Good morning, ladies and gentlemen. A warm welcome to everybody in the room with us today. A hearty welcome to everybody that's joining us through the conference call and also watching to this broadcast over the web. There will be an opportunity to ask questions in the room, over the call, and over the web, and we will just queue and explain again how to do that most effectively when we get there. The idea is, this is our normal market engagement. After myself, I will introduce Nico, our CEO. It's always hard to introduce him. I'm not quite sure how. I asked my daughter, and she said, "It's actually easy. You go to ChatGPT, and you ask AI how to introduce the CEO." This is not my words. This is straight off ChatGPT.
Since Nico Muller's appointment as CEO, the company has undergone a significant restructuring, which include investments, cost-cutting measures, and renewed focus on core assets. Under his leadership, Implats has also made significant progress in improving safety and productivity at its operations. Nico Muller has been widely praised for his strategic vision, operational expertise, and his ability to lead Implats through a challenging period in the mining industry. His leadership has been credited with helping to improve the company's financial performance, and he's been recognized as one of the most influential executives in South Africa's mining industry. Not my words. Again, it's a health warning. No pressure, Nico Muller. I think when we come to results like this, the true heroes are the people back on the coal front, the people that go down underground, blast, mold the ore, produce the metal.
We thought that just share a little bit of that perspective. We've gone around with a camera and a microphone, and we've asked a couple of people in our organization what it means for them to work for this organization. As introduction, I'm just gonna leave you with that, after which Nico will come up and address you. Thank you very much.
It feels amazing to work for a company that puts family and integration at the forefront.
I like to call it your home away from home. Coming to work every day, having that sense of belonging.
On a day-to-day basis, I get to have an impact in somebody's life.
The impact to the communities, to the environment, it's wonderful.
The company is one of the leading platinum producers in the world.
40,000 employees that are currently working for Impala.
What makes me passionate about this company is that it cares about its employees.
Providing us with such equipment for us to be more efficient and safe.
The values here at Impala, they guide my day-to-day.
We respect, care, and deliver.
Our daily lives are about respecting our people, putting them first.
Respect goes both ways, whether it's coming from your team members, from the people you're reporting to, or the people that are reporting in to you.
We show a lot of care, and we encourage people at all times to just be their best self.
We deliver high production output at the lowest possible cost.
In a safe, profitable, and sustainable manner.
When I joined Implats, that was a U-turn of my life, definitely.
They will give you the opportunity to unearth the best in you.
The company developed me, groomed me, and nurtured me to be the person that I am today.
I came here as a section manager. Currently, I'm a mine manager.
They provide learnerships, bursaries, and internships to community members.
At Marula, we have about 40 graduates and interns combined.
The community center, we give SMEs, the knowledge and the skill to succeed in the business world.
You get to learn marketing, finance, compliance, business administration, and what you need to do.
We have people that come from these communities, people that give services for the day-to-day run of this organization.
If it wasn't because of their massive support, their care and values, I couldn't have gone this far today.
I want to employ at least 150 people. Because of the help that Impala has given me, I'm now able to help the community as well.
We have people waking up in the morning with a zeal of wanting to be here.
If you say I'm home of champions, I feel I'm a champion already because I'm already having an attitude of winning every day.
That's what drives us. You know what you are doing is helping the world.
It's just allowed me to come to work every day and add value, and you know you see it in the tons that are coming out, and you hear it in the blast.
I see the future being very bright.
The company is going forward. It's not stopping.
It's advocating for women. It's advocating for development. It's leading the Implats way. I want to be part of that legacy.
Thank you, Johan, for that touching dedication to our people. Fantastic. It's funny, a company is just rock, steel. It's dead without the people. Let's dedicate this presentation to our staff, to the management team, in particular to three members of our family. One is Gerhard Potgieter and Johan Andrews, two executives that have carried this company through the last few decades. Thank you for your contribution. This is their last attendance. Also to Peter Davey, our board member that passed away in February.
Before I continue, just a caution to any forward statements that we may make today. Just a minute.
Just give Nico Muller a breather there. Peter Davey was always the first board member to comment on the results. He was also the first one to register for these calls. His absence today is a big void in all of our lives, and it would be a remiss of us not to acknowledge the time that his family has given up, for him to be with us. You know, with those few words, you know, we really think of the family in these difficult times, and his immense contribution to the organization.
Okay, we will try again. Our results follow the results of a number of our peer companies. It's clear that we've negotiated through very challenging operating conditions over the last year and in particular over during our reporting period. For a company to achieve a flat production such as what Implats has done, I mean, typically, we've seen declines in production between 10% and 15%. That's not unusual. I think that is an fantastic operational performance from the people that form our team. I think the company's done exceptionally well from an operating performance point of view. Despite the decline in dollar metal prices, we've had depreciation of the rand, which has created a 5% increase in the rand metal price.
As a consequence of our flat volumes combined with the slightly beneficial rand basket price, we have seen a 4% increase in our gross revenue, which I think is absolutely unusual. We've seen a 2% increase in the EBITDA of the company. I mean, you look at production volumes, the tons mined went up by 5%. What it says is that the foundations of the company is very strong. We've had the benefit of, first of all, our geographical diversification. We operate in South Africa, Zim, as well as in Canada. Secondly, we are seeing the early benefits of the investment decisions which thankfully, the board and team supported a number of years ago.
We've got expansion projects on the mining side as well as on the processing side at Two Rivers, at Marula, and in particular at Zimplats, where we're doing Bimha Mupani, a third concentrator at the smelter co-complex, as well as resuscitating the Base Metal Refinery. The one storm that we could not negotiate as well as I was hoping for was the high global inflation rates. When you look at our unit cost increase, you will see a 15% increase in the unit cost up to ZAR 19,346 per 6E oz. That is as a consequence of global inflation. Now, I'm probably going ahead in the slides. I will touch on it later. It is particularly consumables, explosives, fuels, steel, that sort of thing, power.
In addition to that, we are seeing the translation cost of our USD operating cost in Zimbabwe and in Canada because of the weakening of the South African rand. When we translate it back into rand, that adds to the cost increase. We've seen reduction in efficiencies, mainly as a consequence of the load curtailment. We have seen a similar increase in our capital expenditures. The inflation has pulled through into. If I just look at normal SIB capital expenditure, you'll see a similar increase in capital expenditure. In addition to that, our capital has ramped up in line with our investment strategy and the projects that have been approved. You see capital there gone up by 39% to ZAR 4.9 billion.
A combination of increased capital, increased operating costs, in particular because of capital prepayments in Zimbabwe. Then a very important issue for us during the last reporting period is the increase in inventory. Where we did have a hiccup is once the ore's reduced, it's concentrated. Where we absorb load curtailment in Implats is at our smelter complex in Rustenburg. When we are asked to reduce consumption, we switch the furnaces off or reduce the consumption. You will see at the processing at refined six-year production, we were down 9%. We normally operate with 625,000 ounces roughly of inventory in the company.
At the end of the last reporting period, the similar reporting period the previous year, we had 40,000 ounces excess in inventory. During this reporting period, we increased that by another 100,000. All of these things has had an impact on the cash flow. If you look at the earnings, it went up by 4%, EBITDA went up by 2%. When you translate it into cash flow, the cash flow reduced from ZAR 15.1 billion to ZAR 11 billion. That also then informed our dividend, which was slightly better than the minimum 30% of our policy.
We will have debate about the capital allocation and retention of ZAR 6 billion or ZAR 5.9 billion on our balance sheet, which I think was done for very, very constructive purposes. Our ZAR 11 billion cash was translated into a ZAR 4.20 per share dividend, or ZAR 3.6 in total, which if you add the returns to minority shareholders of ZAR 600 million, it amounts to a total shareholder return of 36% of discretionary capital allocation. Now I'll start with the presentation. I think we, from just an ESG point of view, I think we've had a very good reporting period.
If I look at all of the accolades that the company received again for its sustainability efforts, the one thing that's we always look at particularly is our safety performance. The company is very proud of the fact that its overall safety performance is continuously improving. Again, we see a continued decline in the lost time injury frequency rate, and we see a 12% decline in the total injury frequency rate. However, we had two fatalities at our managed operations during the last reporting period. In addition to that, You can see it's the one of the first three bullets there. On the 16th of November, we had a fatality at Two Rivers joint venture. Post the reporting period, we had another two fatalities in the group. Just interesting observations.
four of the five fatalities that I have mentioned are related to gravity. It's either person falling, equipment falling on people or hanging wall or side wall. That's a key focus for the company, is how to mitigate the risk of gravity-induced fatalities. Another very interesting observation is that three of the five fatalities occurred at traditionally some of our safest operations, and that's shallow mechanized operations. One was at Two Rivers, so that's the one on the 16th of November. On the 25th of December, we had one at Bimha, that's Zimplats. We had on the ninth of February, the one at Kupari. These are all associated with shallow mechanized operations. Those two operations have both something in common, and that's that both of them are now associated with big expansion projects.
We've got big capital projects. It is a reinforcement of the learning that when things change, the focus of management, the presence of management gets diluted by all of the new things. There's new behaviors, there's new standards, it is something that we will embed as a company, is to endeavor to eliminate fatalities associated with a changing environment in our operations. Our condolences to the family, we hope to prevent a repeat of that going forward. I'm not sure that I've got too much more to say. 'Cause I've spoken about some of the points. I'm gonna just maybe touch here and there rather than repeat everything that I've said. Great operating performance.
If you go through it individually, you will see that on the left-hand side of the graph is predominantly SA-based operations. You can see the impact of Eskom, as I said. Our third-party providers do not have the benefit of load curtailment being absorbed in furnaces, which is why they toll process through us. You can see our third-party production on the left, it's 10% lower. That is not unusual. Then you see Impala, Marula, albeit small percentages, but you can see the impact of Eskom. On the right-hand side, in particular you look at Zimplats in Canada, both of those companies are benefiting from investment projects. At Zimplats, we've got the third concentrator that is starting to deliver. At... Oh, sorry, no.
The other one was Two Rivers, where we've got the Merensky project. Canada, and all credit to Gerhard, to Tim, and the team. They've done just an exceptional job with. You'll remember that we had the mill decoupling project. That's not because of an expansion project. We've just seen a revolutionary improvement in operating performance. Very delighted that Canada has finally delivered as we anticipated they could, should the right form of capitalization and leadership prevail. Refined production, 9%. That's, as I said, mainly the furnaces. In addition to that, we took down our number four furnace. It was mainly due to Eskom, but we also did scheduled rebuild of our number four furnace and then our number three furnace had a tap leak for two weeks that we had to do.
That's why we had a dip in production there. On the unit cost, I'm not going to talk. Sorry, let's refine production. Eskom, people ask what is the impact of Eskom. It's roughly 10% of SA managed operation is direct and indirect. In part, the impact of Eskom is felt by virtue of lockup of ounces that are not being smelted and therefore not refined. There's also lost production, so you're not taking loss. That is either directly because you don't have power or indirectly because people are fatigued, your supply chain is disrupted or some secondary consequences. Net impact on final metal produced is roughly 10% of SA managed operations. The unit costs day-to-day is inflation, exchange rate weakening, the translation of the cost.
On the, on inflation, I mean, I'm not gonna talk a lot about this, but you can see the biggest impact is on consumables: fuel, steel, chemicals and explosives. The increases in power cost varied across the three jurisdictions, but it sort of went from 10% in SA to 21%. I think the biggest threat for us about energy is not only the cost increase, it's got to do with security. We saw towards the back end of our reporting period an escalation of load curtailment, and into the new year it looks like things are progressively getting worse. We are at a point where any further deterioration is gonna create a material impact on the company's ability to continue producing.
Capital expenditure, there's are questions about that when we did announce a number of life extension projects or growth projects happening in many jurisdictions. The most important ones I've spoken about in Zim. We are also doing life extension projects at 11 and 12 shaft in, at Impala. We are doing an optimization of our Base Metal Refinery, which I think is gonna produce about 10% additional capacity on that site. In terms of the guidance that we gave before, you will see an escalation of capital expenditure for the next three years to between ZAR 11.5 billion and ZAR 12.5 billion, before it then reduces back to a normalized rate around ZAR 7 billion.
In the light blue, you can see the impact of ounce production that we are projecting as a consequence of this increased investment. The part that we are not showing is the life extension, which is beyond the scope of this graph. Free cash flow we've spoken about. This is just a graph showing the profitability margin, the operating margins at the various operations. Just to confirm, all of the operations are contributing. It is our policy not to cross-subsidize. On the right-hand side, we see cash contributions from all the other operations. The only operation that did not manage to contribute cash was Zimplats, and that was for very specific reasons. It's unusual, and it will be remediated in this very next quarter.
They have seen a dramatic increase in unit cost, reduction in dollar metal prices, on top of that, a massive increase in not only the capital expenditure but also prepayments. 'Cause people are not prepared to do work in Zimbabwe unless we pay them before they do the work. Expenditure is running ahead of the actual progress of work. If you look at the financial performance, although we smelted 9% fewer ounces, we did draw down on the refining inventory and therefore sold more or less in line with what we sold the previous reporting period. It's just gone down by -2%. Increased rand revenue basket because of the weakening of the rand. I've spoken about the gross revenue and EBITDA margin as well as the cash. Maybe just on capital allocation.
We had ZAR 11 billion free cash flow from the operations, we add back to that ZAR 700 million spent on growth capital because that is a decision that the company makes. You said it was ZAR 11.7 billion. ZAR 1.6 billion or 14% of that was allocated to growth and investment on the projects that are listed there. The remaining ZAR 2 billion was balanced. We've got a dividend policy that says at least 30% of free cash flow will be allocated to shareholder returns.
We've got the important need to make sure that we are adequately funded for the RBPlat transaction, which I can now happily say we have done, and there will be no further need for any further retention of cash to fund that potential transaction. That's how you end up with the interim dividend of ZAR 3.6 billion, which amounts to 31% of free cash flow, and the additional ZAR 600 million that went to the minority shareholders at Zimplats and Marula. The two things on this slide. One. This company, if you look at its posture, its strategy, it's based on the fundamental premise that there is gonna be long-term support for the products that it produces. That view has not changed in spite of some weakening of dollar prices in recent months.
I'm not gonna talk about that, but if there are questions, we can talk about why we believe the short-term decline is not necessarily re-representative of our confidence in the long-term market for our product. Based on that, our strategy will be to continue investing in our growth and the life extension of our asset. Secondly, bottom right has got to do with the RBPlat transaction. It's a fundamental part of our company. We did announce in November in 2021, the strategic importance of providing sustainability to our Rustenburg lease area. It's not only important for the company, I mean, that's where 40,000 of the 50,000 people employed by the company is employed. We're talking about the sustainability of the Bojanala District, the Rustenburg economy, the North West Province.
The lives of 40,000 x 10 people that are being affected. The sustainability of South Africa's Western PGM production region. It remains as important as it did on day one. We believe that we must do everything in our ability to achieve success in getting control of that asset, which is why we stayed at the wheel for more than a year. Having said that, it is natural that an infinite future with uncertainty is not constructive for any party, not for shareholders, not for Royal Bafokeng Platinum, nor for us. Therefore, for the company, it is important to prioritize closure. We have engaged infinitely with all the regulating authorities, with all the key shareholders, including the PIC. It is important for us to stress during this results presentation the importance of driving this process to a closure.
We have had a firm undertaking from PIC that they will, in the next few weeks, make a decision one way or another. Even if they are unable to do that in itself will be an outcome which the company will use to direct its future decision-making. The other part is the outstanding compliance certificate from the TRP. It is unlikely that there will be a satisfactory end conclusion to that process in the short or medium term. This is a consequence of the way our legal system has been set up. It provides for a contest. It provides for litigious actions. You can appeal a process, to the extent that it's appealed, it can be escalated from the TRP to the TAC to the High Court, and it's being done.
We have been told by the regulatory authority that this could potentially go on for years. Except it won't, because to the extent that that is the future that we look at, we will make other decisions because the company has to be in a position where it can control its future. To the extent that the regulatory environment in South Africa does not support an imminent closure to this process, the company will exercise its options to take other courses of action. Lastly, guidance. We have no reason to change any of the guidance previously given to the market other than on two areas. One, we have seen a devaluation of the rand in excess of what we had guided when we started at the end of the last financial year.
We have increased the exchange rate from 16 to 17, and in Implats, every ZAR 1 weakening translates into around ZAR 300 per 60 hours. You'll see a commensurate change in the guided cost. The biggest risk that we do face, particularly at the SA operations, is a deterioration in the position of Eskom. This is premised on the basis that we don't have any further deterioration, and we are concerned about that. As we were at the end of the reporting period and in the two months after that, we were not in a position where we felt it would be constructive to change our revision. To the extent that there is a deterioration in the load curtailment and it does impact on the company, we will report that back to the market.
On that basis, I would like to thank everyone for their continued support and open the floor to questions which the team will assist in answering. Thank you so much.
Thank you, Nico Muller. We're gonna start in the room, and then we'll move to the call. There are some mics roaming in the room here. To the extent that we've questions in the room, please just raise your hand so that we can hand you a microphone. Just kindly introduce yourself to the people online, and proceed to ask. Leroy, let's start with you.
Thanks, Jon. Nico, I was quite curious about your comments about policy not to cross-subsidize assets. In a scenario where the palladium price continues to weaken, I know it's not, it's not your base case, and Impala Canada is no longer free cash flow generative, how is that policy practically applied? Do you close? Or do you give it a bit of time before you close? If you could just maybe talk us through your thinking around that in that scenario. My second question is, six months ago you said you're still a few years away from pulling the trigger on a base metal or battery minerals acquisition. I just wanna check if anything's changed or if you've made progress and those timelines have shortened potentially.
I was curious on whether you'd be able to share with us the other courses of action that you would follow if the RBPlat transaction is not concluded in a reasonable amount of time, please.
Thank you. Leroy. Let's just address the first question. I mean, so obviously we are in a long lead time intense, capital intensive business, so we don't make a loss one day and then shut the operation the next day. There are various escalation positions in the company. Zimplats has made a loss in the last reporting period, so you think the company takes note of that. It is recorded. To the extent that this persists and we work on a quarterly basis, it gets escalated to Edgar and then to the board, and we start having different conversations. Of course, the first level of discussion is what can be done to alter the cost structure, the capital expenditure.
What from a strategic point of view needs to change in order to ensure that we don't sustain a negative cash position? We will assess the duration that is forecasted for that to happen. One of the problems I think that both Lonmin and Implats historically made is that you don't ever change the conversation. You continue business as normal, and you don't ever create a strategic intervention that will result in a prevention of a catastrophic failure of the company. That won't happen. To the extent that Canada gets itself into a position where palladium prices regress and there is a risk of ongoing losses, there'll be a different strategic response internally. I can tell you right now, it'll not go on indefinitely.
We will get to a position if we are not confident that we can turn it around, where we will suspend the operations, and we'll followed, you know, one of several strategies. Just continued operation and making losses and putting the company at risk is not what we will do. Let's just talk about what the alternative choices are that the company could potentially exercise. If we are unable to secure a sustained long-term operating position for the lease area, it will then translate into maximizing profits over the next five to seven years for the benefit of shareholders. Typically, the industry refers to that as a harvesting process, which I think from an economic point of view will be fantastic.
From a public interest point of view, I believe it'll be absolutely catastrophic, and I'm saddened by the fact that the regulatory environment even remotely allows something like that to even become a possibility. It'll definitely not be our first choice, but forced to not have a different option, that will be the option, and then we will find an alternate investment vehicle for a portion of the cash flows generated. The other question was the, you know, it will be take us a few years to find alternatives. Let's tie that to the ZAR 27 billion gross cash that we have. Those funds have been allocated and earmarked for the transaction with RBPlat. To the extent that that does not happen, the money will be returned to shareholders.
We're not going to use that base to leap into alternate commodities. The position remains clear. We are in the process of developing IP, understanding the markets, and developing a transition process for the company in future. For us, it's more long-term process, we are not, you know, particularly in the presence of an RBPlat transaction that is dragged on for quite a long time. It's not something that we aim at doing in this financial year or potentially even in the next one. We are studying the environment and developing a strategy for the company for the long-term future.
Okay, thanks. Thanks for that. Maybe one follow-up. You're saying the cash that you've earmarked to match the guarantees, that ZAR 15 billion, that if the deal is not concluded, that comes back to shareholders. Can we assume that in the event that you sell into the Northam offer, those proceeds would be included in the cash that comes back to shareholders as well? Would that be a reasonable assumption?
I think that would be an entirely sensible assumption.
Thank you.
Thank you, Leroy. I see there's one more hand. Chris, there's a microphone over there as well.
Afternoon. Thank you very much for your time. It's Chris Nicholson from RMB / Morgan Stanley. Two questions. Just following a little bit on from Leroy's question, and I understand you've chosen your words very carefully around course of action for RBP. Is maintaining a minority stake in RBP one of the possible future courses of action? To just put that that way, i.e., if you don't get control, is that a position you would want to find yourself in? Secondly, could you talk a little bit to just your solar and renewable rollout and then some of the timelines, permitting requirements, and so forth around that? I completely understand it doesn't give base load, but ultimately we are still getting load shed in the day, so it will help. Thank you.
Thank you, Chris. We have got Tsakani in the room who will support Gerhard in answering the second question as far as the renewable energy is concerned. Retaining of our 40.71% in RBPlat is definitely one of the options. Retaining the retaining that share without the ability to interact with the company is, which is where we're finding ourselves right now, is a problem. There could be different outcomes. I mean, let's assume that we don't get any further increase in shareholding. We can retain the 41%, or we can sell down into a lower position.
If we, you know, if we retain the 41%, the ambition will be to first of all, to participate in a constructive way to make sure that shareholder from that particular asset is realized to its full potential. Secondly, it will be to ensure that through the combination of the contiguous assets, that we still find ways to maximize the potential leverage that we can get from the synergies that we identified when we initially made the offer. On the renewable energy?
While somebody gets a microphone to Tsakani to give you more detail on the wheeling options that we have, let's just recap the approved projects within the group. At our Zimplats operations, we've got a solar project for 185 MW, which is being implemented in four phases. The first phase will be operational by the end of this year. At our Marula operations, we are far advanced at 33 MW. I think the biggest question is how do we deal with our Impala operation, which is by far the biggest consumer, and for which you need to have partners because we just don't have the capacity or the surface area to do solar. In there are options.
One is obviously with the Royal Bafokeng, who have got property for solar. I think we've identified early on that our biggest advantage would be to wheel in from third-party providers. We've gone out with a request, and we've received very positive return from potential people to provide to us. I'm going to just ask Tsakani to update because we haven't spoken to the market about that process of getting our Rustenburg operations covered with alternative energy.
Gerhard, thank you. We initiated a market inquiry, an RFI, in November 2022, which closed, end of January this year. I must say the response was overwhelming given the other players that we are competing with, including the state-run REIPP programme. We received, in total, about 49 projects, representing capacity of some 7.8 gigawatts, of which, 2.4 gigawatts is, it's wind, and 5.4, it's solar. That is the level of reception that the market gave us, and that is what we'll be taking to the next stages in terms of requests for proposals. The projects are located in almost all provinces, save for KwaZulu-Natal, which is very good for us in terms of geographical diversity of where we can pick the projects. Thank you, Gerhard.
We've got one more hand in the room that I can see. Yes, please, go ahead.
Hi. Hi, good morning.
Nic Bruce Williamson, Integral Asset Management here. First of all, thank you very much for hosting a live presentation. Beats the Internet. I happen to share your concerns around Eskom, and I'm probably even more bearish. Could you give us an idea if level six or stage six is held for a month or two, how many of your underground shafts that you would then probably not put the shift down, and what percentage of production would that account for?
Mr. Potgieter, do you?
That's-
Mark.
While Mark is thinking about his operations. Let's just first unpack our South African operations. The risk with not having power is the risk of leaving people underground that you can't bring out. Except for our Rustenburg operations, we don't have vertical shafts. Whether it's Two Rivers, whether it's Marula, we have people that can walk out from underground. The risk of power total outage while people are underground is not within. We will continue to put people underground even if it's at stage six. Rustenburg has got a different problem. They've got a problem of when you send people down, you must be able to bring them out. We have sufficient generation capacity in the south and in the north with diesel generators for emergency, but that emergency takes quite a while.
There are other steps that Mark and them take to assess the risk before they allow the shift to carry on. Mark, now you can talk about that. Thank you. Yeah. I think we'll definitely have plans where we will strive to continue putting people down. As Conrad said, we have overcome the direct problem of safety about not being able to get people out by being able to wheel power across our property and then use generators, so we can do that. Remember we have about 100 MW in furnaces, and then we also have concentrators that, and we do the reclamation mining that we shut down from time to time. Those are all buffers before you get to losing the blast.
The next options that we have not had to use up to now is how do we do enforced cycle mining. In other words, start using compressors, pick your compressed air, 'cause that's the next biggest user of power. We will typically say one shaft being our lowest margin shaft, we will say, "No, you only get compressed air every second day," which feeds into you clean your blast. We'll start expanding that principle across the property. You're still mining. It's just getting a lot more difficult and challenging. You need a lot more organization. I do envision that case you'd have a 10%, 15% drop in production by doing something like that. I think it's that approach. We wouldn't have to stop at that.
Just to give you a number. We've just given you 10% of South African production that we couldn't bring to fine ounces. 5% of that was lost production, 5% is locked up in the system. If you say the situation will be double as bad as what it was last quarter or last half, you will lose 10% of your production that you can't carry, that you can't claim back. Thank you. I also wanna give people on the call an opportunity. I see there's already two names that have registered to ask questions. I'm gonna now hand over to the bridge and let them just remind you how you can queue for questions and then start taking questions from the call as well.
Thank you. Just a reminder, if you would like to ask a question, you're welcome to press star and then 1. The first question is from Adrian Hammond of SBG Securities. Please go ahead.
Hi. Good day, Nico and team. Thanks very much for the presentation. Nico, first question for you, just a bit more color, please, around the projects that are part of Rustenburg and how they feed into the sustainability of that operation. Update on 16 and 20 shafts, please. You've also expanded on 11, 12 shaft expansion. With all those projects in play now, how long can we keep modeling 10 million tons per annum for this operation? You also talked about 10% optimization in the base metals processing. Why are you expanding capacity there when you're concerned about the group's overall production profile? Perhaps you can expand a bit on the strategy there. You're also receiving less POC material now, from third parties.
Are you willing to fill the gap there or is that something you'd like to keep, vacant for strategic reasons? Then perhaps someone from the team can comment on the fall in rhodium and palladium prices, some 20% year-to-date. Thanks.
Thank you. Well, I think what I'm gonna recommend is that, Gerhard, you're in a strong position to answer the first three questions. Emma, you can probably talk to PGM prices, in particular palladium and rhodium. Okay, the projects now that feeds into the life of mine? I think let's just first identify the size of our Rustenburg operations in terms of our overall production and how long we can sustain that. 11 and 12 shaft, the parts of four of those projects that sustain the mine's production. They've pretty short returns. One, the 12 shaft project will actually start producing this year, and we will complete 11 shaft one in 2026.
For the next five to seven years, and that's a term you've heard Nico speak as well, we can see Rustenburg producing flat out the same volumes as what it's producing now, with no reduction in production. We're looking at 1.2 million- 1.3 million ounces a year through these projects that we're putting in. Obviously as we have other growth within the group, we have growth in Zimbabwe, we have growth at Two Rivers that bring along a lot of base metals. Those ore bodies carry a lot of base metals. We have to create capacity for those base metals because they are all coming on stream while Rustenburg is still running flat out. And for that reason, it made perfect sense for us to expand our base metal capacity.
It's already spoken for by the Zimplats and Two Rivers expansions. On the long term, I think having spare capacity is a very good thing. There are many sources of PGM concentrates that are looking for a home. I don't think we will ever not have feed for our capacity in the group. As part of the longer term strategy of growth, and I can mention a few, we haven't spoken about Waterberg for a long time, but Waterberg's flow could full
Could fill almost half of what Rustenburg's producing in terms of concentrate volumes now. We are quite happy with the expansions. It's expansions that pay for themselves very soon in terms of the beneficiation. Also, it will create a space that we feel we can fill in the long term.
Of course, despite our frustration, we're still planning for success with RBPlat. Don't discount that too quickly. Emma, maybe you can have a comment on the market.
Yeah. I mean, I think just as a starting point, we actually think at a fundamental level on an annual basis, all three markets tighten this year. We do expect stronger demand. There is an auto recovery coming through, and we know that primary supply is challenged. Notwithstanding that, I think that at various points over an annual period, you can get changes in liquidity in what is quite a thinly traded physical market that can result in some distortions. I think there are kind of three broad buckets that we're thinking about at the moment. I think the first is dollar dominance, so U.S. macro. The influence the outlook for U.S. interest rates is having on the strength of the dollar, on the outlook for commodities and specifically investor positioning.
We can see open interest in platinum and palladium climbing. We can see futures volume spiking. We can't get the net short breakdown because that data was hacked, so we're sitting four, weeks below, you know, on the absolute clarity of that COMEX report. We think that's had a big part in terms of movements, particularly for platinum and palladium. I think the second aspect is Chinese physical demand. Traditionally, we do think of the Chinese as not traditionally having long-term supply contracts, and tending more to be active in the spot market. If we think about Chinese physical demand, you had an unexpected lockdown, which means you would have had a build in inventory. You've had a slightly weaker than expected start to the year. You've had Chinese Lunar New Year in January, spring break in February.
There's absolutely no doubt that Chinese physical demand has been quite soft. I think that in itself, you know, that rhetoric and that comment then feeds, you know, the investor kind of speculation. It's such a tiny market. I think part of that is just trying to keep some perspective on the extent to which news flow gets circulated and regurgitated and kind of counted two and 3x . We had a session yesterday with the big trading floor and they confirmed. You know, I said, "Is it fair to say that volumes are thin on these price moves?" Their comment was, "Paper thin." You know, if I look at our customer base, and Safi says here, we're not seeing demand dropping like a stone. We're seeing robust demand.
I think liquidity in spot markets, some short-term kind of physical flows are skewing prices.
Thanks, Emma. Maybe we can go to the next question.
The next question is from René Hochreiter of NOAH. Please go ahead.
Hello, chaps. Thanks very much for the presentation. Just a very quick question. On RBPlat, would you have any objection of doing a joint venture with Northam?
So René, we may not have a choice. I mean, if things remain the way they are at the moment, we are forced into a relationship with the counterparty anyway. You know, and so a lot can be said about that and can it work? What my experience has been is that, I mean, we have got joint ventures with a number of partners. We've got with ARM in the Eastern Limb and with Sibanye-Stillwater in Zim. At the end of the day, we are all sensible operators, and we will find a way to work together. It will be a bit of a hurdle to overcome given the hostilities that have prevailed during the competitive transaction process.
My view is that in the end, deep value of the asset will be protected by the mining companies. If not, we should replace the leadership of the companies.
Okay. No, thank you for that.
I don't see further questions on the call. Maybe I can just confirm with the page-
Can I just add one sentence to what I've said? Having said what I've said, it is far from ideal. I mean, the concern that I have in that scenario is the ability of Implats to generate the benefits associated with the identified synergies if it is opposed consistently as the transaction has been frustrated in a similar fashion. There are remedial actions that shareholders could and should take if that happens, but it's not ideal.
Can I just confirm, no further questions on the call?
There are no further questions on the conference call.
There are two on the web. I think they both have been asked. They both speak to Eskom. The one is, other producers have indicated that losses could be up to 15%, for the whole of South Africa. What's your view on that? The most vulnerable part of your business to load curtailment, I think we have answered that. I think 15%, given the right set of circumstances, is certainly a possibility, and I think we have answered that our furnace operation is our first level of defense in Rustenburg. When there's big curtailment, that's where we will be hit first, and we'll protect underground mining and people's safety as best we can. With that, I think we've concluded. We've got one more hand in the room, and then that'll be the last question.
I'm gonna hand over to Gerald for the final question out of the room.
Thank you. Gerhard Engelbrecht, Absa. Nico Müller, you talk about a harvest strategy as kind of a potential option, and the impact that that could have on the region, et cetera. Is 17 Shaft not part of a longer term strategy at all in your mind?
Not at all. I mean, to generate a positive return on the investment of a 17 Shaft, I just believe that it's not economically viable. The only chance that I think a new mine has is if you can leverage, for instance, a 20 Shaft infrastructure to rapidly access a potential stope of two. Unless you've got a similar advantage, the notion of, you know, starting a new mine, a deep level mine is, I mean, is not viable. I mean, there's a reason why the last mining project that started, it started in 2010. In the PGM sector, there are no new projects for a good reason.
Thank you. I think that leaves it to me to then just close proceedings. A big massive thank you to everybody that has joined us today, live and otherwise. We're obviously available, and we're going to be on the road and meeting up with many of you in the next couple of weeks, and looking forward to having further discussions. Thank you so much for these people in the room and for the people listening. If you were here, you could have joined us for something to eat, a drink, and maybe a conversation with some of the executives here around the corner. Please join us for some refreshments. Thank you very much.
Thank you, Arno.