Good afternoon, ladies and gentlemen, and welcome to the African Rainbow Minerals condensed results for the year ended 30 June, 2024 . All participants will be in listen-only mode. There will be an opportunity to ask questions later during the conference. If you should need assistance during the call, please signal an operator by pressing star then zero. Please note that this call is being recorded. I would now like to turn the conference over to Phillip Tobias. Please go ahead, sir.
Thank you very much, and good afternoon, everyone. We have just released our results today, and I will start by just giving a high-level overview in terms of how African Rainbow Minerals performed for the financial year 2024. On the safety side, sadly, we had a loss of life of Mr. Thomas Ubisi on the 16th of June at Bokoni Platinum Mine from a fall of ground fatalities. Our deepest and heartfelt condolences to the family and friends and colleagues, and we are continuing to work very hard to make sure that every employee returns home unharmed. On the positive side, we saw a 19% improvement year-on-year on the total lost injury frequency rate and also on the total injury frequency rate. Quite a lot of effort that is going into that space.
With regard to the headline earnings, we saw a decrease of 43% to ZAR 5.1 billion from ZAR 9 billion last year, financial year 2023, mainly due to the decline in the average USD 6E PGM price and also the lower thermal coal prices. We declared the final dividend of ZAR 9 per share, taking the total dividend for the year to ZAR 15. On the production side, we saw a flat performance on the PGM ounces production and also on the iron ore side as well, and yet a 15% regression on the manganese production output. Cost side, we've had some serious cost pressures, especially at Two Rivers Mine, where we saw a 17% increase year-on-year on the unit cost and also 20% cost increase on our manganese Black Rock Mine.
So these things are really receiving all the attention that it requires so that we can really weather the storms, especially during this headwinds and this different difficult, challenging market conditions. So I'd just like to leave it at that, and then we can basically take questions and give you answers to that. Thank you very much.
Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please press star and then one now. If you decide to withdraw the question, please press star and then two. Again, if you would like to ask a question, please press star and then one now. We'll pause a moment for the question queue to build. Just a reminder, if you would like to ask a question, please press star and then one now. The first question that we have comes from Nkateko Mathonsi of Investec Bank. Please go ahead.
Good afternoon, so my question is actually relating to cost, and if you look at your peers, be it the PGMs or be it, on the iron ore side, we've seen Section 189. I know with Two Rivers, you've placed the Merensky project on care and maintenance, but I don't know what is, what you're doing around, Modikwa. I don't know, in terms of even on the iron ore side, fair enough, you know, the, the managing partner there. But even on the iron ore side, I mean, we've seen Kumba actually issue a Section 189 and restructure for the next three years because of, the constraints on the rail side. So on the African Rainbow side, I, I...
You spoke a lot about how you're looking at costs, et cetera, but I have not necessarily seen the actions, similar actions that we've seen from your peers. So if you can give us a little bit more detail on what you are doing to contain costs in this environment where the metal pricing is under pressure, on both be it the PGMs, manganese or even and even iron ore. Thank you.
Thank you very much. I'll ask Thando to just, respond on that.
Thank you so very much. I didn't get the name very well, but Nkateko. Nkateko, thank you very much-
It's Nkateko
... for your question. Yeah, okay. Thank you, thank you so very much for that question. Yeah, so first, starting at Modikwa, as you would have seen, you know, Modikwa, in general, for this reporting period, we've managed to really contain the cost increases within an inflation level. However, yes, we're not resting on this, and we put some intervention in terms of a cost management. That entailed, in the main, reviewing our input costs on the procurement side, working with Anglo, who is the lead in terms of our procurement. We revisited most of the contracts, and then we negotiated some of the suppliers to a lower levels of increases....
Secondly, at the mine itself, we had some intervention in terms of reviewing all the high, the cost areas of production, those high ounces. We spent time in terms of curtailing them and so on. We unfortunately lastly also had to revert into a Section 189 process, whereby 333 employees were affected. Of those, we've managed to retrain and redeploy about employees. We had a voluntary separation of about 70 employees. And through natural attrition, again, we lost about 40, and we ended up with just around 30 employees that were put on a forced retrenchment. That is the process that we've taken as the last resort.
Further on, what we are currently reviewing is areas of additional production, and we are exploring in a trial with an open cast operation, to try and increase the volume with higher grade ore. So those are the interventions, and yeah, we did go through the Section 189. We continue to review our costs in terms of areas where we see opportunities. At Two Rivers, as you correctly highlighted, we went through the process of putting the Merensky on care and maintenance.
Through that period, then we also revisited the UG2 operation, and we similarly went through a lot of cost curtailment, going through from the supply side, consumables. And, as a last resort, again, we also had to retrench or go through a Section 189 process between the Merensky as well as the UG2 employees, and that also impacted just over 300 people. We managed to redeploy some of the crews, the mining crews. Out of six, we redeployed three to go and assist with the UG2 operation.
Overall, I think we ended up losing just around 40 people through retrenchment, and another 40 through natural attrition, and about 20 who took a voluntary separation processes. Yeah, I think I did highlight also earlier on, in terms of the ramp-up of the UG2 back to normality. That has started and is promising, having been able to negotiate the geological challenges that we experienced in the previous year. Again, probably, yeah, you're correct, we haven't been out talking about the Section 189 processes that we went through, but we have gone through those at our operations as well. Thank you.
Maybe, maybe, Nkateko, just to add, I mean, if you look at our PGM forecast from, I think, 2023, you would have seen that we are gonna ramp up, you know, the Merensky production. Basically, the PGM production with an inclusive of Merensky project. I mean, that would have meant employment of additional labor. You know, one, you can look at it as basically a lost employment opportunity, you know, that we could not really bring those extra people to come and work.
So as we said in the morning, we identified and classified that as a loss-making ounces, and there was no need, especially after, on this market conditions, to really bring new ounces into the market, but also technically some lost opportunities in as far as employment is concerned. I hope that answers and addresses your question, Nkateko.
100% it does on the PGM side, but if you can also comment a bit on the ferro side. I don't know if you're able to comment, but on the ferro side, because, I mean, if we look at your peers, and I'll use Kumba, because of rail issues and also the pricing environment is not necessarily glorious right now, we've seen a bit of restructuring happening. So I just wanna get a little bit of granularity on what is happening on the ferro side, as much as the business is doing well at this point in time.
Okay, thank you very much. We'll ask Andre to just opine on that. Andre?
Yeah, great. Thank you for the question again. We've got the two mines, Khumani Mine and Beeshoek Mine. So let me just start with Beeshoek Mine. Beeshoek Mine, we had a contract with a South African steel producer, and for 2.8 million tons, and for two consecutive years, and they just never took the tonnages. And we've now rightsized that mine for a 2.2 million ton mining profile for at least the next five years. And unfortunately, on that specific mine, the stripping ratio, because we always try to mine as efficiently as we can, so the mine is getting deeper, so our stripping ratio on that mine is now increasing from a stripping ratio of 3.2. It is increasing to just over four, a stripping ratio of over four.
So you realize that the total tons that we're gonna mine will actually increase, although our production is decreasing. What we're gonna do then is to say that we wanna then integrate the Beeshoek Mine and the Khumani Mine as one managing unit. Through that process, we're gonna, if I can say that, we're gonna save on the expensive positions. Like, we're not gonna appoint another general manager there. That mine will then fall under the one general manager for both of the mines. Then also, our procurement process, where we will consolidate that between our three Northern Cape operations, so that we can save a lot of money on that, on our centralized procurement process.
And then also all our technical services, like our financial services, HR services, and training, we're gonna consolidate that between the two mines, that we don't duplicate that amount of work. And then on Khumani Mine specifically, we've been involved with this Transnet. It's not a surprise to us. I mean, this is now the third year in a row that we're doing just about 12 million tons per annum. So what we did is we parked a fleet of equipment, and we sort of through natural attrition, and which is actually cheaper than a one-off retrenchment package. We used natural attrition, and through that process, we reduced our labor force, and in that context, we're gonna reduce our total overhead costs.
In terms of the production output, the grade that we don't see that we must cut back further on production. I mean, 12, I think 12 million tons for export on our iron ore business. In fact, we planned for 12.3 million tons, and we're working very closely with Transnet, and I see that is a feasible objective to achieve. Then also, the water challenges that we had, that set us back quite a bit, where you had the workers, you had the people, you had everything, but you couldn't produce because we didn't have water. We put a lot of measures in place. Just more specifically, we pumping water now from our own on-site underground water. Remember, Khumani is a mine that's being dewatered by Kumba.
We upped it from Kumba. The other thing that we're doing is that we're now getting what they call gray water or storm water. That is excess water at Kumba, not water from the groundwater sources, but from the polluted water they call it. We call it brown, sorry, gray water. We're pumping that water now over to Khumani, and through that process, we are supplementing our water supply into the mine to ensure that we can maintain our 12 million or 12.2 million tons of production. Over the last three years, we've already slowly started to, through natural attrition, get to the right workforce where we are at right now.
Thank you.
Thank you.
That is very helpful.
Thank you. Ladies and gentlemen, just a reminder, if you would like to ask a question, please press star and then one now. We'll pause a moment to see if we have any further questions. The next question we have comes from Thobela Bixa of Nedbank. Please go ahead.
Yes, afternoon, everyone. Hopefully you can hear me. I have a couple of questions, so maybe the first one, I think, would be for Thando. Just looking at the net cash position where you're currently at, of around about ZAR 7.2 billion. It's. I mean, it has increased over the number of years. You mean, if one looks at the longer term, you are in a net debt position in about FY 2017, FY 2018 or so. So I'd like to know as to, you know, what is the driver for you to build that much cash buffer in your balance sheet? And then also, your CapEx should be going down over the next couple of years, as you have guided, with your project capital expenditure also reducing. So would you still continue to keep that level of cash buffer?
And then, I guess, you know, we have seen some of your peers give us a targeted cash buffer that, you know, they want to hold on a balance sheet. And also, maybe sort of give us some clarity as to what they're hoping to use that cash for. If you could just talk to us as to what your level of cash buffer you're targeting is, and perhaps, you know, what are you keeping that, that cash on your balance sheet for? Thank you, and then I'll ask further questions afterwards.
Thank you, Thobela. So in terms of our net cash, it's actually been decreasing over the years, with the large cash outflows that we've had. In the prior corresponding periods during 2023, we had the big ZAR 3.5 billion that we spent for Bokoni, and you'll see that it's just been going down. So yes, we are in a net cash position-
... compared to some of our peers who are more likely to be in a net debt position. And then I just wanted to just clarify, so, yes, you see that cash balance sitting there on the balance sheet, but that's made up of cash sitting at the different operations. So what we just like to highlight, and you'll see it in note 13 of the financial statements, which shows the breakdown in the cash and cash equivalents. At ARM Limited, we're sitting on cash of ZAR 6.1 billion, which obviously is gonna be a significant amount is gonna be divvied out now with that dividend that we're declaring, which will be paid in October. So the ZAR 9 per share.
And then you have cash that's sitting at ARM Platinum, and Two Rivers a little bit, but Two Rivers has taken out debt, as I mentioned. ARM Platinum is for Bokoni. So we don't believe that, you know, we're sitting on a big amount of cash. That cash is sitting at the different operations for a number of different reasons. So whether it is to actually fund CapEx, OpEx, you know, that's, you know, that money is earmarked for that. Where there is free cash flow, then it flows up through to ARM, and it's available then to divide out to the ARM shareholders. So that's just on the one. And then, Thobela, just on the CapEx, could you maybe just repeat your question on the CapEx, the guidance?
Okay. No, I was just trying to get an understanding as to, with your CapEx reducing, then would you still-
Mm-hmm.
-continue to keep that level of cash in your balance sheet?
No, Thobela, so we don't. So if there is no identified, you know, other opportunities where we can deploy that cash, where we believe we can get a superior return, obviously based on the hurdle rates that we've set for ourselves, and, you know, the operations don't need capex, then, you know, we're more than happy to divvy out that cash. You also asked around Assmang, in terms of-
Yeah, just
In terms of cash.
Do you have a target in place or, yeah.
Yeah. So right now, and I think you can appreciate with, you know, the downward turn in the commodity prices, where, you know, you don't know how long the downturn will be, so we're really in cash preservation mode. We have Bokoni that still requires some money. You know, a lot of the PGMs, actually, all of the PGM operations are currently not generating cash. Actually, we've got Two Rivers that's just breaking even. So, you know, in that type of situation, it kind of changes things a bit. So initially, what we were thinking, Thobela, before this downturn, we were looking at a minimum cash buffer of between ZAR 2 billion- ZAR 3 billion.
However, you know, with the current market and the way it is, we are rethinking that amount. So it is fluid, it is fluid, because we don't know how long this will last, and we just need to make sure we have enough money to sustain the business until we get out of this, this downturn and the cycle.
Okay. No, thank you for that. And then, other questions I have are related to PGM operations. I mean, I just did a rough calculation in terms of where the PGM operations are. I think on my calculation, I see that your operations are, I'd say, free cash flow negative after paying for CapEx. Obviously, with in at Two Rivers, you had that big CapEx coming out, perhaps due to the project, but it could come down. So just could you tell us as to what your thinking is around the portfolio, given that, you know, at current prices, your operations are burning cash? And, and also just in terms of what is the pecking order in terms of the importance of the assets? We have seen that you have put the Merensky project on care and maintenance.
If you could just how you view the assets, just talk to us as to what is the pecking order within your assets in terms of importance. If prices were to sustain at these levels, you know, which would come next on care and maintenance? Thank you, and then I'll guess I'll ask a final one later on. Thank you.
Hello, please go ahead. Thank you. Thanks a lot, Thobela. Thobela still highlighted, in answering you, obviously, with the exception of Two Rivers, if you take out the cash flow that was associated with the project, Two Rivers is able to wash its face. Modikwa, it's sitting on a net cash negative at this stage, and the Bokoni is still on the ramp up, obviously, to require cash. So, our focus is at improving the situation, particularly if you look around Modikwa, what was highlighted with regard to additional source of production, and that will be able to cushion the need for cash, and then we are driving that.
That open pit comes with the benefit, obviously, of UG2, so it comes with the benefit of also the chrome associated. So we do believe that they will be able to cushion that and minimize that, and we are continuously reviewing areas where we could cut back and in line with what also I've highlighted in terms of the action that has been taken. Bokoni obviously at the current production level, at 60, it's gonna need additional funding, and we, for the project team and the operation team, we'll all be working very hard to look at other opportunities that could be explored and also taken benefit of, in terms of increasing the production.
And at this stage, we are really evaluating all the options that are there, and to be able to come up with a better solution. I think we should be able to give a better view in terms of where we're standing on Bokoni at the next reporting period. Your question really in terms of the pecking order, I think each operation gets reviewed based on the challenges and looking forward, and so on. And as you know, we also have joint venture partners with, except at Bokoni, so we do engage with our partners. And as I think Philip highlighted this morning at the presentation, to realize that it is our intent not to carry loss-making operations forever.
We will review them from time to time and make sure that either we turn them around or we take action, as we've indicated with the Merensky project. Thank you.
Okay. No, that's good. Thank you so much, Thando. I think, yeah, I'll leave it there for now. Thanks.
Thank you, Sir. Ladies and gentlemen, just a reminder, if you would like to ask a question, please press star and then one now. The next question we have comes from Itumeleng Segone from Investec. Please go ahead.
Thank you. Team, can you hear me?
We can hear you, Itumeleng. Please go ahead.
Yes.
Perfect. Thank you so much for that. I think my key question is mainly, I think, to Andre, looking at your guidance for your export volumes for manganese. I just want to just quickly confirm, as you highlighted earlier on, that there had been an increase in rail capacity for your manganese business. So I just want to just confirm the actual rail increase, is it actually at 3.6 million tons, which is what you guys are guiding within the next two years? And if it is, are you comfortable with rail volumes with Transnet being at 100% of. This assumes that they will be then transporting 16 million tons per annum. And then also, could you kindly provide me with color on as to why, for FY 2027, your export volumes go up to 3.9 million tons ?
Right. I'll deal with the manganese. Did you also mention, if I heard you correctly, you were talking about 16 million tons, or did I hear you incorrectly?
So 16 million tons in relation to the rail capacity of Transnet for manganese.
Oh, okay. Okay, okay, now I'm with you. I thought you were talking about... No, that's fine. Then I understand the question. All right, I think on the manganese side of the business, we've got these two numbers. Yeah, there's what we call the contractual number that we have, and also then sort of a discretionary or additional capacity that Transnet gives us. So, this past two years, our contractual capacity, and for some reason, it is confidential information that we have with Transnet. We're not allowed to disclose the actual tonnages of the contract. And, but I think I can state that, let's say the tonnages that Transnet should move for us is then 3.4 million tons, okay?
And then, because what we call the emerging miners did not take their allocated tonnages, we got about 100,000 tons additional from that, and then there was a rollover. You know, it's always sometimes it happens that a ship does not get loaded right at the end of the month, and the numbers that you see is not necessarily the rail tonnages. It's always the sailed tonnage. So then that can add between 150,000 or 200,000 tons, which is maybe a shipload to the tonnages. But for this year, going forward, Transnet has allocated an additional 200,000 tons to Assmang, so that takes us to the 3.6 million tons. And that is what we now manning and staffing and planning our mines on.
Although it's not contracted, we've taken a bit of a risk, but I think it's well thought through, and it's a low probability with a lot of engagement, and so Transnet was not prepared to give us a contract for those tonnages, but they're gonna allocate those tonnages for us. You know, from a commercial sense, the only difference is that we can claim if they don't deliver less than 90% on the contracted volumes, and on this one, we sort of at their mercy. But the current tariff, the current rate that we see in the performance of Transnet on the manganese side is sort of on par with what our contractual commitments are.
It also looks pretty good because we know and we understand what Transnet is doing to achieve this extra 200,000 tons. It is not just a pipe dream or whatever. It is physical work that they've done through additional loops and some fine-tuning in terms of their management system in the Northern Cape to streamline the flow of ore through to PE and to Saldanha. So in fact, we're increasing some of the tonnages through to Saldanha. So that brings us to the 3.6 million tons.
And then if that is successful with Transnet, and we can maintain that, and which we believe we can, that's where you see the step up in two to three years time to the 3.9 million tons, a number that you were quoting. So, that's the rationale. And our mine, as you know, that previously, many, a couple of years ago, two, three years ago, we completed our, what we call the Black Rock expansion project and modernization project. And that project was actually earmarked to be able to enable the mine- to- mine 4.5 million tons of ore. But it doesn't help to produce 4.5 million tons of ore, and you've got to haul all that extra 500,000 tons or 600,000 tons.
All the value that you've gained through operational efficiency, you immediately destroy by putting that material on road. We took a conscious decision that we also don't want to be part, we don't want to destroy South Africa's roads any further by putting that additional tonnage on the road, and we made a conscious decision to maintain the rail capacity, and we're working very hard with Transnet to maintain that rail capacity. On the 16 million tons, yes, that's the capacity now, but again, from a strategic perspective, Transnet is now working on a program to see if we can increase their tonnages over the time period to 22 million tons. They're not 100% sure yet, but maybe to 25 million tons per annum rail capacity. That is not going to happen in the next five to seven years.
Thank you.
Thank you, sir. Ladies and gentlemen, just a final reminder, if you would like to ask a question, please press star and then one now. Sir, at this stage, there seems to be no further questions on the conference call.
Okay. Maybe then I can just wrap up. Thank you very much to everyone who was on the line. So in closing, I mean, it's a challenging environment of lower commodity prices. And then we basically are positioning ourselves, and as I continue to say, focus on things that are within our control. Make sure that we put relentless effort and focus on operational efficiency, you know, doing more with what we have so that we can really enhance our revenue. And also the issue of cost management, you know, and making sure that where there's opportunities, you know, to optimize our costs to eliminate wastages, we do that. And a disciplined capital allocation.
I mean, a lot of questions have been asked in terms of, you know, what we're gonna do going forward, and that. So every potential project will be reviewed on merit, and then in line with our investment decision-making matrix, and rank them accordingly and take it forward. So our proactive strategies in these key areas will enable us to capitalize on future market recoveries. You know, bearing in mind that, as we said, we do have some flexibility at the Two Rivers Mine, but it will be subject to, you know, the market commodity recoveries and that. So that's the flexibility that we'd want to have, so that when the price turn, that you basically optimize and exploit that situation and get ahead of everyone. Ladies and gentlemen, I think we'll close it here.
Thank you very much for your attendance. Over to you, controller.