Good day, ladies and gentlemen, and welcome to the African Rainbow Minerals Interim Results for the six months ended 31 December 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 and then zero. Please note that this call is being recorded. I would now like to turn the conference over to Thabang Thlaku, Executive Investor Relations. Please go ahead.
Thank you very much. Good afternoon, everyone. Thanks for calling us. As you know, this is a platform to get the more detailed questions through to management and some of the questions that we could not cover because we ran out of time. In the boardroom, I have got with me Phillip, Tsu, Thando Mkatshana, Mike, and André Joubert are joining us. They are also on the call, so the management is ready to cover all your questions. I do not think we should do an introduction. I think we should go straight into Q&A. Happy to take questions.
Thank you very much. Ladies and gentlemen, if you would like to ask a question, you may press star and then one on a touchscreen phone or on the keypad on your screen. You will hear a confirmation tone that you have joined the queue. If, however, you wish to withdraw your question, you may press star and then two to remove yourself from the question queue. Once again, if you would like to ask a question, you may press star and then one. The first question we have is from Tim Clark of SBG Securities. Please go ahead.
Thanks very much. Thank you for taking questions. I've got a couple. I'll start with a couple, and then maybe I'll come back later and take a second too. Sorry, I got cut off on one of the answers on closure costs and care and maintenance costs at Beeshoek. If Assmang does shut its longs business, and if we assume that Beeshoek doesn't have another route to market, can you just remind us of what the sort of you'd expect the closure costs and the care and maintenance to be? That's my first one.
Shall I answer that? I just want to understand. Can I answer this? André here?
Thanks, André.
André, you can go ahead.
Okay. They said the care and maintenance cost will be ZAR 120 million a year. That's what our current estimate is. The closure cost, including retention, will be about ZAR 350 million. That's exactly based on the scenario that you described.
Okay, perfect. Thank you very much. That's really, really helpful. Thank you.
Thank you.
Sorry, my second question is on Bokoni, please. You've got quite a different plan going into conventional mining. Just based on the guidance, it looks like volumes are about half of what they were in the first half, but costs will be lower and grades are higher. I wonder if you could just give us a little bit more granularity on your cost guidance for mining. I just missed the—sorry, I had a very bad line, but I just missed the standing cost for Bokoni. You spoke about Amplats before 2021. It was a certain level. Just what the standing costs are. I am just trying to get some sort of sense of what Bokoni looks like in its new form, please.
Yeah. Perhaps start with your last question. In terms of the care and maintenance, what we highlighted was that the previous owners were spending in the region of about ZAR 24 million. Based on putting inflation and the additional areas where we've opened, we come at a number of around ZAR 30 million. That is Rand per month expenditure that we estimate will cost us for care and maintenance. With regard to the mining, as we highlighted, we'll be moving and focus more on the stoping aside from the underground, as well as the open pit. The underground will be aiming for volumes ranging between 25,000 and 30,000 a month, same from the open pit to be able to fill the plant. That is what we're planning for. We estimate that with that focus, we will be getting our costs to that region.
The unit cost of 6E-oz will be in the region of about ZAR 23,000 per 6E-oz. That should give us that cash paying of just under ZAR 30 million a month. That is excluding all the other work that we kind of indicated we are still trailing. That will come as part of a capital cost.
Thanks, Thando. That's very useful. Just further than that on Bokoni, and maybe it's too difficult to say, but how should we as a—I mean, the rhodium price has ticked up a little bit in the last day or two. Looks like some of these big deficit markets in PGMs are starting to have a little bit of an impact. The OEMs look like they're coming back to the market a little bit. What should we think of as the trigger for you guys to advance the bigger project, the 240-plant? How does management sort of think of the trigger? Do you look for a sustained period of cash flow, or what are you guys looking for to sort of bring back that decision? Or how do you get certainty?
Yeah. Tim, if I may cut you on, I think, as you're quite right to point out, it's not something that is easy to compound. We look at the total picture of ARM, and the two can come in with the detail in terms of cash available. That will sort of help us to be able to move forward. However, a sustained, say, 15% improvement on the price will be able to trigger us. In terms of the investment rate and all that, we look at the total cash availability and how we manage the balance sheet going through that process. Yeah.
Maybe just to come in—thanks, Thando. Maybe just to come in, Tim. I mean, the responsible thing, as we said as well, would be to take a phased approach. From the 60, most probably look at what do we do with the current 120-kiloton Merensky plant? Do we convert that into phase two, UG2, taking us 120, or do we convert into Merensky? Obviously, those conversations, are we going to go co-extraction or just continue on the UG2? Most probably the big bang approach of over so many billion ZAR over time, I don't think it would be sustainable taking into account the volatility that we have seen. The responsible thing would be a phased approach, building towards ultimately 240 at a certain time, but not the next step, jumping from 60 to 240.
Thank you very much. I'll hand on to someone else. I've got some more, but I'll come back into the queue. Thank you.
Ladies and gentlemen, just once again, if you would like to queue for a question, you may press star and then one. The next question we have is from Brian Morgan of RMB Morgan Stanley. Please go ahead.
Hi guys. Thanks very much. Just if we could just ask on manganese costs. In the commentary, you talk about cost of sales up 7%, and then you break it down, or you say mainly due to marketing costs, volumes, and inventory adjustments. Can you just dive into the marketing costs and the inventory adjustments? Just got to get that.
André, did you hear the question?
Yes, yes. I heard it. Thabang, should I go?
Yes, please, André.
Yeah. I mean, we've got in terms of our shareholders' agreement, the marketing cost is 3.5% of the FOB revenue. This is a marketing fee. Then on top of that, there's also what we call an agency fee, which is about 2.5% of the FOB revenue.
Okay. It is basically just moved in line with revenue then? Okay. And then the.
Yeah.
The net realisable value adjustments on stock?
Yeah. There were some. Remember, so there's some material that we mined that is not of a grade of a quality because you go through material. In this time period that we saw that massive drop in pricing, we did a net realisable value adjustment, negative adjustment on the material that was already on surface. Even associated with that, if you sell it, it's going to be at a loss. That is the adjustment that we made there. That is also purely market-driven.
You don't know what that was in rent value terms, was it?
Brian, I don't have that number in front of me right now, but we can certainly get it. Yeah.
Okay. That's cool. Just on Khumani, if I may, you said 8% cost inflation, of which 2 percentage points was stripping. Can you give us a bit of flavor into what to look for for the next couple of periods?
Yeah, certainly. As you know, Khumani is a mature mine now. The average stripping ratio of Khumani is 2.8. The average stripping ratio of Khumani will remain 2.8. For the next five-year period, we are going into an area that requires a bit more. It is almost like a pushback. During that time, we are going to ramp up the waste stripping to a ratio of 3.2 for that period. It is going to start now. We are slowly ramping it up. It is still now about 2.9. Next year, it will remain at 2.95, then 2.3, and then we could 3.2. We are going to remain at 3.2 for another four years and then come back. Overall, over the life of mine, the stripping ratio is still 2.8.
Okay. Okay. That's helpful. Thank you.
Yeah. Yeah.
That's all.
We're going to see, yeah, we're going to see the next, let's say, the next period of that little bit of higher stripping ratio.
Okay. Stew, if I can just ask a question. There is new disclosure in the segmentals. It is available for sale assets, which is now disclosed in the segmentals, which was not before. And in ARM Ferrous's 1829, something available for sale assets. Could you just give us a bit of color on what that is?
Sorry, Brian. Can you hear me?
Yeah.
Awesome. Thank you. That relates to the Assmang investment in Sakura. During the period, we have reclassified that investment as now being an asset held for sale in terms of IFRS 5. According to that standard, you need to evaluate at a fair value, which is, I think, with how we've spoken about Sakura and all the developments there, that's how we are seeing or viewing the investment as being held for sale. Basically meaning that we anticipate disposal within the next 12 months. That is what it relates to, Brian. In terms of the detail, you can see it in note 4 of our financial statements under investments.
Okay. That's very useful. Just to be clear, that 1,829 is on an Assmang basis, so it's 50% attributable to you?
100%.
Okay. Very good. Thank you. That's all from me.
Sorry. Thanks, Brian. When I say 100%, I mean 100%.
No, no. I know what you mean. I know what you mean. Yeah.
Thank you.
Ladies and gentlemen, just a final reminder. If you would like to ask a question, you may press star and then one now. We'll pause a moment to see if we have any other questions.
I think Tim has one more question.
Yes. We have Tim Clark. Please go ahead, Tim.
Thank you very much. The first one is just that I've noticed that you've spoken about it for a long time, but there's obviously a little bit of concern on the risks on water at Khumani. I just wondered how you've got confidence that you're not going to get cut off by Kumba. I suppose that's the polite way of sort of saying it. Maybe let's start there.
I'll try again. Yeah. I'm sort of laughing at that, but it's not a laughing matter. Yeah, we've done a lot of work in the Khumani needs 450 megaliters per day. In terms of that, I only get about 60%, between 55% and 60% of that from the Vaal Gamagara pipeline. I have to be supplemented by Kumba. Through Kumba, I mean the Sishen mine and the Kolomela mine. On the Kolomela side, it's dewatering from their mine. Obviously, they have to dewater, but they are also under obligation through their mining office, their water use license, to pump a certain amount of water into that pipeline because that pipeline is quite critical to the surrounding communities as well.
If you understand that picture, you'll know why the water boards spend money on fixing the end of the line first before they fix the front end of the line. We also have an arrangement with Kumba where we take up through their water use again. They've got what we call gray water, which is all the stormwater and everything that they capture into one of their big pits. We also have a water use license to extract that water. We have improved or reduced the risk of this hugely by doing that. We also drilled at Khumani. We also drilled for our own resources, and we're also getting water there.
Over time, we initially, let's say, if I talk about two years ago, I was dependent only on water from the Vaal Gamagara system, but now I can get water from four sources. The one is from Kumba internal, from the pipeline, from Kolomela, and also from Sishen. I have also got an arrangement with the Sishen CEO and internal arrangements with the general managers as well. We have now put telemetrics on all of those systems, and we are monitoring. If something goes wrong, we find Kumba, we engage with them, and we sort it out. That does not mean the risk has gone away. We also work now very hard with the Department of Water and Sanitation, and we are going to follow the route of the Lebalelo Water Scheme, and that is already registered that the water pipeline will become a Water Users Association.
I'm already a director on that board, and one of my key people that works with me is the chairman of that board, just purely because of timing that you can devote your full time and energy to that. We're doing a lot of work there. We've now appointed Pro-Plan. That's done the feasibility work, and we're now in that phase through the Minerals Council. We're registering a company so that we can take on this challenge. I can't say, and I've had various engagements with Kumba on this, I can't say that they will willfully just shut us down to keep us out of the market. They understand that they are the people, specifically Sishen. They are the people that's dewatering us. They've got an obligation to give us water for our operations. Thanks for that.
Thanks, André. There might be another question for you. Just Cato Ridge, Section 189 process, smelting under huge amounts of pressure. You can see the chrome smelters are all sort of shutting in South Africa. Just sort of what the ultimate long-term or what you're thinking at the moment is and how you're thinking of the future of those operations?
Yeah. I like the way that you phrased the question as, "What is our thinking?" not, "What are our decisions?" We are in the process now. I mean, you do not do a Section 189 just for fun. Our plan is that we want to close that plant down completely. We do not want to—you know the history is that we had five furnaces running, then we had four, then we cut it back to three. We only have two running now, and it is not economical. It does not make sense. I mean, we are bleeding cash there. Our objective is to close Cato Ridge Works down completely and also to exit from Sakura. We hold the view that conventional submerged, high-energy intensive submerged smelting is not viable anymore. Our thinking is that we want to get out of this business 100% completely.
We have already pulled the trigger in terms of the Section 189 at Cato Ridge Works and Alloys. Cato Ridge Alloys can obviously not produce if Cato Ridge Works is not there. The two of them will close together.
Will there be a holding cost that we should think about ultimately on that, or is it too early to judge?
Yeah. It's a little bit too early. We're engaging, negotiating with the entity to buy the land around Cato Ridge Works and Alloys. The idea is that we will clean up the land and everything so that it can be developed. It's actually very sought-after property, if I can say, from that perspective. We're in the process there, but we haven't concluded yet. That's why I said the question about the thinking. The thinking is, close it down, sell the land, rehabilitate, the new buyer takes over the environmental liabilities, known and unknown. We will obviously not rehabilitate it. You'll clean it up and break down the building and whatever, and then sell the land. With the stock that's on hand, with that cost and the purchase price, the thinking at a broader level is almost like a break-even situation.
It is not going to happen in the near future.
That's very helpful.
Yeah. Okay.
Yeah. Yeah. That's very helpful. Something more short-term, just on manganese ore, the price has rebounded up to sort of $475 or there it is for 44%.
Yeah. Yeah.
Is that a signal that you're going back to trucking, or is it? I'm trying to get a sense of where the trucking break-even is.
Yeah. No. At this point in time, we're definitely not going to truck that. That I can say to you for sure. Because all the benefits that you build up through operational efficiency, cost-cutting, you just destroy that by putting it on a road truck. What our thinking is, I'm also pretty mindful of what I'm saying now. We want to build stock. I think on the manganese side, and I'm not going to bank on that. I'm not going to make any promises. We're building up a little bit of stock, and we're also getting rid of some of our lower-grade materials that we could not sell last year. The idea is that if and when Transnet capacity becomes available, we'd rather then rail that and then get much more value out of that material for us.
Yeah, we're happy that the prices have ticked up, but we also know that crude oil is coming back in. We're not going to be foolish and now just dump material onto the market and collectively push the price again like we did in the manganese ore mining industry when the prices ticked up like they did early last year.
Thank you, André. That's very helpful. I've got a couple of questions on Nkomati and the Modikwa quickly. They're very easy ones, I think. Just starting with Nkomati, when you close the transaction, am I right—sorry, I haven't thought about this for a while, but I just thought about it this morning—am I right that you just double the environmental liability because you will have acquired the liability from the other side? Maybe just for the next couple of years, can you give me a bit of guidance on how much you'll be spending or you're expecting to spend so I can put the right number into the model under Nkomati?
Thanks, Tim. I'll answer the first part, and then Thando can answer the second. In terms of the liability, you are correct, and that will be taking on the other 50% of the rehab liability. Just to note, Tim, that in terms of the agreement that we've entered into with Norilsk, Norilsk will be contributing some money, ZAR 350,000, towards that liability. You'd have to just net that off, and that is the net that we would then be taking onto or extra rehab that we'd be taking onto the ARM balance sheet from the transaction. Thando, maybe you can answer that other question.
Thank you. Yeah. Thanks, Tim. Tim, currently, the current maintenance is costing us around ZAR 12 million-ZAR 15 million a month. However, when we take over, we've got some projects that we are evaluating. At the right time, we'll share with the investor community those projects. Those will significantly and positively contribute towards the Nkomati mine. Okay. Great. We look forward to that. That sounds good. Sorry, my last one. I'm just reading the contingencies, and I know just the dispute with Modikwa Platinum Mine Maandagshoek on Modikwa, and that you've applied now to the Constitutional Court as an appeal. Is there any impact at all on your sort of reserve mining situation from—I mean, let's ignore what the legal outcome is.
Assuming that status quo stays where it is, is there any impact on your reserves, on your mining, or is it just sort of outside of—I do not remember exactly where on Maandagshoek this is happening.
Thanks.
Yeah. Did I miss?
Yeah. No.
Yeah. I've got to ask Mike. It's our surface rights, but the surface rights obviously belong to government. It's our mineral rights. It will not impact in the next 20 years. We have to get vent shafts down there. Eventually, we'd have to find other places to do it. We just see that as a legal issue that they've taken—illegally just occupied land which doesn't belong to them. We are in court about the matter. No, it will not impact our operations in the next 20 years, Tim.
Thank you, Matt. As you know, as the owners of the mineral rights under the surface, they ought to have consulted with us with regard to any infrastructure they want to put on surface. It is related to the infrastructure they want to put there. Thank you.
Sorry. It's maybe an off-the-wall or random question. The last one is, I've had two clients say to me that they've heard that there are derivative structures being considered around Harmony. And I've heard nothing about this, and I've read nothing in the release about it. Are you looking at all at hedging or protecting your Harmony valuation? Is there something going on there that I should know about?
I'll answer. Tim, it's Thabang. If you remember, at our FY2024 results, when Chairman was asked about Harmony, he sort of stood up and said that we are considering various options because outright selling is sort of not on the cards at the moment. He did speak about a financial instrument which, yes, at the moment, we are looking at some sort of collar to see how we can monetize that without selling. It really is early days. When we've done our homework, we'll come to the market.
Okay. Thanks, Thabang. That helps. Thanks, everybody.
We have a follow-up question from Brian Morgan of RMB Morgan Stanley. Please go ahead.
Yeah. Thanks. Just two quick ones. There was an issue with the water use license decision that I think you guys were struggling to get a new water use license beyond 12 months to be able to draw down on the Sishen wastewater. Have you gotten or have they got a new water use license yet?
Yes, Brian. We updated that. Unfortunately, that license is a license that's restricted to a certain volume of water. That will last us, if you look at the rate that we're extracting, about five years. I have been to the Premier of the Northern Cape, and both parties are also engaging with the Department of Water Affairs so that they understand fully what the potential impact is if that license is not extended. Although it is a risk, we have flagged it, but I'm not overly concerned. We're doing a lot of work in that area to make sure that it's not going to impact on our business negatively.
Okay. That's fine.
Yeah. While I've got you on the line, remember that NRV adjustment that I didn't have the number. I just got my back office. It's ZAR 3.35 million for the first half. That was the NRV adjustment, the actual number.
That's very useful. Thank you. Just staying with you, just staying with you, André. In terms of the volumes that you guys sell to Cato Ridge at the moment, when it closes, what's your thinking about that?
Yeah. We're thinking that that will, if you look at my guidance, Brian, you'll see that we're going to go up 3.7. Next year, it will be 3.6 million tons because Cato will still take a bit of, no, no. Cato is not going to take anything next year. That is just aligned with the Transnet because originally, many years ago, that was a justification for Cato to get manganese units out of the country because of the rail construction that we had. I'm going to go to maintain 3.7, and we're going to focus a lot on the quality of material from a revenue perspective. From 2027, I'm going to go up to 3.9 million tons. Beyond that, we're going to go back to 4 million tons.
We believe that that will tie in with the improvements and improve performance from Transnet as well.
Okay. That's perfect. Thank you. I really appreciate that.
Yeah. Just so that you know, also that marketing fee for manganese ore, if you combine the total fee I just want to make sure that I said it correctly. If you combine the two fees together, the management and the marketing fee and the agency fee, it is 6.25% of FOB revenue.
Gotcha. Perfect.
Okay. Thank you.
Thank you.
It seems we have no further questions on the lines.
Thank you very much. If there's no further questions, we are happy to conclude the call here. Thanks to Brian and Tim. Yeah, we'll be going on the road, so we look forward to seeing investors and other analysts. Thank you, everyone.
Thank you.
Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines.