Morning everybody, and welcome to Anglo American Platinum's 2019 interim results presentation. Before we begin with proceedings today, can we please take a moment to listen to the safety briefings. With us, we have Mashlele from the JSE who will take us through those.
Good morning, ladies and gentlemen. The safety briefing, we didn't have any information as if there were going to be any testing today. If there is any testing, please abide by the following. Take note of the fire alarm. First siren, stay put. Second siren, wait for the announcement on PA system, follow the instructions. Proceed to the nearest emergency exits. There will be one. There's another one there. Through the main entrance on the outside. Do not run under any circumstances, nor panic. Evacuate orderly and stay calm. Report to assembly point, that will be on next door, 24 Central, in which your fire marshals will do your roll call. Security personnel to ensure that everyone has evacuated safely from this room and the building to this assembly point. Do not enter the building until all is clear. Thank you.
Okay. Thank you so much. As ever, please can I draw your attention to this cautionary statement, and in your own time, can you please take a moment to read through it. Leading to the agenda for today, Chris Griffith, our CEO, will present on our safety and sustainability performance and the operational performance of the company. Craig Miller, our Finance Director, will present the financial results. Chris will continue and take us through the PGM market review and finish with a look at Anglo Platinum's next phase of value delivery. There will be time for Q&A at the end of the presentation. With that, I'll now hand you over to Chris.
Thanks, Emma. Good morning, ladies and gentlemen, welcome to Anglo Platinum's interim results presentation. I'd like to also take the opportunity to welcome the chairman of the board, Norman Mbazima. Welcome, Norman. Without further ado, I'll continue. Right at the outset, I'd like to emphasize that safe production continues to underpin the way in which we do business. I'm pleased to say that we've had no fatalities at our managed operations in the first half, we continue to see improvements in all key safety performance metrics. Highlighting the half's key achievements, it's clear that our value proposition is delivering value. Aside from the strong safety performance, we've had recognition of our leading ESG performance with a first-place ranking by Sustainalytics out of 55 peers in the precious metal sector globally.
We've had robust PGM fundamentals, leading to a 33% improvement in rand basket prices, particularly helped by palladium and rhodium and a weaker rand. Our return on capital employed increased to 45%. We've got a strong balance sheet, increasing our net cash position to ZAR 6 billion. Finally, the board, thanks Norman, has approved a dividend based on the payout ratio of 40% of headline earnings, leading to a cash dividend of ZAR 3 billion or ZAR 11 a share. Turning to the safety and sustainability performance of the company. The strategic focus of the company remains the elimination of fatalities. By incorporating a revised safety strategy a year or two ago, we've achieved zero fatalities at our managed operations in the first half.
Tragically, though, we did have one fatality at our non-managed Madikwe joint venture, and we'd once again like to extend our sincere condolences to Thomas Maluleke's family, friends, and colleagues. We continue to work with our joint venture partners to improve safety and to ensure that we have zero fatalities at all of our operations. Our safety performance indicators continue to improve, and we've seen a reduction in injury frequency rate with a total recordable case frequency rate down by 6% to 2.83 per million hours worked. The implementation of our revised safety, health, and environmental strategy has materially improved the safety performance by focusing on three key areas predominantly. Firstly, the elimination of fatalities. Secondly, robust operational risk management. Thirdly, improved reporting and learning from high potential incidents.
We've also made significant progress, both effort and investment, in our organizational cultural transformation to change behavior and attitude towards safety, ensuring our employees are safer in their day-to-day work activities. Tailings storage management is clearly a big issue for the global mining companies all over the world. Our facilities are subject to mandatory Anglo American Group technical standard and have six levels of oversight and assurance. These standards have been in place since 2014 and exceed current ICMM and regulatory requirements. This best-in-class standard requirement sets design criteria, monitoring, inspection, and surveillance, and has been peer-reviewed by international specialists. There's been quite a bit of concern about upstream tailings dams post the two failures in Brazil.
In South Africa, the South African region is well-suited to upstream tailings dams due to the low rates of rise, low rainfall, and high evaporation rates, as well as low seismic risk and suitable topography. We've disclosed extensive information on our website relating to the status of our own and our joint venture facilities. We continue to ensure that the manner in which we conduct business minimizes harm to the environment and supports surrounding communities, mining responsibly and sustainably. We have clear carbon and emission reductions pathway, and you can see from that top box, we continue to reduce emissions and energy intensity. We're assessing the potential to use renewable technologies within our portfolio, and they include the launching of now a tender process for our 75 MW photovoltaic plant at Mogalakwena. We're also assessing further potential solar farms at Unki and at our processing operations.
We're screening the opportunities to use fuel cell trucks in our fleet, and we think by this time next year, we'll have the largest fuel cell truck operating anywhere in the world. We also continue to invest in our smelters to reduce sulfur dioxide emissions with a capital investment program of ZAR 2.5 billion over the next five years. We actively invest in creating value for the host communities and to make a positive impact on society. You'll remember that we increased the donation of land with a further 270 hectares of land donated to the Rustenburg community in March of this year, supported by the national government.
On the right-hand side of the slide, you can see that we continue to receive global recognition by respected institutions for our ESG performance, including being awarded, as I said earlier, a first-place ranking by Sustainalytics out of 55 precious metal peers in the global mining industry. Turning to a review of the operational performance for the business. The business has had a relatively steady operational performance. Our own mine production decreased by 2%. It's worth noting that we had an increase in production from Unki delivering another record performance. This performance is despite headwinds that occurred in the first half, including the Eskom power disruptions, as well as the unprotected strike at Mototolo. The period prior to in 2018 benefited from 1 South production benefits. We expect to see an improvement in our production performance in the second half, which we'll talk to in a moment.
Refined production, which included the metal that we need to refine for the tolling at Sibanye, was up by 6%, which was higher than the mine production as the buildup in work-in-progress inventory that rolled over from 2018 was partially refined. The Waterval smelter rebuild, maintenance at the ACP, and the annual stock count, which this year resulted in a net gain in inventory, has led to an increase in work-in-progress inventory from the year-end position. This is a temporary increase, and we expect that work-in-progress is expected to be refined by the end of the year. The all-in sustaining cost of $517 per platinum ounce sold, that was against an achieved platinum price of $831 per platinum ounce sold. Mogalakwena continues to deliver and had another strong performance, producing 610,000 PGM ounces.
This was a 5% decline off the very strong performance that we had in the first half of last year. Eskom power outages impacted our production by about 12,000 PGM ounces. There was a decrease in the concentrator throughput and recoveries due to a shutdown that we had for maintenance on the secondary mill at the North concentrator. We had scheduled in the first half of this year an increase in waste tonnes mined from a new mining cut at Mogalakwena. We also had some lower equipment availability, and the combination resulted in a decrease in the ore mined portion of the pit over that period. That has been partially offset by a drawdown in ore stockpiles. In the second half of this year, we expect greater mining equipment availability.
We had a purchase of an additional two trucks, and as well as mining the ore that we've now exposed will result in greater mined production in the second half. Despite these headwinds, Mogalakwena had the best EBITDA margin in the portfolio of 57%, and a return on capital employed of 47%. The mine generated ZAR 3.8 billion of economic free cash flow at a negative all-in sustaining cost of $292 per ounce, and that highlights the benefit of the basket of metals that we produce at Mogalakwena. Amandelbult has been a mining transition, something we've been talking about for the last two years as we seek to the reduction in Tumela Upper to develop a new mine. Developing a mine within a mine at Dishaba Lower. Amandelbult produced 422,000 PGM ounces, and that was an annual decrease of 3%.
The mine had a really difficult first quarter, which had impacted the half year performance, largely due to a number of electrical breakdowns, but exacerbated by the Eskom power outages. We also had the upgrade of the shaft infrastructure at Dishaba, which we've upgraded so we can increase the hoisting capacity. The big shutdown that we had over the December break ran over into the first half of January, and resulting in an impact in performance in the first quarter. However, the mine had a much better second quarter, was up by 19% quarter-on-quarter, and the next slide will highlight some of this trajectory. Amandelbult's EBITDA margin was 26%, with a ROCE of 33%. The mine generated economic free cash flow of ZAR 504 million at an all-in sustaining cost of $672 per platinum ounce sold. We're starting to see some of the benefits of the Amandelbult turnaround.
We've completed, as I said, the winder and the hoisting upgrades at Dishaba. As a result of this increased development, the immediately available ore reserve, so the developed ore reserve at Amandelbult, you can see from the slide, increased by 6% from the first quarter to the second quarter. Dishaba was up by 8%. As a result of the increase in working faces, Dishaba will continue to increase developed ore reserves. They'll increase again for the second half of the year. Now that we've developed the ore reserves, the focus is now converting immediately available to immediately stopable reserves in the second half. Now that we've established additional mining faces, you can see in the chart on the bottom left-hand side that we're now sustainably increasing the square meter output, and that has resulted in a 23% increase in the monthly square meter average profile.
Increasing the amount of UG2 mined has led to feeding into the chrome plant, coupled with the stabilization of the interstage process, has led to increased throughput and yield, leading to higher chrome production in this half. Chrome production will once again increase from the third quarter as we now commission on time, on budget, the third chrome module in this next quarter. Chrome sales, though, in this period have been impacted by a temporary rail constraint, leading to some stockpiled chrome. Unki mine remains a strategically important asset to us and delivered a record performance again in the first half. PGM production was up by 3% to 96,000 PGM ounces, as we've improved underground mining efficiencies, improved concentrator throughput, higher mill time, and recoveries. The mine delivered an EBITDA margin of 27% and a ROCE of 12%.
Economic free cash flow of ZAR 229 million due to the strong performance, and an all-in sustaining cost of $456 per platinum ounce sold. You'll recall that we commissioned the Unki smelter at the end of last year. The Unki smelter is operating as planned, and we've not been impacted by any power outages in Zimbabwe. The macroeconomic environment in Zimbabwe is challenging, and the Zimbabwe government is attempting a comprehensive structural reform program to stabilize the economy. Despite these difficult local economic conditions, Unki continues to deliver. Mototolo had a difficult start to the year, with PGM production down by 21%, largely due to the impact of the three-week industrial action, but also the subsequent ramp up. The mine has also had a lower built-up head grade as it transitions through difficult ground conditions containing multiple geological features.
Production at Mototolo is expected to stabilize in the second half as the mine continues now to unlock the contiguous ground that has moved into the operation as a result of the acquisition to make it 100% owned operation in last year. The mine delivered an EBITDA margin of 40% and a return on capital employed of 40% as well. It also generated economic free cash flow of ZAR 443 million at an all-in sustaining cost of $237 per platinum ounce sold. We don't have a slide in our joint ventures, just briefly, our joint venture PGM production declined by 3% year-on-year, largely as a result of Modikwa being down by 14%, that was largely as a result of the stoppages post the fatality and the subsequent ramp-up. Kroondal was up by 4% year-on-year.
It is worth mentioning that our joint ventures generated ZAR 1.2 billion of economic free cash flow for the period. Thank you. I will hand you over to Craig to take us through the financials.
Thank you, Chris. Good morning, everyone. I'm delighted to be presenting my first set of results for the company. We are today reporting another set of strong financial results, benefiting from robust market fundamentals, reflecting the quality of our portfolio, steady operational performance, and our commitment to balanced and disciplined capital allocation. In the first half, we've seen headline earnings per share up 120% to ZAR 28.15. EBITDA is up 82% to ZAR 12.4 billion. Return on capital employed doubled to 45%, and net cash improved from ZAR 2.9 billion at the end of December to ZAR 6 billion at the end of June. Consistent with our dividend policy, we've declared a first-half cash dividend of ZAR 11 per share, totaling some ZAR 3 billion. EBITDA of ZAR 12.4 billion is up from ZAR 6.8 billion in the comparative period.
Higher dollar metal prices added ZAR 3.6 billion to EBITDA, and despite platinum down ZAR 1 billion, the benefit of producing a basket of metals is shown from the ZAR 3.2 billion contribution from palladium and a ZAR 1.4 billion from rhodium price increases. This reinforces the benefit of Anglo Platinum being a PGM producer, not just a platinum producer. EBITDA was further increased by the weaker rand, contributing ZAR 3.3 billion, but partially offset by the impact of CPI and the royalties of ZAR 0.9 billion. Earnings were reduced by the lower measured value ore stockpiles of ZAR 0.2 billion as a result of the drawdown at Mogalakwena, and lower sales volumes from minor metals, which have been impacted by trade wars and a particularly strong sales volume in H1 2018.
The group EBITDA margin improved year-on-year from 21% to 32%, supported by strong mine-to-market margins from our own operations of 43% and 38% from our joint venture portfolio. The POC margin rose to 16% from 11% in the prior period due to a portion of the 4E purchase concentrate transitioning to a tolling arrangement with effect on the 1st of January 2019. Unit costs rose by 13% to ZAR 22,027 per platinum ounce over the period. A less pleasing performance. We experienced higher costs driven by mining inflation of 7.5% and additional costs due to increased maintenance activities, as well as equipping developed working areas at Amandelbult. Lower production and a drawdown of ore stockpiles at Mogalakwena added a combined ZAR 600 per ounce.
Whilst our current unit costs are above our guidance, we believe that we can offset this increase through increasing ore mining at Mogalakwena, which we will replenish stockpiles, plus the benefit of increased production to come through in the second half. As a result, we retain our 2019 unit cost guidance of between ZAR 21,000 and ZAR 22,000. The all-in sustaining cost per platinum ounce was $517 per ounce against an achieved platinum price of $831. Working capital. Working capital increased from ZAR 4.9 billion to ZAR 8.2 billion. The net ZAR 0.7 billion increase in inventories reflect the impact of the stock count adjustment, which added approximately ZAR 1 billion. As a result of the additional maintenance activities at our processing facilities, we've seen the build-up in work-in-progress inventory levels. We expect the elevated work-in-progress levels to reduce in the second half of the year.
Trade creditors reduced by ZAR 3.3 billion as we paid Sibanye for the final purchase of 4E concentrate as they transitioned to the tolling arrangement. This was offset by a ZAR 1.3 billion increase in the customer prepayment, which is valued at ZAR 7.4 billion due to the higher dollar metal prices and the weaker exchange rates. Disciplined capital allocation remains a key priority. H1 2019 CapEx was ZAR 2.1 billion. SIB and project CapEx of ZAR 1.7 billion was spent in the period. A further ZAR 400 million was spent on the SO2 abatement project. Our project CapEx continues to be focused on low CapEx fast payback spend, which currently includes the module 3 of the Amandelbult chrome plant and the Tumela 15 East mechanized mining section. Project capital also includes projects to drive best-in-class performance.
Capital guidance for 2019 remains between ZAR 5.7 billion and ZAR 6.3 billion, as more SIB capital to maintain the integrity of our assets and safety standards is expected to be spent in the second half. Capitalized waste stripping at ZAR 1.1 billion is half a billion rand higher than the prior period due to additional waste tonnes being mined in line with the revised mining plan of Mogalakwena. Guidance for 2019, capitalized waste stripping remains between ZAR 2 billion and ZAR 2.2 billion for the year. Most pleasing has been the ZAR 3.1 billion improvement in net cash from the beginning of the year to ZAR 6 billion.
In the chart on the left, you can see the underlying operational free cash flow increased by 126% to ZAR 4.3 billion. This was lower than it could have been had we been able to process the additional inventory in work in progress. The ZAR 3.1 billion increase in the net cash position was after paying the 2018 final dividend of ZAR 2 billion. Excluding the customer prepayment, which is valued at ZAR 7.4 billion, the company would be in a net debt position of ZAR 1.4 billion and a net debt to EBITDA ratio of 0.1x .
Finally, underpinning our strategy, we have a value-focused approach to capital allocation, with clear prioritization around the maintenance of the integrity of our assets, to pay dividends to our shareholders, with the base dividend determined at the headline earnings base ratio of 40%, ensuring a strong balance sheet, any remaining discretionary capital is then allocated towards growth investments that meet our stringent value criteria. In the event there being excess cash, we would return that back to shareholders. In summary, we have a strong set of results, which reflects the delivery of our strategy. I'll now hand you back to Chris.
Thanks, Craig. Turning to the review of the platinum market. The dollar basket price, which is referenced by that beige line, performed well in the first half, rising by 16% year on year. Platinum price, which is shown by the black line, was lower by 11%. That was offset by the palladium and the rhodium prices, with palladium reaching all-time highs in April. At the same time, the rand weakened by 15% from an average of ZAR 12.38 to ZAR 14.26 to the dollar in the first six months of this year. This helped the rand basket price, which is shown in that green line, to increase to 33% for platinum ounce sold this year. We continue to see demand for the 3E platinum group metals of both the short and the medium term as positive.
If we have a look at the charts on the left-hand side, let's focus first on platinum. Platinum has been boosted so far this year with very strong investment demand, over 700,000 oz going into ETFs, and continued healthy demand from a number of industrial sectors. Automotive, which you'll recall, has been seeing a decline in Western Europe diesel in particular, which is about half of all metal sold into the auto sector, has been declining for a number of years. What we started seeing is that decline flattening off this year. In addition to that, we've seen light-duty outside of Western Europe increasing as well as heavy-duty diesel. The combination of those actually says that the auto sector is scheduled to see very small declines in this year.
One negative so far this year has been the expected decline in Chinese platinum jewelry sales. That'll be offset by double-digit increases in India, Japan, and the U.S., and the rest of the world will see slight increases. Perhaps the red dot on that slide is overly pessimistic because we only forecast to see about 50,000 oz decline from the jewelry sector in total. If we look at the two bars on the right-hand side, you can see that both palladium and rhodium demand, as you'll know, is dominated by the gasoline auto sector. What we've seen is the tighter emission rules in a number of countries, leading to increased loadings on the catalysts, is more than offsetting the decline that we're seeing in absolute vehicle numbers, meaning that we should see demand increase again for both metals this year.
With palladium deficits this year expected to be about 800,000 palladium ounces. Turning towards how Anglo American Platinum can continue to deliver the next phase of value. Taking a moment to reflect on our value proposition, which is based around three key pillars. Firstly is the quality of our assets and operational excellence. Secondly, around capital discipline and shareholder returns. Thirdly, around the long-term sustainability of our business. We are underway with a revised strategy from what we previously internally described as a burning platform to what we're now describing as the burning ambition to further leverage our differentiated value proposition. The next phase of value can best be described on where we're focusing to see that value from in these four blocks. On the top left-hand side, you can see the block that we're calling P101 and FutureSmart.
That focuses on our assets, on the optimization of our assets by achieving and beating global benchmark, and we call that internally P101. As well as modernizing our assets and the use of FutureSmart technology, which we'll go into a bit more detail later. On the top right-hand side, we still remain committed to low CapEx, fast payback projects. You can see the list of projects there. We still believe that significant value can be generated through the investment in chrome at Amandelbult and Modikwa, modernization of the 15 East tractor section at Amandelbult, concentrate de-bottlenecking at all of our operations, and the base metal refinery, a copper leach circuit improvement. On the bottom left-hand side, we continue the studies of both Mogalakwena and Mototolo/Der Brochen to find the best value options available to this company.
As the studies are progressing, we're seeing further optionality in the high-quality assets that we own. We do need to conclude these studies to see where the next best value is for the company. Both Mogalakwena and Der Brochen have moved to the next phases of study in this first six months. On the right-hand side, the market development continues to be a key strategic investment. We continue to think about this as an investment, not a cost. We've made further substantial progress in the first six months, including with the introduction of a new partner into the AP Ventures Fund. Now we have four partners, two additional to ourselves and the PIC. This latest partner is Toyota's Mirai Creation Fund. We've also launched, very recently, the Lion Battery Technologies, with PTM to accelerate the development of PGM-containing battery technology.
We've also launched new products in both the jewelry through the PGI and new strategic partnerships through the World Platinum Investment Council. This slide highlights some of the work that we've been progressing on P101 and utilizing FutureSmart technology to ensure that we achieve and beat world-best practice across our operations. You'll recall in February this year at our annual results presentation, we started sharing some of the thinking about where we saw potential. Now we're highlighting how some of these technologies could potentially benefit our organization. You can see that a considerable amount of work has taken place on the development of these new technologies, and you can see across both mining and processing some of the progress that's been made in the last six months. You'll recall this slide that we shared at our results presentation in February.
At that time, I said that I could see, or we could see, a further EBITDA value uplift based on 2018 prices of the following 5%-8% increase in EBITDA by 2023. You can see from that chart, it excludes any capital investment from expansions. Turning now to our guidance and also our conclusion of the first half's results. We are maintaining all the guidance that we gave to you in the beginning of the year. Firstly, for produced, refined, and sales volumes, all of which, as you recall, exclude the toll refining of four ounces for Sibanye. Firstly, PGM production, that remains between 4.2 Moz-4.5 Moz.
Refined PGM ounces, you'll see, remains above what we produce for this year only as we have some of the benefit from 2018 material flowing over, and therefore, are expected to refine 4.6 Moz-4.9 Moz, and likewise, we'll be selling between 4.6 Moz and 4.9 Moz. As Craig mentioned, that as we previously guided, our capital expenditure will remain between ZAR 5.7 billion-ZAR 6.3 billion. Also, as Craig promised, our cost performance, which has been higher so far this year than input cost inflation of 7.5%. We believe that we can limit the unit cost increases to between probably at the upper end of the range of between ZAR 21,000-ZAR 22,000 per platinum ounce.
I think it is important just to caution, though, that there are potential headwinds in the second half of the year with wage negotiations and as we come through the winter period, potential disruptions at Eskom. To conclude, Anglo Platinum has delivered another strong set of results. We've had zero fatalities at our managed operations in the period, and we continue to see safety improvements. Our ESG performance is receiving global recognition. We've had a relatively steady production performance with a second half production performance increase expected. Robust market fundamentals for PGMs have led to a strong rand basket price. The company's in a strong financial position, which is now enabling us to increase returns to shareholders. We have a strategy in execution for the next phase of value at Anglo American Platinum.
Ladies and gents, I'm really pleased with the performance of the company, and what the company's been able to deliver. Of course, I'd like to take this opportunity to thank the board for their support, but also to my management team and to every single employee at Anglo Platinum for their incredibly hard work and their amazing contribution to the results that we've been able to present on their behalf today. Thank you very much. Both myself and Craig, and also my management team are happy to take any questions that you may have. Thank you.
Good morning. It's René Hochreiter from Noah Capital. Well done again on your results. I just have a question on the dividends. You pay a rate of 40% of EPS. Do you have any ambition of maybe increasing that to 50% or 60%? My guesstimate for forward dividend yield is about 3% for you. Internationally, that's pretty low for a resource company when times are good.
Want to take that, Craig?
Hey, René. Thanks very much for the question. A couple of observations. I mean, in February, the company increased its dividend payout ratio to 40%. Really reflecting today, paying out the ZAR 11 per share. The total that we'll pay out this year is about ZAR 5 billion. As I articulated in terms of the capital allocation that we did go through, we do assess the various principles around that in terms of, first of all, priority, maintaining the integrity of our assets, making sure that we do pay out that base dividend, and then looking to what do we do with any extra cash. We do look at it constantly, and we did look at it in June.
I do need to just point out that with the customer prepayments at ZAR 7.4 billion, we are in a net debt position of ZAR 1.4 billion, and that is something that we take into consideration. Considering some of the headwinds that Chris spoke about, we would take those into account as we look out for the rest of the year. We constantly assess it.
Shall we.
This is gonna be easy today.
Okay. Onke Teko.
Good morning, guys. Congratulations on a good set of numbers. My one question is on cost control, and I just want to know how big a challenge do you expect it to be going forward, considering that in terms of production profile, that remains very much flat. AMCU is asking for ZAR 17,000 per month increase. In terms of Eskom, double-digit increases are probably inevitable from where we're standing. My second question, I would like to get a bit of an update on wage negotiations, if you can.
Craig, should I start?
Sure.
Then you feel free to add any pearls of wisdom. I mean, look, for the last number of years, probably the last four or five years, we've been materially outperforming unit cost, mining input cost inflation. I guess at some point in time that was gonna catch up, and I think then we were going to be, I guess, fighting against mining input cost inflation. We still think that we can beat that. Our guidance at the top end of our guidance would mean that we would have a 6% increase this year, and that would mean that we are still outperforming mining input cost inflation. As Craig mentioned, that is currently standing at 7.5%. The highest delta above normal inflation that we've seen for a number of years.
In the meantime, whilst we've had the strikes at Mototolo, whilst we're trying to equip the faces and generate the new mining faces at Amandelbult. All of those are gonna add additional costs. Then it didn't help at Mogalakwena this six months that we were putting down on ore stockpiles. Having said all that, we still believe that we can return to beating mining input cost inflation. Certainly, that's still our ambition this year. Look, it's certainly not helping that we've got higher fuel prices, higher electricity prices, and clearly wages above inflation continues to put additional inflation pressure on the company. The management team are focused. We plan to get back below that rate of rise above mining input cost inflation.
The wage negotiations have just commenced. There's nothing really that I can add other than we've had exploratory discussions with the unions. We haven't put our foot forward. We haven't put our offer on the table. What we'll be very careful about is making sure we don't embed any unsustainable cost increases. Whilst it'll be difficult wage negotiations, of course, as prices go up, they also come down. What we want to be very careful about is we don't embed unsustainable cost inflation that when prices come down through the cycle, that we then have to start retrenching again. Amandelbult, I guess, is our biggest challenge, where we have 60% of the costs at that kind of mining are still related to labor and contractors.
Any unsustainable increase will put pressure on that operation where the majority of AMCU members are, where the majority of the members of this company are. In addition, perhaps what we haven't flagged as well is that we have been paying some once-off benefits. Last year, we paid ZAR 9,000 cash ESOP to our employees. This year, we'll be paying ZAR 4,000 and ZAR 4,000 in shares, and likewise next year. There are some payments that are going to employees, and I think we'd rather look at some sources of settlement like that to ensure that we don't embed, as I've mentioned, unsustainable wage increases to the base. Craig, do you want to add anything to that?
I think, Chris, just to complement, obviously, cost control is a key area that we're focused around. Chris also spoke a bit to what we're looking at in terms of P101 and FutureSmart technology, with the expectation that that will help, in the future, sort of maintain those cost increases longer term and sort of driving some of that 5%-8% EBITDA improvement.
Morning, guys. It's Chris Nicholson from RMB Morgan Stanley. You've built a bit more inventory again in the first half of this year. I think that comes on top of a build of around 300,000 PGM amounts as last year. A number of your peers have too, across the industry. I know Johnson Matthey on the smelting side there also had some issues going into the first part of this year. Umicore's had this fire last month. Assuming Eskom plays its part, I think it's maybe fair to assume the amount of metal coming into the market over the next 6-12 months is probably higher than the last 6-12 months. Is there anything that you see, looking into the market, that maybe is of concern through supplying greater amounts of metal, just given the softer global demand conditions?
Given your balance sheet's now a lot stronger, would you manage that to some degree if prices or demand soft, you've got a bit more capacity to hold back metal if necessary? Thanks.
Chris, I think two points I'd make around I mean, generally, the first half of the year is weaker than the second half, and that's just generally been like that over as long as I've been in the business. Expecting a higher output in the second half of the year is not overly concerning to us. Generally, for example, we will try do our smelter rebuilds and all the big smelter works in the first half of the year. Just generally, that type of cycle is not abnormal to us. Also, what we started seeing is already some of that material that you spoke about in some of our competitors and some of the fabricators coming back in the first half. I don't think, again, we're overly concerned that too much metal is going to be a huge bump of metal into the final half.
That's not worrying us. Generally, given the deficit of metal that we have around for palladium and rhodium, it's not in our interest to stockpile metal. Number one, we don't do that to try and pretend to be smarter than the market, that we don't stockpile metals. The market needs the metal, and certainly we'll continue producing that metal. With platinum forecast to be a little bit in deficit this year, again, we're not overly concerned that there's too much metal coming to the market. You will find some of that sort of abnormal flows, but it's still going to be based on the underlying production. If you look at the underlying production, both in platinum and palladium, there's actually very little increase scheduled over the next couple of years.
Can we take some questions from the line?
Yes. We have a question from Johann Steyn of Citigroup.
Thank you very much. Hello, everyone. Chris, I've got two questions. The first is just with regards to the prepayments. Would it be possible to disclose a little bit more detail behind those prepayments, whether that happens at premiums or discounts, and also on which metals? Would that be predominantly on palladium or rhodium? That's the first question. Maybe deal with that one first, then I'll come to my second one, please.
Do you want to pick it up, Craig? Yeah, go.
The prepayment is to a customer. It is on the 4E metals. That sort of gets revalued on a monthly basis. In terms of the premium or some of the contract components of those, I'm not at liberty to disclose those to you at the moment. That's part of the agreement with the customer.
Johann, I can confirm that there's no discount, no commission that is paid, and it also comes at zero cost to the company. It's a source of capital to the company for a five-year period at zero cost to us, but also at no discount or commission. Craig is correct. It comes on all four metals, and it's supplied to one particular customer.
Okay, thanks for that. The second question is regarding Mogalakwena and the work that you're doing on the expansion. How is the support from Anglo American with regards to further capital commitments at Mogalakwena and in South Africa? I guess you wouldn't know specifically at this point, but is this seen as an Anglo American priority, or do you think this might be second or third in line?
Johann, thanks for that question. This project is no different to any other project in the Anglo business. Number one, yes, it will compete for capital in the Anglo business. We've never got to a position, for example, that our board has wanted to support something and Anglo American hasn't. If the project's good enough to go for our board, where we have, in any event, a number of the Anglo directors, if it's good enough to go to our board, it will be good enough to go to an Anglo American board. At this point in time, the Anglo group is supporting us in going through the normal disciplined capital allocation process, doing the project studies, and as we go through each of the project studies, we take both Anglo American along, but also our board.
Anglo, just like our board, have supported the next phase of projects. The underlying project is good enough to continue with its project development. There's no South Africa overlay to that decision process. If a project's got to stand on its own feet and be good enough to invest capital that any shareholder wants us to invest in, we've got a number of both qualitative and quantitative criteria that we follow that are all very transparent. As I said, there's no other overlay to whether or not that project will proceed or not.
Thanks, Chris. Maybe one last one. Again, when would you know for sure what direction you're going to take on this project? Is it still the end of this year?
Yeah, Johann, I think we'll go into next year with the project studies. I think by the end of this year, we'll probably have a good feel for what the nature of that project is. As you'll recall, I gave some feedback at the final year results presentation in February to say that actually, as part of doing the project studies, we've come up with quite a few attractive options. There's not just one option available to us, of putting a new concentrator and expanding the open pit. We're actually working through some of those value options right now. Probably by the end of the year, early next year, we will have decided on the single option that we want to proceed. It'll probably take some of next year to develop that final option to its finality and then seek board approval.
I think come the end of the year, we'll probably have a better view on the timeline to finalize the project studies. I think it's like that. We'll go into next year, probably early part of next year, we'll have decided on the final option that we can then finally do the final project study on.
Okay. Thanks, Chris, and well done with a good result.
Thanks, Johann. Do we have any further questions on the conference call?
There are no further questions on the lines.
Thank you. Emma, we can do the webcast questions.
They've all actually been addressed. I guess final questions from the room.
Yes, why not.
Chris, it's Arnold van Graan from Nedbank. You've been doing a lot of work on market development and essentially spearheading that. You've previously called for bigger support from your peers. Are you seeing that now that basket price is a bit high and their balance sheets are easing? Are you seeing a bigger appetite for support? Do you have an initiative to drive that as a collective? Not just through yourselves and the PIC, which accounts for the government part of it, but what we need is your peer group to also step in. Can you just give us a bit more on that?
Yeah, Arnold, thanks. Look, first of all, I think we're very pleased that we were able to make a number of additional announcements in this first half. Getting additional investment into the AP Ventures funds from external third parties. I've already mentioned that we've got both Mitsubishi now and Toyota. Two seriously heavyweight companies joining AP Ventures wanting to expand demand on the industrial side, particularly focused around the green economy, hydrogen energy. That's really, really powerful and really supportive of that's the longer-term industrial development for PGMs. That was really positive. Then secondly, recently being able to make an announcement around the Lion Battery Technologies. We think that's really, really exciting. Of course, it's early stages, what has traditionally been seen as a huge negative for the business, and that is batteries in the electrification of the drivetrain.
What we're now seeing is that we think there's potential to have platinum and palladium into battery technology. We're doing some work, as you would have seen from that announcement, with the university in Florida. We think that's really positive, and we'll see how that unfolds over the next couple of years. Those are two key developments that we're very pleased to have been able to announce in this first six months. We haven't yet seen a big material change for the rest of the industry to support market development investment. We keep trying to get our peers to look at market development as an investment as opposed to a cost. Impala are really supportive and play their equivalent role.
We have a number of smaller players that haven't yet come to the party, and I think it's fair to say that Sibanye are probably trying to find their feet in this space. I mean, they've got clear ideas of where they want to spend money. We have an industry sort of market development strategy meeting in the next month, and I think that's really going to provide some guidance as to how the industry is thinking about that. Whilst we haven't yet seen, Arnold, some of that, what we'd expect is to see the industry playing their fair share. We have got a strategy session actually aimed at exactly doing that, to get everyone to support a number of initiatives that we think will move the dial. In those initiatives for everyone to play their fair way.
I think we're all looking to that strategy session at the end of next month to play that role.
Thank you, Chris.
Thanks, Arnold.
Okay. I think we're done.
Okay. As Emma says, I think we're done. Thank you very much, ladies and gents, for your time. Much appreciated. Thank you.