 14.6%. Yesterday, Assmang declared a dividend of ZAR 4 billion, of which ZAR 2 billion is attributable to ARM. This amount is not included in the numbers that you're seeing there on the screen. So the capital expenditure for the reporting period was covered by Phillip in each of the division sections. Just some things that you could note, the segmental capital expenditure on an attributable basis was ZAR 4.4 billion for the six months, which is ZAR 1.4 billion up when we compare it to the prior corresponding period.
Most of this was spent at our ARM Platinum operations, specifically Two Rivers, with ZAR 3.1 billion of that amount being spent there, ZAR 1 billion at our ARM Ferrous operations, and then ZAR 274 million at our coal operations. This is on an attributable basis. If we look at our segments, our segmental capital expenditure guidance, so the guidance for the financial year ending 30 June 2024, so the one that will end come June, shows a marginal increase of ZAR 100 million compared to the ZAR 7.6 billion that we had guided, and communicated to the market in August last year. This is due to the board-approved capital that has been incurred at Bokoni for the development of the Klipgat portal and associated infrastructure, which will be beneficial to the Elands project.
Now, CapEx for 2025 and 2026 includes approximately ZAR 3.5 billion, on a normalized level of sustaining capital expenditure per annum, which includes circa ZAR 700 million-ZAR 800 million, per annum on an attributable basis of capitalized waste stripping for our iron ore operations. Thank you very much.
Thank you very much to our leadership, team for that great presentation. Today, we're going to do things a bit differently. We're going to take questions from the floor first, and then we will move over to questions on the webcast. Ladies and gentlemen, can I please kindly ask that questions for today are limited to the results? If you have any other questions, please feel free to get in touch with me or Betty at the end of the presentation. Thank you very much.
I think it's on?
It's on, Jennifer.
You can hear me, yeah?
Yes.
I mean, Martin Creamer always would like to know about Transnet and various others because they've got an impact on our business. So we'll take whatever questions. Please don't ask me whether the Blue Bulls is going to win tomorrow. I, I can't deal with that. But just one quick issue in terms of a question that came, in relation to Transnet. I, I think the reason why we spoke about Transnet is because it's, it's very important to, the, the whole mining industry, and it's important to our capability to, create value for our shareholders and stakeholders. And I must say I'm, you know, we are pleased with the progress at Transnet, and, and we are confident that they'll do the right things at Eskom as well. Just one quick issue in relation to Eskom.
I think it's important. Eskom is crucial for our businesses as well and an efficient Eskom that provides and sells the cheapest possible electricity. It's good for industry. But one other important point is, people, Eskom is crucial for the poor. And that's why a remark that I made, which people took out of context, is that it's critically important that all of us work together to protect Eskom and to make sure that Eskom is a world-class electricity company. But the most important thing for Eskom, of course, it's important for business. But in my view, the most important thing is for the poor. The poor needs electricity that is as cheap as possible but also as reliable as possible.
The issue about the private sector and the IPPs in particular is in relation to the technology that has been developing and that we saw 15, 20 years ago, which will have an impact on the competitiveness of utilities like Eskom and others. So but the bottom line is, we all have to work together and make sure that Eskom continues to be a competitive provider of electricity. And as I said, the single most important issue for me in relation to Eskom is the poor. It has to be able to provide the cheapest possible. You know, if Eskom we should hope that Eskom should provide cheaper electricity than the independent power producers. That's where we should focus on. But that's a separate issue. Yes, Martin.
Martin Creamer from Mining Weekly. Just talking firstly about energy and competitiveness of energy, can you give us an update on what you're doing about self-generation, and are you finding that competitive besides helping the climate and everything else? Is there a good business case for this? And then my second question, there are so many things disrupting the world. There are so many things we can't control at the moment. There's so many things out of control. I would just like some sort of input from you on what you're doing about what you can control. And of course, those costs you've spoken about and volumes you've spoken about, but grade particularly, is there anything you can do about your grade? Is there any different way of mining that you increase that grade, which can cut your unit costs? Thank you.
Yeah, very important. I'm just very quickly. I mean, we're going to try and answer these questions as quickly as possible. I mean, South Africa is a compassionate land, let me say it. South Africans are compassionate people. And, you know, you cannot have a successful mining industry without an equally growing and an improvement in the living conditions of the poor. And, you know, Martin spoke about Eskom, and Eskom is crucial. So, we've got to clearly understand that, if electricity is expensive, it has an impact on our capacity to create jobs. It has an impact on the competitiveness of the mining industry. It has an impact on the competitiveness of the South African economy.
So I really want to say this so that I can get it out of the way and focus on what we should be talking about at the results presentation, which is whether it's energy, as you said, or even Transnet. So let me say it and get it out of the way. Our focus as a country has to be that we will only succeed as a country if poor, unemployed South Africans also have a future. You cannot have rich people and rich companies living side by side with poor people, unemployed. I mean, it's just a recipe for disaster. And I mean, people talk a lot of rubbish. You know, I only succeed, and my family only succeed, and all of us only succeed because poor people, unemployed people have a future.
I need to say this because there's a lot of nonsense that's being said, a lot of lies that's being said in the public domain. I understand it's election time, so you'll have this sort of crap. But we have a long-term duty. Our long-term duty is we are not judged by what we say, but we are judged by how the unemployed, the poor, are impacted by what we do. That's why, if you look at many of the mining companies, they're retrenching because, you know, their businesses in the platinum industry, because their businesses are under stress. I've got no doubt that every single one of them is looking at what they have to do in the context of their long-term commitment to their employees and to the country.
So I just want to conclude on the electricity side that I'm very confident. You know, South Africans, we all we sometimes and I think Churchill, Creamer said the same thing in the context of America. But we sometimes do the most inexplicable and incomprehensible things. And then we realize after some time that, you know, again, in the context of Eskom, for example, as well as Transnet, that we've been doing the wrong things, and we now have to do the right things. And I'm confident the right things are being done with Transnet. And I'm also confident that the right things will be done with Eskom. Now, you were asking about the mining, how we mine, and will you do that quickly?
Thank you very much, Cher. In terms of the grade, I, I did mention that what we did at Modikwa, one of the things that we did was to move from an on-reef development back to off-reef. That's basically reducing the chances of diluting your reef, you know, and improving the grade. And at Two Rivers, we were able to optimize the mining cut within the Split Reef area. You remember that over the past periods, we've really been saying we faced with this challenge, and it seems as if we really were able to really crack that nut to optimize. Now, we're mining at an optimized cut, which is in line with our average mining grade.
Yeah.
Basically getting rid of waste in our reef system.
Yeah, when I was told this thing about 25, 30 years ago, Mike, and I think Phillip said something very, very important. You want to add on that? Because at the end of the day, you know, the methodology, how we cut the, and, you know, we spoke about technology, and then 20, 25 years ago, I was told that's actually not technology. They said it's auto what did they say? It's again, the technology that they had in Northern, 25 years ago where they, anyway, there was a technical term they used. I forget it. I said it a few weeks ago. But anyway, will you comment on the question that he asked?
Yeah, Martin, there's no doubt that the industry.
Sorry, Mike. It's mechanism. They said they mechanize as opposed to.
Oh, I see.
That's right. They said it's mechanization, and the other one is technology. I didn't understand what it means 25 years ago. I still don't understand what it means. But as long as, Mike, we see it in the results, in the productivity, in the efficiency, in the profitability.
Sure. Thank you, Petri. So Martin, I mean, South Africa is blessed with narrow tabular deposits and very dependent on labor-intensive, which with all its inherent challenges in safety, be it that, but dilution and, and, grade, important. So we are and have been as an industry developing low-profile equipment. Various mines have, have pushed that, including ourselves. And in turn and in fact, in Bokoni, we've laid out the mine layout going forward to, to utilize what we call mechanized low-profile equipment, which can fit under the hangingwall to optimize grade, improve safety. And that is going to be starting up sometime this year. Medium term, we still believe that what the industry needs from a transformational point of view is to eliminate explosives underground.
Long term, we continue as an industry and particularly in ARM to look at cutting technology, which in the next couple of years, I have no doubt, will come to the fore and again, significantly improve productivity, efficiency, and safety, and a significant improvement in grade going forward. Thank you. Is this sort of not yeah, sorry, are you satisfied, Mike, Martin? Thank you. Yes, there's a question there. It's fine. Don't worry. Don't worry.
Okay. I've got a question. Mine is not necessarily directed to the results. It's more regarding climate change and ESG reporting.
It's if you can just introduce yourself.
Oh, sorry.
Yeah.
My name is Benazir Cindy Mputeni, and I'm CEO at Kuji Consulting. I'm very pleased that you spoke about ESG reporting, Dr. Patrice, Honorable. Thank you for this opportunity. I think what I would like to see is a direct reporting within these type of forums regarding ESG. What exactly is ARM doing to ensure we mitigate carbon emissions? It may not be directed to any numbers or success of the organization, but it certainly speaks to security, safety because there is a term called materiality on the financial impact, which speaks to security because if climate change is at a disaster, and it's not managed and I think maybe let me put it this way. Let ARM be the champion of ESG reporting in the mining industry in South Africa.
To start that initiative is to start talking about what are the results look or what, what does your current report look like in, in these type of forums? I think that's, that's really a point to be noted. Thank you.
I think it's a very good question. I mean, I was in Davos again where you've got the focus on ESG and climate change. Nowhere in the world is as intense as it is there. There's talk about greenwashing, whitewashing because I don't think it's so much what you say. Of course, reporting is crucial. But I spent a few days at COP. I think my wife was on a panel with Bill Gates, again on this at COP on climate change. I think progress has been made, and I'm proud of the work that has been done at ARM. Let me say this. I'm proud of the work that Anglo American is doing, Anglo Platinum, Impala. I mean, the whole of the mining industry in this country.
The mining industry often doesn't get the recognition it deserves. And of course, there are certain things we can do better. But I just want to emphasize that I mean, as a family, we've spent huge resources on what is called patient capital for the next 20 years. We have part of what's called Breakthrough Energy Ventures. You must go and look at it. I mean, they're doing incredible work. And it's led by Bill Gates. And you know, we spent close to $100 million of family money. And we've got a 20-year perspective on climate change. But the objective is zero emissions. So there's incredible good work that's been done worldwide. But having said that, we have a duty to maintain and to create jobs.
The perception that there's a conflict between climate you know, effective strategies on climate change and ESG reporting and job creation and job preservation is false. It's not true. We will not allow that our commitment to ESG and climate change is at the expense of workers and job creation. In a country with such a high unemployment rate, it's not going to happen. But having said that, you know, we are judged by what do your results look like? You know, what is happening to your share price? What's happening to the dividends? What does the future of your company look like? So I'm and thank you for that. That's an excellent question. And I'm proud of the work that's been done at ARM. There's a question there.
We're going to go quickly because, as was said earlier, Phillip is here, and the team is here to deal with one-on-ones. And you can ask whatever questions you want. I think Thabang was correct to say, "Let's focus on the results." But of course, you can ask anything as long as you don't ask about sports because I don't know what the result is. Yes, just what is your name and?
Yeah. My name is Tobela Bikla, and I am from Nedbank CIB.
Nedbank.
Yes.
Yeah.
I have a couple of questions with regards to the platinum business. One follows up on some of the comments that Phillip made earlier on. So when you talked about having changed philosophy at Modikwa to mining, on-reef versus off-reef, why the change? And then also, did costs have to do with anything with regards to that?
Okay. Good question. Sorry, I want Thando to answer that. Thando? Thando is running our operations at, he's the Chief Executive of ARM Platinum. Proceed, Thando.
Thank you. I'm sorry.
You heard the question.
Yeah, I heard you were asking about why they changed from off-reef to on-reef.
Yeah.
or rather, the other way around.
The other way around, yeah.
Yeah. And your second question was?
The second question is, did costs given that, you know, we've seen high, high inflation environment and costs have been creeping up, so did costs have to do with the change in philosophy?
Okay. Thank you. I've got that, Patrice. So the main reason is Philip highlighted why we've changed to off-reef, sorry, to on-reef, which means basically we were mining the ore as part of our horizontal development. And we changed to mine underneath the ore as off-reef, was to be able to realize the increase or change the grade as we've reported now. And the reason that has driven that is that we were able as we reported the last period that we were also supplementing our ore to the plant with Merensky also. We had an increase in the ore supply to the processing plant. Hence, we could afford to go off-reef and realize a higher grade of feed to the plant.
With regard to the, there's no real cost, in terms of doing that, but the benefit that you realize with higher revenue associated with the higher grade. Thank you.
Okay.
But you know, okay, this is such an important issue. As I said, you remember when Gold Fields still was involved in platinum? I'm talking about many, many years ago. There's a lot of focus, research, R&D that has gone into this. And you know, I don't know whether you know. You remember, there was a guy called Calvin Williams, Martin. You know Calvin Williams? Calvin was the finance director at Anglo American. And he was. I'm talking about many, many years ago. And they were saying that South Africa has got some of the most advanced, what you would call technology nowadays and it's at the heart of it is what Thando and Phillip and Mike was talking about. How do we make sure that we mine in a more efficient, in a more profitable, and in a more productive manner?
Have you concluded? You've got another question.
Yeah. Just two more questions with regards to Bokoni.
Just go ahead.
Yeah. So you talked about having deferred the bankable feasibility study. To when should we expect some announcement coming with regards to that? That's the first question. And then the second one is, what would you need to see in order to press forward with the project? Thank you.
To press forward?
Yeah.
We are pressing forward with it.
Yes. Thank you very much for that question. As I said, in terms of installed capacity, we had two plants, the 60,000 tons per month UG2, which we've commissioned. There's a second plant, 110, which was Merensky. So we're currently doing the study to basically see how do we move forward in a phased approach, taking into account the current market conditions. Ideally, I mean, this mine optimally to really make sure that you are in the right position should be running at about 240,000 tons, you know, which is almost the same design capacity that Modikwa has. I mean, if you look at Two Rivers, it was at 280,000 tons. We increased that to 320. So volume is very key, you know, to make sure that you have your fixed cost dilution and improve your margin. So those are the studies that we are doing.
As soon as those decisions or those studies are done, we'll basically review and make sure that we take the next step.
Mm-hmm. I mean, we've been at Modikwa, Phillip and Mike, now for, I think, more than 20 years, yeah? And we've learned a lot of things there. And when we bought Bokoni, the PGM industry was at a significantly different place from where it is now. And we are doing the right thing. You know, we changed a lot of the presentation because it could be interpreted that we are waiting for a study.
While side by side, while we are pursuing the assessment, the analysis of how best to mine Bokoni in the context of the depressed platinum—sorry, platinum PGM prices, we are also proceeding. If you saw the notes, and I think there's a point that Phillip was making, the 60,000 process that we are busy with is to make—we think we can make money now because there is infrastructure there. But the bottom line for us is that Bokoni is a world-class ore body, and we will—and we will—create significant value for shareholders. You want to add onto what has been said, because Mike, you and Phillip are doing good work in with Thando in,
I think that's pretty well captured, I think, what he's saying.
Okay.
I think it's a prudent thing to do. You're in a responsible way. And the uncertainty and when PGMs and thrifting changes, we have to be ready to capitalize on that. But in the meanwhile, we must do it in a staged responsible manner.
Mm-hmm.
The ore body and time allows us to do that and get as quickly as possible into a sustainable and a profitable position.
Mm-hmm. I mean, they talk about the hydrogen economy and the opportunities that will be created for PGMs as a result of the hydrogen economy. You know, we merged our gold interests many years ago with Harmony to form, at the time, they said it should be called Harmony ARM Gold. And I said, "No, it should just be called Harmony." And in the name Harmony, you'll find the rainbow where you've got the names ARM is to reflect. That was about more than 20 years ago. And of course, copper is exciting. But the problem with copper is it's overpriced.
But, I mean, what Mike and Phillip are saying, part of the problem is and this is what sort of irritated me about Transnet is when the prices of the commodities are at an all-time high, you need an efficient transport system because we've got to maximize. And then we're fully toodling with our you know, doing the sort of things that are just totally inexplicable. It but anyway. So we are proceeding with Bokoni in an appropriate, responsible manner because we know that the cycle is going to come. And if the cycle is there, you've got to be able to sell into the cycle. Otherwise, you're going to miss out on the I think there are people that Betty likes more than others. So I think everybody should try and sit next to Martin Creamer, and then you'll always get questions. Yes?
Hi. Good day, everyone. Thank you very much for the live presentation. Bruce Williamson, Integral Asset Management. Just could you give us an indication of what your current coal rent per ton rail costs are versus your tracking costs? And then secondly, Kumba took quite a hard stance two weeks ago when they said they believe that on the Sishen-Saldanha rail line that.
My apologies. Just repeat the second question.
I'm busy. Second one is Kumba took a stance to.
Kumba. You said Kumba.
Coomba.
Yes.
Kumba Iron Ore.
Yes. Yeah.
And said they believe that the Sishen-Saldanha rail line will run at about 16% below capacity. So they are going to adjust their production to lower capacity rail capacity.
Mm-hmm. Very good.
That means retrenchments, less procurement, etc. What is Assmang's view on that?
Very good questions. Very good question. I mean, Andre Joubert will talk on the Bokoni. And you see, these are the things that sort of justifiably makes people in my position very impatient because if the South African mining industry does well, it's taxes for the government. And those taxes of course, our duty as well is to shareholders and create value for shareholders and declare dividends. But, you know, there's income for government to use that income and focus on the big challenges that this country has, the poor, the unemployed. And, I mean, there's load shedding. I mean, really, we shouldn't be having load shedding. It's inexplicable. The potholes. You know, I was in, I know I'm going to get trouble for what I'm saying.
I was in Ivory Coast, and I had to travel around, you know on the philanthropy, we one of the things we do on the philanthropy parties is football and the youth and the impact of football to teach the youth using football, get educated, don't commit crimes, don't get involved reject corruption. And I mean, the roads were no potholes. Every time I go to the airport, I've got to tell my driver, "Relax." Because when I drive, I always lose my tires and my mag wheels. So, so I mean, those are important questions you asked. Thando, will you deal with the coal? So I just wanted to say the question you asked is key. And I think Kumba is an excellent company. We work with them. You know, the CEO of Kumba and the guys at Anglo are doing excellent work.
We need those, you know, Kumba to do well. We need Assmang to do well. Will you deal with the coal and then Johan and Andre? Andre?
Yes.
You will deal with the question on Kumba.
Yes. Okay. Thank you, Patrice. The rail costs, it's up ZAR 210 per ton. The tracking, which comes at a very high premium, it's ZAR 1,000 premium per ton. So hence, as Phillip indicated, at these current prices at the rail current rent prices, we've stopped the tracking. So we focus on the rail. And quite pleasing, as was indicated also, is that there's an improvement on the rail volumes that we are seeing. Albeit it's still early, but we quite encourage with those improvements. Thank you.
Thank you. Thanks, Phillip. I mean, thanks, Thando Andre?
Yeah. John, again, a very good question. I'm going to attempt to answer the question including the manganese because it impacts both sides. So, we've been very, very actively and Patrice did mention that since the new leadership of Transnet have been engaging us, the level of transparency and the engagement has been much, much improved. So, and Transnet, can I almost say, also opened their soul a bit. And they allowed us to do an assessment, the independent assessment or independent technical assessment of that line, collectively, you know, all the producers collectively. And then also, we engage very, very through various other industry forums with Transnet. We've got the Mineral Council that we have regular. I've got a meeting once a quarter with the Transnet board chair and with the Transnet CEO.
through this new entity they formed that's chaired by the president of the country, which is called the National Logistics Crisis Committee, there's an effort going in. So with having said all of that, having seen all of that, we all realize that the state of Transnet is not what it was, and that it's going to take a lot of work and a lot of effort and money to get Transnet back to the nameplate capacity. The other thing is it's not going to happen in a week. You can put the best management team there. And we are working very closely with Transnet in that regard and the other industry players, and there's various programs at play. So based on that, we agree with the Kumba numbers that you're looking at about 87%-88% of nameplate capacity for the future.
And that's why you would have seen the slides that Phillip showed is that our forecast for the iron ore is about 12.5 million tons of export per annum. So we did adjust our rail volume to that. And we feel we're not 100% at this point in time. I can't say to you exactly how long it's going to be for. But we definitely see that that will be for at least the next 3-5 years that we will be operating at that system. Of course, we pray that that is going to be quicker than that. But we can't base our strategy on hope. So we now based our strategy on what the reality is that we see in that regard.
On the manganese side, as you so I just want to sort of in closing with, about the iron ore side. I think last with the previous results presentation, I sat here, and I had a positive pretty positive outlook on, on Transnet. I must say it is better than it was previously. And that's why if you look at last year, our outlook our actual performance on, on export was just short of 12 million tons. But that included the impact of the strike. So this year, we're looking at 12.8 million. So there is definitely improvement. But that improvement that we saw is not going to sustain because there's going to be more time out, if I can call it that, on that line to fix that line properly so that we can have a long-term sustainable, improved performance, on that line.
On the manganese side, we were impacted by I mean, we invested quite a lot of capital in our Black Rock Mine. And that mine, as Phillip rightly said, was then set up to do 4.5 million tons per annum. When this year started, we planned for about 3.7 close to 4 million tons. And we said the portion that Transnet is not going to do, we're going to do on road. And we started off the year with that. And with the prices dropping, it became very quickly very evident that the road transport is not profitable. So we just we simply were forced to stop the road transport. And when I say forced, I mean the economics of it. We took the decision to stop the road transport.
Then again, in line with with all of these engagements with Transnet and everything and the real allocation that we got, our forecast and our outlook is that we say every ton of material that we you heard the numbers that Thando was talking about in terms of the differential between road and rail, ours is not that expensive because the tariff is not exactly the same. But road haul does not make sense for us in the manganese business. So therefore, every ton of of ore that you road haul, you might as well keep that ton underground and and delay the expenditure and and the sale of those tonnages until such time that Transnet get their act together and that again, collectively so there's a lot of projects happening.
So if you look again at our outlook, we said we took a—I wouldn't say a conservative but certainly a realistic—view that the next two years, we'll see a 3.4 million ton rail on manganese. And then we'll push it up to 3.7 and then to 3.4 million tons. Our mine is set up for that. We can do that. But for now, we have to look at repurposing our mine. And I think somebody asked—I think it was Martin that asked, "Do you go higher grade or better grade or whatever?" So what we're also going to do is to see, can we balance our ore body and the mining that we do for better revenue generation with a smaller with a lower volume that we're going to put out? And that's our strategy.
And so we are marrying that strategy exactly with what information we have with Transnet and the sharing that we have with them. So for us, road hauling is really done only if there's a serious emergency and we need to fill a ship. But it's not in our plan. Thank you.
Yeah. Thanks, Patrice.
Just before we go to the quick next question, you know, it's important that we've got that's Bruce, Bruce. It's very important that there are so many reasons why we should be optimistic because sometimes, we talk ourselves into a stage of paralysis and not without justification because I mean, as people talk about we score so many own goals. But I'm talking about just the simple maintenance at Transnet, the maintenance at Eskom that should have been done over some time. But having said that, there are challenges, I'm confident, both at Transnet and at Eskom that because when you engage with some of the people, they recognize what needs to be done. In the private sector, we've got a sense of urgency in terms of doing things consistently and focusing on them.
So, the question you asked about Kumba, part of the future is both within Transnet in particular, is this partnership with the private sector and Transnet. And I think the Minerals Council is doing very good work there. And I've got no doubt that with this partnership between government and, of course, Transnet and the private sector, a lot of good work will be done. And as I said, hopefully, we will learn from the mistakes both in the context of Transnet and Eskom, and fix them and make sure that we don't, you know, we don't repeat those mistakes. Yes?
Morning. It's Nicholas Wooden from Standard Bank Securities.
Standard Bank?
Yeah.
Okay.
So I've just got two questions. Also on the iron ore and manganese, you know, at last results, you spoke about rail optimization and potentially rerouting to increase the sort of export volumes. Have we seen that? Did that come through now in 1H? Or was this purely just based off a low base from the previous year? And then the second question relates to the manganese operations. And I know there's been a few operational issues. I just want to know, I mean, you've mentioned in the presentation that it has been sorted out. But I'd maybe just some color on what they were, and potentially, if we can expect the same, you know, volumes from two periods ago.
Yeah.
To come through, next.
Okay.
Thanks.
Andre? I mean, you'll deal with some, and then,
Yeah.
Phillip will answer.
I'll deal with it.
Yeah. Go ahead, Andre.
Yeah. I think, at the time is this thing? Yeah. At the time when, when I made those comments about the improvement in efficiency, remember, we were under a different leadership at Transnet at that time. And I think there was promises made and engagements and discussions, which never materialized. So to, to be to your question, the improvement that we saw, there's twofold two reasons for that. The one is it's against the low base of the strike. And then the other one is but also remember that in this period that we're reporting on, we also had a, a shutdown, you know, the annual shutdown, which was not in the previous period. So this next six months that we're going to see now, I'm very confident that on an annualized basis so let's say for the next six months, we previous six months, 6 million tons.
Next six months, I see 6.8 million tons. So there will be improvement because the rail there has been some work done. But as I said to Bruce as well, is that that improvement is not sustainable because we've got to take time out on the line to fix the line proper, we, in the collective of us and Transnet. So we've got to do that. And that will pay off. If we don't do that, we're going to see just a further deterioration. So the idea is to stabilize at that level and then do the work. And then in a couple of years' time, we, we pick up and we, we get our volume. So our mine is, is geared up for that. So when that happens, be there. We can make it happen. On the manganese side, I think if I can describe the problem as threefold.
Number one is that, because of the volume that we had to stop because of the road ore that we just took a decision that we're not going to do the road ore. And there were some low-grade material that we were mining at the mine. So we had to stop all those workplaces and redeploy those people to areas where you have a better grade, product. And that's not something that happens overnight. And when the guys started in those new areas, we also had some you know, it's different if I may say, it's different to a gold or platinum mine. That we had quality issues. In other words, the exact grade that we thought was there and the material that we put on surface wasn't exactly correct.
So there was, we had to do quite a bit of a correction to get that quality issue sorted out. Manganese manganese ore is almost like the 37% is like bananas and 42% is like apples. You know, you don't blend the two. So there was some of that happening, which made the product more difficult to sell. And we had to rectify that. But we've done that now. We've got through the process. We positioned where we should be positioned. And there's a lot of positive feedback. And we've got audit teams now going to the mine basically on a monthly basis to help the teams to get through and get themselves established. And that's happening. So I'm very confident that by literally two months from now, we've already made like a 70% improvement to where we are today.
So there's still about 30%. But that's more related to the quality of the material that we mine. And we will be ready. And we will go strong from the new year based on our new production profile, which is aligned with and matched to the Transnet profile. Thanks.
You know, Bruce, I was taken to a room in Boston many, many years ago. And one of our shareholders said, "I couldn't care damn about the problems you have, whether it's Transnet or anything else or any other utility. I, I just want good results. And, it's our responsibility. And, and I think, we'll, we'll make progress." You want to add anything?
No. I think it's covered.
Thank you.
We've covered it. Thank you.
Yeah. You, you like members of the Communist Party because the left is getting all the answers. Or you're coming to, the more moderate members of society as well. Who says Communists can't be moderate? They can. They are moderate as well. Can you continue? Yes, please proceed.
Leeram Gooney from HSBC. Thanks. Thanks for the opportunity, Chair. In your PGM business, the unit cost inflation has come down to single digits, which is quite pleasing to see. Just curious as to what's driving the improvement and your outlook for inflation going forward. Can these sort of increases be sustained over the medium term? And then at Bokoni, assuming you're running at the current installed capacity, what PGM prices do you need there to break even at a free cash flow level? And then my third and last question is, at both Modikwa and Two Rivers, your chrome concentrate sold volumes came down. But PGM concentrate produced went up. So what's driving that decline in the chrome volumes?
Yeah. Thank you. You always HSBC.
Yes.
Yeah. Great. Will you start? And then Phillip will add. Thando is the Chief Executive of Platinum.
Thank you, Patrice. On the side of the unit cost, yeah, Zimella, we're quite pleased with the progress that we've seen. And we think it's sustainable. It's mainly driven, as we highlighted, in terms of just focusing on the grade. We've improved on the grade. And we've taken out inefficient ounces where we saw the costs were high. At Two Rivers also, we indicated last year, or rather, the last reporting period, that we were also in addition to our normal diesel consumption associated with load shedding, running the additional capacity with diesel. We have since commissioned the Eskom supply in around December. So that has also kind of contributed in terms of reducing our cost. But the main was just a focus on efficient and mining the right grade. Let me go to the issue on the chrome.
both Modikwa and Two Rivers, we have also been milling some of the Merensky ore. And that Merensky ore hasn't got a chrome associated with it. Hence, the reduction on those volumes. However, our focus and where we're putting a lot of effort in terms of increasing the volume is still on UG2. And we do anticipate that going forward, we'll see again a recovery and an increase on the UG2 ore because it gives the benefit of the chrome recovery. Lastly, Bokoni, as you said, we're currently running at 55,000-60,000 tons per month, that we've just commissioned late last year. And indicated that we are studying phases of improving that. At the current price, which I'm sure you'll understand, that is not an efficient running at those small volumes.
We are looking at a break-even cost of about ZAR 900,000 per kilogram of PGM. As we mill more, as we improve based, of course, in terms of our capital allocation and improvement, we see that improving. Our incentive price is going to be around ZAR 800-ZAR 1,000 per kilogram. Thank you, Chair.
Thank you. Phillip, you want to add anything?
Just to add on what Thando said, I did mention that, scale is very key for your PGM business. 60,000 tons per month, you know, you're going to have to fund and pay for the GM, whether you run a 60,000 tons, 120, 180. So 60 is extremely suboptimal. 240 for these mines, that's where you really start talking good, cost curve position and good margins. And it's a journey. We are really progressing towards that. This is just a starting stepping stone. And we are really exploring those opportunities, those studies, to make sure that we can do it in a very responsible way and profitable way and sustainable way going forward.
Very good. Yes, there's a question there.
Good afternoon, everyone. Oratile Mukubiane from ABL.
ABI.
ABL.
ABN.
Yes.
What is that?
African Bank.
I must, on some occasion, talk about the history of African Bank with Dr. Sam Motsuenyane.
And Dr. Motsuenyane. Yes, sir. I've got two unrelated questions. The first one is relating to the Bokoni transaction, where one of the conditions the competition authorities imposed was, a HDP transaction. And I know in the full year results last year, you spoke about a 15% transaction split between 5 community, 5 employee, and 5 industrialists. Just any update on how far we are in that process and whether we'll be having any capital, impact, whether it's a vendor financing transaction or anything of that nature. And the second one is,
The first question is about the communities and the industrialists. Is that what you're asking about?
The HDP transaction, conditioned by the Competition Commission.
HDP.
Historically Disadvantaged Persons. There was a need for a transaction, relating to Bokoni.
What is PDH? Okay. Thank you.
The second question is regarding your sustainability mix. I know you've just recently concluded a 100-MW PPA, I think, with the solar group that your results say will contribute about 30% of your electricity. Are we in the mood for any more? Are we able to link it to what our IR IRP speaks about? I think a 41% curve to renewable energy. Is that where the ARM group is going? Or are we okay for now with this one transaction?
Okay.
Thank you.
You will deal with that soon. Did you like the second question, Tsu?
I think that was quite good.
You think you can,
Yeah.
Thank you. Just, you cannot, in the modern day, and I'll even argue, even in the 20, 30, 40 years from now, kind of a mine with communities not being shareholders in the mine. It's just not sustainable. And, so, so we started this for the first time many, many, many years ago. And, of course, it's at Modikwa. And it's something that hadn't been done before. But because we had a clear understanding that, you know, going to the future, community members wake up in the morning and look at the mine and say, "But, it's even worse. In some instances, dams would be built. And then the water has to be transported for many, many kilometers from where the dam is to where the mine is. And it goes past so many communities. And there's no water in those communities.
So it just makes good business sense, even if you put aside the fact that, you know, from a, in terms of our values and that's why I earlier said South Africans are compassionate people. But good progress on the transaction with the communities, the equity, the historically disadvantaged, you know, industrialists. And I have a lot of expectations from my communities in the transactions we've done because they, you don't want passive partners. You really want them to be involved. And you want to build skills and expertise and part of the tenders and the contracts give to the communities. But not because they are communities, but because of course, we've got a duty to them, but because they provide a very good service.
Sometimes, you've got to do partnerships with established, experienced companies and do a skills transfer over time. So. Was insisting that the communities should get equity because it's a mine that we inherited. The communities didn't have equity there. But again, it's a waste of time because it just doesn't make financial sense. But you have to, so we're engaging to see how do we make it a totally different transaction, how do we make the communities equity shareholders in the mine that we are now running. Yes, Tsu.
Thank you, Chair. So I think just to maybe just add, because you asked, you know, how far we are in terms of the process. The black industrialists have been identified. And we have signed NDAs with them. So those are in place. And then in terms of the funding thereof, we are looking at vendor financing specifically for the black industrialists, to pay for their 5% in the transaction. So I hope that's.
I think there's another deal we did about 20 years ago. You know, what you call PDH or something like that, and they ran into problems because the interest rates were just, you know, I tell you, it's a big challenge. So we then had to go and just cut the interest rates and say, "Even though the banks gave them funding, we will take over those loans. But they'll never really be shareholders. They'll never have any benefits because they'll spend the next 10, 20 years saying, 'Yeah, but we are shareholders in this mine.' But they've got nothing to show for it." So we took out the interest rates and said, "We will pay the bank, pay back our loans." Brian Kennedy was very helpful in another transaction.
But in another one, we, because we want them to be meaningful shareholders for the long term.
Coming to the PPA, I mean, our commitment is to be net zero by 2050.
Just for the benefit of those who don't know what HDP means. Just PPA.
Just Public-Private Partnership Agreement. Basically, I mean, in terms of our solar, I mean, we announced. And we kept everybody up to speed in terms of the announcement, the deal. Construction is currently underway. And we did promise that we should be commissioning June 2025, 100 MW, 33% of the Platinum Group business. That was the starting point. Remember, there's limitations to this as well. I mean, grid capacity and availability is one such challenge. So we continue to look for and explore further opportunities. What can we do, you know, behind the meter? And what will that really mean? You know, you have to look at, I mean, like, this one is basically installed in Lichtenburg because of the surface and that. If you go to where we mine, the topography, you know, is such that you cannot do such things.
We're currently busy on the ferrous business with our studies also to explore what we can do. And there as well, there's no grid capacity. So it's most probably going to be an energy solution that we'll talk to behind the meter, battery, and all that. So this is not the stop. It's just the starting point, bearing in mind that we want to show that continuous improvement, 15% improvement over the next three years and eventually net zero by 2050. And we'll continue to explore other possible solutions.
The bottom line, there'll always be problems. If it was easy, everybody would have done it. It's our job to fix and to deal with those challenges and to succeed. Yes?
Good afternoon. My name is Golisile Nene. I am from Absa Bank. I have two questions.
Absa?
Yes, please.
Many years ago, there was a young lady who was from Absa. Then we employed her for 15 years. So,
Maybe that's my story. Thank you, Chair.
I think you may be very expensive. We'll compete anyway. Continue.
Yes. Just two questions. The first one is around capital allocation strategy just in the midterm. If you can just talk to us around the balance in terms of strategy and reinvesting in the current business operations, dividends, and also managing debt. I asked this question because historically, ARM has always maintained a conservative leverage position for its operations. So I just want to know, can we expect the same going forward? The second question is linked to your recent transaction with Nornickel. Congratulations on reaching the milestone with them on Nkomati. Given the current surplus in nickel supply driven by the Indonesian market, I'm very keen to hear your thoughts around the plan for Nkomati in terms of its operations in the near term. Thank you.
Thank you. Derek, it's good to see you. Excellent. Will you, Tsu? You are my boss there, our boss, this capital allocation.
Sure, Chair. So yes. So, just on that, historically, we have had very low levels of leverage. So I think also because the businesses that we've had have generated quite a lot of cash. So there wasn't really any need to go external in terms of looking for funding. But I think in terms of going forward, we are looking at bringing in some debt into the business, looking at using it particularly on Bokoni, and also, we're introducing it into Two Rivers as well, for the Merensky project to see that's through to completion. So I think in terms of the strategy and, you know, us still continuing to pay dividends, that hasn't changed.
But I think you will see, you know, going forward, definitely over the next 3-5 years, where we will be introducing some debt onto our balance sheet, which would have a benefit in that, you know, obviously, it would bring down our weighted cost of capital as well. And then we'll be seeing some better returns going forward from our investments.
Thank you. Mike, you want to comment on Komati?
I certainly can. So thank you. It's a good question. So Nkomati being on care and maintenance, it's our position at ARM, we can, as ARM better manage care and maintenance and control the closure liability in our hands as with partners. And we're not really producing. It is best served under ARM being a South African and its long-term commitments. We are, well, in addition to that, there's a number of options under consideration. And I want to close by saying that could be closure. That could be restarting or look within other partnerships or look within playing with an integrated player as an end user. But probably most important is if you look at that ore body, it's a Class I sulfide ore body. It's carbon intensity to produce it is pretty low. It's a clean environment.
And those options, we need to look at. It's also an operation that's well endowed with water. And water can be energy. It has extensive sunlight. That could be an option. And it also has the optionality of supplying clean, green energy up to our smelting, which we're advancing. So there's a lot of opportunity and options about the future of Nkomati. But we need to manage it.
Thank you. Thank you. I think she wants to say something. Do you want to help her there? I think they're saying that you've got questions from,
10 questions from.
10 questions?
Yes. But others might be difficult.
Okay.
I think so.
Okay. Thank you. Thank you, Betty. There are several questions on the webcast. Ladies and gentlemen, please remember, we will be hosting a roundtable at 2:00 P.M. where you can dial in and ask more detailed questions. So we'll take just a few. And then we can wrap up the.
Just re-read all 10. Then we'll take the easy ones.
Okay, Chairman. So the first question is from Disetzo Ngosi from McCloskey. This question is in relation to Beeshoek. The mine's number one main customer risk, with the possibility of closure of the AMSA longs unit, what are the opportunities to re-reroute this material to other domestic customers or the export market?
Which company is it from?
McCloskey.
McCloskey. Okay.
There's.
We'll come back to that. You'll answer that next.
Okay. The next question is from Shilan Modi from HSBC. Shilan, I think a large number of your questions have been answered. So I will focus on the Bokoni one. Is Bokoni a bottom of the cost curve producer on your revised smaller guidance? Is the new plan self-funding? And given the limited cash generation in the business and the need to fund dividends, does this mean further acquisitions will be on hold?
Very good question. The next one?
Next question.
He's from HSBC,
As well, correct.
Yes, Chairman. So, okay. Next.
The next question is from Brian Morgan from RMB Morgan Stanley. Hi there. Impala said in their results, capital and operating cost inflation coupled with weak PGM pricing has necessitated a further review of the current project. Could you give comment on this? This is with regards to Two Rivers.
Very good question. Mike, you will deal with that later. Okay. Continue.
Okay. The next question is from.
Oh, sorry, sorry. It's Two Rivers. Sorry. Thando.
It's Tando.
Thando? You, you will deal with that. Sorry. Two Rivers, yeah.
Okay. And the next question is from Warren Riley from Bateleur Capital. Please, could you comment on the iron ore stockpiles? What is the current tons at the mine versus the port? And what does this mean for your production run rates? And then he's also got a question on Bokoni. But I think it's already been covered. And then he says, "Your guidance shows Two Rivers production of 437,000 ounces in 2024 and 516,000 ounces in 2025. This is actually an increase versus the guidance provided with the FY23 results.
Yeah, Phillip, you, you'll take that one.
His question, Chair, is that, "Is this production increase still likely given the pricing environment?
Yeah.
And then the last one, Chair, that we'll take from webcast is from Kateko Matonsi from Investec. She's asking if we could comment on the manganese business and the potential or the benefits of consolidation in the Northern Cape. Is consolidation in this space something ARM is considering?
Yeah. Okay. So there are no further questions in here, is that right? There are none. Thank you. So we're going towards closure. And we'll go from the start with Andre. You will answer what you think you can. And then we'll go to Thando, Mike, and then. Okay. By the time it comes to me, there's nothing to answer.
All right. On the Beeshoek matter, obviously, we're going to continue engaging with our customer there. And, I mean, they also made an announcement that they're going to continue with some of their plant for a longer period than they originally said. So, we're not going to make an immediate decision. So we're engaging with our partners there. And we will come up with a solution in terms based on the long-term view that we have on this customer and also, based on the long-term view that we have of our mine. So we're putting all of that together. And there's a lot of work happening right now as we speak. And we're formulating the answer. We haven't got the exact answer yet.
But we will certainly announce the outcome of that work at the next results presentation. That's around Beeshoek mine. On the question of Khumani stockpile, I recall that at the previous results presentation, we announced that we've got very, very full stockpiles there. But as I showed in terms of our production profile and everything, we're now matching our production profile with the logistics profile. And we're currently sitting with a stockpile of about 1.4 million tons at the mine and just short of 300,000 tons in the port, which is sort of a level that we're comfortable with and that we wish to maintain, going forward. I think if that's all the questions, then, yeah. Thank you.
Yeah. Because some of them, there's a bit of a repetition. Thanks, Andre. Yes, Thando?
Thank you, Chair. Covering the question on Two Rivers PGMs, I can refer Brian to slide 28 again because it's aligned with what our partner has reported. Given that the project in terms of the infrastructure is almost complete, Phillip did highlight that the commissioning is starting in April. What we are reviewing, having deferred some of the support infrastructure, we've deferred that capital. We're also now reviewing the rate of ramp-up. And we're evaluating those options. So, meaning that we will not fully invest that capital required for mining ramp-up. We will come, or rather expand it on in phases as the market improves. And we'll keep monitoring the market. Thank you, Chair. In terms of Bokoni, I think I did answer the initial question in terms of the incentive price and so on.
Bokoni, in terms of its position on the cost curve, currently, it's sitting on the high end as we indicated. However, as we ramp up to the initial phase, we're targeting 120. We'll sit on the, or rather just below the 50th percentile. But at full capacity, as and when the market improve and we invest in this asset, it's going to be positioned within the first quarter. And the major advantages, Mike did indicate, is the mechanization, the extent of mechanization that we have planned. This mine is to be able to mine most of our production using mechanized processes. Thabang, I think I've covered all the questions. Thank you.
Thank you. Thank you, Chair.
Mike, I've all covered.
Thank you. Sorry? You missed the question. I didn't answer the question about the consolidation in manganese. That's an academic. So the question was, "Are we considering?" That's an academic question. The answer is no. Oh, okay. Thank you. Mike, you've got no?
No, I think it was very well covered by Thando.
Thank you. Tsu?
No.
Phillip, you want to add anything?
Maybe just to add on what Thando says. In terms of the Two Rivers, you know, we've already spent more than ZAR 5 billion. 2 months to go from commissioning. So the right thing to do is to close that. You know, there could be questions, "Are you going to stop that project or so?" No. It will be more destructive, very destructive to do that. So we're going to we're going to basically commission. And then you know that with the buildup, it's normally a gradual buildup. That's why you see in terms of the forecast that there's a gradual buildup. So those are the things that we have to really evaluate, you know, to make sure that whatever we do is going to be sustainable and profitable. Thanks, Chair.
Okay. Thank you. I mean, so you, Thabang will take over. So will Phillip. And they'll be here to answer all questions for those who are here. And then she spoke that there's a 2 o'clock conference call. Is there anything you want to say, Thabang, before we close?
Chairman, there is one pertinent question from afar. Can we take one more question, Chairman?
Yes.
It's from Meng, Xiangshen. I hope I pronounced your name correctly from the Sunny Group.
Okay.
You can go ahead.
Hi. This is Meng from Sany. I just found out I'm the only Chinese guy here.
It's all correct. If you look at me carefully, you'll see I'm Chinese as well.
We start with Chinese everywhere already. Okay.
You're from China?
I'm from China.
Absolutely.
I've been here for 16 years.
Oh, that's wonderful.
Almost also Africa.
Absolutely.
Okay. I'm representing Sany Group. It's the biggest, yellow machinery company in China. Currently, it's the number 4 in the world.
Is the biggest?
Yellow machinery, heavy machinery.
Yellow equipment.
Yes, in China. Currently, number 4 in the world.
That's good.
We produce the same machine like Caterpillar, but out of China. We are not that big. So my question is, will ARM be considering of bringing a new Chinese supplier in your operation? And secondly, as we also do renewable machinery such as hydrogen trucks and the electricity trucks. And we also do solar energies, the panels and the batteries and everything. So my question is, do you have any plan? Maybe, is this country ready to bring in electricity or hydrogen machineries in the country or in the.
Very.
In your operation?
Very, very good questions. And then.
Then my last question is, how can I start a relationship with ARM? Because I'm using this video also.
Which relationship?
Which department I can talk to to start dealing with ARM?
Sorry. You want to have a relationship with ARM?
Because I'm new here. I'm representing a new company here. I don't know how to start.
Okay. She says she wants to answer.
Sunny, thank you for that question. Please, you can, have a conversation with me after the results presentation.
Yeah.
Okay.
Just to add, I'll be in China, I think, in two months. I go to China at least three times a year. And China is a very important country that buys our minerals. And, of course, we trade with the rest of the world. But the relationship between South Africa and well, between South Africa and Africa and China is very, very important. And I'm very happy. You must meet our CEO and the team and indicate to them that your company can compete and provide world-class equipment to us at a very good price. Thank you very much, Chair. Okay. Thank you so much, Chair. And thank you so much for coming. Thank you very much.