Good day, ladies and gentlemen, and welcome to the Anglo American Platinum investor update. All participants will be in listen-only mode. There will be an opportunity to ask questions later during the conference. If you should need assistance during the call, please signal an operator by pressing star then zero. Please note that this call is being recorded. I would now like to hand the conference over to Emma Chapman. Please go ahead.
Hi. Good morning, everyone, and thank you for joining our Anglo American Platinum update call at relatively short notice. Given the information that we provided in the SENS release this morning, we thought that we should provide an opportunity for you to be able to ask management any questions related to the SENS ahead of the year-end and before we go into close period. I have on the line with me Natascha Viljoen, CEO of Anglo American Platinum, and Craig Miller, Finance Director, who will quickly take you through the information disclosed this morning. We will then have an opportunity for Q&A at the end. With that, I will now hand you over to Natascha.
Thank you so much, Emma, and good morning to everybody. Again, thank you for joining our call, as Emma said, at such short notice. Before we discuss the SENS announcement released this morning, I think it is important for us just to consider the current and continued impact of COVID-19, the impact it has on our lives, our colleagues at work, our operations, family and friends. As we are all very aware, this new variant is resulting in quite an uptick in positive cases across South Africa. Things are no different at our operations. We remain steadfastly focused on keeping our employees and communities safe though to protect lives and livelihoods, our approach from the start of the pandemic.
We are intending to introduce a policy that requires COVID-19 vaccination for access to all of our sites and offices, with a continued objective of protecting our colleagues at work, their families and communities as much as we can. It is in support of the work that we've done in the last 18 months, where we had strict health and testing measures in place across all of our operations and offices. We've been strongly encouraging our employees to be vaccinated at the earliest opportunity as vaccines became available through the year. For this reason, we also set up our own vaccination facilities to make it as easy as possible for our employees, given the breadth of our own health infrastructure, and make these vaccines really easily available to them and their families.
Requiring vaccination for access is the next step, and given that vaccination remains one of the best defenses we have available. Important to note that we will be doing this through a comprehensive engagement process with our employees and other stakeholders. Once this is complete, we will look to implement the policy, taking obviously into account the feedback that we have received from these comprehensive engagement processes that have actively kicked off in the last two weeks across our operations and through the tripartite in South Africa. Moving on from COVID, we are proud to announce today that we've obtained board approval for the Mototolo Der Brochen life extension project.
This project delivers on our strategic priority of maximizing value from our core portfolio of assets by utilizing the existing Mototolo infrastructure and enabling mining to extend into the Der Brochen resource. This will extend the life of this asset beyond 30 years. As you are aware, Mototolo is a fully mechanized operation, and this will be replicated into the Der Brochen operation, which should position the mine, not only from a safety and commitment to safety point of view, but also at the bottom half of the primary PGM producer cost curve. Following the completion of the Mototolo concentrator debottlenecking project earlier this year, we will be able to maintain a mining rate of 240,000 tons per month to produce approximately 250,000 PGM ounces per annum.
Moving on to our other major project, which is currently in feasibility study, namely the future of Mogalakwena. The work in for this project on all six work streams are making good progress. We have discussed these six work streams at length in previous opportunities, and each of these work streams have a number of steps to unlock value. Whilst the work in the six work streams are integrated to really develop this future, our process allows for separate approval stage gates, which creates an optimal development pathway for us.
Considering that what we're doing today is starting to take the next steps in shaping, the long-term future of a 50-plus year life asset. It is really important for us to ensure that these work streams are fully developed and well understood and include the impact on each other to ensure we deliver the highest value creation for all our stakeholders over the life of the asset. Now, the third concentrator feasibility study, which focuses only on the capital decision-making on the timing, the size, and the technology of the third concentrator, will continue into H1 in 2022 and will be submitted for board approval once completed.
Now importantly, this revised approval timeline does not impact the execution schedule of any of the work stream, but rather allows us to for the required discipline and rigor aligned with our capital allocation framework that we often talk about. Finally, we've updated our guidance for 2021, and we provide a three-year outlook to 2024. Our PGM metal and concentrate production should be within guidance for 2021 of approximately 4.3 million PGM ounces. We've upgraded our refined production guidance again to between 5-5.1 million PGM ounces due to the continued strong performance from the ACP. This has meant that we have refined the majority of our buildup in work-in-progress inventory following the ACP repairs last year, with the balance to be refined in 2022. Reflecting on 2022 then.
Due to the strong refined production performance this year, we've adjusted our 2022 refined production performance to reflect our expected metal and concentrate production performance for the year and the small remaining release in work-in-process inventory. Our metal and concentrate production is expected to be between 4.1-4.5 million PGM ounces. It's a slight revision down as we undertake some planned maintenance at Mogalakwena South concentrator, and we've aligned that this maintenance with the first full Polokwane smelter rebuild, which will happen in the second half of the year. I think it's important to note that this planned rebuild is in line with our asset management strategy and our strategic priority of embedding resilience across the asset base and the business, including through a detailed program of planned maintenance for all of our assets.
If we quickly look ahead to 2023 to 2024, we should continue to see a steady metal and conc production. Our operational efficiencies from P101 efficiency programs and the impact of the modernization of Amandelbult will offset Kroondal and parts of Tumela Upper at Amandelbult, which both will come to the end of their life. We will see an increase in mining volumes at Mogalakwena due to our P101 programs. During this period, we will be mining through a particularly high base metal area for the next few years. This could have a short-term constraint at the ACP, which will lead to a temporary build-up in PGM work-in-process inventory, again.
As a result, we have revised down our refined production guidance for 2023, and we should see a recovery in refined production in 2024, and we're exploring ways in which we can release this WIP earlier than expected. At this point, I'll hand over to Craig Miller to talk us through our capital increase at Der Brochen and our unit cost guidance. Thanks, Craig.
Thanks. Thanks, Natasha. Good morning, everybody. As Natasha mentioned, we're asked here to announce the approval of the Mototolo Der Brochen Life Extension project. Execution of the project will commence early next year with a total capital investment of ZAR 3.9 billion in nominal terms, with the majority of this capital spent between 2022 and 2024. The financial returns of the project are expected to be robust, with an IRR of over 25%, and the EBITDA margin over 35%. The payback period of the project is around 6 years from first production, which is expected in late 2023. These numbers are based on rand consensus prices.
In terms of unit costs, in line with the high levels of inflation that we're seeing globally and across the sectors, we continue to experience higher than anticipated input cost inflation. This has largely been driven by increases in diesel and fuel costs, which have impacted costs, particularly at Mogalakwena. We've also seen a rise in consumable input prices due to the ongoing effects of COVID, both on the supply chains, as well as some of the logistics issues in South Africa in terms of bringing in imported goods. As a result, we've had to increase our unit cost guidance for the full year, to around about ZAR 13,000 per PGM ounce. We do anticipate the inflationary pressure continuing into 2022, coupled with an increase in physical mining activity at Mogalakwena.
Therefore, we're guiding unit cost in 2022 of between ZAR 13,800 and ZAR 14,500 per PGM ounce. I'll hand you back to Natascha.
Thank you. Thank you, Craig. Just in conclusion then, I think our update today illustrates again the high quality and low cost expansion options we have available in our existing portfolio of assets. It also highlights a strong performance by our processing operations over the period and illustrates the significant work we have been doing to improve asset reliability in the business. We are not blind to the challenges of cost and inflationary pressures, but we believe that the business is well-positioned to continue benefiting from the strong market fundamentals for PGMs and continue to deliver industry-leading returns. At this stage, I will hand back to Emma to help guide us through our question and answer session. Thanks, Emma.
Thanks, Natascha. With that, I will please hand over to Operator Irene just to explain how anyone can ask a question.
Thank you. Ladies and gentlemen, if anyone would like to ask a question, you are welcome to press star and then one on your touchtone phone or on the keypad on your screen. If you, however, wish to withdraw the question, you may press star and then two to remove yourself from the question queue. Once again, if anyone would like to ask a question, you are welcome to press star and then one. Our first question is from Chris Nicholson of RMB Morgan Stanley.
Hi. Good morning, Natascha and Craig, Emma, and thanks for the call. I do appreciate it. Could I please just ask a question around. Well, two questions around the refined production guidance in particular. The first one, if I look at the numbers, you have raised the refined production guidance by about 100,000-200,000 ounces this year in FY 2021. For FY 2022, you've cut it by 500,000 ounces. Net, it actually looks like you've lost some refined production between this year and next year. Maybe putting that differently, in total, are you still gonna get to that 1 million PGM ounces that we talked about at ACP build? That would be the first question. Then the second question also on the refining side of things.
Just trying to read between the lines of what you've said there. Is the reason that the ACP issues in 2023 that you've highlighted primarily because of the high base metal content out of Mogalakwena, i.e., you can't get it all through because the ACP can't, I guess, process those base metals? Is that right? Because obviously, as you alluded to, it doesn't really seem like those volumes are subsequently caught up. Maybe if you just provide a bit more detail on that. Thank you.
Thank you. Thank you, Chris. I think to your first question on refined ounces, we'll continue to see a build-up, and I think we've spoken about this before as well, we will be broadly releasing all of the last little bits of work in progress from the build-up, the ACP rebuild last year, early in the new year. We see two things happening in the next couple of years. We see the continuous furnace rebuild cycles. That's all planned. We see an increase for a period of time on base metal loading from Mogalakwena. This does mean that any stock that we build will take us longer to get through, and we do run again some bottlenecking in the process at ACP.
We are looking at ways to unlock that ACP bottleneck that is created. That is what you see in the flow through of refined ounces. I think it's also just important to note, and we've touched on that we do see a reduction in metal in conc coming through. We see, as [Sujit] has indicated, areas in Amandelbult dropping off. We also see Kroondal going out. I think that's it's lower M in C with the build-up that will take us slightly longer to get through in those years. I can probably just ask Craig if he want to add to that, please.
Thanks, Natascha, and hi, Chris. Yes. Certainly just reflecting on 2021, we clearly revised up our refined production to between 5 and 5.1 million. As Natasha said, we have worked through a significant proportion of that build-up of PGM material that we had ahead of the ACP at the end of 2020. I just wanted to point out that this year we've obviously got the M&C production coming in 4.3 million ounces, which is lower than what we were, that was when we started the year.
If you just take the delta 4.3 to between 5 and 5.1, you get to between 700,000-800,000 ounces extra if we refined this year. That really then is bringing 300,000 or 400,000 ounces from that we were planning to do in 2022 into 2021. Hopefully that answers your question on the sort of the movements that you see in 2021 and 2022.
It does. I think it's understood because just to put it differently, there's two separate effects because you've also got the Polokwane rebuild at the second half of next year. Getting through the ounces early this year, but then there's the Polokwane rebuild, et cetera. Completely understood. Thank you.
Thank you. Our next question is from Patrick Mann of Bank of America.
Hi, good day, Natascha, Craig, Emma. Thank you very much. I suppose my question is a little bit around the Mogalakwena expansion. I mean, I understand that the constraints coming in 2023 is then because it's a particularly high-base metal area. But then my question is, if you were to expand Mogalakwena about 50%, do you not? You know, doesn't that suggest that then the ACP would not be able to handle that as well? You know, so that's the first question. Then the second question also just around refining capacity. If Sibanye-Stillwater were to take the Rustenburg production that's currently going through Waterval, would that free up any capacity for Mogalakwena?
Would that be because it's UG2, and it's just a completely different concentrate with higher PGM grades, would it not really make that much of a difference? Thank you.
Thank you, Patrick, and good morning. As part of the six work streams in the future of Mogalakwena, you'll remember that one of the work streams is considering the downstream impact of Mogalakwena. Certainly we have identified a couple of bottlenecks in the downstream process as I've mentioned earlier to Chris's question. ACP is one of them, and we are actively busy with the process of debottlenecking ACP. And then to your question around Sibanye, obviously if Sibanye would take that concentrate and treat it themselves, it will open up capacity for us. In that work stream, looking at downstream capacity, all of these options are being reviewed and considered.
Okay. Thank you. Then maybe, sorry, one other follow-up I forgot to ask or maybe a different question. You spoke a little bit about securing consumables being part of the cost inflation that you're experiencing. Is there any difficulty in actually securing anything? I mean, could you see operational disruptions because of a difficulty in actually getting the consumables required? Or is it just a cost issue? I mean, is it just a cost issue? Or is there also an availability that could possibly impact operations? Thanks.
Patrick, we've definitely seen periods of time where we struggle to get some of our consumables. We've also struggled, for instance, with the ACP rebuild quality of deliveries. We've had a quality challenge with some of the refractories for that rebuild. Generally, with our global supply chain, we have been able to maneuver through that with the additional associated cost. Saying that, however, we continue to keep an eye on the broader supply chain challenges due to COVID. I think if we just consider the chip shortages, that's definitely another indication that we shouldn't underestimate the broader supply chain challenges. What we also see is that some of our local suppliers being challenged in the same way that all of us are with COVID infection rates and maintenance challenges, that their reliability of their assets are under strain.
It's a number of different contributing factors.
Got it. Thank you very much.
Our next question is from Arnold van Graan of Nedbank. Arnold, your line is live. It seems there is no response from that line. We'll go to our next question. Our next question is from Wade Napier of Avior.
Hi, guys. Good morning, and thank you very much for the call. We really appreciate it. I just wanna talk about the Der Brochen Mototolo life of mine extension that you approved today. I'm just trying to reconcile the sort of ZAR 3.9 billion in CapEx that you sort of announced with what you sort of presented back in February. I think in February you presented that project with a 25% increase in sort of production by 2025. Yet that doesn't necessarily seem to be the case now. Maybe you can just help me reconcile that. The second question on my end just speaks to the sort of unit cost guidance in 2022. I do appreciate that sort of production volumes do sort of shift these things around a little bit.
If we assume sort of like for like concentrate volumes year over year, can you maybe just sort of shed some light on your underlying cost inflation sort of assumption for labor, energy, fuel, and consumables?
Perhaps I can jump in on the first portion of the question and then Craig can come in on some of the cost questions as well. The part of that increase, if you consider the concentrate debottleneck that we've just concluded, that makes part of that additional throughput. This from a Der Brochen point of view then becomes a pure life extension to make sure that we can maintain this increased throughput and production that we will get from the debottlenecking of the concentrator. The cost and capital, I will hand over to Craig.
Thanks, Wade. Certainly, I mean, you know, what we are anticipating, as we've seen, in 2021 is obviously the higher input costs, particularly, you know, sort of diesel. We've seen diesel up another 15% in the second half of this year, from when we last spoke. You've also got electricity increases. We've assumed around a 15% increase for next year. In addition to that, you've got, you know, wage negotiations, in terms of sort of the next sort of settlement agreements starting in next year. Those are some of the key drivers around where we see some of the cost increases coming through, into the new year.
In addition to that, as we, as I pointed out, we've obviously got increased physical mining activities. Increased drilling, increased movement of material at Mogalakwena next year. Those are some of the key drivers around some of that increase in our unit cost for next year between 6%-11%.
Great. Thanks, Craig. Maybe just a follow-up on the Der Brochen, just so I understand this. The concentrator expansion has not been approved within the current life extension project. Is that what I'm understanding? Correct me there.
That was already done. We've completed that work this year.
You've debottlenecked it.
Yes.
You haven't expanded it to the 320,000 tons per month.
The 320 is an expansion option that we have available. That expansion option will be considered as part of our broader portfolio optimization. What we've discussed at the time that you referred to is to point out the additional opportunities that we have in all of our assets.
Okay, perfect.
What we
Yeah, thanks, Natascha.
Sorry, Wade, just to make sure that I've answered your question appropriately. What we have approved, and I do apologize for the background noise here. What we have approved now is a life extension. It's a life extension because of the areas at. Oh, my goodness, this is very noisy. I don't know if you can hear me.
I can hear you.
We can hear you.
Okay. There is loads of alarms coming past my. I'm just gonna give that a second. I am in hotel quarantine at the moment, so apologies I can't do much about that noise. Craig, do you wanna just continue that com
Okay. Wade, just following up then on Natascha's point. Yeah, we've got the opportunity around expanding up to 300, you know, going beyond the current capacity at Mototolo. That project is underway. The feasibility study is underway for us to evaluate what those options are. Clearly we've got that within sort of the portfolio. I think in terms of the Der Brochen replacement is very much around, you know, extending the life of the asset of Mototolo, which is part of the rationale for us when we purchased the Glencore stake back in 2018.
Obviously, as Natascha spoken about, that additional throughput coming through as a result of the concentrator debottlenecking, taking that 2-240 times per month. That was completed earlier in the year. We should start to see those volumes starting to come through over the coming years, and they're augmented by the replacements coming through from Der Brochen.
All righty. That's clear. Thanks, Craig.
Apologies for the background noise there. It was really so loud at some stage. I think just to add, it does point to the optionality that we have in many of our assets. Just as a final point. Thanks, Wade. Thanks, Craig.
Our next question is from Arnold van Graan of Nedbank.
Yes. Good morning, everyone. Thanks for taking my question. Apologies about the technical issues previously. Two questions, one probably for Craig and then one for Natasha. Craig, the additional ounces that you refined this year, have you sold all of that or most of it, or will they be able to build up a final inventory? Natasha, you did explain the various work streams and you know how that works. But what I don't understand, and maybe just give me some clarity on that. If there's a delay in one of these work streams like you have now, does that delay the entire project? 'Cause in my mind, it should. Because all of those things need to come together in the way you anticipate at the same time for it to actually deliver the project as scheduled initially. Thank you.
Craig, you wanna go first?
Okay. Thanks. So Arnold, hi, good morning. We certainly are not seeing a very significant build up in inventory. And what we will do is, as you can appreciate, if you compare us versus where we were in 2020, we clearly drew down quite significantly on our finished inventory level. We have been replenishing those, as we've seen sort of the stability coming through the ATP and the production happening. But no, we're not necessarily building up a very significant amount of inventory. It sounds broadly in line.
Thanks.
Arnold, on your question around Mogalakwena, I think that's part of the beauty of this project in my head is that if we consider that we are developing an asset. If you go and look at the full extent, it's a 100 years life, but that's way beyond certainly my how I can think about this asset. How we're shaping this asset at the moment is going to set the direction of really extracting full value. Now, the six work streams, while they're integrated and supportive of each other, they don't necessarily need to go in a specific sequence. There are a couple of prerequisites that we need. The biggest prerequisite for us probably for the mining side is the work that we're doing with our communities.
That is really time sensitive. Because it's time sensitive and we know that it is a process that we need to deal with the necessary care and respect and take time with it, we've already started with the relocation process of two of the communities, and we need to have that process done by 2028. We've given ourselves ample time to work through that process. As far as the concentrator is concerned, if I step back for a moment, because this is such a long life, our asset, we have been quite deliberate in doing a resource development plan for this asset, where we have literally run hundreds of thousands of different options on how we can develop this ore body to its full potential. That's where the underground opportunity was also identified.
When we look at the sequencing of what the RDP gave us an indication on the full NPV, we only needed the third concentrator later after 2025. The RDP, however, because it's a long-term plan, does not necessarily take the short-term kind of practicalities into consideration. If we start to pull that short-term practicalities into a life of asset plan, the indications were that we should probably bring the build of that third concentrator forward. We do have some time, and this decision, the delay in the decision does not impact the total timeline for this project at all.
To the contrary, it just gives us a little bit more space to obviously consider a number of other aspects that is playing a role, making sure we've got the appropriate downstream capacity sorted, and making the right technology decisions and then the size decision closely linked to the work that we want to do with underground. It gives us that opportunity to just make sure that we refine that final decision.
Okay, Natascha, thank you very much. That gives me a lot more clarity. Just one last quick one, and you don't have to spend too much on it and go into too much detail. If you go for the underground option, would that significantly reduce your requirement to move people and the, I guess, the extent of that process and the process involved with moving that? Is that The big benefit or one of the big benefits of underground?
Yes. That is absolutely part of the main reason to absolutely limit our surface impact. It's higher quality mining, so it's more capital efficient in the end of the day from a concentrate and downstream processing point of view, and then the related water and energy impact as well. It aligns very well with our ESG lever as in the process.
Okay. Thank you very much. Thanks. Have a good day. Bye-bye.
Thanks, Arnold.
Thank you. We have a follow-up question from Chris Nicholson of RMB Morgan Stanley.
Thanks. Yeah, it's actually two follow-up questions. Can I just ask the Mogalakwena debate or question in the negative. I know everything is focused on doing a feasibility for the third concentrator, but is there an option where you just don't build a third concentrator, where you sit with the infrastructure and downstream infrastructure you have, and you look to optimize it through other means? So that's one. And then the second one is just ask about both mines. Are you and Sibanye really going to run Kroondal down to nothing over the next seven years or so? 'Cause clearly that's now weighing, I guess, on the production profile. Thanks.
Thanks, Chris. The not building the third concentrator and just running South is absolutely one of the scenarios or options that we have evaluated. I mean, if you consider the life of the asset, the age, cost, and recovery profile of South, that would be part of the benefit of building a new concentrator. Those are still all in the mix around taking a final decision.
Okay.
Very appropriate questions, I would argue, Chris.
Thanks.
Second question.
A quick one. Natascha, quick one. You're gonna run Kroondal down to zero with Sibanye.
Yeah. Craig, do you wanna take that one?
Yes, certainly. Yes, to Chris, look, we are evaluating, you know, what's the best position for ourselves, and we're in conversation with Sibanye-Stillwater around that. We, you know, at the moment, perhaps the working hypothesis is we will continue to be involved in Kroondal, and we'll keep you posted on that.
Yeah. Cool. Thanks, Craig.
Thank you. Our last question is a follow-up question from Patrick Mann of Bank of America.
Hi. Thanks. A very quick one, sorry. Just in terms of the rundown of the refined work-in-process inventory or the refining extra inventory this year. Craig, can you maybe just give us a bit of guidance on what we should think will be expensed in cost of sales against that? I mean, it's quite a big number obviously, so I just wanna check we're not all over the place with earnings. What's the proper thing about it, maybe? If that's easier.
Yeah. Okay. Patrick, yeah. Let's come back to you. I mean, it's not. We'll come back to you with a number that you can use. It's not massive one way or the other.
Would that be because I suppose you've also, your POC amounts would have gone up quite a bit to?
Yeah, exactly.
I suppose.
Yeah, exactly. You did, you have. You have had revaluations of the inventory in the year. I'll have a look again and see what we can do to just direct you to the stuff that's already out there.
Okay. Thanks very much.
Thank you. I would now like to hand back to Natascha for any closing comments.
Thank you so much, Irene. I just again want to thank everybody for joining our call at such a short notice. We felt that it is appropriate for us with some of the announcements, some of the changes in guidance, to rather take questions directly than just putting a SENS announcement out. We will obviously be able to talk about quite a bit of this in way more detail when we talk again in February. Thank you, and thank you to Emma and Craig for your support.
Thank you. Thanks very much everybody. Nice to speak to you.
Ladies and gentlemen, that concludes this conference. Thank you for joining us. You may now disconnect your lines.