Good morning, everyone. Thanks for joining us at the Northam Annual Results Presentation once again. I'd like to welcome our Chairman, Temba Mvusi, and our Lead Independent Director, Hester Hickey, and members of the board. Welcome to those of you on the lines, and a special welcome to all of you who've managed to join us in person today. It's much appreciated. The presentation will be concise as always, but the reporting suite contains a lot of detail and disclosure of the company's performance, and this is all available on the website today. Thank you to Alet and her team for a very comprehensive document. It was quite a tight timetable this time around.
Before I move on to the presentation, on behalf of the board and management, I would like to express our condolences to the family and colleagues of our previous chairman, David Brown, who sadly passed away just before the year end. David made a big contribution to the company over the last five years, and he will be sorely missed by all of us. I would like to thank Temba and Hester for taking up their current roles under these circumstances and for providing strong leadership when it really mattered. We always describe the pictures. This is a picture showing molten metal being tapped from one of the furnaces at Zondereinde. This year, we completed the rebuild of number one furnace, ensuring capacity in line with our growth profile.
Number one was built back as a 20 MW unit with the potential to move to 30 MW with a voltage change. Here's the usual disclaimer regarding forward-looking statements that we might make today and, as we always say, if you've got a bit of time, it's important to read it. I'll review some of the key features of what has been a difficult operating year for the group. I'll then touch on some of the ways that we contribute to broader society and the broader economy and give an overview of the performance operationally and how we're doing with the major growth projects. Alet will deal with the financials, and finally, I'll provide guidance for the current year and a medium-term production forecast. Please note that a five-year outlook has been included in the annual report in quite a lot of detail.
This picture, of course, is Zondereinde, and this operation has been producing PGM since 1993. You can see number one and number two shaft. Number one shaft is the concrete headgear. This financial year has been both a challenging and a disrupted one, but we are in a strong position and have set ourselves well for the future. The operational environments of both Zondereinde and Booysendal have been quite demanding, and the team has had to cope with a number of difficult issues. I will elaborate on these during the presentation. Despite this, we were able to grow production and deliver an operating profit of ZAR 14.9 billion at an operating margin of 44%. Perhaps more importantly, we've made further progress in respect of our project pipeline, and we maintain our path to 1 million oz per annum.
On the corporate front, we've wound up Zambezi, and in line with our strategic intent to target shallow, large, mechanizable ore bodies, we've acquired a significant interest in Royal Bafokeng Platinum. This is a very important next step for Northam, and we have articulated our opinion many times that the primary supply of PGMs will come under pressure during the course of this decade, and that demand will remain robust. In our opinion, once again, the market has not yet fully appreciated just how rare the producing assets are in a sector characterized by depletion and underinvestment. Since the inception of our strategy, our attributable production has almost tripled. Today, we reaffirm our 1 million oz target and indicate the potential to leverage our metallurgical assets.
This is a picture of Kamogelo Mnisi, who's a strata control officer at Booysendal, and Kamogelo is using a camera to look up into the hanging wall, very similar perhaps to the way a doctor might look inside you with a scope, and she's checking for fall of ground hazards by looking at the seams above. Over and above shareholder return, Northam has made a substantial contribution to employees, to communities, and the broader economy. We believe that mining really does matter, and I would like to take you through some of those contributions that we make. Since the inception of the growth strategy, we've created over 11,000 sustainable jobs in some of the least economically developed areas of South Africa. This has doubled our workforce against the backdrop of a shrinking mining sector and a struggling economy.
In doing so, we've also created significant opportunities for women, and 27% of this year's recruits were ladies. We pay a fair and competitive wage, and our salary bill for the year totals ZAR 6.4 billion. In addition, all of our employees benefit from healthcare, meaningful assistance with home ownership, and the employee and community trusts that are accumulating significant funds, as you can see in the bottom left-hand corner of the slide. Northam's tax bill was ZAR 6.8 billion, and we paid an additional ZAR 1.1 billion in royalties. It's clear that as Northam grows, so does our contribution to broader society. Moving on now to the operational and projects review.
This picture shows the offices, workshops, and change houses at Booysendal North mine, and you will be able to see the extensive solar installation we've recently commissioned on pretty much all available rooftops. Beginning with safety. We have demonstrated positive trends in our safety performance over the last decade, but there has been a regression in the past year. We believe that the disruption brought about by COVID and the subsequent lockdowns has been a significant contributing factor, together with the resultant increase in employee turnover. As I reported to you in March, two of our employees passed away in separate mining incidents in July and August 2021. On a positive note, however, Booysendal passed the milestone of 7 million fatality-free shifts, and we continue to operate this mine fatality-free over the 12 years since the mine began.
I want to stress once again that all accidents have the potential for serious consequences, and our board, together with management, take our duty of care extremely seriously. I'm pleased to report that Zondereinde has once again surpassed 1 million fatality-free shifts, and as of this month, the group has completed 12 months fatality-free. Looking at some of the operational metrics at group level, firstly, tons milled increased by 6.3%. However, lower mill feed grades, particularly at the Booysendal North mine, led to mined metal production growing by 3.7%. A strong performance in the second half at our metallurgical complex resulted in refined metal growing by 10% or just under 10%. However, lower than expected output together with unusually high mining inflation led to our cash costs per platinum oz increasing by 18.9%.
I would like to make it clear here once again that we do not use by-product revenue as an offset against costs. Inflationary effects have been felt across the board, in particular, prices for diesel, steel, chemicals, explosives, as well as, of course, as the cost of electricity. Despite this, and despite a lower basket price, we maintained a healthy cash margin of 54%. If we can now look at the individual operations, and firstly, Zondereinde. As we reported in February, the first half was impacted by safety stoppages, medical absenteeism, and high staff turnover associated with COVID. We have increased recruitment and training to mitigate these challenges, and the more recent performance is much improved. We're also starting to see the benefits of the migration of UG2 mining to the east of the mine while concentrating Merensky mining on the west. It's not plain sailing, though.
Logistical and ventilation challenges in the west do require that we successfully complete the 3 shaft project timeously. Combined tonnage ended down 2.6% and head grades were slightly below historical norms as a result of the understoping of number 3 shaft. Despite this, enhanced metallurgical recoveries and treatments of surface material resulted in metal produced increasing year-on-year by 3% to 322,000 oz. That's a very creditable performance from Zondereinde. It was, however, below target and allied with general mining inflation resulted in a 15% increase in unit cash cost. Notwithstanding this and a 12% lower basket price, the cash margin remained in excess of 50%, once again demonstrating the inherent value of the Zondereinde ore body.
Capital expenditure was almost ZAR 2 billion, and this included work on number 3 shaft, the furnace rebuild, and enhancements to the base metal refinery. Capital expenditure for next year or this year that we're in now, 2023, is estimated at ZAR 2.2 billion, with a large proportion allocated to the number 3 shaft project. This is a picture of the 3 shaft project site located in the western extension. Excuse me. I will show you a short video at the end of this presentation as you leave the room to give you a better idea of progress to date. What you may be able to see is the mains on the end, the shaft complex in the background about 4 km away, and this gives you perspective to the current underground traveling distances. It's quite a way.
Reaming of 3 shaft was completed during April, and equipping is now in progress. Pilot drilling of 38 vent shaft commenced during the second half and has currently reached 900 meters in depth. By the way, 3 shaft is 1,368 m below in full length. Both shafts remain on schedule to be commissioned and operational by 2024. Underground development in the west continues to progress on all nine mining levels, and production of about 90,000 oz for the year was as expected. This project is on track to deliver steady state production by 2024 at an estimated capital cost of ZAR 4.7 billion. Moving on to Booysendal. The ramp-up continues, and now all sections of the mine are beginning to contribute.
This is despite regional community unrest across the entire Eastern Bushveld, with over 140 separate incidents reported. This included the hijack of an Eskom substation, resulting in the complete loss of power for over four days, together with numerous road blockages, acts of arson, and destruction of property. We've also seen a recent increase in the loss of skilled employees to other mining operations, which talks to competition for the same talent from a small pool of mechanized skills available in the industry. In addition, during the second half of the year, Northam's UG2 mine intersected lower grade reef, affecting six of its 17 sections.
Overall, Booysendal's tonnage grew by 18%, in line with expectations actually, but this was tempered by a lower mill feed grade, resulting in lower than expected metal production, and together with an unusually high mining inflation, led to a 22% rise in cash cost. Despite a lower average basket price achieved, Booysendal posted an operating profit of over ZAR 10 billion at a cash margin of 67%. It's a very powerful mine. On mine capital expenditure was ZAR 1.4 billion, of which half was sustaining. The lower grade reef package, however, remains a concern. The UG2 at Booysendal comprises a series of chromitite seams that are normally very planar and coalesced or closed together, and that's what you see in the picture, if you can just flick one back. This is what we call a normal reef. If we move one forward. Thank you.
In the lower grade areas, the chromitite seams split apart and roll over short distances. This leads to dilution of the mine grade and potential waste mining. This picture shows the transition from normal UG2 on the left to split reef on the right. The upper and lower chromitite seams have parted but remain relatively stable and close enough together to expose both in the mining phase. Here, however, the lower seam is rolling, if we can move on, and thinning, as you can see. Sorry, I was too quick there. You can see the bottom seam thinning and rolling. Here, on the next slide, the lower seam is in the footwall, leaving only the upper seam in the face. In this instance, metal yield is only 1/3 of normal content.
The lower grade package has been intersected on strike and not necessarily associated with depth. We will mitigate this through blending with the higher grade portions of the ore body and the development of Booysendal South will give us more opportunity to do this. Having said that, this remains a difficult problem for the mining teams to navigate underground. This picture shows an important component of Booysendal South. It's the concentrator with the associated tailings dam, and the tailings dam is the old Aquarius tailings dam. It's currently being reconfigured for the life of mine at Booysendal South. At the central UG2 mine, the capital footprint of the BS 1 and BS2 modules has been reached, and we now have 14 stoping sections in place.
Head grade remains around 2.8 g per ton, and production of ore is currently around 180,000 tons per month. The combined Booysendal South contributed 160,000 full year oz for the full year, and we've given ourselves an extra year for ramp-up in the light of some of the difficulties we've recently experienced. It will now reach full annual production in 2025. The project, however, remains within budget of ZAR 5.6 billion. The South Merensky starting to take shape. As you can see, the permanent infrastructure in the box cut is almost complete, and underground, we're making good progress on the development of the decline system.
The module generated 140,000 reef tons at a mill feed grade of 1.88 g per ton, which is not too bad actually, given that 80% of those tons came from development. We're on track for a steady-state rate of 60,000 tons per month by 2024. Finally, the BS4 UG2 module stoping is progressing with two crews in place, and this will build up to four crews on a steady state of 35,000 tons per month. Eland is in the early stages of development and is progressing satisfactorily. We produced 33,000 oz in concentrate, together with a further 34,000 oz procured from third parties, the cost of which is linked to commodity prices and hence the unique cash cost increase to just below ZAR 55,000 per platinum oz.
Although we report our operating loss, Eland had concentrate stock to the value of around ZAR 800 million at year-end. The next two years will see the bulk of spending on the ZAR 4.5 billion capital estimate as we start to accelerate the mine buildup. The conclusion of the Maroelabult transaction in January has added significant flexibility and we continue to open up reserves through the development of the declines and strike drives. To date, we've advanced the decline 645 m, and this has opened up seven of the 11 drives required for steady state production. I'll now hand you back to Alet to take you through the financials. Thanks, Alet.
Thank you, Paul. Good morning, everybody. This is a picture of the Buttonshope Conservancy Trust. During the past year, we acquired additional farms to take our land under management to just over 8,500 hectares. Northam established this trust in 2011, together with the Mpumalanga Tourism and Parks Agency as a first of its kind cooperative approach to land conservation. We employ a dedicated land management team and have specifically targeted the catchments and headquarters of the Dwarsrivier to best conserve this environmentally rich area. As you can see, the trust contains breathtaking natural beauty. Looking at the key financial features for the year under review, this has been a significant year for Northam.
Key features include, firstly, the accelerated maturity of the Zambezi BEE transaction through the implementation of the composite transaction, which led to the establishment of Northam Holdings as the new listed entity. Secondly, the acquisition of a significant shareholding in RBPlat, which aligns with our long-term growth, sustainability and operational diversification strategy. This introduced Royal Bafokeng Holdings as a significant shareholder in Northam, further strengthening our empowerment credentials. Despite the operational challenges that Paul has mentioned, as well as the increase in general mining inflation and a lower basket price achieved, sales revenue increased by 4.4% to ZAR 34.1 billion. This translated to an operating profit of ZAR 14.9 billion and EBITDA of ZAR 16.5 billion.
Net debt increased to ZAR 16 billion, essentially on the back of the significant cash outflows in respect of the Zambezi BEE transaction, our investment in RBPlat, and the capital expenditure incurred in line with our growth profile. I will unpack these highlights, but first, let's look at earnings per share. The graphs on this slide show earnings per share for financial years from 2018 to present. I have done this to illustrate how our earnings have moved over time. Earnings and headline earnings per share are based on the weighted average number of shares in issue and exclude treasury shares. This totaled 377 million shares. Earnings per share and headline earnings per share were ZAR 26.15 and ZAR 26.11 respectively.
Normalized headline earnings per share, our main measure of performance, amounted to ZAR 25.74, an increase of 20.7%, in line with a reduction in the total number of shares in issue, which is now 397 million. As I mentioned at our interim results, this is around the same number of shares we had in issue before we did the original Zambezi transaction in 2015. Moving on to revenue. Our revenue for the year was ZAR 34.1 billion. This is a ZAR 1.4 billion, or 4.4% increase on last year.
The main components of this growth were a 12.8% increase in sales volumes, which also came with a 16.4% higher rhodium loading, which was offset by a 13.4% decrease in the average U.S. 4E basket price, but tempered by a 1.7% weaker rand against the U.S. dollar. Note that sales during the first half were artificially low as a result of the rebuild of our smelter, together with the introduction of a second precious metal refiner with its consequent pipeline build. Sales revenue during the second half was ZAR 20.2 billion against the first half of ZAR 13.9 billion. This reflects the ongoing normalization of metal flow, which includes the release of metals with longer pipelines that had backlogged during COVID. This led to higher rhodium loadings, together with higher iridium and ruthenium sales.
The importance of what are generally termed the minor metals, iridium and ruthenium, continues to grow. While the prices of the major PGM softened somewhat, the average dollar price for iridium increased by 11% and for ruthenium increased by 58%. These two metals combined contributed over ZAR 2.3 billion to revenue. Looking now at cost of sales. A 16.1% increase in cost of sales with only a corresponding 4.4% increase in revenue resulted in operating profit decreasing by 7.6% to ZAR 14.9 billion. This translated to an operating profit margin of 43.7%. Operating costs were impacted, firstly, by an increase in mining volumes of 12.6%.
Secondly, by an increase in the average number of employees in service of 20.6% as the group continues to grow its labor complement to enable the planned expanded production profile, as well as to deal with staff turnover at Booysendal and Zondereinde. Lastly, by the higher than normal inflation relating to, in particular, electricity and consumables such as diesel, steel, and chemicals. Our cost base is essentially fixed, and the only real defense that we have against inflationary pressures is to ensure that our production targets are met. Furthermore, smelting and BMR cost increased to over ZAR 1 billion, indicating the growth in our volumes as well as cost inflation relating to electricity and consumables. Royalty charges decreased by 39.3% to around ZAR 900 million.
Royalty charges are based on a number of inputs, including the ratio between revenue generated from own operations and custom material, EBITDA and capital expenditure incurred. Share-based payment expenses decreased significantly. These relate to expenses incurred in respect of the group's employee share plan and are impacted both by the number of qualifying employees as well as the movement in the closing share price year on year. Finally, the change in metal inventory increased in line with the increase in oz at year-end, offset by a decrease in the average cost per oz as Booysendal ramped up. Let's look at the income statement. Our bottom line increased almost 5% to ZAR 9.8 billion. Key items impacting this included the share of earnings from associates for the first time reflecting those from our interest in RBPlat.
This contributed ZAR 777 million to our bottom line. Finance charges relate to our increased banking facilities and DMTN program utilized as part of the composite transaction, as well as our investment in RBPlat. Preference share dividends, as well as the loss on derecognition of the preference share liability, reduced significantly following the early maturity of the Zambezi transaction. These charges will fall away from next year. Taking into account these items, the group generated a profit before tax of ZAR 13.7 billion, in line with that of the previous year, and accounted for a tax charge of ZAR 3.9 billion, of which ZAR 3.1 billion related to normal tax and was paid in cash during the year. Moving on to our working capital.
During the first half, inventory levels rose as a result of the planned rebuild and upgrade of furnace 1, together with the increased pipeline as a result of the introduction of a second precious metal refiner. At 31 December, inventory on hand amounts to just below 380,000 4E oz. We have drawn this down by almost 10% during the second half, and currently sits on an inventory balance of 353,000 oz, valued at a cost of ZAR 6.3 billion. The sales value of this inventory, after applying the basket price and exchange rate at year-end, amounted to ZAR 18.8 billion. Moving on to the group's cash flow. We generated ZAR 11.4 billion from our operations during the year.
ZAR 4.6 billion was invested in capital expenditure, and this resulted in free cash flow of ZAR 6.8 billion. Cash generated, together with our facilities, was applied to the composite transaction, resulting in an outflow of cash in excess of ZAR 8.4 billion, as well as the acquisition of RBPlat shares amounting to an outflow of a further ZAR 8.4 billion. This led to net debt increasing to ZAR 16 billion. Looking now at our borrowing facilities and debt position. This slide shows the net debt position at year-end. The RCF, together with our GBF and bridge facility, affords us credit facilities of ZAR 8 billion. We have also issued additional notes during the year to the value of ZAR 3.9 billion against our ZAR 15 billion DMTN program.
Accounting for cash and cash equivalence, the net debt to EBITDA ratio at year-end was 0.97. Contextualizing our net debt position, our current debt level is almost equal to the value of our investment in RBPlat, and is less than the value of inventory on hand. As we have previously stated, and in line with our strategy, the group is comfortable to continue to use its available debt facilities to grow the business. This is a key component of allocating capital. Size matters in mining. The benefits of scale to a business with a high fixed cost base are manifest. Northam has spent ZAR 13 billion on growth over the past year, and over ZAR 29.2 billion over the past seven years. During that period, we have almost tripled our attributable production base while significantly reducing the group's overall risk profile.
We have essentially achieved this through debt financing, and this has allowed us to retain the same number of shares in issue since prior to the start of our growth strategy, thus benefiting shareholders. Northam has, over the past two years, returned ZAR 20.6 billion of value, and we have done this firstly through the purchase of Zambezi preference shares, then through the early maturation of the Zambezi BEE transaction, and ultimately through a subsequent share buyback. Looking ahead, it is important at this critical juncture that we keep our options open by retaining liquidity within the group. The board has therefore decided at this point in time to forgo a dividend. With that, I'll hand you back to Paul to take you through the operational guidance.
Thank you, Alet. This is a picture of a mechanized drill rig on the face of the South Merensky decline at Booysendal, and it does give you a feel for conditions in a mechanized section. Moving on to operational guidance for the current year. I've detailed the challenges we have experienced at our operations and particularly at Booysendal North, and these have informed our current guidance of the following. PGM production from own operations to be in the range of 770,000 to 810,000 4E oz. Group unit cost to be between ZAR 36,000 and ZAR 37,000 per platinum oz, reflecting both the production growth and a generally elevated mining inflation environment.
Sales will be higher than production in the range of 890,000 oz-910,000 oz on the back of increased metal from third parties, together with the ongoing destocking of the smelter. Our capital forecast for the year is ZAR 5.4 billion, allowing for the full Eland ramp-up and the full 3 shaft project. We've also allowed for escalation that we're currently experiencing. We present this guidance as our considered view, but do wish to highlight that we are currently operating in a heightened business risk environment on many fronts. Despite these challenges, the expansion program will deliver on our medium term target of 1 million oz production from own mines. In addition, we will benefit from our interest in Royal Bafokeng Platinum.
Third party purchases and recycling are gaining momentum and illustrate the value of the capital we have invested in the downstream capacity. Leveraging the metallurgical assets provides Northam with an additional risk-adjusted return in a capital light manner. PGM mineral resources are rare, finite, and depleting assets. Maintaining or growing production is not possible without the allocation of sufficient capital to replenish or grow reserves. The investments we are making across the group will position the company favorably in terms of volume growth and competitive position as determined by the cost curve. We strongly suggest to our shareholders that this is money well spent and positively differentiates Northam as an investment case. We can move over to the market. A key tenet underpinning Northam's growth is our bottom-up analysis of global PGM mining potential.
This is illustrated in the following three graphs forecasting primary supply for platinum, palladium, and rhodium out to 2040. I presented similar graphs at our interim results, and these models have been updated with the latest production numbers from the industry, and this reinforces our forecast. For platinum, we see a continued contraction in supply over the next two decades. For palladium, we forecast essentially flat out to 2027 when the southern cluster begins to contribute. However, we do caution that this profile is at risk due to constrained capital flows into Russia and the current restrictions from Western markets on Russian metal sales. For rhodium, we forecast a similar decline in profile to that of platinum.
This is a bottom up analysis constructed on a shaft by shaft, half level by half level basis from resources through to reserves through to final metal production, and includes all announced projects. What we're saying here in essence is a production oz tomorrow is significantly more valuable than the same production oz today. The automotive sector is very important to PGM demand, as we all know. Post-COVID supply chain disruptions continue to impact automotive production during the first half of the calendar year. Current production activity, however, is picking up and approaching pre-pandemic levels, and we anticipate a recovery in the second half. Dealer showroom stocks are low, and car companies have pricing power. Commercial fleets need to be replaced. A demand for cars amongst the general public has inflated the second hand car market.
On this basis, we expect automotive production in 2023 to be around 90 million units in the light duty vehicle class, assuming a full recovery in China. The platinum market is expected to remain in surplus in 2022, but should move into a more balanced position next year as substitution gains traction. Palladium's proven chemical and physical properties continue to drive demand, and similarly, rhodium's unique solution for NOx will lead to further market tightness. The global energy transition will drive demand for other metals, including nickel, copper, ruthenium, and iridium, all of which are becoming increasingly important as constituents of our basket. Large imports of platinum into China are not yet fully understood, and it is clear that metal sales from Russia have been inhibited in recent months. Lease rates indicate that the market is tightening.
As an example, six-month lease rate for platinum is now 5.8%. We are also receiving good inquiries for metal through our customer base. Despite the lower automotive demand over the past year, our average basket price received remained elevated at about ZAR 74,000 per platinum oz. This morning, the basket price sits around ZAR 80,000 per platinum oz. We believe the market is healthy, especially when one considers how depressed automotive production has been, which in fact is the main source of demand. There is sufficiently good price discovery, and we believe there is a close link to visible industrial demand, in particular for palladium and rhodium. As Alet pointed out, we have predominantly utilized internal cash flows and debt to fund growth, and this has meant there has been little to no dilution for shareholders.
The number of shares in issue today are very, very similar to that of 10 years ago, and the end result is a growth of refined oz per share of 3.5 x. We believe that this is a very important metric for shareholders to consider. I want to revisit this slide one last time and reinforce the growth message. We maintain our 1 million oz mine to market target from our own operations and intend to leverage our metallurgical capacity on top. Northam is transforming itself into a large precious metal producer, and we do this while maintaining a very competitive position on the cost curve and simultaneously reducing overall operational risk. This picture is a good representation of your company, and this is how management sees it developing over time.
In order to achieve this, management needs to focus on safety, project execution, and efficient mining at the right cost. The market will look after itself. Ladies and gentlemen, that concludes the formal part of the presentation. I hope you found it interesting and informative. We can now move to the Q&A session. If we can start in the room and then move to the phone lines and the webcast. If I could politely ask you to introduce yourself as you ask the question and let us know the organization you represent. Thank you, everybody. Maybe just lift the lights a little bit if it's possible as well.
Thank you. Gerhard Engelbrecht from Absa. Hi, Paul. I wonder if you could just be more specific around the inflation numbers that you've baked into your OpEx and CapEx numbers. What are you expecting in the year to come?
Yeah, Gerhard, good afternoon. We took a view on inflation. It's not easy. I think everybody is in a very similar position here. You would have seen the PPI print this morning at around 18%, which is very unusually high, pretty much for everybody. We've took a view. It's still a double-digit inflation. It's just under 10%, if I can say it that way, on a unit cost basis. Am I right on that in saying that, Alet?
Yes.
Thank you. There are uncertainties, and I think what we would say is diesel must come down. Diesel for Booysendal is the primary energy input. As you can imagine, that's with the diesel prices essentially doubled. We're expecting the diesel price to come down further following oil. Many of the chemicals and explosives inputs are also related to oil to some degree. Steel is still a problem, and the machines parts is also a problem. You know, we took a view, Gerhard, and I think the view is embodied in those guidance numbers we've given you. I do caveat it with that point that I made.
We are in what we would term an elevated business risk environment, generally speaking, and inflation is certainly one of those risks. We do expect it to come down, but let's see how it progresses over the year. I'm just looking for a second question. Can we have a microphone over here, please?
Liston Meintjes from Abercrombie Investment Management. A question for Alet. The story is the numbers are given on an annual basis. If we're looking forward, we need to look at the second half. Now, again, it's not too difficult for us to do some subtraction first half subtracted from annual. In your projections, you must have used kind of current numbers. Earlier, I was just saying to somebody, you know, you have a double problem in that those numbers right now must be high. Gerhard did ask, you know, what makes you think they might come down. That 18.7 is extremely worrying if that's kind of. What I'm getting at is maybe it was not too bad in the first half and has escalated in the second half.
We would have to look at that into what we're projecting for 2023. If I can just get some guidance really on second half, on first half as to where we're going in the first half of 2023. Thank you.
Thank you for the question. FY 2022 was a difficult year for us, essentially the first half where we had elevated cases of COVID at our Zondereinde operations, so we had a lot of shifts not being full. We also had two fatalities that impacted production quite dramatically. At Booysendal, we had a number of community unrest during the first half, which we really had a lopsided year. Then we also had the rebuild of the first furnace during this first half. Essentially a mining company is a fixed cost business. Whether you produce one oz or 1,000 oz, it costs you the same because your workforce is there, you need electricity, you need all the ad hoc services around it. The first six months of this year has been a difficult year.
As from the numbers, you can see that the second half was a lot better, especially at Zondereinde, where production was picked up, where it was alleviated by the teams moving from the west to the eastern side. We take all of that into account when we look at forecast numbers. Our inflation at this point in time, depending on what you're looking at, OpEx or CapEx, is around 14%, 15% or can even be as high as 17% if there's a lot of imports included in the CapEx numbers. Our main sort of, the thing that we can use for inflation is really to look at our production base. If we make our targets for production, our unit cash cost will be very well controlled going forward, 'cause we have that sort of, economies of scale coming through in the business.
Each individual operation is forecasted separately, not on the presentation, but in the book in some level of detail. We have had to take a view. I think that's the point we're making. There is risk associated with inflation across the world. We hope it comes down. We believe it should alleviate, but it is an uncertainty.
Good morning, Paul and team. It's Thobela Bixa from Nedbank. Two questions from me. The first one is on the Booysendal operation, how long do you expect to be mining in this low-grade area? That's the first question. Then the second question is with regards to the community unrest which you've spoken to earlier. Could you give us some color as to what exactly do these relate to? Is it service delivery? Is it community members coming to us for employment or maybe some other, or a combination of many things? If you could just give us some color as to what do these relate to. Thanks.
Thanks, Thobela. On the lower grade patch, it's a 400 m patch that we estimate at the moment, and we advance the phases at around about 30 m per month. That will give you an idea. We do have to mine through it given the nature of the mechanized bord and pillar layout. We'll be as selective as we can, but we do have to go through that 400 m over time. On the community unrest issue, it is really a general issue across Limpopo and Mpumalanga provinces in particular, and it's associated in our view with a lack of economic opportunity generally and a lack of formal jobs or formal job opportunities. That's compounded by a virtual failure of local government in those small rural towns.
The failure I'm talking about is really provision of roads, power, water, sewage, schools, et cetera, right, really right across the board. It's an environment that is very conducive for people to get upset. You can imagine, people are upset. I do point out once again, it's right across those provinces. Not just limited to those provinces, but Mpumalanga and Limpopo are particularly prone to it because of the size of the population against the size of the economy. There's simply not enough opportunity to satisfy everybody, and that's the source of unhappiness. Of course, mining companies, and it's not peculiar to Northam and Booysendal mining companies, are a source of opportunity, and we are the natural place to go knock on the door, if I can say it that way.
Let's just ask the telephone lines or the webcast, are there any written questions? Damian, if you can.
Yeah, we have some questions on the webpage. Question from Catherine Cunningham from J.P. Morgan, and it's regarding Heraeus' indicated reduction in output and how could this affect Northam's ability to sell metal? Do you have any options?
Thanks, Damian. Thanks, Catherine. Yes, I think it is public knowledge that Heraeus does have some difficulty in Europe with the availability of hydrochloric acid, which is one of the important reagents needed for the refining process there. We have a long-standing and close relationship with Heraeus, and Heraeus will honor our pipeline in its fullest sense. We have been in obviously direct communication with Heraeus. But yes, there is a difficulty there. The supply of the acid is external to Heraeus, and there's very few alternatives. In the meantime, Northam is shipping product to Johnson Matthey, who are our second refiner. Johnson Matthey have indicated to us that they will accept all our product in the meantime until Heraeus can come right.
It possibly again, these things are estimates, but our information from Heraeus, it is a two to three-month problem it seems.
Couple of questions from Wade Napier from Avior. Metal inventory, how much do you expect to draw this down during FY 2023?
Yeah. Wade, I think we will drop to about 27,000 oz by June 2023. That's a good number. That's what we're planning for.
He also asks, "Is the decrease in Booysendal's head grade something that will reverse into historic grades?" I think you've answered that question.
Yeah. The answer is not this year, Damian. At the North mine, of course.
Going into the down cycle associated with bleak global economic outlook, will Northam attempt to reduce its debt levels?
Depth levels?
Debt.
Yeah.
Debt, sorry.
I think Steve, on that one, because of the nature of the growth profile, we are almost automatically reducing our depth, average depth of mining across the group. Am I understanding?
Sorry, Paul, it's debt.
Debt. Oh, debt, not depth. Steve, we're comfortable with a 1:1 debt to EBITDA ratio as long as that debt is used for growth.
Mm-hmm.
We would not and never use debt to run the company.
From Peter Cromberge from Mergermarket, could you talk to the company's near-term debt maturity profile? Are there any refinancing plans? I'm not sure if you wanna answer that.
I think we should hand-
Sorry
Hand to Alet, maybe.
If you look at the financing that we're using, currently it's the RCF, which only matures in September 2024. We've also got the bridge that will mature in December, and then we've got a GBF that will also mature in September 2024. We've got a DMTN note program of which we set out the maturity profile in the book, and that is very nicely spread over the next five years. When we do our cash flow forecasting, we don't necessarily take into account that any of the financing will be refinanced. Based on history, one can see that, especially the note holders, most of them are shareholders, have been very interested in those notes, and they keep coming back into the book. If need be, we can definitely refinance funding through the DMTN program.
Yeah, I think we're comfortable as a board and as a management team with that level and structure of debt. The structure is also very important. You know, I think it's probably worth making the point once again, we've tripled the physical size of the company. Tripled. You really have two options to choose from in order to do that should you wish to do it from scratch. You would access the equity markets by a capital raise, or perhaps you would access the debt market. We have chosen to access the debt market as opposed to the equity market. We've done it very, very deliberately, and we will continue to do it that way because that protects, in our view, the shareholder.
Once again, as long as the debt position is modest and asset-backed, which it is, we think it's a very reasonable and proper way to manage the company.
Mark du Toit from Oyster Catcher is just asking, the increased third-party refined production, can you give an indication where this material might be coming from?
Yeah, Mark, a good question. You will see on the graph we've been slightly vague there in the sense that we haven't been specific as to who it is. There are a number of customers that have signed up with Northam and for the moment, we'll respect the customer confidentiality. It is the best way of saying it is South African Bushveld metal.
From Ryan Seaborne at 36ONE AM , given the unwind of Zambezi, what is the current BEE status, and would a further deal be needed? Secondly, if RBPlat goes through, how would that alter your BEE status?
Yes. I think, first of all, Royal Bafokeng Holdings are already and currently a shareholder of Northam Platinum Holdings. I think it's 8.7%.
That's right.
...if I remember correctly, the precise number. Of course, we already have a blue chip empowerment shareholder on the register at the top level. The transaction that we pursued to wind up Zambezi was a dual transaction, which also included the empowerment of our employees and communities across the group to the tune of 23%. It's already been pre-approved by the shareholder base.
Two other questions, Paul. From Lebo Mofokeng, Argon. He's just questioning that if we're seeing a declining platinum supply but a flat palladium supply over time, what would be the incentive for OEMs to substitute?
Yeah. We agree with the general thrust of that question and we wouldn't expect wholesale substitution of platinum for palladium or, sorry, substitution of palladium for platinum on a wholesale basis because of exactly that point. Effectively, palladium, in theory, looking at the reserves and resources, should become, you know, should remain reasonably available. The estimate at the moment for platinum substitution is up to around 20% of substitution. Again, there's some level of uncertainty on that number. This year, perhaps could be around 700, something like that is the best information we have, 700,000 oz of substitution this year, rising to around 2 million oz potentially by 2025. It is, of course, I agree with your point.
It would of course be dependent on the relative pricing of palladium against platinum and vice versa.
Lastly from Martin at Mining Weekly. Diesel price up, green hydrogen. Has there any consideration been given to the use or the generation of green hydrogen to power Booysendal's mechanized fleet? Could you give us any more information on general renewable energy initiatives?
Yeah, thanks. Thanks, Martin. I think Booysendal's renewable energy plans have been detailed quite extensively in our sustainability report, which is, if I remember, a 95-page document. It will be available shortly online. We are looking at the moment at three solar installations. Two smaller ones at Eland and Booysendal, and a larger 10 MW unit at Zondereinde. The two smaller ones have been commissioned. The 10 MW unit is still under construction. We're also looking at two wind projects, and they would be done as an off-balance sheet power supply agreement. On the hydrogen for powering the mechanized fleet, not yet.
That's all the questions.
Okay. I'm just checking in the room that we are covered. We do have a little bit of time in the foyer for the remaining questions that people may have. Please join us for a cup of tea and a sandwich, and there will be a short video just as you're walking out the room, just to give you an idea of what the 3 shaft project area looks like, which is, of course, to the west of the current Zondereinde infrastructure. Thanks very much, everybody. Again, I hope you found everything very interesting. Thank you. It's actually the hole in the ground there. Still got a concrete top on it, which will be removed now as we move into equipping. We just flew over the Winder House. There's the Eskom intake on the left, the project yard.
Further on in the distance here, this is the vent shaft. You can see the raise bore machine. No, it's okay, Damian. You get a good feel for what the site looks like. It's a well-organized site. Early days, there's quite a lot of infrastructure still got to be built. Thanks very much.