Good morning, everyone, and a warm welcome to everyone in the room and those online to Kumba's 2024 Annual Results. It's really great to see you here despite the rain and all the warm, friendly, smiling faces. We are really happy to be here. My name is Penny Himlok. I'm sure you know me by now, but Kumba's Head of Investor Relations. Your safety, of course, is important to us.
And before we continue with today's presentation, I'd just like to call on Sandile to take you through some of our safety drills. Thank you.
Thank you.
Morning, everyone. Welcome to The Mbeu and welcome to Anglo American. My name is Sandile. I am a Floor warden from Fire Ops, and I'll be giving you a safety briefing of the building. Of course, at Anglo, we are all about safety, and we do have a sophisticated system in place. In the event of an evacuation, visual and audible alarms will activate, and we will then evacuate the building.
Floor wardens, like myself, will guide you to the nearest fire escapes during an emergency. In your case, your nearest emergency will be on your left as you exit The Mbeu. This will take you to Assembly Point B, which is outside the Vuka Coffee Bar. If any ladies are wearing high heels, we do advise that you take them off. This will also ensure that you exit the building safely.
And if anyone has a medical condition that is preventing them from using the fire escapes, you can inform us, fire floor wardens, or your hosts. We will be able to assist you. Please note today we have no planned evacuations, so if the alarms do sound, please treat it as an emergency. Any questions? Good. Thank you.
Thank you, Sandile. Before we continue, please note the disclaimer, and particularly in reference to our forward-looking statements. Now, on to today's presentation, which will follow the usual running order. Mpumi and Bothwell will take you through our performance, and we'll follow that with Q&As. We also have members of our executive team with us in the room who will be on hand to take any questions at the end of the presentation. With that, I'll now hand over to Mpumi.
Thanks, Penny. Good morning and welcome to everyone. We really appreciate you taking the time to join us this morning as we take you through the results for the last six months, as well as 2024 as a whole. But just before we get into detail, I'd just like to step back and put the annual results into a more strategic context. In recent years, it certainly feels like the one certainty has been macro uncertainty. I'm sure we'd all agree.
As we now move through 2025, it's again very difficult to know if the clouds on the horizon will clear or if we are in for some stormy weather as we proceed going forward. Well, rather than waiting and hoping for the certainty to materialize, it's clear that we need to live with and certainly adapt to a new reality.
That's certainly a macro outlook that has ongoing risk of significant volatility in any given year. It's in that context that our key priority has been to strengthen our foundations as a business and for us to be more resilient so that we are not distracted by short-term swings. We see these all the time. So practically speaking, that's meant a real effort on reconfiguring our business and building sustainable efficiencies in the cost base. We have also focused on operational excellence in order to improve safe, stable, repeatable, and certainly robust production outcomes. Today's results will show good outcomes on both measures.
In fact, it's the lack of surprises today that's a real positive for me.
There are, of course, also important aspects of operating performance that are outside our control, and our partnership with Transnet is certainly important from that perspective, and that continues to be a work in progress. It's key for us. But I have to say that there is some progress, and certainly a commitment to continue working together will be critical for us to stabilize and hopefully reverse a really concerning area of decline in recent years. Overall, it's been another year of us delivering on our promise, and I'm delighted that we've now started to build on a firmer foundation as a business with progress on the UHDMS project, which gives us optionality to extend Sishen's life of mine to 2044.
Success for Kumba is certainly success that we share with all our stakeholders, and so I'm pleased that we are able to support consistent shareholder returns and indeed make a strong economic contribution across our broad range of stakeholders. I'm conscious that delivering these results has required tough choices from us, and I'm really grateful for support and understanding and working towards the right long-term sustainable goals, and above all, I've got to say that I support the support of our Kumba team in working so hard to make all of this a reality. With that introduction, let me run through an update on the business in some more detail before I hand over to Bothwell, who will take us through the numbers. I'll then come back at the end to wrap things up.
I'm sure we'd all agree that 2024 has been a very busy year as we reconfigure our business to optimize safe, stable, and cost-efficient production within the constraints of the available logistics capacity. Periods of change can result in elevated safety risk, and so I'm especially pleased that we've materially improved on our safety performance. That's been driven by proactive engagement, including a number of safety interventions, and importantly, it's been a fatality-free year. That's very good progress, but we know that we need to be more relentless in our drive to achieve zero harm. We can never rest when it comes to the space. Production was consistent with 2023 and almost entirely in line with Transnet's capacity.
And our adjusted EBITDA of ZAR 28.1 billion was down on 2023, and that's principally a consequence of lower iron ore prices.
Attributable free cash flow of ZAR 14.5 billion rand shows good cash conversion, and we also benefited from cost optimization and positive working capital movements in addition to core operating performance. Overall, we delivered more than ZAR 57 billion rand of value across all our stakeholders, and that includes our empowerment partners. We also declared a final cash dividend of ZAR 19.90 per share, bringing the full year dividend to ZAR 38.67 per share. Moving on to safety and the well-being of our people. The safety and health of our workforce remains our first value, and it will always be our first value. Throughout the reconfiguration process this year, we have engaged proactively with all our teams.
We also increased leadership visibility and our time in the field.
Interventions such as Stop for Safety and our Fatal Risk Management Program were implemented to enhance risk awareness and embed safety working practices. The programs worked. We saw an improvement in safety performance across the board. Lost time injuries decreased from 17- 11, and high potential incidents, which is an important lagging measure, reduced from 16- 7. Overall, our total recordable cases improved from 22- 17. On the health front, our team worked hard to support our impacted employees and service partners through our employee assistance program as we went through the process of the reconfiguration.
Good progress was also made in our campaign to reduce exposures to occupational hazards such as noise, dust, and carcinogens, and as a result, we've had no cases of level four to five occupational diseases. As I've said, we certainly won't stop there.
We need to keep moving forward toward our goal of zero harm, and in particular, to navigate the risk of complacency that can follow a strong year. We've committed to strong safety practices and embedding these in our culture and rhythms and routines. Now turning to our sustainability performance. Our sustainable mining plan remains integral to broader commercial success, and I'll touch on a few highlights. Starting with water stewardship, we supplied over 17.5 billion liters of water, and that is critical for the Northern Cape, which, as we all know, is a water-scarce region. We also cut back total energy consumption and greenhouse gas emissions, primarily as a result of our optimized mine plan and improved operational efficiencies.
And turning to our communities, last year, we facilitated more than 3,000 employment opportunities in sectors outside of mining.
And here, we also focused on a couple of marginalized groups, including the empowerment of women and youth-owned businesses. In terms of education and health, we supported more than 11,000 learners, and approximately 30,000 of our community members have access to quality healthcare. We also continue to advocate for transformation and ethical value chains. We have maintained our broad-based Black economic empowerment accreditation at level five, and as you may recall, that's improved from level seven over the last two years. There's been a lot of work in the space. Our workplace culture of inclusivity and diversity is also key to this progress, and that has seen our women in management increasing to 33%, up from 31% in the previous period.
We also achieved the IRMA 75 level of performance audit, and our ValueCheck tool provides our customers with verifiable sustainability assurance and product provenance.
As the broader trend towards sustainable supply chains continues, these are helpful areas of advantage. Next, we'll take a look at the value created for all our stakeholders. Despite market and logistics headwinds, we shared more than ZAR 57 billion of value across our stakeholders, including robust support for local communities and South Africa more broadly. I realized that we've had to make a number of tough decisions over the last year to withstand external challenges and ensure the sustainability of our business for the benefit of all our stakeholders. This has, however, allowed us to invest in the UHDMS project, which demonstrates our commitment to South Africa.
I'm not going to read through all the numbers on this page, but it's worth noting that Kumba remains committed to all our various stakeholders, including our employees, communities, the South African government, as well as our shareholders, which includes our empowerment partners, our own workforce, as well as our communities. In the Northern Cape, where some 80% of our employees are from local communities, the salaries paid to our staff directly benefits the region's economy, and that's beyond the ZAR 3.9 billion of procurement spend that has gone towards host community suppliers from the Northern Cape as well. Now moving on to our operational performance. As I mentioned at the start of the presentation, my priority has been strengthening our foundation by optimizing operational excellence, and that's safe, stable, robust production, as well as cost efficiencies.
I'm therefore pleased that we've delivered in line with our optimized mine plan, and we've achieved guidance across the board. As part of that, we reduced waste mining by 28% while maintaining production at 35.7 million tons. This production is in line with available rail capacity, including the drawdown of some high on mine stocks. We know that that's been a challenge for us. However, another challenging logistics performance resulted in low stock levels at the Saldanha Bay Port, and that impacted sales by around 2%. With that, let me move on to operational performance in just a little bit more detail.
Given the decline of logistics performance in recent years, we've needed to recalibrate our targets and cost structure to align to these new realities.
We delivered on our strategic priorities of reconfiguring the business and focusing on operational performance driven by our operating model, which focuses on planning and strong execution once we finalize the plan. This has been supported by a number of initiatives, and notably, you'll see that we saw an increase in our mining equipment availability as well as utilization. That's been helped by a maintenance reliability improvement program, our fleet management system enhancements, as well as broader optimization of our heavy equipment fleet capacity. Consistent with these initiatives at Sishen, the revised mine plan resulted in a step up in our overall equipment effectiveness, enabling a 12% increase in operating time and an 8% improvement in our whole truck availability for our own fleet.
While cost efficiencies are a direct result of the broader focus on operational excellence, and I have to say that I'm pleased to report that we've achieved ZAR 4.4 billion of cost savings. That is 47% more than what we set out to achieve at the start of our reconfiguration process, where you may recall that we committed to a target of ZAR 2.5 billion-ZAR 3 billion. Bothwell will cover this in a little bit more detail later, touching on the specific categories that we focused on. But safe to say this was driven fundamentally by the optimized mine plan and our focus on operational excellence. Now turning to Transnet's logistics performance. Kumba continues to proactively collaborate with our partners to improve logistics performance, and these partners include Transnet itself, the Ore Users' Forum, as well as the National Logistics Crisis Committee, or the NLCC.
Some examples of the collaborative work include repairs on a stacker reclaimer at Saldanha Bay Port, and I spoke briefly about this at half year. In the second half, we again worked very closely with Transnet to prepare for the annual maintenance shutdown. Consequently, 90 km of rail was replaced, resulting in the lifting of approximately 50 km of speed restrictions and reduced train cycle times between Saldanha and our operations. Although total rail performance for the year was offset by six major train derailments, I've got to say that we have seen a 5% improvement in rail performance run rate in the fourth quarter compared to the previous period. And for us, this demonstrates the powerful impact of partnerships and the difference that this can make to logistics performance.
Another highlight for Kumba and the Ore Users' Forum was the completion of the independent technical assessment of the ore export channel. And this ITA was co-sponsored by Transnet, as well as the various members of the Ore Users' Forum. The critical projects recommended in the assessment have now been prioritized in a joint Ore Corridor Restoration Program. In parallel, Kumba, as a member of the OUF, has been a strong advocate for Private Sector Participation, or PSPs, as they are called, and that for us is through concessions of the bulk export systems. The Network Statement released by Transnet at the end of 2024 and the revisions issued by Transnet's Rail Infrastructure Manager, or TRIM, on the 5th of February sets out the rules for third-party train operators to take up slots on the Transnet network.
The volume and quality of work that the Department of Transport has done in driving for rail reforms certainly needs to be commended. We've seen this taking place over the last couple of years. This is a significant step forward in terms of the liberalization of the South African railway industry. As part of the process, we are busy engaging with the Department of Transport, Transnet, and the interim regulator, they are called IREC, to understand the impact of the Network Statement on existing rail contracts such as ours. Overall, we do believe that the outlook for Private Sector Participation is certainly promising. We are awaiting the request for information, or RFI, from the Department of Transport, which will require us to submit our view on how we would like to participate in potential PSPs going forward.
We hold the view that the full concessioning of the Ore export channel is our most preferred outcome. I will now hand over to Bothwell, who will take us through the numbers.
Thank you, Mpumi. Good morning to everyone, and thank you for joining us. Upfront, Mpumi spoke about how increasingly uncertain our world is becoming. The iron ore markets have been no exception. This year, we saw our average realized FOB price decrease by 21% from last year. It averaged $92 per ton as iron ore prices declined, and our premium was negatively impacted by timing effects.
I will elaborate on this in the slides that follow. As Mpumi outlined, our focus has been on the reconfiguration of our business in line with our logistics reality, as well as on operational excellence and stability. This has resulted in cost savings of ZAR 4.4 billion for the year. We have seen a real step down in our cash costs, and this is reflected in our C1 unit cost of $39 per ton, down from $41 per ton last year.
The progress we have made in reducing costs has protected our EBITDA margin at 41%, despite the lower iron ore pricing environment. Headline earnings were solid at ZAR 38.94 per share. Our business remains resilient, excuse me, and we continue to build on our balance sheet strength and flexibility. To ensure that our shareholders benefit from the work we have done to unlock value, the board has declared a final dividend of ZAR 19.90 per share. Together with our interim dividend, this brings our total dividend for the year to ZAR 38.67 per share, and this equates to a payout of 100% of our headline earnings. Now, let's take a closer look at the market environment. For the year 2024, the benchmark price averaged $109 per ton, and this was 10% below the previous year's $120 per ton.
Strong steel exports from China continued to largely offset soft domestic demand. This meant that year-on-year crude steel production decreased by 1.5%. We are seeing market support in a couple of areas. Firstly, Chinese steel inventories are at multi-year lows, and we have seen mill margins improving over the past five months. This has led to a mild recovery in steel output. Secondly, iron ore supply growth slowed last year.
Despite the recovery of the Black Sea shipping route, there were disruptions in Sweden and Brazil. And lastly, iron ore inventories at Chinese ports are fluctuating around 150 million tons. The cyclone season has started in Australia, and this could cap further increases in inventories. Overall, we are seeing iron ore prices fluctuating around the $100 mark. This is well above the 90th percentile level of around $90 per ton.
Lump premium has also recovered from below $0.05 per DMTU in April to average around $0.14 per DMTU for the year. If I turn to our product quality and customer strategy, Kumba's qualities continue to be market-leading, and we focus on qualities and maximizing the lump ratio in our product portfolio. We also pursue a diversified sales strategy. The share of China in total sales rose to 54%, reflecting demand pressure in our traditional markets. As economic conditions improve, we expect this trend to also improve as we move up the range of our long-term target of 45% to 55% of our volumes to markets outside of China. The chart on the top right shows the premium we achieved on top of the equivalent Platts FOB Index.
We finished the year with a net premium of $3 per ton above the equivalent Platts 62 Index.
If we break this down, Kumba's product FE was 64.1%. This is above the Platts 62 Index, and it earned us a $4 premium. Our lump-to-fine ratio was 66%. This added another $6 to the overall quality premium, which then totals $10. Lastly, our ability to place products outside of China, as well as negotiate margins, boosted our premium by another dollar. The timing effects resulted in a negative $8 per ton, as we witnessed a steady decline in prices through the year.
If we unpack this further, $2 were due to pricing effects for provisionally priced sales late last year. $6 were attributable to products being priced one month after arrival in China. In a rising iron ore price environment, this can reverse, and we can see a positive timing effect. Overall, then, we achieved an FOB export price of $92 per wet metric ton.
This is still ahead of our peers. If we move on to our EBITDA performance, iron ore prices have had the most significant impact on our adjusted EBITDA. We also sold lower volumes than last year, and this negatively impacted our EBITDA. Unlike previous years, when currency movements have provided a partial offset, this year, the rand actually strengthened against the U.S. dollar. It is therefore pleasing to see that our cost savings provided a partial offset to the price and volume decline. If we turn to our break-even price, our break-even price reflects our all-in costs, including sustaining capital, net of premiums that we earn over and above the Platts 62 Index.
It is therefore impacted by factors that are within our control, as well as market factors that are outside of our control.
Our good progress on cost savings has offset declining market premium and slightly higher sustaining capital to maintain a flat break-even price before the impact of uncontrollable factors. Negative timing differences, which I explained earlier, coupled with increasing freight rates and a slightly lower lump premium, have added $14 per ton to our break-even price, which ended the year at $74 per ton. I'm going to take a closer look at our costs on the next slides. A year ago, we identified between ZAR 2.5 billion-ZAR 3 billion in potential cost savings. I'm pleased to report to you a year later that we've delivered ZAR 4.4 billion rand in savings. These savings were primarily driven by the optimization of our mine plan as we right-sized our business in line with logistics capacity.
This allowed us to pull some key cost levers. We were able to reduce waste tons that we mine.
This allowed us to park trucks and become more efficient in the utilization of our equipment. This, in turn, had a knock-on effect on the consumption of consumables. We were also able to reduce our use of contractors, as well as optimizing other cost elements like equipment hire and general overheads. Lastly, we were able to optimize our organizational structures as we consolidated roles at our corporate head office here, as well as optimizing support services to our mines by creating a central hub in the Northern Cape. The graph on the left clearly illustrates the step change in our cash operating costs before the impact of non-cash effects of balance sheet stock and deferred stripping movements, as well as depreciation.
Our delivery of this strategic priority is particularly pleasing when you consider our C1 unit cost of $39 per ton, which has reduced to levels that we last saw in 2021. This is also commendable, given that production has since reduced by 13% as we reconfigured our business. We achieved these savings without compromising on the safety and health of our people, while also maintaining essential costs such as repairs and maintenance, which help us to drive equipment reliability and operational efficiency. Over the past year, we have focused on embedding a disciplined cost culture, and we expect to sustain these savings going forward. For the period 2025- 2027, we have set a target of between $39-$40 per ton for our C1 costs. This will be driven by continued improvements in operational efficiencies. We will also look at our sourcing model and the efficient use of consumables.
On the next slide, I will touch on the impact of our savings on our on-mine unit costs. The progress made in cost optimization is clear when we look at the mine unit costs. Sishen's unit costs decreased by 10% to ZAR 531 per ton, and Kolumela's unit costs improved by 16% to ZAR 404 per ton. This is in spite of inflation running at about 4.6%. The impact of the reduction in waste mining, efficiency, and cost improvement is clear at both mines. The positive unit cost impacts were partly offset by a combination of a higher drawdown of WIP stockpiles and an increase in deferred stripping capitalization.
Now, let's move on to capital expenditure. CapEx totaled ZAR 9 billion for the year, and it was made up of the following elements. Firstly, expansion capital of ZAR 1.3 billion.
This was largely the completion of our Kapstevel South project, which produced first ore in the first half of the year. We also commenced with the UHDMS project. The other bucket of capital is, of course, our stay-in-business CapEx, and this was ZAR 4.5 billion. This largely relates to capital spares and mining fleet replacements in support of our asset integrity and reliability. Our SIB capital requirements are reviewed every year through our life of asset and business planning cycle, and we consider the mining profile to ensure that we remain efficient. The last bucket is our deferred waste stripping, and this was ZAR 3.2 billion.
It was driven by Sishen's higher stripping ratio in areas that we're currently mining, and this was partly offset by the lower waste that we mined at Kolumela. Our capital guidance for 2025 is between ZAR 9.5 billion and ZAR 10.5 billion.
Over the medium term, as we implement the UHDMS project, we expect expansion CAPEX to average around ZAR 2 billion. SIB CAPEX over the medium term remains in a range of between ZAR 4 billion and ZAR 5 billion. Deferred stripping will remain elevated at ZAR 4 billion and ZAR 4.5 billion in that range as we mine in areas with a higher-than-life mine strip ratio. Now, moving on to capital allocation. Our balanced and disciplined approach to capital allocation remains unchanged, with sustaining CAPEX and high-returning expansion projects remaining a priority. For the year under review, we generated cash of ZAR 21.5 billion after paying for sustaining capital. This was supported by ZAR 7.7 billion of positive working capital movements.
Working capital optimization is an area that we focused on this year. Now, guided by a capital allocation framework, ZAR 17.2 billion of this was used to pay base dividends to our shareholders.
We then allocated ZAR 2.8 billion to discretionary capital. This was largely focused on the completion of the Kapstevel South project, the restart of the UHDMS project, as well as additional dividends paid over and above the base. Our dividend policy remains unchanged. We still target a payout ratio of between 50% and 75% of headline earnings. This year, we delivered a healthy return on capital employed of 41% and an attributable free cash flow of ZAR 14.5 billion. This has underpinned our board's decision to pay out ZAR 19.90 per share in dividends in the second half.
For the full year, this is a 100% payout of our headline earnings, and it's a dividend yield of 12%. As I conclude, it is clearly an imperative that we maintain a resilient and efficient balance sheet, especially in this volatile environment.
Having this financial strength allows us to invest in our UHDMS project and other key business imperatives while continuing to generate attractive returns to all our stakeholders. Thank you. I'm going to hand back to Mpumi.
Thank you, Bothwell. As I said at the outset, macro uncertainty is a constant, and it's very difficult to predict how prices will track from day to day or indeed month to month. The lump premium has decreased over the past four years. This is in line with the lower share of direct charge material in Chinese blast furnaces, driven by lower steel profitability. Meanwhile, supply chain availability has risen with much higher lump-to-fine ratios from Rio Tinto and BHP than in the past. Let's take a closer look at the long-term fundamentals for premium-grade lump iron ore.
The lump premium has been under pressure over the last couple of years, reflecting lower demand and increased supply. The top left chart shows the ratio of direct charge ores in China. Up until 2021, there has been a steady increase in the direct charge ore usage, but a renewed pressure on mill profitability has forced mills to use less pellets and lumps in their blast furnaces. As industry profitability improves, this effect will reverse, and the usage of direct charge ores will evolve towards much higher levels seen in traditional markets like Europe and Japan. Moreover, lump supply growth will be limited. Almost all new capacity is likely to come from the replacement projects of Rio Tinto and BHP in the Pilbara in Australia, which require significant investments.
Additionally, in an increasingly carbon-constrained world, sintering costs will increase, supporting premium.
The bottom left chart shows sensitivity of sintering costs to CO2 prices. Long-term fundamentals for lump are strong, and the market expects the premium to trade higher than current levels. We'll now take a look at the structural drivers of quality premium. Similar to lump, the high-grade premium has been under pressure owing to low mill profitability. However, there are structural drivers in place that will boost premium over the longer term. Firstly, the mill profitability in China should improve as the steel industry consolidates.
The share of the top 10 steelmakers has been rising steadily over the past decade, but it is still below the long-term target of 60%. Secondly, Chinese mills are transitioning to bigger blast furnaces, which require a higher quality burden, incentivizing demand for higher FE-grade ores like ours at Kumba.
As the steel industry decarbonizes, demand for high-grade ores will rise, leading to a shortage of suitable high-quality feeds. Resolving this requires not only new technology, but also a re-evaluation of grade premium and discounts to incentivize high-grade supply. It's no surprise that the market holds a bullish view on these premiums over the Platts 62 index, and we remain absolutely positive about the structural support for higher quality premium. Now, let's take a brief look at our UHDMS project. Since the announcement in August, we have started with the design and construction of long lead items such as the modular substations, and as a reminder, the total capital investment is ZAR 11.2 billion. To date, ZAR 2.2 billion has been invested, and the remaining ZAR 9 billion of capital will be phased gradually as we implement the project over the next five years.
This year, we have set aside ZAR 1.3 billion to invest in the modular substations and the first coarse and fines modules, which should be constructed later this year in 2025. We'll then commission the installed modules and use that experience to optimize the implementation of the next phase. The phased approach gives us greater oversight and the assurance in execution, which needs to be handled with care, particularly considering that all of the work will be happening across an operating site. By beneficiating our existing high-grade run-of-mine feed, we will be able to increase the product grade and so end up with what we expect to be an additional $2-$3 per ton premium. That's in addition to our current FE, lump, and marketing premium. The reduction in waste stripping will reduce mining costs by between $2.5-$3 per ton and further improve Sishen's cost competitiveness.
All this contributes to the anticipated IRR of over 30% and an EBITDA margin of more than 50%, as well as a three-year payback post-first production. We still have a long way to go, but I have to say we are off to a good start, and beyond those financials, this contributes significantly to Kumba, increasing the level of beneficiation, creating a pathway to extend Sishen's life to 2044, facilitating the livelihoods of our local host communities, and contributing towards a healthier environment through the reduction of Scope 1 and Scope 3 carbon emissions. This brings me to our full-year guidance. Subject to logistics performance, we have retained our total production guidance at between 35 and 37 million tons. This is expected to be made up of an estimated 26 million tons at Sishen and 10 million tons at Kolumela.
As a consequence of Transnet's logistics performance reducing to around 80% of contractual capacity in 2024, we expect sales of between 35 and 37 million tons. Our C1 cost guidance remains unchanged at $39 per ton, and as Bothwell mentioned, CapEx is expected to remain between ZAR 9.5 billion and ZAR 10.5 billion for the full year. Let me wrap up by saying that it's been a good year for Kumba. We have focused on operational excellence and cost discipline in order to deliver on our core operating promises with safety at the forefront. The actions we have taken have resulted in shared value across our stakeholders. But more importantly, we are now a leaner business that can thrive in an uncertain macro environment.
We are right-sized for actual exports logistics capacity and with structurally lower costs to match.
The UHDMS investment amplifies our premium product offering, further reduces costs, and extends the life of mine with additional clearly optionality around this. So we are now a more resilient business that is built to flex. When rail capacity increases, we can quickly ramp up production to match that. Clearly, there's more to do, but with a great resource endowment, robust long-term fundamentals, real progress in getting our basics right, and our commitment to sharing sustainable performance across stakeholders, there is no doubt that we have finished the year in a good place. This year, we need to consolidate and build from this platform and continue to engage with Transnet, as well as the South African government, to explore ways to continue with the optimization of the logistics performance for the benefit of all South Africans.
I will now pause and hand over to Penny, who will lead the question and answer session for us. Thank you.
Thank you, Mpumi. We'll now open for questions. First in the room, followed by the conference call, and then we'll move to questions on the webcast. I see we already have a hand up, Tim.
Thank you. I've got a few questions. I'll limit them and give others a chance. Let's just start off with Transnet and the Network Statement and the concessioning. You seem pretty bullish that there's a potential for concessioning. Is that led by concessioning being moved into DRT and out of Transnet?
And just sort of how do you see that concesioning work? Because is it the whole Ore Users' Forum? And how does manganese fit together with that? Who are you working with? Because clearly, you're looking to do something there.
Bothwell, maybe a question for you, just a second one. There's a huge working capital release, ZAR 7.7 billion. It drove an enormous amount of free cash flow. The free cash flow is virtually flat for the year, but your EBITDA massively down. And yet, you've declared a very strong divvy. I wonder if you could just talk about those receivables.
Is that repeatable? With finance directors, we always worry that they factor their debtors on the 31st of December, and that actually it's a bit of a gimme, right? So maybe if you can just chat a little bit about receivables. And then my last one is just on your cost savings, the ZAR 4.4 billion. A lot of that looks like it's revised mine plan, which is sort of lower activity levels, which talks to Transnet.
But looking forward, for us to look at our models going forward with fairly consistent production levels now at these levels, how much was fixed cost? And how should we take out that fixed cost out of Sishen or Kolumela? Because that will be rolled forward. Obviously, the lower level is the lower level. That's in the numbers, right? Thanks.
Thanks, Tim.
Do you want us to take a few questions, or do you want us to answer?
Please go ahead.
Okay. So no, thanks, Tim. Tim, I'll start by saying I trust this finance director. He doesn't play around with numbers. But just on Transnet, so over the last three years, most probably two years, two years and a bit, we've all seen a couple of things taking place. So firstly, we saw the release of the white paper on rail.
We subsequently saw the release of the freight logistics roadmap, and more recently, we saw the Network Statement coming through, and all of these, I have to say, are things that we see as a positive. Because we've all been talking about the need for us to see greater structural reforms and to see greater Private Sector Participation, and if you look at all of them, Tim, they are all linked to this, so we see this as a positive, and that's why we indicated that we've got to commend the Department of Transport, because they've clearly been working with Transnet around this space, the way the first publishers of the white paper on rail, so how do we see things taking place?
What we do know is that over the next month or so, we will see the Department of Transport actually releasing a submission for different players to submit RFIs. Essentially, what they have said is that they are targeting key corridors. Clearly, the ore export channel is one of those, as well as a couple of additional corridors. They've indicated that through that process, they will be inviting various players to submit their proposals on what they believe PSPs should look like. We see this as a positive. For us, we've always spoken about the fact that this is an integrated channel.
It's just over 860 km of rail that goes to the Saldanha Bay Port. It's got a couple of passing loops. You've got to run it as an integrated channel.
Because if you see an improvement on the track, but not on the port, sadly, you won't see a performance improvement. So how do we see this panning out? Well, we are certainly positive about this process. We know that the RFI process, or the request for information, will be followed by the RFP. And we understand that that RFP process will consider the RFI submissions, which we also think is a positive. So we are working together with the rest of the Ore Users' Forum.
And we are certainly looking forward to making our submission. In our engagements with Transnet, as well as IREC and the PSP unit, which sits with the Department of Transport, what's been really, really pleasing is the fact that they are actually open to different players making their own submissions. And that's what you should expect to see going forward.
But overall, as we've always said, we do need to see greater Private Sector Participation. No one single party can resolve the challenges that we see. Bothwell?
Yep, just to go on to the other two questions. And thanks, Tim. Yeah, so as I said, there has been a concerted effort around optimizing working capital. And we've looked at all our buckets of working capital. That starts with our inventory. So you will have seen a significant decrease in our inventory, especially the work in progress inventory.
Again, this was done in accordance with the life of mine plan and with a view not to compromise our inter-process buffers through the value chain. So we're quite happy that we still hold the right levels of buffers in the value chain. We will have also seen a slight decrease in value of our finished product stock.
So this, despite the actual tons increasing. But that's the good work that we've done on the cost. So the actual cost of producing that stock is less. And that's why you see that drawdown in terms of value from a finished product perspective. So that was a big optimization. And then, as you rightly say, the other big bucket is debtors, driven by two things.
The one is just the iron ore price is lower than it was last year. So the actual volume of debtors is lower. But also a concerted effort around collection with an element of optimizing the position from a year-end perspective. And this focus will continue going forward. We will continue to always focus on our working capital. This year, the impact has been significant. And it is ZAR 7.7 billion coming through.
But you see, we've taken this into account as we think about our dividend and capital allocation. You will note that there's still ZAR 6.2 billion that remains on the balance sheet even after declaring what is a very good dividend at a good payout ratio. So again, we remain quite balanced in the way we look at our capital structure. And we will continue to do so. From a cost perspective, again, you're quite right. The bulk of those savings were driven by the reconfiguration of our business as we right-sized it in line with logistics capacity.
So a lot of that comes from the optimized mine plan, which reduced the amount of waste that we need to move. But as I said, that then had knock-on effects on the size of the fleet. We were able to right-size that.
And then that feeds into the cost to run that fleet from a maintenance perspective, the amount of diesel you consume, and so on. So we have seen that coming through. And then we've also right-sized the overhead, the central overhead, as I said. So yes, there's a big element of cost that is fixed per se to your mine plan and the size of your footprint and how much waste you're going to move. And we have right-sized that. So we believe going forward, we now the right size and we can maintain that level of cost going forward.
Our work on cost optimization doesn't stop. You'll have noted from the slides, I talk about another ZAR 2.5 billion-ZAR 3 billion of cost savings targeted for 2025. And this is what allows us to keep unit cost at Sishen flat. So you'll see our unit cost, we've guided flat.
We see a slight increase in Kolumela as we are upping the amount of waste that we are moving at Kolumela, but on a C1 level at $39 per ton, again, it's flat, so we're quite comfortable that we will be able to maintain this level of cost, and our ongoing work on savings will help us fight against the inflation effects.
Sorry for another one on Transnet. You are coupled at the port at the moment. The last six months have been really positive. I think you've engaged with a very positive management team at Transnet. They've been open to discussing problems. There's been a lot of collaboration.
You've worked together. And they have, up till now, had the funding to put in things to the shutdown and replace rails and put in more maintenance.
Now, we see those guarantees that Treasury gave them last year have very quickly been exhausted. For the next six months, surely we potentially are in a far more difficult situation. We're all waiting for the budget to see whether there is any recapitalization, if any, of Transnet. And obviously, political motives are sort of working both ways there. My view is there must be an equity injection into Transnet in order to get the best long-term value for everyone. Now, that probably won't happen.
So do you anticipate in the next six months almost a tougher scenario going forward where Transnet is right up against its debt level and is finding it very difficult to actually spend money on maintenance, as perhaps they have done over the last six years, sorry, the last six months while those guarantees have been utilized?
No, thanks for that question.
I think it's a brilliant question. Brian, you look like you want to add to that question. Okay. So you are 100% correct. I mean, the new leadership team at Transnet is certainly engaging in a very constructive manner. And within the structure of that leadership, they've also introduced, I guess, a role that we believe has always been the right role to have, which is the Chief Operating Officer.
And it sort of consolidates all the operational matters. And we are certainly seeing that our engagements with them, either as Kumba as a standalone or also as part of the Ore Users' Forum or as the broader National Logistics Crisis Committee, it's actually very positive. So what are we seeing from our side? So we've fundamentally decided, and you've said it, that we are joined with Transnet. And we need to work hand in hand.
So we co-sponsored the Independent Technical Assessment. And coming out of that, we've jointly worked on the Ore Corridor Restoration Program, which essentially takes the outcomes and converts them into fundamental things that need to be fixed. We are also engaging with Transnet around a mutual collaboration agreement, which essentially says, how is the work going to be funded? And for us, this is critical because it would look at us working together with Transnet. Clearly, we'd get that money back through the tariff. We are engaging about the terms of what that would look like.
And clearly, we'll finalize that as we move forward. But we do believe that this is key. Fundamentally, the days of just pointing at Transnet and saying, you know what, things will take whatever form or shape are gone, we all have got to work together.
And credit to that team, they are very open to that. So how do I see things moving forward? Let me just talk about the OEC first. I see us finalizing the MCA, which will look at fundamentally how this work. And it's predominantly maintenance that wasn't done in the past. We'll have a look at how that needs to be done.
And we'll work together with Transnet. And it's not just the funding side. It's the planning of the work. We spoke about the work around the stacker reclaimer. We also spoke about the last shut. So it's the planning of the work and the capacitation of the work, which should allow us to continue to see improvements. And clearly, in addition to that, in parallel, we'll continue working on what potential PSPs could look like for the OEC.
Thanks very much.
Just carrying on in this concessions talk.
Back in 2015, 60 million tons of iron ore was railed down to Saldanha Bay. We're running about 51 now, looks like. I don't know how much manganese is going on the railway line, but there's just broken iron ore for now. You've done the technical review now. You've got an idea of what there is and what the potential is on the line. Is 60 million tons the top? If all the stars align and things go well and you get the concession and everything, is 60 million tons as good as it gets or is there more? And then how good is the concessions game? Is there potential for you to get involved in concessions elsewhere, not just on the iron ore line?
Thanks, Brian. So you're correct. Historically, we got very close to 60 million tons. And it's actually interesting.
If you look at the run rates in 2020, just after the reopening of the line following clearly the stoppages that we had during COVID, we actually saw good run rates, and that for us gives us the indication that there is capacity. There's just maintenance that needs to be done, but we should be able to go back to those historical levels, and that's why we're working so hard, either with Transnet through the OCR and in parallel looking at PSPs. What do we see things looking like in the future? Firstly, it would be about getting to that 60 million tons plus a little bit of additional tons above that, but if you then want a fundamental step up above that, there's additional work that would need to be done from a capital investment perspective.
When one looks at the port, you'd have to have a look at the air emissions license that would take the tonnages to above the 60 million tons. And together with Transnet, we've just had a look at fundamentally what that would look like. But for us, we always start with first things first. That line is there. It's performed in the past. It just needs to be fixed. So fundamentally, it's a question of saying, how do we take it back to the 60?
And then in future, one can look at the additional tonnages. And then your question, that's and I mean, the ITA. I'll give you one factor around the ITA. So we know that it's just over 860 km of the track. So through the ITA, we know that just over 500 km of the track needs to be replaced.
If you look at last year's shutdown, Transnet actually managed to replace 90 km of the track, so it's doable. They did that within the maintenance shutdown of the 10 days. That's why we fundamentally believe in collaboration. Do we see ourselves being involved in other lines? We are an iron ore miner. That's certainly not something that we are looking at at the moment from a concessioning perspective because fundamentally, we believe that there's work that can be done on that line.
We are not ruling out the essence of working with the manganese players. I think all in all, all of us talk about collaboration. Everyone has felt the pain, whether it's iron ore miners, coal miners in terms of the separate corridor, et cetera.
Fundamentally, we are saying, how can we all work together for the benefit, I have to say, of our broader society? We've all heard about the figures of the value that's lost by virtue of the challenges that exist within that logistics space.
Thanks, Brian. A question from Khumbulani .
Thanks, Penny. I've got two questions. I think the first one is from a break-even perspective. It increased by $12, I think. What are you going to do going forward to manage that? And then secondly, from your stripping ratio decision, your life of assets, it's 3.6 initially. I think last year it was 3.1. If you factor in the UHDMS, what changed there?
Yep. Thanks, Khumbulani . I'll touch on the break-even price. Look, as I said in the presentation, that break-even price is influenced by two things. There's the things that we control.
That's largely our cost base and how we optimize our cost base. It's the stay-in-business capital and how we deploy that. But it's also the quality of our product. It's how we maintain that quality. And through the UHDMS, we're actually going to improve the proportion of premium products. And for us, that's where our focus is on what we can control. So I've talked about the costs.
We've already seen a step change in costs. We continue to work on our costs. And as I said, ZAR 2.5 billion-ZAR 3 billion of cost savings targeted. The UHDMS is going to see our product qualities go up. So that should help us capture the premiums. I think the right side of my graph is the things that are outside of our control.
But we focus on what's within our control. And then the uncontrollables take care of themselves.
Mpumi touched on our view on premiums going forward, and that's why we focus on a premium product strategy. So we expect that to help our break-even going forward. That's how we look at our business, and that's how we protect our margins to remain competitive.
Then Khumbulani on the second one, and I'll ask Gerrie to add to this. The fundamentals around the UHDMS remain sound, and I touched a little bit on what the project looks like. But in addition to that, as part of our annual planning work that's linked to our resources and reserves, you would have seen that our reserves have certainly increased from a Sishen perspective. There's clearly fundamental drivers that we look at when we consider that. Net, there are additional areas that we've brought in towards our reserves.
And those come with a slightly higher stripped reserve. But it's positive from a net perspective. So you shouldn't see that as a negative. Gerrie, do you want to add?
Yeah. Khumbulani , just sorry, maybe with the UHDMS, we were able to reduce the Sishen strip ratio to 3.3 because of the inclusion of the low-grade material and the lower qualities. With the life extension, it now increases it back to 3.6. But again, we have to view it in the context of the fact that we have added 95 million tons of reserves at Sishen mine. Now, if you consider the amount of low-grade that we have in the life of mine plan for Sishen, it's 160 million tons of low-grade in the life of mine.
If we had not had the UHDMS, then you can understand what impact that would have had on the strip ratio. The reason it's gone up slightly is because of the life extension and increasing higher strip ratio areas into the business plan and into the mine plan that is economical and does meet all our requirements and criteria.
Net, it's actually good for us. Yeah.
Thanks, Penny.
Thanks, Gerrie. The hand up here to Bella.
Yeah, [inaudible].
Yeah, morning, Khumbulani Ngwenya from Nedbank. Congrats on your results. I've got two sets of questions, one around cost and then the other one around Transnet. On the cost side, given that your cost savings was a bit short of what you had initially targeted, what was that bit due to?
Was it just because you were conservative, I guess, perhaps when you first gave us the targets, or you just found more stuff that you could cut better than what you anticipated? That's the first one. And then the second one related to cost is how much further do you still have in terms of cost saving? I think if I've done the math over the past five years or so, it's close to like ZAR 10 billion that you have managed to save on cost saving. So how much further can you still go? We know that for 2025, it's ZAR 2.5-ZAR 3.
So how much further can you still go? And then on Transnet, given the assessment that you guys saw around Transnet, what were some of the positive surprises that you saw and some of the negative surprises that you saw when you look at that statement?
Thank you.
Thanks, thanks, Bella. Yeah, it's a good question on cost, so when we started the reconfiguration process and we targeted cost savings of ZAR 2.5 billion-ZAR 3 billion, we took into account the fact that it is quite a significant lever to pull, which has reshaped the size of your business, and it's driven by the mine plan, so we looked at realistically what can we achieve and what can we achieve in what space of time. I think what's been pleasantly surprising is actually how our operational teams were able to actually implement the revised mine plan and actually get a bit more aggressive in terms of taking the cost out. A good example is on the number of trucks that we were able to park and how quickly we were able to do that.
So we saw that the run rate of savings started to come in a little bit earlier than what we had actually anticipated. So that was a good thing. So that's what gave us the momentum to get to exceed the target quite significantly. How much further can we go? So it gets increasingly harder. I think as I was answering Tim's question, I think we've pulled the volume lever, which we have. And you've seen the impact of that in terms of the optimized mine plan and also our ability to take out contractors.
So those levers have been pulled. And that's why I said when you look at the next wave, it's now about how efficient we are. So it's now then focusing on efficiencies, getting more operational efficiencies coming through, getting more efficient in our utilization of key consumables like your fuel, your tires, and so on.
And also looking at the sourcing side, it's really around how we source both from a pricing perspective, but also, as I said, from a utilization perspective. So those are the levers we start to look at. And it does become more and more difficult. If you look at my unit cost guidance, it's largely flat in terms of C1 unit costs. So that means the savings we will get will allow us to offset inflation by and large and maintain a flat cost profile. You don't see the significant step change that you saw this year because of the volume lever that we have pulled.
But as long as logistics remains a constraint, we have to stay focused from a cost perspective. And that's what will keep us competitive.
Yeah, thanks, [inaudible]. So let me add just one aspect to what both of you covered.
You asked, I mean, was it easy? It certainly hasn't been easy. Because in addition to the optimized mine plan, as part of the fundamentals around the reconfiguration, we've had to fundamentally change our business. If I look at our truck fleet, for example, and take our entire truck fleet, including the contractor base, we've reduced the overall trucks that we run at both operations, Sishen and Kolumela combined, by over 40%. That's not easy, and clearly, it's been the fundamental aspect of driving for the change, and I have to say credit to our various teams across the board. Everyone understood that for us to sustain our business on a go-forward basis, we couldn't leave in a space where we essentially we could easily have said, let's plan for 100% of capacity.
We knew that we were in trouble.
And we needed to lean into the challenge and fundamentally change the business. And to both of you's point, we'll continue pushing that and pushing that very, very hard. But I liked your question, which said, was it easy? It certainly has not been easy. But we've got great teams. And then just on the Transnet piece, so firstly, what's the positive with the independent technical assessment?
I think the main effect that we agreed with Transnet, as well as all the other users of the forum, on the co-funding of the independent technical assessment is a huge positive. Because that talks about transparency. There's nothing as terrible as knowing that there's an issue, but not knowing exactly what the issue is. And that's the opportunity that the independent technical assessment provides us. And yes, it identified quite a lot of challenges.
But I see that as a positive because now we know exactly what it is that needs to be fixed. And it allows us to work with Transnet around both the planning piece as well as the execution piece. And as I said earlier, we will continue working with them. So yes, it's highlighted challenges, be it with the track. I spoke about how much of the track needs to be replaced. It's highlighted a couple of things at the port, et cetera.
But we see that as a positive because we can now plan a little bit better. And if I look at what the Transnet team was able to do with the annual shutdown last year, credit to them. They came up with the plan. They executed the plan. And they allowed us to provide the support.
And as we look forward at the Ore Corridor Restoration Program, we need to continue working together. Because in the absence of that, certainly, we'll continue to see challenges. But as we've always said, we need to be a little bit realistic. Clearly, the right levels of maintenance haven't been done. And so it's going to take a couple of years for everything to be fixed back to historical levels. And that's why when you look at our guidance from a sales perspective, we've built that in.
And it's the fundamental element that says that we'll just take a little bit of time. But we will work together around this. And as the Ore Users' Forum, it's interesting. So there's a technical expert that we work with. And all of us, when we speak, we say we've learned a lot about rail and port and stacker reclaimers and shiploaders.
And that's certainly because we've just needed to fundamentally figure out how we can best work with Transnet on the challenges.
Thanks, Mpumi. I'd just like to check on the line if there's any questions. Just cognizant of the time that we've got left. And I'd like to just check in there and see if we have any questions. At this stage, there are no questions on the conference. Great. Thank you, Irene.
Then I'll turn to the webcast questions. First question is from Andrew Snowdowne. He has said, you started today's meeting saying that macroeconomic environment remains very uncertain. And while we as investors appreciate the dividends, given the uncertain environment and UHDMS's CapEx commitments, is it actually prudent to declare the divvy based on 120% payout higher than usual? That's for Bothwell.
We'll take it. Bothwell.
Thank you. Thanks, Penny. And hi, Andrew. Thanks for that question.
Look, I think as I said before, base dividend, we still target 50%-75%. But our capital allocation frameworks actually allows us, if we have generated excess cash, to think about how to apply that cash and utilize it properly. And that's other value-accretive options, including our capital projects, of which the UHDMS is one. But it's also considering additional returns to our shareholders. So yes, if you look at it, our payout in the first half was about 85%. The second half payout alone is 120%. But it equalizes to 100% over the year.
And in arriving at that dividend decision, we have looked at how we're going to execute the UHDMS project. We have de-risked that project, as we've said before. And we've phased it over four years. So that average spend is about ZAR 2 billion per year for the next four years.
We will easily cover that with cash that we generate. And we've also looked at the fact that, as I said, there's a huge amount that's come in because of how we've optimized the working capital. We've taken that into account as well. So when you look at it on balance, if you look at how much cash we actually held back at ZAR 6.2 billion, it's a balanced position to be in.
Thanks, Bothwell. Next question is from Willem Oldewage from Nitrogen Fund Managers. And his question fundamentally is, what proportion of variable costs associated with the 5 million tons reduction in production can be avoided in 2026? And the context is essentially that considering the sales and production guidance for 2026, production is expected to decline by 5 million tons, while sales remain stable through the use of unmined stock.
Given this, can we expect the cost per unit in FY 2026 to be lower?
Yeah, let me take that. So we will produce less. The denominator for our unit cost is actually production. So actually producing less puts pressure on our unit cost number. But as I said, because of the cost drive that we are going through, we do expect to, even in a lower production year, still maintain our C1 unit cost at between $39 and $40 per ton. So we expect to maintain those costs going forward.
And this is because, as I said, the denominator is plant production. But our mine plan still continues. It runs in the background. And you won't see a significant change from a mine planning or mining perspective in the year where we have reduced plant production.
Thanks, Bothwell. There's two questions here on the marketing side for Timo.
The one is from Myles Allsop from UBS. And his question is, what is the long-term expectation for lump premium? The second question is from Myron from MIBFA. And he's asked, can you give us a sense of the supply demand dynamics informing your higher long-term price?
So the number that we're showing with the long-term lump premium in our presentation, $0.27 per DMTU, that's Wood Mac's number. I should emphasize that's not actually our number. Our number is slightly above that, to be honest. What is inspiring that number? If you look at the long-term average that we've seen, it's been about $0.24 per DMTU. That's about $15 per ton.
That $15 per ton is pretty much the cost of sintering, the average cost of sintering that we're seeing. That cost of sintering is going to go up by a couple of dollars.
It should go to about $17 per ton. That is about $0.27 per DMTU. And that's exactly Wood Mac's long-term expectation for the lump premium. The lump premium will be supported longer term over and above that by some factors that we're seeing on the supply and demand side. On the demand side, what we're highlighting is that the share of direct charge material used in Chinese mills is going to go up. We expect them to be using more pellets and more lump.
Over the past couple of years, that's temporarily gone down. But longer term, we expect them to show the same behavior as what we're seeing in Japan and Europe, where that share is 33%. In China, it's currently 26%. Demand for lump and for pellets should be supported by that trend. Supply of lump is likely to have peaked.
Over the past couple of years, we've seen BHP bring on South Flank. Rio has brought on Gudai-Darri. That is showing a higher lump fine ratio than what we've seen in the past from these producers. Going forward, though, that supply of lump truly has peaked. And we're going to need to see replacement projects to keep up the lump supply. So lump will be supported by demand and by supply trends.
Decarbonization, I think, is going to be the icing on the cake for lump. I talked about how the sintering cost is an indication for the longer-term lump premium. Decarbonization is going to add to that sintering cost. Because to produce a tonne of sinter, you're going to be producing about 250 kg-270 kg of CO2. Now, depending on your price for CO2, that's going to have an impact on the cost of sintering.
Now, there's going to be a compensating effect for that. Because if you use lump in a blast furnace, there's a negative impact on the CO2 emissions. But that negative impact is far less than the 250 kg-270 kg of CO2 that you produce when you sinter. So overall, there'll be a positive impact if and when CO2 starts becoming fully priced. And that will be further support for the lump premium. I call it the icing on the cake.
That was the lump question, I think. And then you asked me about the longer-term supply and demand drivers for the iron ore price. Look, long-term, we hold a very constructive view on the Iron Ore price. Why is that? Because it's going to be linked to demand for steel. And steel is going to be driven by GDP per capita, population.
Those fundamental drivers will support demand for steel and therefore demand for iron ore. Because most of the steel is still going to have to be produced from primary iron ore and not from recycled steel. That's the longer term. If you look at the shorter term, over the next couple of years, we do expect additional supply to be coming on. Next year, probably another 20 million tons in the C1 market. Then a couple of years out, we're going to see Simandou come on.
So add about 20 million tons to the C1 supply over the next couple of years each year. But that's the supply side of the picture, then the demand side, we are seeing some green shoots, particularly in China, where it looks as if the property market truly has bottomed out, and we are seeing at least stabilization there.
That will counter that to an extent. But our expectation is that short term, we're going to see some pressure on the price. But then longer term, it's going to be supported by those fundamental demand drivers that I spoke about.
Thanks very much, Timo. We now have three questions from Wilson Masilo. Two of them on the finance side and one on the mining side. I'll start with the mining side first. How should one interpret the life of assets plan stripping ratio position? What's the pathway from 3.8 from the current 4.4?
What's the OEE for FY 2024 position? I'll hand it over to you.
Yeah, Gerrie, take it.
Thank you, Penny. So if we look at the stripping ratio again, it's important to remember that it's a function of waste to ore. So of course, an element of that goes into the plant.
Of course, when you look at our overall strip ratios, it is also averaged out over the life of mine. When we look at our Sishen strip ratio specifically, that is now declared as the 3.6. Over time, we would then expect to average back out at 3.6. Even though at this point in time, it's a bit higher, it will reduce over time. Obviously, towards the end of life, reduce again. There would be certain periods where it would be higher and certain periods where it would be lower.
The opposite then obviously applies to Kolumela, where our strip ratio is lower than our life-of-mine plan strip ratio. Because of that, the stripping will increase in the near term. Towards the end of life, we'll reduce again.
I think the easiest way to interpret it is just simply to have a look at the average and strip ratio over the life of mine. But then to understand that there will be periods when it will be higher and lower. What we are trying to do, and I think Mpumi spoke about it when she spoke about the reconfiguration of the business, we are attempting to balance the strip ratios between Sishen and Kolumela. And I think it speaks to the integrated approach that we're following. There will be times when the strip ratio of the one will be high and the other one will be lower. And by being able to look at it from an integrated perspective, we can keep the combined strip ratio flat, as opposed to when you only have one asset and you need to go into higher strip ratio units.
So I think, again, that confirms why it is hugely beneficial to have more than one asset and how we can pull the different levers. And of course, we are looking at margins. We are looking at cost positions, but also from a cost point of view to make sure that we balance it over the life of mine. The second one, just on the improvement in efficiencies. So we have seen a fairly significant improvement in efficiencies, circa 12% in the last year. Going into the business plan for next year, there is a further improvement of approximately 8% that's been built in.
And we then expect to maintain those levels for the medium term.
Thanks. Thanks so much, Gerrie.
Thanks, Gerrie.
Yeah, we've got two questions from Wilson further. However, I think one has been dealt with earlier on when we spoke about working capital release.
Then the other question is in a bit more detail in terms of unpacking the OpEx and CapEx all-in costs. There's a total reduction of ZAR 17.9 billion. Is that related to volume, pricing, profitability?
Sorry, a slight reduction in?
How much is the overall OpEx and CapEx total cost reduction value of ZAR 17.9 billion related to volume, pricing, and/or profitability?
Okay, so the reduction is not ZAR 17.9 billion. That's why I got a little bit confused. We do have a graph that shows the movement in our OpEx. By far, the biggest movement has been the cost savings of ZAR 4.4 billion. We do have other movements. We have seen our rehabilitation provision decrease.
That has impacted positively on our costs. We have also seen the royalties decrease in line with reduced revenues. That has had a positive impact on our cash costs.
On the non-cash side, because of the drawdown in WIP stockpiles, that means those costs come off the balance sheet onto your income statement. So that has provided an offset. On the deferred stripping side, it's been a positive. So we've capitalized more. So you've seen a credit to the income statement, and then your depreciation is higher for the year. So those have been the key movements in terms of our costs.
But maybe that question, we can unpack that further in a lot more detail.
Thanks, Bothwell. Another question from Myles. How confident are you that there'll be no further issues with the UHDMS's project?
Yeah, I'll take that one, Myles.
I have to say that when we paused the project, you may recall that we did a lot of work, firstly doing significant detailing around the engineering design side, which is always a good thing to do from a front-end loading perspective for any given project. By the time we actually took that project back to the board, we were very confident that we were in a significantly more matured space from an engineering design perspective. The second thing that we did, which is, I guess, an obvious one, is the fact that we just hired the best people. They've got experience having done similar work in previous companies. That's certainly given us more confidence around this. Then the third element is the fact that we considered the fact that our team, our UHDMS project team, is actually working within an operating plant.
To Bothwell's point a little bit earlier, and I touched on this as well, we actually phased the project. If you think about it, this year, we are converting the first coarse and fines modules. We'll then learn from that experience and apply the learnings to the next modules. We've also made sure that with the tie-in that will take place in 2026, where we'll stop the plant to fundamentally tie in the critical aspects, we've thought that through from a planning perspective. It's very detailed, even as we sit right now ahead of 2026. Secondly, we've made sure that we've de-risked the project and the business by keeping elevated levels of stock because we still want to sell during that period. We are in a far much better space from a project execution perspective.
And fundamentally, if I go back, the essence of us stopping the project and doing more work was absolutely the right thing to do. We want to run all the various pieces of work in a safe manner. And clearly, we want to deliver on both. We want to deliver on quality. We want to deliver on time. And we actually want to deliver on the schedule as well. But we are in a far much better space.
Thanks, Mpumi. And I think we'll stay with you. Last question. How long will it take? And this is from Myles, sorry, as well. How long will it take for Transnet volumes to recover, assuming there is a PSP?
Is it a one- to two-year investment program that's required? Can volumes go back to over 4 million tons in terms of Kumba's share?
I hope it's not over 4 million tons.
It's over 40 million tons. Oh, okay. I would be very worried if it was over four. So firstly, having looked at the work that needs to be done from an independent technical assessment perspective, we've been realistic around saying that this is not a quick fix. It's not something that will take a year. And clearly, if you think about it, to fundamentally fix something, you need to stop the line or the port.
You need capital. You need skills. And you need time. So in thinking about the Ore Corridor RestorationP rogram, we are working with Transnet just around the fundamental balance of that. And that plan, to be fair, will be applicable whether it gets executed by Transnet or by the private sector.
The added element, if you look at the private sector side, is that Transnet has got a whole lot of corridors that they need to fix, so a private sector or the concession will allow us to have a team that will fundamentally focus on the OEC, so I'll go back to it. The work that needs to be done needs to be done irrespective of whether it's by Transnet or a private player. When one then looks at the Private Sector Participation and particularly concessions, which we are talking about, I spoke about the fact that there will be an opening for an RFI from an RFI perspective, and that will be followed by an RFP process that will be based on the RFI submissions. It will take a little bit of time, so again, we are being realistic as we look at the planning of the work.
As we look at the essence of what we've planned for from a guidance perspective, that's what we've kept in mind. And that's why you don't see us going at volumes are going to go back to over 40 million tons next year. It's fundamentally because we believe or we know that there's work that needs to be done. If you look at how we've guided, we believe that we've been realistic around what should be expected. At the same time, Gerrie and Andre and Vampi on the Transnet side, who are part of the team that manage the technical planning space, the execution side, and clearly the essence of the management of the logistics space, have got what we call a TARP, so a Trigger Action Response Plan, that says that if the turnaround is faster, we know exactly what it is that we'll do.
And for us, it's been absolutely critical. And that's why we talk about the ability to flex up, because we've had to keep that in mind, understanding that we do want to see higher volumes. It's just that we are being realistic in order to continue with the fundamental drive of us pushing ourselves around cost and efficiencies. Thanks, Penny. And thanks, Myles.
Thanks to Bothwell, Gerrie, Timo, and all of you for joining us today. That brings us to the end of today's session. I hope and trust that today's session gave you more insights and more context to our results. But please feel free to contact me if you have any further questions. Thank you.