Good day, ladies and gentlemen, and welcome to the Kumba Iron Ore Interim Results Analyst Round Table. All dialed-in participants' lines will be in listen-only mode. To queue for a question, please press star and then one on your touchtone phone or on the keypad on the screen. You will hear a confirmation tone that you have joined the queue. To those joining on the webcast, they may submit questions in the text box provided. Please also note that this event is being recorded. I would now like to turn the event over to Penny Himlok. Please go ahead.
Thanks very much. Welcome everyone to our first roundtable, as I mentioned to the gentlemen in the room. Our first one since changing our team and results, and it's really wonderful for all of us to be seeing each other again and also hope that we'll see some of the participants on the call in person next time around. What we'll do is go straight into Q&A. We have a few participants in the room, and if we could maybe keep the question to one question per person and then go around again if there are other questions that a participant may have. Since we were able to take some of the calls in the auditorium early on, I'd like to start with those on the line first. The first one in the queue is Gareth Wynn.
Please go ahead, Gareth. Gareth?
Sorry, Penny. Gareth wasn't in the queue. I'll just unmute his line, please hold.
Oh.
Gareth, you can go ahead.
Apologies. I actually don't have any questions right now. I'm not sure how I got into that queue.
Thank you. Penny, we do have a question from Ian Rossouw.
Hi, guys. Can you hear me?
Yes, we can.
Hi. Just a couple of questions, maybe to Bothwell. Just on your capital expenditure, obviously it looks like the presumably CapEx that was incurred last year that was paid this year added almost ZAR 2 billion to the first half, I guess, overall cash flow numbers. How should we think of that into the second half, in terms of the overall cash CapEx compared to the CapEx guidance of ZAR 10 billion-ZAR 11 billion?
The 10-11 is the actual CapEx that we incurred, and it excludes the capital creditors. Particularly for this level of spend, you are looking probably at closer to ZAR 2 billion in terms of creditors at any given period in time. I don't know if that answers your question.
Yeah, it's just, do you expect then this ZAR 2 billion additional number, should some of that reverse in the second half or should we expect that then to stay around ZAR 2 billion-ZAR 3 billion and therefore your cash CapEx will probably be about ZAR 2 billion higher than your guidance from obviously what you incur for this year?
Yes. That was still remaining in creditors, right? I'm not sure I fully understood. We had an opening creditor balance, and we will still have an end creditor balance.
Your cash flow was ZAR 5.5 billion. Capital expenditure was ZAR 3.6 billion, so the cash flow was ZAR 2 billion higher than what you've incurred, right? Is that how we should think about it in the first half?
Yes. That's correct. Yeah, that is correct.
We should assume that.
As we were paying off.
It maintained in the second half.
We were paying off opening creditors. The point I'm trying to make is that you still have closing creditors at the end of the year.
Yes. Yes. Okay.
Yes.
Okay. Maybe just on a follow-up question on the working capital. Outside of sort of price movements, could you give us a sense of other sort of. Obviously, you've been building work in progress from ahead of the UHDMS. How should we think about the second half working capital and also next year, obviously outside of sort of price movements, obviously that could impact it?
Yeah. If we think about, and it's inventories that mainly are perhaps the most significant component of our working capital. This period, you've seen a reduction in finished product inventories, which went down to complement our sales. But you saw an increase in work in progress stockpiles and across all grades. There was a replenishment of work in progress stockpiles, especially at Sishen. You can see that unit cost benefit. Also we then introduced the C grade material, which has also impacted this. You will continue to see an increase in C grade material as we mine through it through the year. That's almost like a structural change, if you like, in terms of work in progress movements going forward.
On the finished product stock, you will see a buildup in stock leading up to our UHDMS tie-in in the second half of next year. We will build that finished product stocks so that during that tie-in period, we're still able to rail and sell our product. There will be a buildup of stocks, especially on the finished product side. The rest are pretty much, you know, they're just timing differences on receivables. Receivables sometimes also driven by where the iron ore price is. The higher it is, the more you will see locked up in receivables for a time because it's a timing issue. Payables is largely a timing issue as well.
Thank you.
Thanks, Ian.
Thanks.
Thanks, Norman. We can come back to any other questions you have. I just want you to move through the list, and we'll come back. We've got a question from Rodney Herenton from Channing Global. Chris, could you unmute Rodney? Chris?
Sorry. My system quickly froze for a moment. Was from Shafi.
Sorry, which one?
I think this is from Shafi Shikoh
I think that she is further down the list. The list was actually Woody Harrington from Channing Global, and then on the Q&A side we have Patrick Mann. Yeah.
Okay. Patrick's line is open.
I think it's just third off the Q&A list.
Hi, Penny. It's Patrick. Patrick here. Can you guys hear me?
Yes, we can hear you. Please carry on.
Okay. Thanks very much. Yeah. I think it was asked in the main presentation, but just wanted to go back to the idea around raising a bit of debt for the project. I mean, should we think about this as the way to defend the 75% payout of headline earnings? Or is it around just getting project financing and kind of ring-fencing the financing around the project for, is there any kind of tax benefit or something that we're missing there? And then just to confirm, would it still be done through sort of Anglo American finance arm of Anglo? Would it still, you know, would it be an intercompany loan, not third party debt? Thanks very much.
Yeah. First of all, it will be an Anglo American facility. If you recall, up until now we've had uncommitted facilities with the parent. The change now is that we've got committed facilities of ZAR 8 billion on exactly the same terms as our existing facilities with external lenders. The terms just mirror each other. The intention here is to introduce a bit of efficiency on our balance sheet. Because obviously, as you know, using debt, we pay interest, which is tax deductible, so you do get that benefit. You get the benefit from a return on equity perspective or a weighted cost of capital. But yes, you do then have the opportunity to release some cash for distribution to your shareholders. That benefit you will see.
It's in no way defending the 75% in terms of our dividend payout. In fact, our projections tell us that with or without the debt, we would have been able. That's how we came up with the range in the first place. A range that we are able to maintain through the cycle. This is just an opportunity to get a more efficient balance sheet and the knock-on effect is that you will get more cash available for distribution.
Got it. Thank you. Thanks, Bothwell.
Thanks, Patrick. Chris, are there any more participants on the line?
Not currently on the conference call.
Not on conference call. Okay. In that case, I think we go back to the room, and just open for Q&A in the room.
Maybe just on that dividend question while you've got your mic on. You didn't think you were gonna have lunch, did you?
Save for my lunch break.
Yeah, you've spoken about a ZAR 5 billion minimum cash balance before. That was always quite easy to model, right? The dividend out of that. You haven't given us a number now that you would look to have on the balance sheet. Can you give us something like that?
We started off with ZAR 5 billion. You're quite right. We actually went down to ZAR 2.5 billion, and then at the last stay up, we said we're going to go down to zero. It's just a progression that we are getting to. The number to look out for at the moment is, as I said, we are targeting funding the expansion projects. We've probably still got about another ZAR 7-8 billion to spend in those expansion projects this year and next year. I think we're short of our target in terms of what we look at.
Spain would be my question, participants. [audio distortion] Can I ask on the marketing premium ? I saw it was $1.
Yes.
The target I think is 2, or am I mistaken? I wanted to ask, in this environment, I mean, how much marketing premium can you generate?
Um-
How confident are you about marketing premiums in this environment?
I'm actually quite confident still. What we've shown is an overall premium of $1. That's a marketing premium and a timing effect lumped into one. You know, last year we benefited massively from a you know positive timing effect. This time around, it's actually worked against us, and the timing effect has certainly been bigger than $1. The actual marketing premium has actually been higher than the $2 that we're targeting. We can still earn that marketing premium even in today's environment. Now, the timing effect always clouds the picture a little bit, particularly for the half-year results when you're just looking at a six-month period, right? The longer the time period, the less the overall timing impact is going to be. That's a little bit cloudy.
If you were to strip it out, the marketing premium would be above the $2 that we're targeting.
You showed those cost savings of ZAR 604 million, I think it was. One of the biggest numbers in that was a change to mine plan. My sort of sense of the E101 kind of scheduling planning is that you don't change your mine plan a lot, and that this is, you know, unusual kind of activity. I don't actually know what happened in terms of a change to mine plan, so maybe we can talk just a little bit about what you're doing and why. Because it felt odd to me, and it didn't feel like it fitted naturally in the slot. Yeah.
In the general-
That plan covered. Yeah.
It wasn't a change in mine plan. We spoke about mine plan optimization.
Yeah.
It's not just changes to the mine plan. Because part of our life of mine plans, every year we do a life of mine plan. We identify certain opportunities. If you look at the 20-year life of our Sishen, we saw opportunities to, you know, reduce waste stripping, and it was through optimization of road angles. You know, making them a little bit steeper and narrowing them a little bit. It was all to do with optimization. Looking at how we can do some short hauls to benefit from in-pit dumping. It wasn't changing the plan, it was optimizing the plan. We do that every year. We're building in, you know, those benefits over the life of mine. When they can realize that we can bring them forward, we do.
It really is optimization, technical optimization of the plan. They're not changing it at the expense of, you know, the long term.
That's another question.
Yeah. I always struggle to get to sort of reconcile to those savings numbers, if you know what I mean. Like, what is normal operating activity and what is savings? I don't know, Bothwell, how the hell you measured it, to be frankly. It feels like a dark art to me there. Brian reckons it's clear.
It's not so simple. We measure them on a like-for-like basis. I mean, they tell me they're going to be more efficient next year. If they are more efficient, what I do is I look at the cost. How much would it have cost me had they not improved their efficiencies? Compare it to how much it costs me with improved efficiencies, and that's the saving. That's clearly before the input. That's why we always show savings separately to the actual input. It's before inflation or cost escalation and so on.
Why don't you bring the savings in? Because if your truck efficiency, say, is right down at Kolomela.
Mm-hmm.
Why don't you bring that in as a negative to the number? Even show it as a negative and say, "Look, we had some positives, but this was the negative.
Yeah.
Otherwise, you're just showing half of the picture. Am I wrong?
You will see it on the mining side. We will tell you the mining cost has increased because our hauling distances have increased, but we were not as efficient. We will explain that in the mining cost. We had to move more waste. Whatever has happened on that side, we will show, and then we will show the savings separately.
Because the way I would say, if you're saying, like, your efficiency level is 100.
Mm-hmm.
Glenn delivers 105. Deliver 105, then you show it as a saving. If your efficiency drops to 90, surely you should credit it against the number. Because it doesn't feel like you're doing it. Like, in terms of, you know, the difficulties you've had at Kolomela, don't feel like a negative credit to that 604 number. No, I don't want to get picky about this.
Yeah. The 604 is only positive, you're right.
It's only positive, right?
That's two different views. Because we wanna track when we achieve savings.
When you achieve it, yeah.
When you don't achieve savings, you will see it in the mining cost. We will tell you it's because we were less efficient or because we were doing this, and we'll tell you that. That'll be on the other side.
I think that's what's made it difficult to reconcile, because on the one hand we see the savings, but clients always ask for the cost of it. You have to view them differently.
Yeah.
Um-
Can I ask a question on lump? I sort of asked it earlier, Timo. We know South Flank coming on 10% more lump ore, like their Australian lumps will increase from 70%-80%. We know that Vale is getting their licenses, so pellet production or supply should improve, perhaps not this year, but definitely into 2023. We're going into a period where lump and pellet supply is going to improve significantly. We're in a world where probably Chinese steel production is now going to be declining on a year-on-year basis. We've spoken about ways to receive a long-term lump premium. We've spoken of numbers between $14-$18. Are you still confident on those numbers given where the world is at the moment?
Yes, I am. Because I think the lumping is supported by your cost of sintering. The cost of sintering has also gone up. We previously were talking about a long-term lump premium of $0.15, and we revised that upwards to about $0.20-$0.21. That's really in response to how the cost of sintering has moved. That cost support is still gonna be there, even if there's more supply of lump coming into the market. Yes, you're right, there is more lump coming into the market from South Flank and from Gudai-Darri having a higher lump to fine ratio than the mines that they replace.
I should also mention, though, that people are also beginning to realize that these direct charge products can also give you benefits in terms of CO2 emissions simply because you save on the sintering step. That I think will provide a little bit of a boost for the demand for such direct charge products. Sintering is about 300 kilos of CO2. Overall steel making is about 2 tons of CO2 per ton of hot metal, so it's about 15%. Clearly, if you can use lump and you can avoid the sintering step, there's a very significant CO2 saving. Now, when you then use that lump in your blast furnace, you're gonna have a little bit of a penalty since, you know, the reusability is lower, so it's not a net 300 kg saving.
You know, the net saving is gonna be a little bit less, but nonetheless, it's going to be a saving. I think that is becoming more and more important. That will provide a little bit of a boost for direct charge materials.
Yeah. Just as a quick follow-up into this year, the second half of this year, with China desperate to lift the economy, we could actually see them not put in place as harsh sort of like steel or sintering quotas they have in the past, which means that there's a high availability of sintering. Lump premiums could perhaps not recover to where they normally do in the fourth quarter or something, right?
Look, it could be, but it could also be that China is going to be focusing more on the CO2 side also, right? Following other markets. I tend to be in the camp that says that China is gonna be focused more on that, and they're gonna be acting faster and more than what people expect. I mean, just by way of example, I mean, Baosteel has just announced that they're gonna be building a DRI plant in Zhanjiang. Nobody expected that. You know, everybody's been saying that, Europe is leading the push into direct reduced iron making and that other markets are far behind and that it's gonna be a long time before China catches on to that, but they're catching on now already. I think we're gonna see a change in the product preference also in China.
Very much possible. Thanks.
Sorry. Just want to check if there's any more callers on the line. Bruce, could you just check if there's Sharon and Rodney Herenton, 'cause I see their names in the list. Bruce?
Penny Himlok, I've opened up everybody's lines. We currently still have Ian Rossouw, Patrick Mann, and Shashi Sikander on the line.
Okay. First we can go to Shashi.
There's no-
People are on the line.
There's questions.
We have some questions from Angelo from Fouts. He's asked, "Could you provide some color in the stocks at the port? Just mentioned the 4.5 million tons is largely the mines. How do the stockpiles look at the port?" Timo.
Yeah.
Rather than my pre-write.
Yeah. Sure. I mean, clearly, we'd like to see the distribution of stocks differently from what it is. I mean, of the 4.5, you know, the bulk of that is sitting on the
Mm-hmm.
There's less than 0.5 in port. That's not a level that we want to see longer term. It does make our blending a little bit more difficult, but as I commented in the presentation, you know, the silver lining is that it's forced a much closer integration with production because we are effectively pulling the cargoes that are required into the port. We have managed to get by with lower stock levels, but I'd like to see it higher. I'd like to see 1 million tons or more, and we're well below that level at the moment.
Thanks, Timo. I've got a question from Bruce Williamson from Integral Asset Management. He's asked, "How much do you think that Transnet ideally need to spend to allow for consistent flows of iron ore to capacity? And what is good capacity?
All of us wish we knew what the answer to that question would be. I think that's a brilliant question. Even though Transnet has been doing the slightly longer shutdowns, indications are that more maintenance is clearly required. What we have been talking about with Transnet is the aspect of doing a technical assessment together. We've essentially come forward. The media is not here yet. Let me just check.
Not yet.
I keep saying that we do have an open and honest relationship with Transnet. We have agreed on doing a technical assessment on both our line from the rail perspective and the port, and that will essentially look at the overall infrastructure. The key reason why we want to do this is to figure out exactly the answer to that question. The ongoing longer maintenance is good, but for us to say, you know, this is exactly what else is required, we do need the technical assessment. That's through what we call the Ore Users Forum. It's not just ourselves, but it's the other iron ore producers that essentially use the line as well, and Transnet. We are in the process of finalizing the RFP.
It will be through an independent party, and we're actually looking forward to that because it will give us exactly the answer to that. Yeah.
Um, anything-
I checked again, the media is not here.
Okay.
It's taken quite a bit for us to actually get Transnet to agree to do this, and I like the fact that all of us will be looking at exactly the same data.
Just one more question from Sygnia Asset Management. I think it's very similar to what we've seen before. What are the rail costs for the ton? How do you expect this cost to escalate, maybe, on for-
We covered that. We've got standard-
Yeah. Okay. That's basically it. Then back to the room again. Steven.
Maybe just, Bothwell Mazarura, if you could comment on the whole C grade material and how that's gonna work with UHDMS ramping up. I mean, does that capitalization of that waste or not waste anymore, does it stop post the ramp up, and then do you see that sort of start to flow through on the cost line and, you know, just give us a bit more color.
I guess the difference is, if you look at it, we go with three types of material, A, B, and C. Previously, we used to only allocate costs to A and B grade. C grade was waste. No costs are allocated to it. What we've now done with the approval of UHDMS, we're now saying we're going to process C grade. It now has a value, but that value is at a lower yield. When you mine, and we've always mined it, but now what we said, post the approval, when you mine now, then you incur mining costs. You're probably still incurring the same mining costs because you had to mine for your C grade in any case. Now, when you allocate your costs, you allocate to all three types of materials.
because you're not processing the C grade yet, you are stockpiling it. You're now just deferring some of that mining cost onto your balance sheet. that's how you get your benefit then through the income statement, 'cause when you then process your A and B grade, that mining cost that you then move to the income statement is lower because some of it you've put on the balance sheet. as long as you're mining C, you will have a deferral of a portion of costs. it's almost like you've changed your strip ratio, and therefore you've changed your unit cost base. it'll come back to the income statement when you actually process the C grade material.
The benefit to that, I would imagine, you have to get higher volumes, but if you don't get higher volumes, there'll be a cost to that effectively.
If you don't get-
If you get more volumes, then there's a benefit because you're selling more material.
There's two benefits.
If you don't get higher volumes, and the problem you guys have had is that you haven't been getting the higher volumes, right?
Yeah.
If you don't get the higher volumes, then suddenly you're sharing your cost. No matter which material you're using, you're gonna have to take more cost on the nose, right? More than share.
So-
Unless you just wanna create the biggest stockpile ever, so that it.
The cost is the same. You are gonna mine.
You are mining.
You are gonna mine it.
Yeah. Sure. You can't carry on putting it on your balance sheet.
Your cost is not going to slide. The UHDMS was always premised on two value streams that you can do. It's either, yes, you increase the production, but that's subject to a limit on your logistics. It not only increases production, it also increases the quality of your product.
Yeah.
You're actually able to process your A and B grade better and increase your proportion of premium products.
Premium.
That's the value proposition. You're not just reducing or diluting your cost base with C-grade material. You're actually increasing your revenue side as well. You still get the benefit of then processing your C-grade at the end of life and get the-
It will just grow on the balance sheet.
Additional life.
You are just taking mining costs that it's economically processed them, and you'll just put it off for eight years or whatever.
Yeah. When you look at it, I mean, when you look at it from an accounting perspective, you have to look at the net realizable value.
Sure.
You're not just deferring the cost. You're still saying, "When I do process it by 2018, I don't know, what will the long-term iron price be?
Yeah.
“How much am I going to get for it?” If the costs are higher than that, you impair it.
You will see the number when you charge them in each phase.
What would be a good long-term final price to use?
Nice price.
You know, you don't do that for a long time.
You know, I know this, that I can ask all of you. You are looking at a number of sort of between 65 and 75, somewhat slightly even more optimistic than that. Our long-term price is not outside of that envelope.
Well, we have, in our global marketing side, we've got a sort of 90% C1 cost to not our, but at the market sort of level. I think that gives a general indication.
When you were doing your HMX, you sort of spoke about retrofitting the old plant and coming on one by one, and you had excess capacity, and so you're gonna bring two on and then move on to the next ones and bring those on. How many are running at the moment? Within, not the ops, not the stuff over by the stockpile that you did earlier on. Just the retrofits.
Look, we're not running any of them yet. We start conversion of the modulars in January next year.
Okay.
We do them one by one.
Right.
We're actually doing two by two.
Two by two.
2 by 2, and then we do the big tie-in in quarter four.
The money being spent now is?
That's all the detailed design work, principles, you know, procurement of the modules themselves, the cyclones are coming through. It's all the early procurements.
Thank you.
How long does each set of those take, each set of the truck?
We've got about 60 days.
2 months.
Per module, yeah.
It's 18 drums. How many drums?
Taking out 18 drums, yeah. I mean, I think there's 4 or 5 per module, and then we're taking them all out over a period of a year, and then do the big tie-in in quarter four.
Bothwell Mazarura, can I ask with regards to the new ESOP, can you just remind us what the shareholding is at the site level in terms of Exxaro, Kumba, and then the community share scheme? I just wanna have a better understanding of how this 1.2%, whether it changes the percentage holding of the ESOP or whether it's just, I don't know, split 1.2, 1%-1.8%. I don't know.
Currently we've got Exxaro at the site level at just under 21%, and then you've got the site CDT, the Community Development Trust, of 3%. The rest is held by Anglo American. We're going to issue 1.2% of IR, so each of those shareholders will get that return proportionally.
The rest is held by Kumba.
Right.
I want to follow up on the question Thabang asked during the results presentation on Kolomela and your confidence to actually ramp up in the second half of the year. If I look at Kolomela, on average, interim is about 6.2 or 6 million-
Yeah.
million tonnes. I mean, I just wanna ask, like, specifically, do you think we can get to the 6.2 or not? And the reason I'm asking this question is because in terms of the safety issues, I think you mentioned that up until July, you still had those issues. I started thinking maybe 6.2 is a bit ambitious on my side for the second half of the year. Let's talk on a run rate perspective then. Yeah.
Yeah. If you look at, say, if you take the second half of the year, it's, say, 180-odd days. 180-odd days, if you talk about 6.2, that gives you roughly, what? 25,000 tonnes a day. We certainly, in our processing plants, we certainly do have the capacity to produce. The instantaneous rate is always a lot higher than what you see. What is happening is, certainly given that the tough quarter one we had, we had to have a relook at our strategy in terms of how the production plan would fit in. Those are the things we have done. Because the plants were not running that hard earlier during the year, we had opportunity to do quite a lot of opportunistic maintenance. That has been one.
July, we were ramping up. Certainly, I think end of July, all the misfires should be gone, and then it should be business as usual.
Let's just talk about run rate.
Yeah. If you look at, if you take Kolomela 12.5, we should be running at around 1.07 billion tonnes a month. You know, I mean, if you look at what we need to do the rest of the year, we need to run at about 1.27, 1.3. We demonstrated that previously to Vijay's point. It's all about making sure, and this is why the focus on mining, to make sure we can get the tonnes out the pit and also utilizing some of our sort of stock piles to supplement that. So the plant's got capacity. It's all about making sure we deliver it from there.
That's all.
From a mining perspective.
Thank you.
Bothwell, can I come back to my question? Sorry, I'm not an accounting person, but if there is dilution from all the shareholders at the site level, then how is it free? Like, how is it non-funded, the scheme?
It's free from the fact that we don't expect the employees to pay for it. It's not your traditional scheme where you say your shares are encumbered, and you have to get capital appreciation fee to cover your original debt.
Right.
That's what we mentioned earlier. No, the shareholders, the existing shareholders get diluted, so they pay for it.
Okay.
If I'm a truck driver assistant, I'm getting ZAR 20,000 and it vests in three years. I get ZAR 20,000 every year?
Yes.
On a rolling three-year vest.
Correct.
That's just a spreadsheet that you're running, right? That ties to the Kumba share price.
Correct.
It's a spreadsheet. They're not actually shares that I own.
They get units.
They get units, so it's a Sishen Trust.
Yeah.
Okay. There's the 1.something%, which is your evergreen dividends. 1.2, which is the evergreen dividend. You just take the total dividend, divide it by however many units people have got.
Yes.
That's the dividend they get paid. They get paid that once a year, twice a year?
Twice.
Twice a year, same time as shareholders get paid.
Yes, I agree with cost. If they say, for example, I was a truck driver, got 20,000 ZAR for this year as part of my training incentive, but the share price fell below which Kumba share price is today. Does that matter or could that incentive sort of disappear because the share price is?
Yes, that's exactly the same. It's exactly on the same. The vesting component, that 20,000 shares, acts exactly like even our own management incentives scheme. That share price could go up or go down. When the shares vest, your units vest, you get-
At the market price.
Yeah, at the market price for the vesting. You either get a capital loss or a capital gain, but you participate in dividends through the life of it. What an employee actually gets after three years of the scheme going, because they get an annual allocation, they will get a vesting of whatever they were allocated three years before. They would have been earning the dividend on that ZAR 20,000 worth of shares and participate in the dividends of the 1.2%. It's actually quite a good scheme for employees in terms of potential payout.
The Kumba share price stays flat. After 3 years, they'll be getting ZAR 20 thousand, then ZAR 40 thousand, then ZAR 60 thousand. If they stay there, they'll be getting ZAR 60 thousand every year because it's a 3-year roll, right?
No, it's always a 20,000.
Pardon?
It's always one vesting.
Oh, it's one vesting.
Yeah.
One, three years vest. Okay.
Yes.
It's ZAR 20,000 every year, and they'll pay tax on that.
Yeah.
The Kumba share price doubles to ZAR 40,000 every year. That goes up with inflation every year.
Yeah, that's inflation. Plus, there will be any dividends.
Hi, guys. It's Ian. Can you hear me?
Yes, we can, Ian.
All right.
Yes, go ahead.
Just one question on Bothwell's commentary around funding the projects with debt. Should we assume, therefore, from the second half of this year, all the expansion CapEx going to Kapstevel South and new UHDMS will be debt-funded? Or is there a proportion?
Yes. Yes, we can.
Okay. All right. That will also be the case in 2023 and 2024, I guess, if there's any residual capital spending in 2024.
Yeah. Like I was saying, I think we've still got about ZAR 7 billion worth of spend on those projects until the end of next year, and spread over this year and next year. That will be the pace of drawdown to fund those projects. I think I must also be clear, and I spoke of the word I was looking for during the presentation was an orderly drawdown, 'cause we are also constantly looking at where the iron ore prices and what the environment looks like. If it looks like we are getting into an environment where having debt on the balance sheet is not the right thing to do, we will adjust that drawdown profile.
We will look at it every six months, and we're very clear about what we are drawing down for the period.
Okay. All right. Great. Well, Timo told you it's going and the price is gonna go up, right? You can draw down. All right. Thank you.
When next are we gonna see resources conversion to reserves? At the end of this year?
End of this year, yeah.
What are you looking at? Don't give me numbers, but is it the Sishen resources that you're converting into-
That was already done.
Reserves?
All of it.
You've done all of that.
Look, we're continuously working through optimization.
That's all underground resources that you've done. Any surface stocks?
In terms of, we haven't converted any surface stocks. We do have surface stocks on surface, but we've got more than enough coming out of the pits to actually feed the plant and whatever we need.
Okay.
We are doing drilling on those stockpiles just to confirm that they're historic. We just wanna make 100% sure what's there.
Okay.
There's no reason to think they couldn't come in. Again, this will be end-of-life type of discussions unless we change our strategy around volume. They are there.
Next reserve resource to reserve conversions will be what?
That's Kolomela.
Kolomela.
No, no. Oh, in terms of our pipeline.
Yeah.
I mean, so I think Sishen, you know, we've done and we're looking to optimize that, and we have work to do it. You know, the next project we're working on is Kolomela to bring Kapstevel.
Mm-hmm.
Heinekrans after that. We're busy with those studies. Our whole strategy is how do we get Sishen and Kolomela's pipeline matched.
Yeah.
'Cause the start of Kolomela is 2034, Sishen, 2039. That's really our priority. As at Sishen, we optimize the technology. We'll keep on, you know, optimizing the plan and hopefully adding to that.
When do you think we're gonna see those conversions come through?
Look, probably we're in concept phase A with Kloofontein, so probably another 2-3 years, and those will come through.
Those are together, just Kloofontein.
Okay.
Heinekrans, because it's a much earlier project. We're seeing that as life replacement for Kolomela, so that's much longer, a longer term project.
Okay.
We've got a pipeline we're working towards.
Okay. Can I ask another one?
Yeah, we're down to a few minutes.
Okay. One-on-one. Yeah. One-on-one or in the pit assessment.
Mm-hmm. Mm-hmm.
Has always been very constrained. What's it looking like now?
I think, you know, this year what we did as part of the mine planning process, what we did is we put in these hard limits on, you know, what should it go bottom and what should it go top. Currently, it's looking very healthy, and that is the planning guidance and will apply right through. That any plan that you put in place, this is the minimum cut-off criteria that it should meet. This has been one big change in the planning assumptions that we have made.
As part of stable production.
Yes.
We have to always have buffers.
Blasted stock, how much you have got it in the pit, and then how much you are sitting right in front of the plant.
These are process purposes.
Yeah.
In the last six months, that was higher or lower?
January, February, it was a lot lower. Towards May up till June, we started building up to that, and right up to the end of the year, we are thinking of building it further where we get to a base where we want to operate on.
Okay.
Part of stability, Ryan, is getting back to a point where those buffers should always be in place. We started off low, but the key is, and that's why we call it stable production, those buffers are meant to be in place the entire time. Clearly, that's not where we were at the beginning of this year.
Planning assumptions are no longer just based on output. You put these artificial constraint on the plan based on these buffers that you want. That's what a critical change we have done in our planning.
Last two quick questions on Kapstevel South. You said first production is second half of next year. From what I understand, it's going to be a Kolomela-like. Do we start to see production increase from Kapsa and then Kolomela and then sort of decline? Are you able to give me some numbers or indicative numbers?
The center of gravity of Kolomela is shifting. We had Leeuwfontein, the old pits. You know, we are depleting those, and then we're bringing on new pits, which is Kapstevel South and then Klooffontein. That whole center of gravity is shifting. We see that center of gravity shifting from old pits to new pits around 2026, when that gravity starts shifting.
Okay.
That's why we're doing waste stripping now to make sure we hit first ore by the end of, you know, let's say quarter three, quarter four next year.
Yeah.
Get really into the ore, you know, by 2026. It's a natural progression.
Kapstevel South keeps production at about 13 million until 2034. By then, Klooffontein.
Yeah.
Coming next year.
Yes.
Okay. Is the production rate still at 13 or do we see a drop down like we were that session?
Look, we don't know yet because we haven't done Heinekrans or Klooffontein, but the intention we have is to try and keep the, you know, the northern up and the southern up in balance. That's the intention.
Would there be any cost and, like, benefit implications? My assumption would be no, but I thought I'd make sure with you guys as Kapstevel South comes online next year.
No. The Kapstevel will. You'll see it in our life of mine profile. Waste stripping, our waste stripping does go up 'cause Kapstevel South is a higher stripping pit.
It's really right now.
You do see that go up a little bit.
Okay.
It's in the guidance as averaging 4.5 in the next 5 years.
Okay. That's okay.
Can I ask a question?
Oh.
Sorry. Just the reserves and resources. It sounds like the life of Kolomela is, like, the hard stop is 2039. Is there any opportunity to go beyond that?
Yeah. No, definitely looking. We also, when we look at the Northern Cape, we do believe it is underexplored. You know, you've got the traditional orebody succession, the Kumani, you know, the Kolomela. We've done quite a lot of exploration in the area, identified other opportunities. Kapstevel South was an exploration find, which we've added. You know, Klooffontein, Heinekrans is our next few projects, but we are doing additional exploration. The other lens we also apply to the Northern Cape is technology. If you look at beneficiation technology, you know, we went from PSO, DMS, Jig, UHDMS. All of that turns previous waste into ore. When you apply that lens of exploration, what's in the ground and the technology we have, you know, we do believe there's more beyond the 2039 we have now.
It's a big focus. We're spending, you know, about the last 10 years, ZAR one and a half billion on exploration. You know, we developed UHDMS spending, you know, ZAR 3.6 billion. We're investing in exploration technology to unlock Northern Cape.
Thanks.
I think that that's we'd like to make this close. We have to thank you. We close.
No, but it was nice to see you in person and good to interact. If there's anything else you need to know as we digest the results, please feel free to reach out to him.
Yeah. Great seeing you in person. I think great questions and clearly interaction and looking forward to interacting going forward.
Yeah.
Thank you very much.
Thank you.
Thanks. Thank you.