Good day, ladies and gentlemen, welcome to Anglo American Kumba Iron Ore's 2022 Investor Update. All attendees will be in listen-only mode. There's also an opportunity to ask questions impromptu. If you should need assistance during the call, please signal an operator by pressing star and then zero. Please note that this event is being recorded. I would now hand the conference over to Penny Himlok, Head of Investor Relations. Please go ahead.
Awesome. In terms of our 2023 Q1 unit cost and production for the next three years up to 2025. Team on the call with us this afternoon includes Mpumi Zikalala, Chief Executive of Kumba. Bothwell Mazarura, CFO. Timo Smit, Executive Head of mining. They'll be joined by Vijay, our COO, and Glen McGavigan, Executive Head of digital projects, a little bit later. The first part of the call, Mpumi will provide an update on the operational performance. Timo will cover the latest market developments, and Bothwell will take you through our financial guidance. We open for Q&A, where Vijay and Glen will be available to take questions.
Before we begin, I'd like to remind you that some of the elements of the call and our planned announcement are forward-looking and are based on our view of the environment and our business as we see them currently. Please note the disclaimers relating to our guidance and announced announcements, which is on the investor section of the company website. With that, I now hand you over to Mpumi.
Thank you, Penny. A warm welcome to everyone on the call. Thank you for joining us. Let me start with safety, where I'm pleased to say that our elimination of fatality track history is continuing to be effective, and we have extended our fatality-free track record to over six years. We've also continued to push towards our objective of zero harm with our Stand Up for Safety program being launched in October during what we call our toolbox safety day. Our aim, as we've already said, is to ensure zero harm to our people, our communities, and our environment. On the production front, during the second half, we've done well to step up run rate production, increase stock availability, and make progress in returning our operations to stability after the weather and the festival-related challenges in the first half.
In the third quarter, for example, Sishen's waste mining increasing by 4% and Kolomela's rate mining increasing by 4% relative to the second quarter. We've also been working to improve resilience through our margin enhancement work with a different objective to realize the full value for our premium products and optimize cost efficiencies. That helped us deliver an EBITDA margin of around 54% and becomes all the more important as we look at mitigating the inflationary pressures that everyone is currently experiencing. We are also putting measures in place to improve our ability to manage through the rainy season, given the increasing trend of disruption in recent years.
The progress we have made in the second half, I'm afraid that we have been negatively impacted by the Transnet strike and broader logistics performance, and the work that we continue to do with Transnet will be key to future performance plans. At the same time, economic slowdowns in some key steel-producing markets has weighed on iron ore prices. On a more positive note for Kumba, efforts in China to improve air quality have resulted in higher lump premium, and in Q3, this was around 8% above benchmark price. Our focus on premium products, therefore, continues to benefit us. The carbon emission reduction properties of our high-quality iron ore products positions to make Kumba's products an important factor of a decarbonized future.
Looking to the longer term, we also continue to work on our projects with the confidence or with confidence in the long-term value that they can deliver for Kumba. We are focused on making sure that we are confident that we get the engineering and planning right before we move through the various steps. On this basis, we are going to take a slower pathway in the development of the UHDMS, I'll tell you a little bit about this as I continue. In terms of near-term guidance, the overall headline is that we intend to continue building on the improved production run rates that we have established in the second half with increased stability and resilience. It remains critical for us to continue our work with Transnet and so mitigate the significant constraints that we have experienced more recently. Penny provides more details on our production guidance.
During the strike, Transnet executed an annual maintenance program. Unfortunately, rail performance has been disappointing since the reopening. The year-to-date performance has reduced further to a record low of 81.5%, compared to 84% before the start and the 88.8% that we experienced for the same period last year. The work required to remove the speed restrictions and increase the number of trains allocated to Kumba will only be completed by the end of the year. With rail run rate remaining lower for longer. We have had to reduce production in order to manage down the high stock buildup at the mine. As a result, we have revised our guidance to approximately 37 million tons. Beyond 2022, the logistics environment remains challenging. We have factored this into our planning with a clear objective of getting to a stable and resilient operational performance.
Over the next three years, we've reset our production outlook to reflect lower expected Transnet performance given the challenges we've experienced this year. This leads us to the more conservative guidance over the next few years, but we remain confident in the pathway to deliver on that and on our product quality, technology, and operational efficiencies. Effectively, this means that next year production will be between 35 million and 37 million tons as we continue to draw down on the high stock buildup at the mines to augment sales at guidance of 37 million-39 million tons. In our operations, our focus will be on improving the HME reliability at Sishen and Kolomela, as well as getting to a more stable production train chain at Kolomela.
With the challenging ramp-up following the annual shutdown of Transnet, rail capacity is expected to step up as we finalize all the remaining work. We will have the benefit of an extra train set that will improve the turnaround time, as well as the removal of speed restrictions and the implementation of preventative measures around Locos. This work has begun. In 2024 and 2025, we expect to see production increase by 5%-6% in each year, underpinned by continuous improvement in rail performance. Production is focused at 37 million-39 million tons in 2024, and in 2025 this will increase to between 39 million and 41 million tons. From a sales guidance perspective, I'm pleased to say that even with the recent rail constraints that we have experienced, these have not affected our sales forecast.
We are on track to achieve our sales guidance of between 36 and 37 million tons. However, that means that opening stock levels at the port will be low at the start of 2023. Once our standing work from this year's maintenance is completed from a Transnet perspective, we should see an uplift in rail performance and throughput at the Saldanha Port. In view of this, we have kept our sales guidance for 2023 at 37-39 million tons. That is 2 million tons above our production guidance. Our key focus areas are, firstly, to support Transnet to reduce breakdowns, which have resulted in significant lost sales this year. Secondly, to increase dual loading and direct loading rates. Direct loading rates reduce stack reclaimer movements and also reflect with increased in shipping throughput, and therefore allowing us to maintain healthier stock high levels.
On a more positive note, a Tippler 3 ship will be commissioned next year, which will improve train offloading and reliability. Furthermore, we should also see an end to the major annual port refurbishment program, which will benefit sales in later years. It is absolutely critical, not just for Kumba, but for all the other users of the Iron Ore Export Channel line that we see a significant and sustainable improvement on rail performance going forward. We are engaging with Transnet and government to improve the reliability of rail and the port infrastructure and ensure stability of both the rail and port networks as a matter of urgency.
More broadly, for the mining industry to be sustainable and grow and play its critical enabling roles amongst local communities in South Africa and in the global energy transition, a fully functioning rail and port infrastructure network is crucial. The loss of economic value to South Africa due to rail and port inefficiencies is concerning. Extremely concerning. We are working with Transnet to urgently and decisively deal with the constraints that it has identified, and we continue to offer all our support. Globally, most infrastructure projects are driven by governments, either through their own investments or by encouraging investments from the private sector, including through a regulatory environment that allows private sector to do so. The mining industry in South Africa has indicated its interest in investing in the bulk export channel through private sector participation, also called concessions.
From a project perspective, firstly, looking at Kapstevel South, which is the new pit that is part of Kolomela's current life of mine and contributes approximately a third of production. This project is located in Kolomela, as I said, and it experienced similar challenges of weather impacts and the safety risks that earlier this year. At the half year, we announced a slight delay in this project. However, I'm pleased to say that we are catching up and expect the first delivery of iron ore in the first quarter of 2024. Secondly, our Ultra High Dense Media Separation, or also called UHDMS project, involves the conversion of Sishen dense media separation plant to the new UHDMS technology. The project will be implemented while the Sishen plant is operating to minimize disruption to production. This therefore requires a higher level of precision to prevent safety and operational risks.
Since the project was approved in March 2021, we have focused on site establishment and advancing the detailed engineering design. As we have progressed the level of detailed designs, we identified additional complexities associated with working in an operating plant. This means that we have decided to delay the project and work through the complexities before we proceed. Our project team is working to understand how long it will take us to get a full view of the complexities as well as the impact on the project and how we will actually maneuver through this. Given the complexities of the project, we want to conduct much more advanced engineering to inform our review of the project plan, and this means that the tie-in and commissioning of the project will now not take place in 2023.
We still believe that the UHDMS technology is a game-changer for Kumba, and it will play an essential role in the transition to a low-carbon future. The value drivers for the technology remain intact, and that is lowering the cost of grade, increasing the quality of our iron ore, and extending the life of our mine. Once we have completed the review, we will be in a position to provide a more detailed update. At this point, I'd like to hand over to Timo, who is on the line to update you on the latest market developments and what this means for us. Timo?
Thank you, Mpumi. I hope you can all hear me loud and clear. After a strong rebound last year, the second half of 2022 and the outlook for 2023 have softened due to the weak global growth. In 2022, China provided an estimated RMB 2.9 trillion of local government bonds, of which approximately 50% was earmarked for infrastructure, and a smaller portion of around 14% was directed towards property markets. In spite of this, iron ore markets continued their downward trends during the third quarter, with prices falling to a 33-month low of $80 per ton at the end of October on increasing concerns about the global steel demand outlook. China's economy is facing multiple significant structural headwinds, with zero COVID policies, weak property markets, declining population, and rising youth unemployment.
In November, iron ore prices bounced back on China's announcement of 16 measures to support the property sector. The rescue package is aimed at alleviating the financial stress faced by property developers to ensure project completions and instilling confidence amongst home buyers and rental property companies. It will take some time for property developers to recover financially and to start launching new projects, and for buyers to regain confidence in the property market. Towards the end of November and into December, China appears to be relaxing COVID restrictions, further lifting iron ore prices. Lockdowns in China may still occur, but they're likely to be more limited in scope and duration, and we should see less disruption to economic activity, which should be supportive of employment and consumer confidence.
The Platts 62% Index has reached a level of $110, excuse me, per ton, which is up almost 40% from the low of $80 at the end of October. It should be noted that the price increase is driven mostly by improved sentiment and general market optimism towards next year. China's 2022 steel production is estimated to fall by 1.8% to 1,014 million tons, with a decrease in the fourth quarter due to seasonality. A mild recovery is expected in 2023 as the tailwind effects from China's infrastructure spending in 2022, a moderate recovery in the property sector, and the positive effects of the relaxation of COVID restrictions could lift steel demand.
Outside of China, European steel mills were forced to cut capacity and lower utilization levels in the fourth quarter on the back of poor end user demand and high energy costs. An approximate 16 million tons of blast furnace capacity, or about 15% of total European capacity, is offline as of mid-November. Blast furnaces are less impacted by energy prices than EAFs, because blast furnace mills can offset some costs by selling the heat generated, while EAFs rely solely on the price of electricity. As such, hot metal production as a share of total steel production in Europe increased from June onwards. Moving from Europe to the rest of Asia now. In Southeast Asia, Vietnam's Hoa Phat has also rolled back production with 3.6 million tons of blast furnace capacity closures in November.
On the supply side, though, prices have been supported by lower Brazilian shipments, down 5% to 340 million tons per annum. India's exports run over 60% due to export duties. India since recovered, and export duties have been removed. We expect shipments to further increase. Australian exports are up by just 1% to 872 million tons per annum. Rio Tinto is likely to enter the year at the lower end of their guidance, and risk remains for Vale to miss their annual production guidance. Over the next three years, the Big Four miners will bring around 100 million tons of additional supply, with Vale adding about 50%, Rio Tinto and BHP each around 20%. This increase in supply will likely add further pressure to iron ore prices.
We've seen capital discipline from the miners compared to the previous cycle. Structurally lower iron ore prices could result in less projects being implemented. For example, with the current weakness in global demand and rising production costs, some junior Australian miners have suspended their operations. Miners including Strike Resources and Mineral Resources have announced the suspension of projects or a cutback in mining capacity as a response to low iron ore prices. It remains to be seen whether this will continue. I think I'll leave it at that for now, and hand you over to Bothwell for a financial update. Bothwell, over to you.
Thank you, Timo, and good afternoon to everyone. I'll first take you through our unit cost guidance, and then I'll also provide a brief update on our capital expenditure for the full year. If I start with unit cost guidance, 2022 has been a challenging year in terms of cost inflation. As we've spoken about throughout the year, diesel prices have been quite high and supply chains input costs have been rising, and we've also been impacted by the lower production volumes. Although there are some encouraging signs that inflation has started to peak, it is still in the system. At a mining level, Sishen has performed well, and we have maintained our unit cost guidance of ZAR 500-ZAR 550 a ton.
Kolomela, being a smaller mine, is more sensitive to changes in production volumes, and we saw a significant increase in costs. Full year guidance, however, is maintained at our revised unit cost of ZAR 505-ZAR 525 a ton. We have also been able to maintain our C1 unit cost guidance for 2022 on an FOB basis at $44 a ton. In 2023, we expect C1 unit cost to remain flat, and this is based on a spot exchange rate of ZAR 17 to the dollar. We should continue to see the benefit of lower diesel prices, and hopefully inflation will have peaked following this year's round of monetary policy tightening by central banks. Our cost base will remain a key focus area, especially given our revised view on production.
Our key cost levers will continue to be operational efficiencies. We will continue with our targeted cost savings program. We'll continue to look at optimizing how we use contractors. We'll also continue to look at our fixed overhead base and also our supply chain spend. I will give further details about our view on unit costs at each mine at our year-end results announcement. If I turn to the balance sheet, CapEx for the year is expected to be at the lower end of our guidance at around ZAR 10 billion. This is largely due to the lower spend on our Kapstevel South project, as mentioned by Mpumi earlier. SIB and deferred stripping make up the rest of our capital expenditure. These have remained similar to our guidance, to our 2022 guidance that we provided at the interim results.
In the medium term, total CapEx is supposed to increase on the line with inflation, and CapEx will be slightly elevated when our expansion projects ramp up. As Mpumi mentioned, Kapstevel South recovery plans are being implemented, and the project will now deliver first ore in the first quarter of 2024. The total spend for Kapstevel South is unchanged at about ZAR 7 billion. Total spend on the UHDMS project will be updated once there is view of the design and the engineering has been completed. SIB will continue to be driven by HME replacements and the capital spares program to support our equipment reliability, as well as our investment in safety and environmental improvements. Just to wrap up on guidance, we are continuing with our cost savings drive, and we remain focused on protecting our margins.
Kumba is in a highly competitive position from a quality perspective. We will continue to optimize this from a price realization perspective. As you know, maintaining a flexible and robust balance sheet is one of my core priorities. At the half year, our net cash position was over ZAR 17 billion. Given the lower iron ore prices, we'll continue to maintain liquidity at high levels. We've only drawn down conservatively on our available credit facilities. We still have ZAR 15 billion of liquidity available to us from our revolving credit facilities. These mature in 2024, as you know. We remain committed to dividend capital allocation and getting the balance right in terms of our returns to shareholders and discretionary allocation of surplus cash flows.
Our dividend payout policy targeting a payout of between 50% and 75% of headline earnings continues. We remain focused on protecting our balance sheet while continuing to invest in our business for the future. Thank you. I'll hand you back to Mpumi.
Thanks, Bothwell. There's no doubt that it's been a challenging year, but I'm pleased that we have retained momentum and production in the second half. The logistical constraints that we have experienced more recently are frustrating, and we need to work together with Transnet to get that right. As we go forward, we have reset our ambition to continue on our progress in the second half, and hitting that new growth trajectory is our key priority as a source of increased ability and resilience. We will also continue to push to maximize margins across the value chain by capturing the benefits of our premium products and cost efficiency. As we look out over the medium to long term, the Kumba value proposition remains robust as we continue to deliver our projects and given the importance of our product in helping our customers meet their sustainability objectives.
I've recently been spending time with our customers, and it's been great to hear about this firsthand. Timo and his team are working closely with customers such as South32, Nippon Steel and JFE Steel. Are even—o kay. I believe we lost connection, but we are now back on the line. Let me restart. As we look over the medium to long term, the Kumba value proposition remains robust as we continue to deliver our projects, and given the importance of our product in helping our customers meet their sustainability objectives. I've recently been spending time with our customers, and it's been great to hear about this firsthand. Timo and his team are working very closely with customers such as South32, Nippon Steel and JFE Group to reduce their carbon footprint through our high-grade products, which help improve the efficiency of blast furnaces.
Our best quality products are even more suitable for DRI steel making. With that, I would like to open up for questions.
Ladies and gents, we will now be conducting a question and answer session. If you would like to ask a question, please press star then one on your telephone keypad or keypad on your screen. A confirmation tone will indicate that your line is in the question queue. You may press star two to exit the question queue. Just a reminder, if you want to ask a question, you will press star then one. The first question comes from Brian Morgan of RMB Morgan Stanley.
Hi, guys. Thanks very much for the update. Just a few questions from my side. Could you update us on the independent review that you spoke about last time we met on the rail and port infrastructure? That's question one. The second question is, could you flesh out some of the complexities that you've seen with the UHDMS project, please?
Thanks, Brian. Brian, starting off with the independent technical review. As we indicated last time, the good thing with this is that this is something that we've looked at together with the other four export channel producers and also with Transnet. Subsequent to our call, we did sign off on the memorandum of understanding between ourselves, the other producers and Transnet. We are currently going through the process of selecting the best independent player to do this. What's pleasing for us, as we said last time, is that there is alignment of this. As I said, it's critical that we do this simply because what will come out will inform on the additional things that may not have been maintained over time and clearly will help in terms of having a path going forward.
On the UHDMS project, the key around this is that the technology, as we said, is a game changer. If you think about it, this is a retro project, which essentially means that you do work within the existing plant. It is around stripping out equipment from that plant. It is an oldish plant, which we've maintained well over time. As we've started doing some work, such as drilling to understand the floor conditions, we've understood that there's a little bit more work that we need to do. We've also looked at the added complexities of working within an existing plant. As you can imagine, we need to do this safely. We need to minimize the impact on production. Clearly, we need to do this with speed.
We've looked at how we will drive from this, from a constructability perspective, as we've done more detailed engineering. For that, there are some added complexities. That's why we are spending more time on the detailed design phase and the aspect of contract constructability before we continue. What's pleasing for me is that. One, we have reviewed the economics of the project, and clearly these are still robust. Secondly, what we've always said we need to get right from a UHDMS perspective. Reduce the cut- off grade, improve the quality of our product, et cetera. That still remains the case. Even though we won't be doing the tie-in next year, because we actually want to do more work before we proceed, it's still a fantastic project. Thanks, Brian.
Can I follow up on that? Duncan, in the annual call, spoke about some issues, for example, with foundations of the plants, that you've identified. Do you have any other specifics of the complexities that you picked up?
Let me just retail that. Somebody who's not on mute. Thanks, Brian. If you talk about the foundations of the plant, if you think about it, you're gonna have equipment that's gonna be standing in the plant. The foundation of piece essentially means we've drilled through to understand that your technical elements and look at that from a constructability perspective. I've got to say this because the plant as it is actually a good plant from a transplant perspective, but we've conceived that the work that was taking place there. More specifically, I'll say it again, we actually need to strip out the equipment and then build back on the same plant. It's more around complexities associated with that and understanding how we'll do that safely without impacting production significantly. Dan, Duncan, if you recall, also mentioned that the economics are still robust.
This is about, however, detailing the work that we need to do before proceeding, and we believe it's the right thing to do there.
Okay, cool. Thanks.
Thank you. The next question comes from Deon Burger of Citi.
Hi. Thank you. Thanks for the opportunity. First question. I'd appreciate some color as to, you know, the cost guidance for 2023. I appreciate it's difficult, but we have seen, over the last three years, quite strong cost inflation and sequentially, you know, excluding the denominator impact, also very strong inflation and diesel price is higher than the average of this year. The guidance of flat unit costs, you know, could you just isolate a few elements as to how you would achieve that given that we are now in a lower export sales business plan for the next three years? Thanks.
Thanks for that for that question. You're absolutely right. We have seen significant inflationary pressures over the last couple of years, and that has impacted our unit costs. I think as I said in the conversation, our guidance from a dollar C1 unit cost perspective is being supported by where we see the diesel price going, but also our view on exchange rates. That helps with the unit cost position from a dollar perspective. As I said from a rand perspective, there is inflation in the system, and I will give specific guidance on each mine as well as break it down further in February at the telco.
Okay, thanks. So you don't have specific controllables right now that you can mention? It's mostly due to those, the diesel and Rand, if I've got you?
I think so controllable. As I said, we continue to focus on our efficiencies. You know, we have seen stability now at position, and we are back on track in terms of going towards our P101 efficiency targets. We continue to work on stability at Kolomela. That still remains the biggest lever from a cost perspective. Clearly, the plant production lever is not there because we are having to limit our production. I think, you know, our cost savings programs will continue to be key for us, we continue to find savings from that perspective. I mentioned a couple of areas just now on the call.
Our contract optimization are going to be key for us, and we continue to look at the price that we can procure from a supply chain perspective, leveraging the global supply chain that we have too. Those continue to be areas that are within our control, and we continue to manage carefully. In terms of numbers, as I said, I'll come back in February with those.
Thanks. Thanks, Bothwell. Transnet published last week that they wanna move 2 million tons to emerging manganese rail capacity, 2 million tons to emerging manganese producers. The question is how much is gonna go onto the Sishen line, and does your current plans, the reduction in export sales, take that into consideration?
Yes. A question, Deon. We've got a contract, a current existing contract with Transnet, and that contract remains unchanged. We are clearly monitoring what's happening within Transnet to date as well, but on our side, we've got the contract which defines what needs to be moved from a logistics perspective.
That contract is, till what period does that extend?
The contract takes us to 2027.
2027. One last question from my side. Also, you mentioned that you have, you know, ZAR 16 billion of liquidity. I recall that number being a little bit higher. It has been quite a difficult half naturally with the working capital build, the bulk of your CapEx spend in H2. A difficult half from, you know, free cash in terms of what we've been accustomed to with the low prices. I just want to understand the willingness to go into a net debt position. If you could just, you know, flesh that out for us, like the progression for the business as to would you keep that payout ratio? To what level of net debt would you see as unacceptable? You know, as Timo mentioned, in a possible low iron ore outlook.
Yeah. Sometimes that's different. 16 billion of liquidity just refers to the facilities that we have in terms of the facilities. Those are unchanged from when we last spoke. You're right. I mean, cash generation has been lower in the second half compared to what we saw in the first half, driven by commodity prices. You heard Timo view, you know, what My view is we will be cautious in terms of how we use the liquidity that's available to us. The last time I spoke, I did speak about a moderate appetite to use our facility to fund some of our expansion projects in the CapEx for North and UH DMS.
We will continue to do that in an orderly fashion. We will take into account the current environment from a pricing perspective as we do that. From a dividend perspective, said that on our basis. As I've always said, that range in itself gives me the flexibility in terms of where we are in the cycle to pay within that range. There's always, if we do generate excess liquidity over and above that range, and we don't have, you know, value accretive uses for it, we will declare a top-up dividend. You're right, the cash generation is moderated in the second half of the year.
Great. Thanks. That's all from me. Appreciate it. Thanks.
Thank you. Ladies and gentlemen, just a reminder, if you have to ask a question, you're welcome to hit star then one to place yourself in the question queue. We now have a question from Nkateko Mathonsi of Investec.
Good afternoon. Thank you for the update. I just have a follow-up question on Brian's topic around the UH DMS. I'm struggling to understand 'cause the project was due to, I mean, next year was supposed to be commissioning, and now it's being delayed because of geotechnical issues, which I would have assumed would have been done at the beginning of the project. I'm struggling to understand the real reason behind the suspension. Not suspension, the delay.
Yeah. thanks, Nkateko. I think I need to be clear, it's not simply because of geotechnical issues. When we approved the project, we have progressed detailed design. The bit, however, as I indicated, what we've focused on this year has been around site establishment and continuing to advance our detailed engineering design. Now, typically, as you advance that, you do more work, and you start looking at constructability as well. You start looking at exactly how you'll make sure that you'll be able to construct in a safe manner without impacting production significantly and clearly with speed. As we've been looking at this, and it's clearly backed up by more detailed engineering, because now it's getting into the detail of saying, how many fines modules do you have? How many coarse modules do you have?
Exactly what will happen by when, and how will you sequence the various pieces of work? As we keep doing that, we essentially have seen that there's more complexity. If you consider it, part of the complexity is linked to operating within the brownfields environment, simply because it is working within an existing plant. Yes, the plant is a little bit older, which brings its own added complexity as well. It is around the aspect of detailing, and with that, we've seen that there's more work that we'd like to do. Therefore, we believe that it is the right thing to do to slow down, finalize the detailed engineering phase prior to proceeding with construction.
We've seen, particularly from learnings from other projects that we've done, that if you rush into the construction phase without catering for how we will actually work through the various complexities, that would typically bite us from a construction perspective. We think that it's the right thing to do to detail significantly more. You know, it's interesting things such as, you know, piping, electrical, et cetera, and making sure that we are clear around how we'll do this. That's why we've asked our project team to continue with the detailed engineering designs. Not rush to actually do the tie-in. We were going to close the project, if you recall, actually in 2024, and we have set H2 2024.
The tie-in, which is the main tie-in that would have stopped the plant, would take us 60 to 70 days, is what we would have done in 2023. We don't want to proceed with the tie-in prior to detailing significantly more. As we finalize the detailed design, we'll come back to give an indication of what that will mean. We do think that's the right thing to do. Otherwise we would be rushing and then figure out additional complexities. We'd rather find all of those now, figure out exactly how we will deal with them during construction and then proceed.
It's clear. Thank you.
The next question comes from Shilan Modi of HSBC.
Afternoon, guys. Thanks for taking our question. Just on the UHDMS, while you're, you know, working on that project, will the DMS plant be offline? If so, what could be the impact to your quality of your production volumes, quality grade, you know, lump ratio, all of those things. Do you just correct for this by drawing down on your stockpile?
Thanks, Shilan. Shilan, if you look at it, we've said that UHDMS includes the conversion, and we have what we call the drum plant and also the fines plant. These are different modules, and the plan would be to take one module down at a time. If it's one module within the drum plant, the other modules will continue operating. The only time when you stop production in its entirety would be for the main tie-in. The other bits would essentially be modular, with production taking place. The main tie-in, we've already said, would be set up 60 to 70 days. During that period, the quality of what we produce right now, we continue to produce because we clearly use other modules.
The key, however, as I've said, is that, you know, to put it in context, it's working within the first module of the drum plant with the other modules operating. We have to cater for the complexities of working within the working plant, simply because, you know, if for example, there's a crane that's shared between the running modules and the module that's being constructed, we need to be very clear on what will take priority. This is more around the detailed engineering design and making sure that we get that right because we have to get the sequencing right. I go back to it, the essence of the technology is a game changer. You know, we've said this before, but we need to make sure that we sequence everything right. We won't impact the quality of the production during the actual work.
As we then look at the tie-in, you can imagine if you don't get that right and you end up having slight extension. You know, yes, we would have catered for it because, you know, we've already set up and built a stockpile to cater for that. If we exceed that period, it would mean that we'd be slightly off. That's why we need to detail properly before proceeding. Sorry, if Vij is on the line, I just want to check if Vij wants to add anything.
For me, I think you've covered it. It's covered well. Nothing additional to add.
The reason I phrased the question the way I did is effectively with the lack of rail availability, it's kind of like opportunity inside of the disaster. And therefore it gives you the flexibility to actually, you know, extend the scope or, you know, do more studies for this project because you already have the stockpile available to answer the question. Thanks.
Thanks. That's brilliant. We also saw the target as well because we see that, you know, we've got the stockpiles available. That's actually a brilliant point. It makes sense for us to detail properly and therefore reduce any potential risk from the construction perspective. It's just the right thing to do. That's a brilliant point. Yes.
Shilan, does that answer your question?
Yes. Thanks.
Thank you. The next question comes from Tshilidzi Rabada of Industrial Development Corporation.
Thanks. Thanks for the update, guys. Mine I think is a pretty straightforward one. I'm feeling that the bulk of the revised production guidance is coming from the back of the logistical challenges from Transnet. Previously, some of the weather patterns used to play or factor into the production numbers a bit. Are we seeing anything on the weather front, particularly given some of the isolated heavy rainfall we've seen across the country? Thanks.
Yeah. Thanks for that question, Tshilidzi. You said it. The bulk of it is very much in line with what we expect will happen from a Transnet perspective. Other things such as the rain-related events, et cetera. As we said previously, what we essentially have done, and I guess we saw this from a season perspective this year, is that we know that there will be more rain. We plan for it, and we actually prepare for the rain events. You know, it's about making sure that we don't mine in areas that have a lot of clay during rainy season. Ensuring that our roads are well-positioned to deal with rain. Ensuring that our farms are in, particularly in the main pits, so as not to affect us.
Vijay and the rest of the team have been doing a lot of work to ensure that we actually look at what we did for Sishen this year and apply this at Kolomela as well heading into next year. Our plans cater for that, but the bulk of the risk is actually, as you said, linked to Transnet. Thank you.
100%. Thanks.
Thank you.
It appears we have no further questions in the question queue. I will now hand over back for closing remarks.
Thank you so much, for giving us the time to start to brief you on where we are. We will clearly catch up again in the new year when we take you through our full year results. As we said, you know, yes, it's been a challenging year, but we have started to see ourselves regaining momentum. The work that we are doing in the various parts of the business will continue. Certainly we realize that the constraints we are seeing from a logistics perspective is something that we have got to continue working on with Transnet. That work will continue simply because we do need to get this right. It's not just about us, it's about other producers as well. Have a wonderful festive break.
We'll also be taking a break, and we look forward to catching up with you in the new year. Thank you.
Thank you, ma'am. Ladies and gentlemen, that concludes today's event. Thank you for joining us. You may now disconnect your lines.