All righty. Good morning. Morning, all. Welcome to Impala's financial year results for 2023. It's such a pleasure to have you all in the room with us today. We're gonna be live streaming on the webcast as well, and there's also an opportunity for people to dial in on Chorus Call. But as always, when we get to the Q&A side, I'll give an opportunity to people in the room to ask questions first, and then we'll go to Chorus Call and on the web. Just some household issues. We are running off supplementary electrical power, green power, so there shouldn't be issues with power. In the event that there is an emergency, the evacuation is just straight out the back as you come in, but there shouldn't be any issue.
So with those few words, I'm gonna give you a short video, a little bit of a flavor of our results, after which I will introduce our CEO, Nico Muller, who would then just focus on a couple of the key focus areas for the results, and then we can jump straight into the Q&A. But let me also just welcome Patrick on, on the stage here. You'll see Patrick Morutlwa. He's recently joined us as the COO of Implats. He's a strong mining engineer, so please save your toughest questions for him. Thank you very much.
The financial year 2023 was quite a remarkable year for us. When I look at the year-on-year production, we've actually seen a 7% increase in ounces produced from our operations. Regrettably, as a consequence of load curtailment, we were not able to process and refine and sell all of those ounces, so that's had a detrimental impact on our financial results. In addition to that, we have seen a very sharp decline in particular palladium and rhodium prices in the second half of our financial year, and that has had a very negative impact on our earnings and therefore, profitability.
FY 2023 has been very challenging in terms of the economics. However, from a company perspective, we've been able to get going on a number of programs that we are committed to, including our construction of a solar plant at Zimplats. That will increase our portion of renewable energy to some 36% at group. In Canada, we are already at 100% renewable energy, so that helps a lot. The other aspects of the business performance relate to how much we have been able to contribute for socioeconomic development, almost doubling our previous year's contribution. We build legacy infrastructure, we look after suppliers, and develop them to become our own suppliers in the value chain, and also schools and bridges for our communities.
Our performance on safety has been quite encouraging. Still regret that we have lost five colleagues, but we have reduced our fatality frequency rate by 29%. We close the year with an LTIFR of 3.92, which is 7% better than last year. In fact, it's the best LTIFR that we've had for the last 10 years or so. We've also had a 5% improvement in our total injury frequency rate.
The key financial highlights for this year, we're generating EBITDA of ZAR 36 billion, as well as headline earnings of ZAR 18 billion. In addition, we finished the year off with net cash of ZAR 25.3 billion. Considering the fact that we spent ZAR 11 billion on capital, as well as just under ZAR 5 billion on acquiring a portion of RBPlat, I think that was quite a notable achievement.
I think the company is well positioned. We are continuing with the major capital projects that we have committed to. We believe that it will assist us in improving our competitive position long term, and I think that we are well positioned to brace the current low price environment and make sure that we provide security and sustainability for our operations in the communities, as well as efficient capital allocation to our shareholders.
From an operational perspective, the work done by our management teams to keep inflation at bay, as well as the fact that we've tried to successfully navigate through the low curtailment, which you've seen through this year, I think is testament to the hard work from our operational teams.
We're constantly assessed and reviewed by various rating agencies, and it was very reassuring this year, for the second consecutive year, that we will have made the S&P Global Sustainability Yearbook, as well as having maintained our "A" rating with the MSCI ESG rating agencies. And I think to cap it all off, it's really great to welcome the 11,000 strong colleagues from former RBPlat, and we look forward to joining forces for a greater impact.
Thank you, Johan. Inspirational video. I did notice I wore the exact same suit and shirt on the day that we recorded that, so I need to be a bit more attentive. Listen, from my side, welcome to everyone. Johannes, welcome, Patrick. I just also wanna welcome for the first time, people from RBPlat. We've got sitting in the corner there, or not in the corner, but on the side. I see Lindy is here. So it's very nice to have you guys part of the family. It is coincidentally Steve Phiri's last day in the office, today, and so we want to wish him all the best with his retirement, and hope he continues to do great, to do great things. So it's not my intention to do a very detailed presentation.
We've got this, you know, on the website, we've got a very lengthy thing. So I'm just gonna touch on a few points, really as an opener for us to ask some benign question to the esteemed panel here. Before I start, as always, just a cautionary-
... A, a caution on the forward-looking statements, whereas big investors wanting to make big decisions today, what is risk associated with our, you know, information going into the future? I'll, I'll start off on the, on the macro side. We all understand that we have had a significant decline in metal prices over, in particularly the last six months. If you look at the dollar prices of, palladium and rhodium, that reduced by 20% and 29%. But fortunately for our South African-based operations, we've had a weakening rand-US dollar currency, so that offset some of the decline in the dollar, dollar prices. Unfortunately, in Canada and, and Zimbabwe, we did, did not have the same benefit. So if you look at what is giving cause to this, there is an uncertain and weak global economy that is impacting on demand.
Combined with that, we are seeing continued discounted cash flows of metal from Russia. And so what we've seen is a lot of the OEMs and industrial customers are in the process of destocking. They don't believe that there is a strategic and compelling reason for them to continue holding the stocks that they have. So that has resulted in a bit of a dislocation between what we see as market fundamentals and the actual price behavior. And we do believe in the near term that we are gonna see some strengthening. I mean, already we've seen, in the last few months, at least hitting a floor, another continual slide.
From our side, from a company's point of view, of course, we have been clear that we do not support any loss-making assets, and that will continue to be the position. So from an operational point of view, is operational excellence, efficiency, cost management. And we are a company that has a declared material capital investment program. And that is something that we're going to have to test with the prices. If there's any further decline in prices, we're going to have to prioritize our capital, and we will uphold the things that with the most strategic value. And for us, it's capital programs associated with addressing critical constraints. And in our business, right now, it is the smelting capacity, and second to that, it is base metal refining capacity.
And so if there is a further decline in terms of pricing, the company will prioritize capital projects and mitigate the prices by reducing the capital expenditure. Fortunately, when we initiated all these projects, we did define exit points for each of these projects for this exact purpose. If I go into sustainability, in the video, Dr. Joe did speak about the safety performance. Very happy that all the metrics indicates positive direction. And as Joe said, our lost time injury frequency rate is at a ten-year low. We just really regret the fact that we did incur five fatal injuries in our operations, and we will continue to work hard to make sure that we get to a point of zero harm.
As far as environmental concern, performance is concerned, there's a whole list of metrics on the, on the slide there. I just want to touch on two that are that have big variances. The first is the environmental incidents. We've had zero level four and five, that's material incidents, but we did have an increase of level three environmental incidents from four to seven, and most of that is associated with uncontrolled releases of water due to unseasonal rains during the summer. We have instituted preventative action to make sure that that won't happen again. And then on the carbon emissions avoidance, we've taken a step forward. We increased the carbon emissions avoided from 61 to 121 tons of carbon, and that is as a consequence of the 50 MW of renewable energy.
That was a contract that was concluded between Zimplats and ZESCO, the Zambian renewable, the Zambian energy supplier, and all the, all that entire contract is renewable energy. If I go to production, I—we are very pleased that we have recorded, notwithstanding load curtailment and all the operational headwinds, we recorded a 2% increase in group production. This provides a waterfall graph to indicate the movement at various operations. Of course, the biggest negative impact was at a third party, toll refining, and this is a consequence of a loss of two contracts during the course of the year. But then I do want to highlight specifically, Impala and Impala Canada, we had two exceptional years. Marula this year was absolutely still competitive this year, but this year, all credit must go to Impala.
They were able to increase their production by 5%, and they were able to mitigate the unit cost increase to only 7%. Then Impala Canada, that really got traction with their mill decoupling project to improve the efficiency of the surface infrastructure. But also they were able to, through the flexibility of the ore body, to mine higher grade areas and to increase the underground production by 17%.... Then just last mention of RBPlat, the 43,000 ounces increase there is just by virtue of us not having reported that before. So this was one month from the date of which we got control. And so I suppose there's nothing stellar about that, it's really the omission of historical inclusion in reporting.
If I go from the 6E ounce production, which is really concentrate or match to refined production, you can see that there's a loss from the 3.25 to the 2.96, and that's as a consequence of, first of all, load curtailment, because we switch off our furnaces when we are asked to curtail our electricity consumptions. That is the one. The other reason is the rebuild of our furnace number three and four, which coincidentally is also an effect of load curtailment. The fact that we have to stop and start the furnaces, and we have got these varying temperatures, this creates increased fatigue in the infrastructure, and therefore, we are now on an accelerated rebuild program.
If I look at the unit costs, that's probably the most concerning or distressing part of our results, is the 14% increase in unit costs. It is similar to what I've seen in the rest of the industry, and this is driven by this hyper global inflation. So our 14% unit cost increase is as a consequence of 9% inflation, then also the weakening of the exchange rate always results in a higher rand cost for our dollar-based costs, and so that added another 3%, and then the recovered grade added another 1%. The capital expenditure that was in line with our capital program went up by 27% to ZAR 11.5 billion.
The majority of that is our sustained business capital of ZAR 7.3 billion, and that is constituted by capitalized developments, a capital project associated with our processing, as well as fleet replacement. And then the replacement of ZAR 2.3 billion is essentially mine replacement. The majority of that, ZAR 1.7 billion, is associated with Bimha and Mupani extensions in Zim, as well as 11 and 12 shaft extensions at Rustenburg of roughly ZAR 300 million, as well as the first ZAR 300 million for our Marula Phase Two extension. And then lastly, the expansion capital of ZAR 1.9 billion. Most of that is associated with processing. ZAR 1.7 billion is associated with the concentrated smelter and refinery in Zim, and another ZAR 150 million is associated with the debottlenecking of the BM, the base metal refinery in Springs.
I'm going to talk to the projects, but we have communicated that we are, that we have embarked on a large list of very important, capital projects. This slide just demonstrates where we are with most of them. If you look at the schedule, those two columns, it really indicates that most of the projects, all but one, are either on schedule or ahead of schedule. The only one that we have experienced a delay in is the Zim, the Zimplats smelter expansion and SO2 abate ment, and that's associated with delays because of supply chain procurements. And then notwithstanding that, there's not a single project which at this stage is forecasted to end or be completed above budget. So generally, a clean bill of health on most of the, the capital projects. If I go to the financial side, it's affected by three things.
I mean, it's the reduction in price, prior base metal prices, the increase in operating costs and capital. So if you look at the refined 6E ounces sold, that declined by 6%. The rand revenue basket is 4% lower at ZAR 36,118. So if you look at the 6, 6% and the 4%, they combine to the -10% for gross revenue, which declined from ZAR 118 billion to ZAR 106.6 billion. That resulted in the EBITDA, EBITDA margin decreasing from 45% in the previous year to 34%, and our EBITDA declining from ZAR 53.4 billion to ZAR 36 billion. We did record a free cash flow of ZAR 14.2 billion, and that compares to the ZAR 28.8 billion of the previous year.
That allowed us to declare a final dividend of ZAR 1.65, which for the year ended with a total dividend of ZAR 5.85 per share or ZAR 5.1 billion that was reallocated back to shareholders. We did end the year with a strong balance sheet of ZAR 26.8 billion, which is pretty similar to what it was the previous year, ZAR 26.5 billion. But of that, ZAR 11.4 billion was earmarked for completing the RBPlat transaction. Now, I am happy to say that post the transaction, well, post year-end, once we paid for the whole transaction and dividends, we still have a balance sheet of around ZAR 11 billion. So I think the company is well-positioned for the next year.
If I look at the profitability, the graph on the left-hand side shows the margin. So you can see Marula has got the highest margin. That's by virtue of the price that they receive per ounce, compared to the cost and capital. And you can see for group, it ends up at a 29% operating margin, EBITDA margin, operating margin. The only thing that is a concern to us, if you just look at that graph and you take away a spot today, spot is roughly $25,500, which if you look at the group average cost, it is around the same mark. So there is definitely work to be done for the company to make sure that it continues to protect value and cash flows, particularly if you want to allocate dividends to shareholders as well.
On the right-hand side, you can see a distribution of cash generated. And again, interestingly, the contribution of Impala Rustenburg, which is often touted as a problem asset by the industry. But for us, it does contain significant cash value. As far as RBPlat is concerned, I think when we were here at the interims, we promised that when we came at final year, we would have concluded acquisition one way or another. And I'm just very thankful that it has turned out into us finally securing full control of RBPlat. The process is underway. We for us to delist the company by the 18th of September. As I said, Steve Phiri is on his last day today, and Grant has been appointed as Chief Executive of the operating company.
He's based in Rustenburg, and he will report directly into our Chief Operating Officer, Patrick. Their corporate office, today, represented by Vicky, who is also in the audience. They will be integrated into our business. So for us, there are a number of key things to focus on. First, efficient integration. That every person has got a place to go to, and that we start very quickly on to start optimizing shared services, people, infrastructure, in order to start making an improvement in the overall cost efficiency. Secondly, I think I did mention it, the two big constraints from an operational point of view is the throughput through the concentrator suite, the two of them, as well as the recovery, which I think I did mention, which is at 80% compared to 89% or 90%.
And then the other one is the ramping up of Styldrift to its full production capacity. And then there's a long list of synergies. I'm not gonna go through all of them, but obviously, there will be a synergy program to make sure that we leverage them as soon as possible. That brings us to the last slide, which is the guidance that we wanna give for the next year. If you look at the production guidance, generally, most of the operations are at mature stage, and the guidance range is around the production that we achieved during the past year. There are a few exceptions that I just want to touch on. The first one is Zimplats.
You can see that we achieved 611,000 ounces, and the guidance has been revised upward from that, and that's as a consequence of the growth that we expect through the third concentrator that has already been commissioned. The next one is Two Rivers. You may know that they have the Merensky expansion project as well underway. Similarly, if you look at the production guidance, you can see the early benefits of that expansion project being reflected in the guidance. Then lastly, RBPlat, as I said, the 43,000 ounces being reflected is only for the last month of June. And if you look at the guidance, that is now the guidance for a full year.
The only area that we are guiding down is the third-party contribution through IRS, and that's purely as a consequence of the existing contracts that we have in place. And I mentioned the fact that they are now two fewer contracts. If you look at the refined production, just a way to think about it, it is a group production, but and that includes sellable ounces from RBPlat as well as Impala Canada. But when it goes to refined, we exclude the losses that is associated with the offtake agreements because we don't process in-house either RBPlat or Impala Canada. That's done by external parties, so we deduct the losses that we incur as a consequence of that. So that's how you get to refined ounces. And then group unit cost is guided between ZAR 21,000 and ZAR 22,000.
If you take the midpoint, that represents roughly an 8% increase in unit cost. Group capital is now inclusive of RBPlat, and I just want to caution again and say that is dependent on metal pricing. If there is any further decline, then the capital will be revised downwards, and we'll report back on that at year-end. That's the story. I would now like to ask Johan to return and to coordinate the Q&A session for us. Thank you so much.
Thank you, Nico. We've got some microphones in the room, so I'm just gonna ask that we circulate that. You can just raise your hand, and you'll receive a microphone, and we'll first take some questions in the room. After which, I'll also make sure that people on chorus call, there is a function you can queue so long. We'll pick up that you are in the Q&A queue. I see there's already two people in there, and I will make sure that we also return there for an opportunity to ask questions. Chris, maybe you can start us off.
Good morning. It's Chris Nicholson from RMB Morgan Stanley, and thanks for the presentation. A few questions. Just two relating to Royal Bafokeng Platinum in particular. I think that the offtake agreement is 50/50 between Amplats and RBP. You've indicated RBP is one you would like to trigger to process post-2027. The Amplats stake, I think, comes up for potential renewal at the end of 2024. Given that you're constrained on smelting and base metal refining capacity, would you have capacity to take that should Amplats exercise not to process that anymore? So that's the first question. The second question on RBPlat, I noticed in your mineral reserve and resource statement, you've still got Impala Rustenburg lease kind of running off in the middle of next decade.
With RBP now integrated, is it safe to say that when that is updated, we should be assuming something much longer from Impala Rustenburg, 20 years plus? And then just final one, sorry, if I may, just while we're talking life of mine. You talked Impala Canada, potentially mining some high-grade areas. What does that do to the mine life at Impala Canada? Thank you.
Thanks, Chris. There's three strong questions there.
Yeah, so I'm also... maybe I think if you can ask if Tim is on the line?
Yeah, Tim is on the line.
So maybe if you can start with Chris's third question, and maybe Tim can just comment on the impact on the life of mine by virtue of high grading.
Tim, did you get that question?
I did. Good morning, everybody. Can you hear me all right?
Yeah, we hear you perfectly. Thanks, Tim.
Yeah. So, our Royal Bafokeng is unique in that it allows us to choose higher grade zones when the price does not support the lower grade zones. It will have an impact on the life of mine. At this point, we have a five-year life of mine, and if the price falls further, we will indeed have to increase our cut-off grade, and it will have an impact on life of mine. I do not have a specific answer at the moment as to what that'll end up doing at really low prices. So I hope that answers your question. It does have an impact on the life of mine, yes.
Tim, and then as far as the life of mine concerned of Rustenburg. So if you look at the life of mine profile, there's a very long tail, which we would cut off when it falls below a base load required for the smelting complex. So that is what we would have done historically. So what you will see, Chris, is you will see a significant extension, albeit at a much reduced capacity. But, I mean, that was one of the key synergies that we looked at when we contemplated the transaction, is in the absence of a base load, which RBPlat now represents. As soon as you get, was it 500,000 ounces or 400,000 ounces, then it would cut off. It would come to a catastrophic end.
So now that will be able to continue for a much longer period. And then, as far as the processing capacity is concerned, we do have a constraint as far as processing capacity for the first two years, but our ambition is to sit with Anglo, and so we do have these offtake agreements. You know, there's been some movement in terms of their plan with Mogalakwena, and so it is our ambition to sit as two parties. We do have the offtake agreements that we can rely on, but I think that there is good sense in the two parties sitting together, and if there is overlapping requirements to try and optimize between the two companies, exactly how to deal with the concentrate coming off Royal Bafokeng Platinum. I just... I will ask the team.
Even this morning, I have a habit of answering too many other questions, and I want my team to also contribute, so I will ask him to help.
Maybe just for the people on the line, just state your name as well, so people know who's asking the question. Harold?
Harold, absolutely. Thank you. You spoke about the integration of RBPlat and what needs to be done. We saw their first half results. Metal prices have declined since. I'm just wondering what you need to do to get this business where you want it to be. What's it gonna cost, and how long do you think it's gonna take? I know it's early days, but can you kind of guide us on that?
Patrick, do you want to venture an answer, and I will support you back in?
Yeah, no. Yeah. I think, as Nico said, so far, what we have identified is that we have an opportunity to optimize our throughput and recovery from our concentrators, because that will already bring some more ounces on the table, and later, about 30-30,000 tons a month, that will also bring ounce on the table. It is early days, but it's something that will take us between a year or two to really get it to, you know, where we want it to be. But it is a good asset. We believe that, with the help from the technical team from Impala, we should be able to get that operation back on track, like I said, a year or two.
Am I hearing correctly, is it more a processing intervention than a mining intervention?
There are two things. Grant has messed up his concentration processes. And even that has got two parts to it. There is the capitalization of the infrastructure. And, I mean, they do have a program to, for instance, to improve the logistics and the tipping points in, because everything going to my Maseve plant is currently trucks.... And so to get all delivered and to get it, to get the throughput data constraints. So they, they've put in the second tipping point, but there's also capital provided for a conveyor belt. So in part, that is, there is capitalization that has to happen. The other part is that the way in which we operate and manage the processing on both the operation as well as preventative maintenance and breakdown repairs, there is improvements that has to happen on, on that side.
If you wanted my honest opinion, nothing happens overnight. I mean, so when I look at when we took over, we acquired Impala Canada, that was in 2019. They had a stellar year this year, so all of a sudden, this year, you saw them sparking, getting 17% up. When we originally acquired. So when I was at RBPlat , it took us two years to do, to get the IMS, the flexibility. I think the plant is probably gonna take between 12-24 months to get to exactly where it should be. If I look at Styldrift similarly, so they've had traditional issues. Grant, you can help me if I'm wrong, but the two big issues there is face flexibility, IMS face length, and the other one is infrastructure position relative to the faces.
It is not an overnight task. Again, I would suggest 24, you know, a 24 months period is realistically what it takes. I mean, I would like for you to declare next quarter, but I don't. I've never been successful in having a very sharp turnaround. I think you're looking to a year, between a year and two.
Well-
Anyone who's got better views, Grant, what can you say?
I think that long two years.
We've got Renee and then Arnold van Graan.
Hi, Nick, and team. Thanks for the presentation. I'll be just carrying on from Harold's point. Is there any way that you can get the grade at Styldrift up? Because that, to me, seems to be the crux of the whole problem, that the grade is not high enough and that there's too much dilution in that operation. Patrick?
Yeah. So we are doing work on improving the grade, and I think we're starting to see some early shoots, green shoots. With the more development that we've been doing, there has been dilution, but most importantly, we have been mining areas of low grade, so we are starting to move into areas of high grade. So it will improve over time as we set up, you know, the face length that is required to sustain the ramp up.
So there are high-grade areas?
Yeah, even though there are some high-grade areas, but like I said, as we develop the mine, sometimes you have to mine the low-grade areas, which we find ourselves in some of those. I think on the northern side of the mine, there's a bit of low-grade area that we mine, but we're gonna be moving to relatively high grade soon.
Okay, thanks. Can we go back to slide number 44, if possible?
I'm not sure. I have 44 slides. Is it the results presentation on this morning that you saw?
The profitability one.
Yeah, the profitability one. Yes, that one. At the moment, the revenue is about 25,000 ZAR per ounce, and as a group, it looks like you're right on that position. Sure, there are individual operations which are below that, but considering that that is, you know, FY 2023, and you're gonna probably put another 6%-10% cost onto that, the picture doesn't look very good, assuming that we remain at spot. Obviously, my view is that we're not going to. We're gonna be at 30,000 ZAR or so, which gives you a little bit of headroom. But if it does remain at spot, which are the first ones that you're gonna look at starting to shut down?
So, I mean, I've previously spoken, and I did make a comment that that we won't tolerate cash losses. But now, also, it is not correct to assume that that means on day one, if you have a cash loss for one month, one quarter. I think we'll take a longer term position, but the operations that are most under threat, BRPM is not on this slide. It should be on this slide because the cost per ounce of the last quarter, I apologize, Grant, but except that exceeded the cost of our lease area. And so I would suggest that is an operation that requires significant improvement in order to remain cash positive, particularly given the fact that there is still a remaining capital investment element associated with that.
Then I think the second, the second operation of concern to us is Two Rivers, and it's because of the capital of the Merensky project. So as a just cash operating cost, the operation is fine, but it's the funding associated with this Merensky project or the remaining funding that is a big, a big concern. And then one cannot have a conversation and not touch on Canada. Canada is under threat by virtue of it being a single commodity business, and that's where we've seen the most significant decline. And so, as an example, capital investment in the tailings disposal facility, that decision has been delayed, and that will have an impact on life of mine as well. The only strength of Canada is their significant improvement in performance, and I think there is some potential to take that more.
And the fact that we have flexibility to alter the grade, which we don't normally have in the South African PGE businesses because of the uniformity of grade distribution across the ore body. So I think that those are probably the biggest areas of concern. Now, if this becomes a longer term crisis, the company will have no other recourse other than to consider suspension or restructuring, and it's not something that we will wait ten years to get to. And by ten years, I don't mean—I don't really literally mean ten years. It'll be, you know, it's not something that we will tolerate for a long time.
Thanks. Thanks very much, Nico. Arnold?
Good afternoon. It's Arnold Van Graan from Nedbank. A couple of questions from my side. The first one, Nicky, talks to the impact of load curtailment on your operation. It seems to me that you've suffered, you know, worse impact than your peers. So my question is: Is most of that related to the rebuild of the number 4 smelter, or does it talk to the general constraint in your processing capacity? And are there any short-term mitigation measures that you are thinking of to address that? So that's the first question. The second one, I guess, for Patrick. Patrick, are you still carrying excess labor at Rustenburg? And at Marula as well, there's some excess labor there.
Can you just give us a sense of that and the role that could play in this metal price environment? And I'm not referring to RBPlat's employees-
Mm.
when I, when I ask that question. But I guess on that trend, are there any restrictions in terms of the Comcom outcomes that prohibits you from taking this action, as you've alluded to now, if metal prices stay here for a extended period of time? Thank you.
I want to introduce you to our super metallurgist, Meroonisha , to deal with the question which pertains to what percentage of the inventory lockup or lost ounces is load curtailment versus the furnace 3 and 4, and perhaps copper theft and so on and so forth.
So, in the 245,000 that we ended up at the end of the period with, remember, we started off with 40,000 excess, so that was there at the beginning of the year. Then there was 111,000, which is really directly as a result of load curtailment and cable theft. The 10,000 of cable theft is in there. The other remaining, I think it's circa 94,000 ounces. That's because we had furnace 4 down for the full rebuild. It went down in December, came up in April. The reason probably why we were more affected by load curtailment is that, you know, when we run three furnaces and we need to drop the load, we can balance the load across three furnaces, right?
When you have a smelter that's down for a full rebuild, you're now running two furnaces on its own, and when we are required to do load curtailment, they look at consumption at that point. So our ability to use those furnaces to buffer the operations and, in fact, to maintain other smelters operating gets limited. So that really is the constraint we dealt with in this year. And going forward with furnace 5 going for rebuild, we're gonna have to deal with that again in FY 2024.
On the second question pertaining to labor, I will just answer one part, and then Patrick can talk about how much extra freaking labor you are carrying in the group that's contributing to the high cost. So from the transaction point of view, we gave an undertaking that there won't be a single retrenchment as a consequence of the transaction. And we didn't do that because it was a demand or, you know, Competition Commission or anything. It did not make sense, as we have sufficient natural attrition in a business under normal conditions to continue operating and, you know, to integrate and...
So we had no intention, either at corporate office or at the operation, to, by virtue of the transaction, cut the cost by having forced retrenchment because of the transaction. But now, I also want to say there is clearly a difference in restructuring because of a transaction and restructuring because of a change in economics. So don't confuse the two with one another. To the extent that we have businesses running into cash losses, any one of them, it represents a material threat to the company, and the company will consider various avenues, and restructuring or suspension always is one, but it's one that we keep always as a last resort. I mean, we have loyal people that have worked for us for 30 years, so it's not our intention.
But I just wanted to make sure that you understand the difference between because of the transaction and by virtue of economic fortune.
Yeah, thanks, Nico. So let's start with Marula. Marula, you'll see there's about 300 people that we brought year on year, but it's not necessarily a complement. It's the people we brought for phase two project to do the early works. So that labor is really needed to get us that head start on phase two. Rustenburg, you know, for the last few years, the team has been working to create phase one, so there had to be additional people for that. We have our phase one now.
... So we, you know, as we have natural attrition, we must replace the people. So most of that over-complement, I think, has been eaten into over the course of natural attrition. Thank you.
Can I just add to that? There's a number of cost-saving mitigations that we instituted in the company. One of them is a moratorium on recruitment, certainly at corporate office, but in certain positions at the operation. Obviously, if we have a jack operator that we require, that's directly required for production, that's something different. But we have already instituted a moratorium on recruitment in various positions across the company. So I do believe that to the extent that there is remaining excess labor, that there is a very rapid program towards rest corrective action.
Thank you.
Thanks. One more in the room, and then I'm also gonna give people on the call an opportunity. Leroy?
Thanks, Johan. Could we talk a bit about the commodity prices? Looking at your market balances, it does seem like you're still forecasting deficits for this year and into next year. But that doesn't reflect in what- in the price action that we've seen. So I was just wondering what your view is on how long it'll take for all the destocking that we've seen over the last two quarters to sort of get absorbed into the market and for us to see a price reaction again. And then my second question, I was quite interested in your comments, Nico, on the accelerated furnace rebuild program, and how load shedding has sort of taken its toll on your furnaces. It does seem like these rebuilds are more frequent than what they used to be.
You've got another one coming towards the end of the calendar year. How does that sort of feed into your thinking of your capacity? So if you think about on a normalized basis, has your capacity sort of come down? And do you need to do anything about that in terms of, you know, allocating additional CapEx to that? And then, I know you've covered it partially, but just sort of your initial impressions, looking specifically at Styldrift, too. Things have sort of... The RBPlat team has underdelivered there relative to what they've guided, particularly on sort of reaching steady state. You were quite actively involved there a couple of years ago. How does the footprint look compared to what you'd envisaged, and what are some of the bottlenecks there?
Are there any sort of low-hanging fruit that can drive a sort of a near-term turnaround?
Yeah. Okay, so let's talk to the markets. Johan, do you want to comment on the dislocation between price behavior and our market balances?
So Leroy, certainly, especially for the minor metals like rhodium, but also for a by-product like palladium, when there are acute shortages and the prices are moving up, we are seeing people buying and outbidding each other and driving these prices up to unsustainable record highs. Unfortunately, on the downside, the same thing happens. So when you have weak China and you have a weak outlook for the economy in the U.S., and commodity prices started coming down, and people are sitting on these assets that they've bought up, and probably more than they need at that point in time, you have this selling down frenzy that happens, and you get that dislocation. Now, certainly, we're also seeing metal out of Russia flowing into key areas like China at a discount.
So all of these things have conspired, where we would suggest that the prices you're seeing today are somewhat dislocated from the underlying fundamentals. But the fundamentals have weakened, but we do see in the second half of the year, China picking up. We are seeing some of these destocking has to be restocked again. It's just a question. We kind of pushed our view out by a quarter, so we were hoping or projecting it to be quarter three, but it's probably only gonna be quarter four and into next year, because I think specifically, China has come out weaker than what we've anticipated. But we certainly see, you know, an upward momentum starting to build probably from fourth quarter of this year. I hope that answers the market question.
As far as the processing capacity is concerned, there are two big events. So firstly, internally, we've replanned the the furnace repair and rebuild program to account for a shorter interval period between major repairs. The commissioning of the Zimplats new smelter will be absolutely critical in order for us to have sufficient capacity, and then the outcome of the concentrate offtake from RBPlat, as Chris asked earlier, is the second one. And so we are short-term capacity constrained. I think in due course, when we've got number five furnace done and we've got the Zimplats smelter resolved, not resolved, commissioned, we will have sufficient capacity. Then you had another question.
Styldrift.
Styldrift.
Yeah, just your views on Styldrift, you know, compared to what you'd initially expected, if there's any kind of low-hanging fruit there.
... So we had looked at a number of performance metrics. When I look at the ore body, the ore body is not disappointed. It's still there. If I look at the safety record associated with relatively shallow mechanized, I mean, their safety performance is like twice as-- If you look at their lost time injury frequency rate, it's half of ours. If you look at labor productivity, it is, let's say, double, but it may even be more than that. But if you look at total labor complement and per ton or per ounce delivered, so many of the fundamental drivers of our view of value is definitely there. So it's really got to do with the ability to execute on your exploitation strategy.
Now, you are feeding into the question that was earlier asked, and I would suggest that there's probably an open expectation that we can talk about low-hanging fruit. I'm very cautious to do that because, in my opinion, it has never happened, most certainly not where I've been involved, where you can, in a very short amount of time, make a big change. What I can comment on is that they will. I mean, granted, you guys did ramp up to 220,000 tons a month, compared to the 160 or 170 with [Onaza]. So there is a history of them having moved up, but then they had this increased loss rate because of geological conditions, bottlenecks and so forth.
It was in that process, and the inability to secure new face, that the production started to decline. I am not convinced I can sit here with an honest heart and say, "Low-hanging fruits, give us one quarter and we will, we, we will be, be back." But there at least has been an upward trend over the last six months at the operation. Not because of us, but certainly, I know that having studied the numbers, that there has been an upward trend.
Understood. Thank you. Maybe, Johan, just one follow-up. We've heard a lot of comments around Norilsk selling metal, palladium at a discount, into China and into some of the other regions. Do you have a sense of, you know, what that discount is or just, you know, how that mechanism works in, in the market, and how that feeds into, into the actual palladium price that we see declining?
Yeah. So we've heard, we've heard numbers. I'm sure you've heard the same kind of numbers. We don't have specific insights, so I can't give you a number, 20% or 30%. I think it also varies. But I think what people also forget is that the US have imposed importation duties. So Russian metal that finds its way into the US is also discounted by, you know, that levy. So cash in the pocket of the producer in Russia is also impacted in that way. So you can also see when they're cash constrained and where their traditional marketing paths have been cut off, you know, that they will find paths to the market. We've got no doubt about that. But, you know, it's higher risk metal.
Some jurisdictions, you know, are pushing back, and it will come at a discount when it comes to the market. I can't give you an exact number, but we've heard anything from 10%-30%. But I can't stand by that. I mean, it's like you, we are reliant on the market networks.
Great. Thank you.
All righty. I'm gonna give people on the call also an opportunity. I see there's already two people that are queued into the Q&A, so I'm gonna hand over to the bridge.
Mafedi, if you could just take them through and queue them in. Mafedi?
Thank you. The first question comes from Adrian Hammond of SBG Securities.
Yeah, good day, everyone. Nico, thanks for the presentation. I have four questions for you, please. Quick ones. How many months of pre-developed reserves do you have at the lease area and secondly, at RBP? Second, will you legally consolidate the RBP assets into the lease? Thirdly, what's the status of the BEE deal, and when will that conclude? And lastly, I still don't appreciate the buildup in stock that you're forecasting when your peers don't seem to have such an issue, and furnace repairs is being done by everyone. So, so that, you know, the lease did more than 1 million ounces platinum at one point. So why is processing now a constraint? Thanks.
Actually, do you want to comment on the pre-developed ore reserve IMS that we have at the lease area compared to RBPlat's?
Yeah. I think at the lease area, we now—like I said earlier, there's been a lot of work that's been put into developing the face length. By end of the year, we're sitting on 26.5 kilometers of face length. That really give us the flexibility to maintain last year's production of 1.2 million ounces. So compare that to RBPlat. RBPlat BRPM, because you've got two side BRPM, we use more conventional. And so with RBPlat, sorry, BRPM, you have a good face length that supports the production. That's why that area has been 20 months straight, you know, above core, but can still breathe. It is very tight.
[Final two] ratio, we're sitting at about 1.3. The whole idea is now to try and to push it to 1.5. So Rustenburg in a better position compared to the Plats at this point.
... Thank you. Johan, do you wanna comment on the processing capacity and what gives cause to this constraint?
Yeah, Adrian, so I think there's two things. I don't think we are more constrained than our competitors. I think we've got more flexibility and more spare capacity. We are certainly robustly ensuring that our infrastructure is world-class and robust. The fact that you have to cycle up and down, up and down, does add a huge amount of risk to these operations. What would be catastrophic is to have an incident on one of these furnaces. So the protocols under which we operate, we build in a margin of safety and security that, you know, obviously we feel is justified in this period of time. It's very unusual for us to do two full rebuilds in the same year, which is what we've done this year.
The guys have done a remarkable job, and both those furnaces were put back online at the right time, completely right. I think what has impacted us more than anybody is when we were ready to feed both of those furnaces, Eskom delayed the startup. They just didn't have the power available at the time to switch another 35 megawatts onto the network. So we probably lost almost two months of full production on two furnaces just because we couldn't tie them into the network. But those furnaces are humming, they're hot, they're working beautifully, and they are being used on a daily basis. And soon we will have another monster furnace in Zimbabwe. And those three, four big furnaces are clearly gonna put us in an enviable position, in my view.
Thanks.
Sorry, there was another question that we might have missed, Adrian.
The legal consolidation and the BEE deal.
Do you wanna comment on that?
Yeah. So, Adrian, we're clearly busy in discussions with the BEE partner to get consensus around terms and value. And once we've completed that, we will make an announcement to the market at the appropriate time.
On that note, I would like to welcome Lindani and Imran, who are actually present here. I just don't see them right now, but they are here. I think that process is well under track, and I look forward to making announcements through Kathania in due course. And in terms of the legal integration, it is our intention to keep the companies apart for the short term. And that's for a number of reasons.
Okay.
It is driven by the fact that we've got NUM on the one side, AMCU on the other side. The fact that we have got different models of success in terms of management, methodology, style, community relationships. It is not foreseen to be the position into infinity. There is a whole integration plan that is being led by Lee-Ann Samuel, our HR director. And the point is, at some point, to have the two entities combined, subject to tax and tax efficiency and all of these things. But the end goal is always to have a lease area or a Bafokeng area in the Western Limb that will ultimately be integrated. But that will be done very systematically and structured over a period of time.
It's clear. Thanks, Nico.
Thanks. Thanks, Adrian. We have time for one more question. I see there's one person still in the queue. I'm gonna give Nkateko an opportunity, which will then be the last question. I do apologize for the people on the web. I see there's three or four questions on the web. We'll certainly come back, but they are in the same line as what we've answered. But we'll certainly make sure we circle back to you and answer. So maybe we can conclude with Nkateko on the conference call.
Thank you. That's Nkateko Mathonsi of Investec. Please go ahead.
Good afternoon. Thank you. Thank you, Johan, for giving me an opportunity. I have a follow-up question on, on labor, especially focusing on Rustenburg. If you look at FY 2020, compare the total labor complement versus FY 2023, there's about 4,500 employees higher. Has the base for Impala Rustenburg lifted to the 43,000, 44,000 employees, or is there still room to actually get back to the 2020 levels? I always looked at that number and thought you were carrying excess excess labor as a result of the COVID environment. So just help me understand, what am I seeing wrong as far as the labor complement of Impala Rustenburg is concerned.
I have a question for Nico, as far as the group CapEx guidance and the scenarios that you show on slide 43. So under the scenario, Feb 2023 guidance plus weaker rand, I mean, CapEx does fall significantly. Which projects will be likely deferred, and how should we look at it in relation to your production profile if the Feb 2023 guidance plus weaker rand scenario actually plays out? That's it for me. Thank you.
Do you wanna comment on labor, Patrick?
Yeah, I, I can. It's a bit far back for probably Mark to try and answer that for us.
Is the speaker for Mark?
Do you wanna comment on, again, the excessive labor?
Yeah. Yeah, I can answer the current one, but four years back.
Lucky I've got Moses sitting next to me, yeah? He's gonna give another input. I think the way we measure the labor is on the average for the year, for the past year as well. So I think currently the lease is around 42,000.
... around 42,000. So the number has already come down. Then, the way we also measure the labor is, it includes contractors that would come and go. And especially at the lease, you've got the dryer that we're building in the process division, and you've got two underground capital projects. The one is coming to an end now, the tall shaft with the decline and that equipment. So those capital people responsible for the equipping of that shaft and everything are leaving site, and the big part of the dryer is completed as well. So I think that as with the 42,000 hours already happened. We did carry in the past a bit extra on what we call cadets and the learnership.
So we did beef up there to keep the pipeline full as well, which also paid on a stipend basis. So what you see in a labor number doesn't transfer to a full cost number either. I think if you and I think just the way the least has come back to 7% year-on-year cost increase, part of that much lower than you probably expected cost increase, was attributed to the reduction in labor from the COVID times. The nurses are, by and large, out there. Excess nurses, medical staff, catered for all that time, have come out the business already. And of course, on natural attrition, we have about 100-150 natural attrition.
I think, there's still some refinement to do on the labor and improvement, but by and large, it is where it should be.
With regards to the capital guidance, I'm being asked a moving target question. You know, what is our ability to curtail capital expenditure? And I think that we... I mean, if we had to, we can cut the ZAR 12.5 billion-ZAR 13.5 billion quite significantly. What will the impact— And I'll talk to the project. I did answer it before, but what will the impact on the production guidance? Absolutely zero. The production guidance that we've given is not dependent on much more. So the capital investment has got to do with future production, not the year one production.
So there won't be any impact, and I believe that the group will be quite comfortable to produce at the 3.7 million ounces per year, even in the absence of this capital investment. But as I said here, it's probably easier for me to answer which projects we won't cut. The smelting project in Zim is critical. And we're talking about that is the critical constraint of the company. The base metal refinery optimization that we've done in Springs actually has yielded positive results. We believe that there is, in fact, a higher capacity being created than what we had originally earmarked. That possibly puts the base metal refinery project in Zim at risk, or at least at risk of being delayed.
When I look at the life extension projects like Phase 2, 11, 12, 14 shafts, those are the projects that, I mean, if you don't have the funds to invest in long life, if it becomes, you know, important to have a short-term focus on cash preservation, and those are the typically the kind of projects that will be cut.
Now, maybe just a word from me on the capital guidance, Nico. The slide that you're referring to is our capital guidance over the next five years, which now is to the best of our abilities in the current environment, subject to an ongoing market review. You see that we've incorporated RBPlat into that capital, capital guidance. What you refer to as scenarios is not really scenarios. What it's referencing is our prior guidance that we've done before, but we're just cautioning there that half of our capital expenditures are in U.S. dollars. By virtue that the prior forecast was done at 16 dollars, and we're now closer to 19, 20 dollars, that automatically just lifts the capital profile by about ZAR 1 billion or so.
And then the next thing is by incorporating RBPlat, which we've had to do, and we wanted to give the market that sort of guidance to the best of our current understanding, you know, lifted by another ZAR 1.5 billion or so over that, over that period. And then hopefully, what you can see is in this year and the next couple of years, that we've already affected some capital rationalization and prioritization. And as Nico has explained, that's an ongoing and moving target. But we've got huge flexibility and ability, and we will certainly be robust in the way that we manage that in line with profitability. So it's not scenarios, it's just trying to give you the best forward guidance, you know, with some context. I hope that helps.
It helps. Thank you so much.
All right. Then it falls on me to thank you, everybody on the line, on the webcast, and in the room here. We do have some drinks available, so I invite you to come have a drink with the Impala team. This will be an opportunity here for people to ask some further questions, formally and informally outside. For the people on the call and on the web, we hope to see most of you on the road very, very soon. And to the extent that you have any pressing questions or we didn't get to you, please revert back to me and my team, and we will answer and get back to you as soon as possible. Thank you very much. Drive safe.
Thank you.