Anglo American Platinum Limited (ANGPY) Q4 2022 Earnings Call Transcript

Anglo American Platinum Limited (OTCPK:ANGPY) Q4 2022 Earnings Conference Call February 20, 2023 4:00 AM ET

Company Participants

Emma Chapman - Head IR

Natascha Viljoen - Chief Executive Officer

Craig Miller - Finance Director

Conference Call Participants

Christopher Nicholson - RMB Morgan Stanley

Gerhard Engelbrecht - Absa CIB Global Markets

Steve Friedman - UBS

Adrian Hammond - SBG Securities

Richard Hatch - Berenberg

Myles Allsop - UBS

Emma Chapman

Good morning, everybody, and thank you for joining us today at Anglo American Platinum's 2022 Annual Results Presentation. I would like to draw your attention very quickly to the cautionary statement, and we will really appreciate it if you could read this in your own time and take the points on board.

I will now hand you over to Natascha Viljoen, our CEO, followed by Craig Miller, our Finance Director, to take you through the presentation. Please note, we do have some time at the end for a Q&A session, and that will be at the end of the presentation.

And so with that, I'll hand over to Natascha.

Natascha Viljoen

Thank you so much, Emma, and good morning, and welcome to the presentation of Anglo American Platinum’s 2022 results, as Emma referred to. Thank you for taking the time to join us here today both in person, it's really nice to see so many people together here, and we have colleagues who's been joining us virtually. Also I just want to acknowledge two of our directors, our Chairman and our Chair of our Audit and Risk Committee, both Norman and John here with us this morning.

I want to start by pointing out some key highlights for the year. We've made progress on improving our total recordable injury frequency rate. With a relentless focus, we've further built on this improvement in the last year with the lowest recorded injuries in the company's history. We made a significant contribution of ZAR131 billion to society, highlighting the work we are doing to distribute value to all of our stakeholders.

Now whilst we experienced headwinds during this year, we've seen resilience across the operations. As a result of the successful integration of the concentrated debottlenecking projects, we saw significant increases in production from both our Mototolo and Unki operations. We've taken steps towards implementing carbon reduction projects to meet our 2030 and 2040 targets.

Despite headwinds, we've achieved an EBITDA of ZAR74 billion and a mining margin of 57%. We ended the year with a ROCE above 100% and in a net cash position of ZAR28 billion. The operating environment presented a variety of challenges in 2022, but we have, however, navigated these with strong mitigation actions.

I want to reflect on just a couple of them. With the supply chain challenges that we've seen, we've been managing that with increased stock holding in a supply chain constrained environment. We've seen the energy challenges that we have and we've been fast-tracking renewable generation projects and reducing consumption to accelerate our energy independence. We have had a continuous focus on socioeconomic interventions and continued capital investment to ensure our operations remain stable and capable throughout.

Our strategy is guided by our purpose, reimagine mining to improve people's lives, and we continue to deliver on our purpose through the four pillars of our strategy, which we will highlight in this presentation as we work through it. Now one of these three pillars -- or four pillars that has really stood out for me in the past here is how our team has gone beyond resilience and thrived through the evolving operating landscape we are founding ourselves in.

Now let's turn to our ESG performance. While we reported no work-related fatal incidents at managed operations during the year, we sadly lost Julian Sesinyi, who passed away from a workplace in the injury sustained in 2021 and Rheina Malatji, who died in a workplace accident in our non-managed operations at Modikwa. The building blocks for us to work towards being fatality-free has delivered some results in our total recordable case frequency rate for our own managed operations improving by 11% to our lowest ever rate of 2.34 per million hours worked in 2022.

This demonstrates the huge strides made in our journey towards zero harm with a 48% improvement achieved over the last five years. The zero-harm environment will also ensure a workplace that is free of gender-based violence. We continue placing significant focus on the elimination of fatalities, and we see that in some of the milestones that our operations have achieved.

And I'll touch on a couple of them. The Amandelbult chrome plant and our Unki smelter have been fatal-free since commissioning. Our Amandelbult underground operation is more than two years fatal-free. The precious metal refinery is five years fatal free and all of our other operations, Mototolo, Unki, Rustenburg, base metal refinery and Mogalakwena or more than 10-years fatal-free. We are focused on safe, stable and capable operations and addressing the root cause of all incidents. For this, we are utilizing technology and data analytics as well as addressing human factors as part of our safety approach.

Working with our host communities and is incredibly important for us. The projects we are involved in are cocreated with stakeholders and aimed at addressing the immediate challenges that our communities are facing. I want to touch on just a number of -- a few of them. You are aware that gender-based violence is a prevalent issue not just in South Africa but globally. We have stepped up our work on this front, and we've established an advisory panel of executive men and women on this journey.

We also launched the Light the Way Extinguish GBV campaign. We are working closely with Anglo American living with Dignity Hub on case management and provide psychological support to victims of gender-based violence. In collaboration with partners, we launched victim shelters and empowerment centers in communities and capacitated caregivers. This includes building survivors' economic independence through skills training and enterprise development support.

I want to move on to talk about potable water. Access to potable water is a basic human right and a huge need for the communities around our operations. Over and above the water supply project, we launched previously, we've also in the last year launched the Olifants River Management Model to ensure cost-effective and secure water supply not only to our own operations, but to the communities in the Northern and Eastern limb. This is in partnership with the Department of Water and Sanitation and other mining houses in this area.

And lastly, we continue to support the creation of jobs outside the mine gate. For every one job within the mine, we have created six direct and indirect jobs outside the mine gate through various initiatives. These are focused on alternative industries, enterprise development and supply chain opportunities.

We have developed a road map to carbon neutrality and a defined program for energy efficiency and reduction. The renewable energy program contributes to the creation of new industries, job creation and supports the just energy transition. It supports energy security. And given our decarbonization plans, we expect our annual carbon tax liabilities to reduce over this period and become negligible once we achieve our net zero position. We've progressed this program with several short, medium, and long-term projects to reach our 2030 and 2040 targets.

We continue to make a balanced economic contribution to society as a whole. In 2022, a significant contribution of ZAR131 billion was made to our social stakeholders. We balance this contribution with strict capital allocation, and we continue to ensure meaningful returns to all of our shareholders.

Now moving on to a review of our operational performance. In total, our BGA model in methylene concentrate production in 2022 decreased by 7%, as compared to 2021. We saw a strong production performance from our Unki and Mototolo operations, achieving new records. Amandelbult had planned infrastructure closures over the year, resulting in lower production; while lower ore grade at Mogalakwena impacted production, and we will do a deep dive into this in a minute.

Third-party producers also delivered lower volumes. This brought our total metal-in-concentrate reduction to 4 million PGM ounces for the year. Now despite a challenging year, we have a strong contribution to mining EBITDA from all of our own managed operations and achieved an EBITDA margin of 57% from these.

Our processing assets performed well. We updated the market at the last quarterly production report that the net work in progress effect of the Polokwane rebuild was 100,000 ounces. Increased utilization of our Mortimer waterfall smelters assisted with this reduction of inventory. These were well-executed mitigation set out by the team to ensure over overall stability of our assets.

The restart of the Polokwane smelter has gone well. It is the first time in 12-years that we have completed a full rebuild and restart of this magnitude. It will take up to 24-months to process the buildup work in progress, taking into account the continuous work we are doing on asset reliability and structural integrity improvements that are still underway at our smelters. We will, however, see a lower first half than in previous years as production ramps up at Polokwane with lower concentrate grades from our Mogalakwena mine.

At this stage, I will hand over to Craig to take us through our financial performance.

Craig Miller

Thank you, Natascha, and good morning, everyone. Today, we're reporting another strong set of financial results, recognizing that last year was a record following the excellent refined production performance and higher PGM prices.

In 2022, our EBITDA was ZAR74 billion with an equally solid mining EBITDA margin of 57%, driven in part by the highest rand basket price on record. Headline earnings was ZAR48 billion, and our return on capital employed of 111% highlights the solid performance and the efficient use of capital.

The company ended the year with a resilient balance sheet and a net cash position of ZAR28 billion after paying the second-half 2021 and first-half 2022 dividend, which equated to ZAR55 billion. On the back of these strong results and in line with our disciplined capital allocation framework, the Board declared a final 2022 dividend of ZAR9 billion or ZAR34 a share.

Cash operating cost per PGM ounce rose by 20% to ZAR15,338, impacted by the 7% lower owned mine production and an increase in cash operating costs. We maintained our increase in costs at around 11% year-on-year, despite a steep rise in global inflation through managing consumption and improving production efficiencies. We experienced escalations of around 7% in labor, 11% on electricity and 16% on maintenance costs.

However, the sharpest increase was in consumables, which rose by 23%, driven by oil, which is up 64%, explosives, which were up 30%, while processing chemicals were 22% higher, impacted by commodity prices and mitigation actions we took to offset supply chain disruptions.

In 2023, we anticipate unit costs to be between ZAR16,800 and ZAR17,800 per PGM ounce as we don't see inflation easing over the short-term and see a continuation of high electricity, chemical, explosive and diesel prices, as well the other imported costs. We're focused on continuing to deliver on cost efficiencies in order to remain resilient in a volatile operating environment. We continue to invest in the business, supporting safe, capable and stable operations as well as pursuing our long-term options.

In 2022, we spent ZAR17 billion on capital, of which ZAR14 billion was on sustaining capital. Staying business capital for the period was incurred mainly on capital maintenance to support asset integrity, such as the furnace rebuild, ensuring tailings dam facilities comply with global standards as well as replacing and acquiring heavy mining equipment at Mogalakwena.

Our total CapEx for 2023 is expected to be between ZAR22 billion and ZAR23 billion, of which staying business capital is between ZAR10 billion and ZAR11 billion as we continue our maintenance program, improving asset integrity and adding to our fleet. Our life extension capital of about ZAR3.5 billion will focus on the Amandelbult's early execution work at the Tumela 1-sub shaft, the Dishaba ventilation, as well as progressing the Mototolo/Der Brochen replacement project. Capitalized waste stripping is expected to be around about ZAR4 billion and approved growth in breakthrough projects will amount to roughly ZAR4 billion.

In line with our disciplined and value-focused approach to capital allocation, the Board has declared a final dividend of ZAR9 billion or ZAR34 per share for the second half. This brings the total dividend to ZAR30 billion, ZAR115 a share and a 62% payout ratio of headline earnings, resulting in an annualized dividend yield of about 8%.

The full-year dividend highlights the company's commitment to retain -- sorry, company's commitment to return value to shareholders, while maintaining balance sheet flexibility and managing through a series of uncertainties. As we've done consistently over the past number of years, we'll continue to review the shareholder returns in line with our capital allocation framework.

I'll now turn to review some of the markets. 2022 was another strong period for PGM prices with an annual basket price of $2,551 per PGM ounce. This was the highest rand and the second highest average dollar basket price recorded. PGM prices were however volatile. Palladium was the strongest in the first quarter, reaching all-time highs as Russia's invasion of Ukraine sparked supply concerns. When only somewhat -- when these only somewhat materialized, it receded and thereafter fluctuated in line with shifting automotive demand expectations. Rhodium showed similar trends, though being less exposed to Russian supply, it was less volatile.

Turning to platinum, its average price was 11% lower in 2022 than it was in 2021. However, unlike palladium and rhodium, it was stronger in the second half of the year, ending the year 11% higher than where it began. A tightening supply, the mine balance and better long-term prospects were underlying factors. Short-term volatility in the price was often driven by swings in the value of the U.S. dollar. For most of the year, the dollar was exceptionally strong, weighing on the platinum price. In the final quarter, the dollar weakened, giving a boost to the platinum price. Overall, the platinum price performed even better in other currencies such as the euro, the rand and the yuan.

If we go into demand and supply it in a bit more detail. So starting with demand, as you know, the automotive sector is the largest contributor to demand, primarily through auto catalysts and light-duty vehicles. In 2022, light vehicle production rose by 7%, compared to 2021, a strong second half recovery as supply chain issues eased and demand remained robust offsetting the weak start.

Industry analysts expect a further increase in 2023, taking volumes to near pre-COVID levels. The automotive sector supply chain issues such as the chip shortage have not completely gone away, but they're no longer the main constraint. Pent-up demand vehicles, strong labor markets and low inventories are positives, as will China's post-zero COVID reopening. However, we're mindful of affordability given new vehicle prices are higher, rising interest rates, and we're closely monitoring the signs of recession.

It's worth spending some time on the PGM supply. One reason prices remain high in 2022 was that mine supply globally trended low in the recent years. Several factors have contributed to this: COVID, of course, with the impact now receding thanks to better workplace practices and vaccines; more recently geopolitics, specifically Russia's invasion of Ukraine and associated sanctions on Russia; and asset reliability has been an issue across many operators and in many countries, including some of our -- at our own facilities; the impact of climate change causing severe weather events at operations is another factor; electrical power is an issue and ongoing, and we're actively working to address these within our own business; and then finally, recycling primarily of auto catalyst has been below trend in recent years as fewer cars have been scrapped. This forecast is seen to ease.

As we put this disappointing supply performance together and with still a robust automotive demand, we will see all three PGMs in deficits in 2023. Platinum's deficit reflecting underlying gains from substitution and a likely improvement in investment demand; for palladium, we had previously forecast a surplus and now see a very small deficit as supply underperforms and we expect to move into surplus in years to come, that's assuming that the Russian metal flows continues at the current rate; and in rhodium, it's likely to be in deficit this year, helped by rising industrial demand, followed by a surplus in 2024.

Looking further ahead, a key issue for the automotive PGM demand will not just be the number of vehicles produced, but the proportion that require PGM catalysts. The share of those that don't, i.e., battery electric vehicles, continues to rise and in some regions ahead of expectations.

In 2023, we expect a further increase in global BEV share, though at a slower pace than in 2022 as a result of the reduced subsidies. Further out, growth in current BEV sales and continued automaker and government support has meant a substantial rise in the medium-term forecast of BEV share. Increasingly, though, analysts are asking if such a BEV market penetration is achievable given the significant increase required in the production of battery metals in a relatively short period of time and with rising costs.

One forecast of such mining shown in the chart suggests it will be difficult. The resource sector is flexible and no doubt will rise to the challenge in time, but the analysis suggests that gasoline hybrids will continue to play a key role in the transport decarbonization and there will be a role for fuel cell vehicles, both of which require PGMs Indeed, several automakers have recently resumed activity in this space.

An exciting demand segment for PGMs will come from the hydrogen economy. We spoke at our interim results about how the building blocks of a hydrogen future are beginning to assemble. Six months on, the pieces are starting to fall into place. Renewable energy, a key enabler of green hydrogen, is ever more plentiful with the International Energy Agency estimating a record number of installations last year as the impetus of the drive for net zero as well as the negative impact of energy security from Russia's invasion of Ukraine.

Related to this, government policy support globally for hydrogen has broadened. The most eye-catching was in the United States, where the Inflation Reduction Act gave huge subsidies for green hydrogen production described as a game changer for the technology. The EU, a previous front runner, and many other countries have also had to respond. Unsurprisingly, the technology to make green hydrogen and potentially a large future demand source for PGMs, it actualizes are seeing an installation boom with long-term installation forecast from independent groups moving significantly higher. This will begin to radically increase the supply of hydrogen.

In terms of the distribution of hydrogen, recently there have been several key initiatives announced, such as a private sector venture to create 100 filling stations in Europe and the U.S. government funding for hydrogen corridors. The demand side for hydrogen also needs support. To some extent, supply will help create demand as the price of green hydrogen falls to be competitive with existing hydrogen and other fuels. We're also pleased to see OEMs increasingly warm to hydrogen solutions to achieve their net zero targets. And we, together with our partners, will continue to play our role in driving this demand sector.

I’ll now hand you back to Natascha to take us through our short-term focus areas and our long-term optionality.

Natascha Viljoen

You got to do the fun part. So thank you, Craig. We've spoken about the fast-changing and uncertain landscape we're operating in, and we continue with our uncompromising focus on getting the building blocks for success in place, which sometimes mean, but we do take hard short-term decisions for long-term gain. This aligns with our objectives to ensure safe, stable and capable operations.

Now reflecting on the challenges to PGM supply that Craig has touched on, I want to focus on two of these that's very relevant for us. Our Asset Integrity program continued to improve the reliability of all of our assets. Our efforts are focused on structural, electrical, fire risk emergency preparedness, heavy mining equipment and mechanical equipment. These programs have been prioritized so that we can have a high level of confidence in our asset performance. Secondly, ensuring energy reliability is a key priority. Our team is continuously looking at opportunities to improve energy efficiency, short-term alternative energy supply, and we proactively manage operations for the smallest economic impact from load curtailment.

Against these actions and considering the current levels of load curtailment, we have developed a set of scenarios. And one such a scenario indicated that the refined production could be impacted by as much as 5% this year. This currently will not impact our guidance. If it gets to that, we will certainly get back to the market.

I want to spend some time Mogalakwena and want to unpack three key headwinds we faced at Mogalakwena in 2022 and the mitigating actions the team has been implementing. Firstly, during 2022, we saw the actual mining grades being lower than predicted in our models. That highlighted concerns and triggered a review. We developed a new model that was informed by increased rates and quality of RC drilling and the right of diamond drilling. The output of this work informed the revised three-year market guidance that we gave at the end of last year. We've made significant progress with our heritage work and representing our relation -- and resetting our relationships with our communities.

Now you would ask, why is this important for our operational performance. In 2021, our heritage work identified a large number of graves in areas identified for near-term waste dumping. Our improved relationships with our communities and our diligence in following global best practice enabled us to move the majority of these graves in 2022, opening up the required dumping space for the next two years, something I would argue we would have not done earlier.

Now this will improve cycle times by more than 40% and allows for an optimized mine sequencing and mining rights. It supports our ability to mine to plan and the work required to ramp up the mining rights, aligned with the future of Mogalakwena requirements. Climate change impacts are affecting our operations. We experienced the highest rainfall in the last seven years at Mogalakwena. We are working on an improved storm water and dewatering strategies to derisk the impact of these events. Now I want to stand still and unpack Mogalakwena grade a little bit further. On the back of reviewing the three-year ounce profile last year, there have been concerns around the quality of the Mogalakwena resource.

Now I want to state that we remain very bullish about this asset. The question is why. We are currently managing one of the largest diamond drilling programs worldwide, with 55 diamond drill rigs operating at Mogalakwena and with the increased RC drilling to align with our mine planning requirements. Our resource and reserves, as well as our short-term modeling have now been merged into one, incorporating all of our diamond, RC and geological data into a single three-dimensional model, made possible using our new rapid resource modeling process.

The increased drilling, together with improved geological modeling, gives us confidence in the areas we are mining in now and supports the outlook we gave at the end of last year. In addition, through our rigorous resource and reserve process, there was no material change to the ore reserve for the open pit. We're also very excited that the outcome of the drilling work that we have done have seen the first [Indiscernible] underground mineral resource confirm, adding approximately 18 million ounces to our portfolio, which will be converted to reserves on completion of the technical studies. Now given that the drilling work up to now only covers about 20% of the targeted [Indiscernible] volume, one of five potential underground units, clearly, this mineral resource has significant potential to further increase the life of this Tier 1 asset.

Let's talk about Amandelbult. We all know that Amandelbult has got unique characteristics that provides the operation with a significant strategic advantage. Its split is specifically supportive of the critical mineral requirements for the hydrogen economy and will continue to play a role in ICE vehicles. Our priorities at Amandelbult are to advance modernized mining as the baseline for our future operations. This will drive safer, more productive conventional mining.

In recent years, significant progress has been made, and the improvement in the safety record is testament to us being on the right track. In addition to this, in areas where we have rolled out cycle mining, we've seen a 20% improvement in mining rates at Tumela. As we work to secure replacement ounces for infrastructure closures over the past two years, we have an opportunity to optimize current assets and operations as well.

Now we've taken some decisions that we have spoken about at the end of last year, and the first one was to close the aging Merensky plant and redeploy part of the workforce, creating a ZAR200 million saving annually. We need to find the -- or we need to execute on replacement ounces to close areas that we have closed. And access development at Tumela 1 sub shaft has commenced and will be critical to maintain our Tumela production proof of performance.

Work to obtain access to the middle late area has progressed and is running three years again ahead of our original plan, with an open pit targeted to start towards the end of this year already. The closure of the Merensky plant creates an opportunity for us to focus on the debottlenecking of the 2 UG2 concentrators. This will further improve milling efficiencies and cost. The future of a Amandelbult program aims to transition Amandelbult through modernization of conventional mining areas and identify the safest value-adding pathway for our new mining areas. This includes the work we are doing to develop mechanized mining options.

Turning now to our longer-term optionality. We continue our journey to implement and review growth initiatives at each asset in the portfolio with a focus on generating strong returns and meeting strategic objectives. Of this platform, we have the ability to grow our own mine production as we see an evolution in our JV and third-party portfolio. We know our own mine margins will remain superior to that of processing third-party material. We therefore see a portfolio that will yield superior EBITDA margins with assets targeted to operate in the first half of the cost curve.

We have a unique and diverse portfolio of Tier 1 assets. Each of these assets has a different PGM pull split, base metal content and other co-products, which creates a diversified portfolio of commodities, all of which have been identified as critical minerals in the energy transition. This enables us to take a portfolio view whilst considering our integrated value chain to ensure we optimize the value.

So let's talk about value. There's an exciting amount of investment optionality across all of our assets. We are -- we continue to work and execute on the thinking for each of our mining complexes to develop their full value -- pathway to value. By understanding the full potential of the resource and inherent optionality, we can optimize the material flow through the processing facilities to maximize our total value creation.

At Mogalakwena, we are progressing every one of the six work streams. We are executing across the program and continue to progress underground studies with a third concentrator expansion. We will spend approximately ZAR2 billion on the exploration decline this year, another ZAR0.5 billion on drilling, around ZAR0.5 billion on our expansion studies and have committed a further ZAR4 billion on our heavy mining equipment fleet to support the future of the operation. We know exactly what the sequence of delivery is for us to maximize the value out of this asset.

Timing and capital discipline remains important even more so as we see global challenges in supply chains and skill shortages increase. We are using our time wisely to improve confidence in our capital execution planning and scheduling for a responsible delivery of the underground mine and the third concentrator. At Amandelbult, we have our 15-years mechanized operation in execution, and we see potential to debottleneck the UG2 plants to 7 million tonnes per annum processing capability. The underground hybrid and mechanized studies will continue to progress against the baseline modernized conventional mining.

And lastly, the Der Brochen life extension project for Mototolo has commenced, and optionality around further expansion is in concept, specifically to increase the operations from about 240,000 tonnes per month to 320,000 tonnes per month through Dense Media Separation. As you can see, our asset base has real growth potential. We will continue our projects in execution and studies as planned to ensure our projects deliver across multiple measures of economic value and sustainability metrics.

In closing, we continue to focus on delivering our strategy through our four strategic pillars to ensure we achieve our purpose. Our target outcome is to ensure a shared value benefit to shareholders and our broader stakeholders, and we continue to track our delivery against our value creation outcomes.

Now last week, I announced to the market that I have made a decision to take a next step in my career outside Anglo American Platinum. I think it's important to note that I will continue to serve as CEO until the completion of my notice period of up to 12 months. I'm not going anywhere anytime soon. While I have identified the next phase in my career, my commitment to delivering our clear objectives during this year is as firm as ever, beginning of course with keeping our people safe every day.

I have every confidence in the ability of this team that we've built over the last three years to continue to shape the business to deliver on our strategic and operational priorities for the next stage of value delivery. I know that this team has all the capability needed to thrive through this change as well.

That concludes our presentation. But before I hand back to Emma to help us with questions and answers, allow me to take a moment to thank her for her sterling work over the last nine years as part of our company. Emma has been really gracious and eloquent in the way that she has introduced me to the investment community. And she's been our right-hand lady to Craig and I through many -- well, six now, very interesting and challenging investor road shows and engagements.

I want to wish her the best in her next role outside Anglo American. I am certain, as she is done here, she will fly as she go ahead. And I'm also delighted then to welcome Franscelene Moodley here in the front as our new Head of Investor Relations to the team. We're very excited to have Fran, as we better know her, as part of our team, and she knows that she has big shoes to fill, but totally up to the task. Thanks, Emma.

Emma Chapman

I think it's always customary. Let's try and go on to the floor and see if there's any questions. So Chris, could I perhaps start with you and then Gerhard will go to you next.

Question-and-Answer Session

Q - Christopher Nicholson

Good morning, Natascha, Craig and Emma and team. Thanks very much for the presentation. It's Chris Nicholson RMB Morgan Stanley. Can I ask two questions, please? So firstly, just a question around capacities associated with Mogalakwena. I noticed in the text you talked about total mining tonnes increasing from 90 million tonnes to 140 million tonnes a year over the next five years. Could you talk about some of the dependencies there? Clearly, you're buying more fleet. But do you have space to dump the rock?

How confident are you that, that can be achieved given that the mine, I don't think, has ever achieved more than 100 million tonnes a year? And then associated with that, I guess the one good news story with the grades is the ramp-up in base metal content, which may -- be been slightly a little bit. But that 30,000 to 50,000 tonnes a year, isn't that already the capacity of the BMR? So I guess that's it.

And then just the second one, just about slide 11 you showed. Clearly, electricity is kind of key on people's minds. You've got a CO2 emission reduction profile there, but the electricity component decreases quite meaningfully. If you could talk to kind of how quickly and how much you can think you can move across from -- away from the grid to kind of the Anglo and Mogalakwena solar PV. Thanks a lot.

Natascha Viljoen

Thank you, Chris. Let's start with Mogalakwena capacity, I think the reason why I wanted to dwell in the presentation briefly on the work that we've done with heritage is that it is fundamental to our ability to land access and doing that in a responsible way. The work that we've done was an absolute prerequisite for us to land access. And I think the evidence of the value of the work was very clear to us in our ability to move a material number of graves in 2022. And just to give you an indication, it takes five permits with full family consent to move a single grave.

So with the relationships that Yvonne and her team has built with the community, making sure that we continue to do the right work, that was a very first big interdependency. The other one is our ability to ramp up our mining right. I've touched on the fact that we need to be able to have a well sequenced, well-planned mining plan with the limitation on dumping space over the last basically two years. We were limited on how quickly we can open up the pit and drive to mine to efficient planning. Now that we've opened up that capacity to dump, it gives us the opportunity to bring that current footprint of the open pit to a proper size and allows us to bring to the full operational efficiencies.

As an example, over the last year, we've been running return rates if we consider picking up or in the pit dumping and on the waste rock dump and coming back our turnaround. We're now way below 40 minutes. And that all talks to not only our efficiency, our carbon efficiency but also to capital, which was your last question. And we have committed to ZAR4 billion worth of HME that we have just recently -- that's just recently been approved by the Board, all in support of the future of Mogalakwena. It will be a steep ramp-up right. We're very aware of that. and operational readiness is the last that we are busy with. And it comes back, Chris, to all of the building blocks that we need to put in place for us to have that operational readiness and ramp up to those levels.

Your other question was around energy. The first question good?

Christopher Nicholson

Just the BMR capacity.

Natascha Viljoen

BMR capacity, 30-30. You need to remember that as we ramp up, we're also going through a change with our POC agreements. So balancing our own portfolio and our own production, high EBITDA margins using our own capacity to leverage our own metal. And then energy okay. So over the last year, we've seen curtailment impacts from Eskom. We've seen that curtailment impact increasing since probably over the last three months.

We have -- we are doing a couple of things. The first thing is we are part of an intense energy user group, which makes sure that we do have clear indications on what the state of the grid is and get us in the information needed to make predictions around our own operations, because we have built our own models where we predict -- we now predict our curtailment levels and we have matched our operational response to minimize the impact.

As an example, we start to have a clearer indication on when we will see weeks with curtailment. We either have maintenance-ready work or we -- the closer we get -- we take operations down for maintenance to optimize that time and minimize the impact. That is the very near-term work. We've also now -- Prakashim is sitting here in front. Prakashim and his team is looking at a number of near-term solutions, probably gas, battery storage to give us very near-term alternative options to bring energy online. It's very early days, but him and his team is quite focused on that.

Thirdly, we have our 100 megawatts at Mogalakwena coming online. They're still on track for end of 2024. Then we've also, in our partnership with Envusa, we fast track another 500 megawatts that will be coming online from 2025. And then lastly, those are all probably a little bit out there, and we know that we've got some very near-term challenges. We have a very clear business continuity plan in place to making sure that when -- if there is a requirement, that we can bring our operations -- well, firstly, get our people to safety and bring our operations to a safe control stop, ready for start-up.

So quite a portfolio of pieces of work that we are working on addressing. I should have probably mentioned, we are obviously also working very closely with several business forums engaging with government on how do we execute and how do we continue to push policy and other measures to bring renewables online.

Craig Miller

Actually, just to complement the partnership with GIWUSA together with what we have in Mogalakwena, you could see back between 30% and 35% of our energy sort of coming from those particular projects in the next few years. And that speaks to part of that decarbonization that you see, Chris.

Gerhard Engelbrecht

Good morning, Gerhard Engelbrecht from Absa. Just on the electricity, just expanding on the electricity question. You said earlier, there's a scenario where your production could be 5% lower. I presume that's not a worst-case scenario. Could you maybe just elaborate on what the inputs are for that scenario, under what circumstances will you see production fall by 5%?

And secondly, the load curtailment and the movement of load. Does that have an impact on your smelters and your smelter rebuild profile? Does it damage the smelters? Would you have to rebuild more often? Can you maybe just elaborate on that as well, please?

Natascha Viljoen

Thank you, Gerhard. So we started off by just looking at the curtailment we saw in the last three months. And in this specific scenario, now firstly, just important, load shedding and load curtailments are not necessarily linked directly. But broadly, you can assume load shedding on level 6 basically means curtailment on level 4 in broad terms. We do not always curtail when there is load shedding on a certain level. That's the first thing that's important. What we have assumed is a weekly curtailment of one day at level 4 curtailment and two days at level 2 curtailment. Level 4 curtailment requires us to shed 100 megawatts and level 2 curtailment requires us to shed 30 megawatts. We have a very dedicated hierarchy on how we shed that power when we are requested to do so.

But generally, operations -- any piece of equipment runs -- likes to run stably. And that's why Craig has also touched a number of times on safe, stable and capable. Any interruptions on stability will impact on reliability in the long run. We are doing -- we are stepping through that very carefully, though. So obviously, you can't just stop a smelter, but idling it, keeping it warm and controlling the impact is the best that we can do. And our teams are very focused on really diligent on how we stop, how we take load off in this process. But it's not ideal.

Emma Chapman

Please go ahead.

Gerhard Engelbrecht

Natascha, Craig, not too bad results, but I know the circumstances. Well done. Two questions. The question that Chris asked about 90 million tonnes going up to 140 million tonnes. You also said that you were looking at five underground units possibly. Those units, are they going to be replacement units? Or will they actually add to the production of Mogalakwena in the longer term?

Secondly, you said that there were deficits in platinum palladium and radium in the market, but the prices are going down. So there must be stocks in the market. What do you think the level of the stocks are in each of those metals?

Natascha Viljoen

So when we look at Mogalakwena profile, we have been long talking about increasing between 300,000 and 600,000 PGM ounces and we talked about within that range. The difference with the underground units will be -- it's obviously some of them would be life extension, some of them would be replacement for the open pit and some of them would be expansion. Generally, what we're seeing is that the growth from underground, we've spoken before that we predict that the grades are going to be higher with -- on open pit. With all of the drilling work that we've been doing, we keep on confirming that view, so lower volume, higher grades coming out of that. We will not start all of those units at once, but I think it gives us an indication of life across the operation at increased rates, as we've been talking about for a while. And I'll leave the marketing question to Craig. He's standing there doing nothing.

Craig Miller

Okay. Look, I mean, certainly, what we have seen on the back of the lower supply and that's sort of driven some of the deficits that we're forecasting. And I mentioned earlier, that palladium, we previously were forecasting it going into a surplus this year and that's going to remain in deficit. Based on the information that we have from our customers, et cetera, we're not seeing them having elevated levels of inventory on hand, maybe it's a month maybe or two.

But you would understand that they would do that given what they see from a supply perspective and their experience, what they've had with the chip shortages. But it's not -- we're not seeing overly high stock levels. Look, I think the recent trend and the platinum price is really linked back once again to the strength of the dollar and sort of concerns emanating around recession.

Emma Chapman

Steve, can we go to you?

Steve Friedman

Yes. Thanks for the presentation. Maybe another question for Craig. It's Steve from UBS. Just on the capital allocation framework, obviously, you've spoken about the CapEx outlook, long-term potential growth opportunities. But I think more in reference to the special dividend and how you look at cash flow returns to shareholders. I mean, that has been one of the sort of the key pillars, I believe, in terms of your premium rating relative to peers.

So think just given that, that wasn't declared this time around, how should we be thinking about it? Do we look at things like net cash buffers? What are the different levers you look at in terms of deciding whether to pay a special -- and is that special sort of either sort of on type switch, whether it's 40% or 0? Or is it somewhere in between? Just if you can give a bit more color. Thanks.

Craig Miller

Okay, certainly. Do you want me to take -- okay, you're going to come back. All right. So Steve, I mean, I think a couple of things to highlight. So we recognize that the 40% is based on the second half earnings. But that really is, I mean, a 62% payout. And I think when the Board sit down and we work through the capital allocation, it's very much focused around being disciplined in that particular area. Where we are today, we clearly want to generate cash, invest in the business, and we'll do that through our staying business, the growth optionality that Natascha spoke about to look to fund that, retaining balance flexibility as well given some of the uncertainties. And we just -- we've spoken a little bit around electricity.

So we will continue to review that at every six months. Our commitment is the 40% base dividend, and that's almost sacrosanct. So when I talk to my colleagues, they talk about SIB and I talk about my dividend, that's the equivalent on the 40%. And that's what we'll look at. If the business is generating additional cash and we've got some certainty -- we don't have the level of uncertainty that we have today, then we would certainly look to return cash to shareholders.

I think just reflecting on 2022 if you think we generated roughly ZAR45 billion in cash, once you make the investment in staying business capital, funding some of the growth, you're down to ZAR30 billion. We've paid ZAR50 billion out in dividends. So that's another way of looking at it. but it really is around that capital allocation framework and the 40% of headline earnings is my equivalent of SIB in the business.

Natascha Viljoen

I think if I can add to that, We all know that we're in a cyclic business. And we see how at times where we have low commodity prices, that we just do not have the capital spent on building asset reliability. We're a slightly different place now. We know that we've had a deficit in the business due to low cycles at the end of the -- up to 2020. Reinvesting in this business is really important for us, making the right long-term decisions, and that is something that we as a team continuously do. Every decision we take, we tried off between what is the impact if we make a short-term decision.

The waterfall smelter gating point last year, there was a world where we could have decided to use the bricks. That would have probably reduced the life of that furnace or that part from 12 years to four years and at significant risk to our safety. That is not the kind of decisions we want to take. You take two months-time and you win eight to 10 years in the benefit. And I think that's important. It's an important portion of that capital discipline that we're talking about.

Steve Friedman

Thanks.

Emma Chapman

I've got lots of questions here online. So I'm just going to start to go through some of those. And then we've also got Chorus Call. But let me just take a couple of questions so far.

Catherine Cunningham from JPMorgan asks, would it be possible to get more color and detail on ongoing asset reliability and structural integrity improvements required on Waterval and Mortimer smelters?

Natascha Viljoen

Thank you for that question, Catherine. Now firstly, I think we need to -- when we think about smelters, we need to distinguish between the actual furnace and the ancillaries. Our furnaces are in really good nick. Our furnaces, we're disciplined in the replacement and rebuild on an ongoing basis. And I think most of you are fairly familiar with that sequence of stopping and rebuilding either sidewalls, inwalls or the hearth replacement that we've done at Waterval last year.

In addition, there is the work that is required around the integrity of infrastructure around the furnace, and those are typically areas where we have seen some lower than required capital investments. And those are the areas where we are pushing in a huge amount of effort and time. Part of the thinking around how we unwind the additional WIP over the next two years considers that we need to make time available at these assets to continue our renewal program of all of that assets.

So if you look at the increasing capital that we've spent and that we committed to in SIB, a large portion, and Craig, you can probably just help me with a number there, of that is going towards this renewal programs. We've ramped that up significantly, we've defined the work in 2020, we've put a team together in 2021 and we started to really execute on the right scope of work towards the middle of 2021. It does take time to complete work like that.

Craig Miller

But 40% of our SIB will go into capital maintenance and asset integrity in ‘23.

Natascha Viljoen

So it's a material portion of money that we are spending on making sure that we look after the long-term viability of those assets.

Emma Chapman

Perfect. Thank you. I've got another question here from Nkateko from Investec, who asked, what is the sensitivity of amplats to higher electricity costs, i.e., what happens to your operating cost if Eskom is allowed circa 30% tariff increases in the next two years?

Craig Miller

Okay. Thanks to Nkateko. So you're clearly being the largest consumer of electricities in downstream processing. So the increase that's come through at the moment, which has been included in our forecast, is around about ZAR500 per PGM ounce. So with the work that we're doing in partnership with Anglo American Group and Envusa, certainly the introduction of that 30% of renewable energy, will certainly go a long way in terms of the cost of that versus what we're seeing from Eskom at the moment in terms of offsetting some of those increases. And so we estimate that, that could be around about -- the 30% would equate to around based on current forecast and from our total cost of electricity.

Emma Chapman

Perfect. Thank you. I'm going to go across to Chorus Call now because we have a number of questions on the line. So Irene, can I hand over to you, please?

Operator

Yes, thank you. We have a question from Adrian Hammond of SBG. Please go ahead.

Adrian Hammond

Good morning, Natascha and Craig. Got some questions for each of you. Firstly, Natascha, just curious to hear your thoughts on where I'm seeing things now. It's clear to me that the business has higher cost in CapEx in the next couple of years and production at best. How do you think this company can remain competitive? What levers can they pull? Specifically, also on the Mogalakwena, we're expecting some 5% volume growth on the P101 project, including the bulk or sorting. I haven't seen any delivery of this and what's happened with that.

And then also on Amandelbult, you mentioned that this operation can be debottlenecked to grow to 7 million tonnes per annum. We're currently have 5 million tonnes per annum. So that's 40% upliftment from debottlenecking. I'm assuming this might require some significant reinvestment.

And then lastly, just your 2032 outlook. I'm very curious that you expect PGM's production to grow 50% from own operations. What is the basis of this, specifically in light for the output for PG at the moment? And how confident are you on that? Thanks.

Natascha Viljoen

Okay. Thank you, Adrian. I think, firstly, I think I've touched on the SIB and reinvesting in the business to secure the reliability of the business in the long run. And we've reflected on the high percentage of our current SIB going into that's just renewal, and the rest of it, there's been a large portion going into life-ex, and Craig has touched on that in the presentation as well. So you will see that come off as we deliver Mototolo. As we get our SIB to more normalized levels, that SIB profile will change as we complete that work.

And then the focus would be on growth projects, which will, I think, important to your last question on the 2032 profile, will be subject to a very strict capital allocation framework in that when we spend money on growth. It will consider our assumptions around the market, our ability, well, to fund the capital, deliver on that capital profile and then achieve hurdle rates before we will trigger. So whilst you've seen that profile, I think two things that's important around that profile, that is a profile of optionality. It is giving you an indication as -- when -- if the financials stack up, then we will trigger that project. That is not a commitment that, that is what we want to do because we will have trade-offs. And with that discipline, we have certain basic principles like not wanting to do more than one big project at a time as an example. So that will continue to be the case. The driver for us there is to focus on our own higher-margin ounces as we open up capacity through our processing division.

So from a Mogalakwena point of view, we know that we need to invest capital now to deliver on the long-term future. If we look at the all-in sustaining cost of the studies that we are busy with on underground mining, the all-in sustaining cost will continue to put us at the bottom end of the cost curve, and for that reason, continue to secure the long-term position of Mogalakwena in the market. So it is this long-term investment to secure a longer-term -- a short-term investment to secure that longer-term future.

When we look at our Amandelbult, I think a couple of things that's important. We have seen infrastructure closures, as we know. We've also seen our open pit operations close as we came to the end of those open pit operations. Our Middellaagte operation gives us a really interesting access to that Middellaagte ore body. And that is one of the reasons why we haven't been able to start to mine this. We didn't have surface access. Our team has done a significant work with third parties who owns the top area of that ore body, and now we do have access. We originally thought we'll only have access in those areas by 2025.

Now the importance of that, open pit obviously gives us very early access to ounces. And it gives us an on-reef access to underground mine. Those studies are all the studies that's underway at the moment. The alternative for us to access that ore body was to have done underground development to get access to that ore body. So the fact that we have now access from the surface will give us a real opportunity to unlock that portion of the whole body.

The debottlenecking that we're talking about here specifically is there are two UG2 plants where because we have closed our Merensky plant, just a reminder that Merensky plant is still a largely manual plant. We still open and close valves by hand. It's just not financially feasible for us. or sensible to spend money. But we do have a pathway that's capital light to debottleneck those two plants that we have with better cost debated recoveries. And those -- so that's the bottleneck and debottlenecking that we're talking about. And then we will continue the underground studies to feed that plant.

To your point, it is a significant increase when we want to fill the entire 7 million tonnes. But the -- if you look at the current capacity of that two plants, it would -- there is a pathway to improve -- increase that to -- and open up quite a bit of opportunity to feed from underground. Adrian, I don't know if I've answered all of your questions.

Adrian Hammond

Yes. No, that's very clear. Thanks, Natascha. Appreciate it.

Natascha Viljoen

Did I miss anything you wanted to add?

Emma Chapman

Irene?

Operator

The next question -- hi, yes thanks. The next question is from Richard Hatch of Berenberg. Please go ahead.

Richard Hatch

Yes, thanks very much and good morning. And thanks for the presentation. Just the first question on slide 19, your CapEx profile. I'm just curious on the increase in tonnes being moved at Mogalakwena, just that 2020 sort of 4 million, 5 million CapEx profile. At 2023, you're guiding to ZAR22 billion to ZAR23 billion. Is it sensible to think that the CapEx -- sustaining CapEx over the next couple of years sits at about that level just given the fact that you're moving more tonnes?

And the second one is just on the 100,000 ounces of working cap to be moved over the next 24 months. How should we think about that just in terms of volume? Should it be more kind of 2025 or 4 million, 5 million weighted? Or should it be quite even split? Thanks.

Natascha Viljoen

Do you want to take the CapEx question, Craig?

Craig Miller

Yes, certainly. So Richard, on the waste capital, it does reflect then that increase in tonnes moved, which we've spoken about are going from where we are at 90 million today, up to the 140 million. So it will -- it increases -- it's about 4 million in 2023, then it increases to around about 5 million. And it's just sort of plateau around that level sort of going forward just given the volume that needs to move.

Natascha Viljoen

On the 100,000 ounces that we need to unwind, I've touched on the fact that we've got quite a bit of Mogalakwena concentrate that we know is lower grade concentrate as compared to some of our other areas. So large volume, lower ounces. That would be -- and that then will push through the processing assets. And you'll start -- you'll see the WIP move from where we are, have it in concentrate today to move into WACCs, to move into our base metal refinery and then push through into our precious metal refinery. The reason why we're also talking about that 100,000 ounce is taking so long because you would remember that in 2021, we actually released 1 million ounces pretty quickly. It is due to how it's going to run through the value chain, firstly.

And secondly, the fact that we'll continue to give the operations time to do the necessary work on structural integrity, really being conscious and then releasing that metal over the next 24 months. Now your question on how that will happen, you'll probably see that, depending on how we push that through, slowly ramping up towards the second half of this year and the remainder of it going into 2024.

And I'm looking at Gary and he's nodding in his head. So I've got that right. Thanks, Gary.

Richard Hatch

Thanks, very much. Much appreciate it.

Operator

Next question is from Myles Allsop of UBS. Please go ahead.

Myles Allsop

Yes, great. Maybe just -- could you give us a sense as to the refined mine supply contraction that you're expecting in 2023 or metal focus is expecting? Where is that coming from? Obviously, your volumes are flat. Is it Russia? Is it other supplier of South Africa or elsewhere? And then just again, just -- I think the answer is not much, but in terms of flexibility, if we're wrong and we see a lower basket price, weaker earnings, how much flexibility do you have with CapEx and unit costs to protect margins and returns?

Natascha Viljoen

Do you want to take the supply question and...

Craig Miller

So Myles, certainly, the forecast is based on sort of what we're seeing at the moment are a couple of factors, the reduction that we announced at the end of 2022. And more broadly, what we are seeing from third parties coming through and then also some of the recent announcements which have come out of Russia sort of helping sort of drive -- well, inform those forecasts of PGMs in 2023.

Natascha Viljoen

So Myles your question, are you comfortable with that question?

Myles Allsop

Yes. I guess, I mean, maybe just as a follow-up to that one. If the demand dynamic is weaker than expected, how much could you curtail your own production more or to try and support pricing? Or should we just assume that you'll do whatever the business allows you to do from an operational perspective?

Natascha Viljoen

Yes. The second one, we will continue to run at the rights that we are running at the moment. I think, Myles, you probably will see a continuous strain rather on supply overall. But I think with the offset of demand will probably continue to support prices for the near-term, I would argue. On the flexibility, now you will know that we've ramped up our -- the SIB capital spend from about ZAR3 billion a year to now going to ZAR11 billion a year. And Prakashim is actually just 24 years old, but that is a lot of money that he needs to spend and he needs to spend it in a very responsible way. He's done a huge amount of work to understand what that capital profile scope is and how we design the scope with the necessary planning and scheduling.

In addition, the portfolio of SIB has been risk ranked both in terms of the impact on the business and the safety risk around -- any of the risk, safety, health, environmental risks. So today, as we stand here, we have a flight map of at least 18-months, knowing exactly what capital we need to spend, also understanding the risk profile of that capital. And we will be able to cut off at various levels of capital spend with a full understanding of the risk to the business.

So I think the work that Prakashim and his team has done is really setting us up right to be able to make those decisions. Now when you take that decision, you will obviously start to offset the cost around stopping projects, the cost to stop that versus starting up. But it does put us into a position that we know exactly where we should cut to pull SIB back if that would be the case.

Myles Allsop

Okay, thank you.

Operator

There are no further questions on the conference call.

Emma Chapman

I've got a couple of last questions here online. So I've got a question from BNP Paribas that asks, how quickly do you expect to be able to deploy fuel cell trucks across your fleet? And what percentage of the fleet could it represent by 2025 or 2030?

Natascha Viljoen

So the target is for us to reflex our fleet of about 48 trucks by the end of the decade, and it's something that we consider as we take capital decisions on the near-term fleet capital commitment. As I mentioned briefly is the truck that we've launched last year is in the pit at the moment, it's running as part of the mining cycle. From a capacity and cycle time, it is keeping up to expectations fully. We are working on efficiencies on refueling cycles to improve that further, but the team has got a very clear dedicated plan.

We've also, you would know that we have now an agreement with First Mode that we spun out. That will be the commercial arm that will continue to commercially develop the truck, which obviously gives us the benefit of first access, but also leveraging the capital that we've spent not to full -- to pick up the full development cost -- future development costs. So I think commercially also the right thing to do for us. And we will see as we conclude the next prototypes. That's slowly but surely filtering through. And as I said, the target is to have the fleet replaced by the end of the decade.

Emma Chapman

I'll take this last question from Nkateko at Investec who asks Craig, could you please give some more color the higher total CapEx for ‘23 and ‘24 guidance versus what was provided in 2021?

Craig Miller

Certainly. So look, I think there's a couple of things that we just need to reflect on. In terms of moving from ‘22 to ‘23, we've obviously experienced inflation in the capital environment as well. So that was running at around about 10%, 11%. So that's part of the driver around the increase. In addition to that, we've obviously reviewed, as part of our commitment to the GITSM standards, what we need to do from a tailings dam perspective. So that's part of the increase. So we'll spend around ZAR1 billion on tailings facilities next year.

And then the other key driver around the increase, I think, is more around actually our growth in the life-ex. And Natascha's spoken about that. And that's really -- the driver there is our commitment around the exploration Twin Decline driving -- that increase in that particular category. But I think the sustaining capital, more or less remaining the same with the exception of the outer year where you've got the higher volume movement at Mogalakwena and sort of driving up our waste CapEx.

And then I think the other component around that linked to the inflation is obviously our assumption around the oil price and what that does in the outer years. And we've assumed around about the current levels going forward.

Emma Chapman

Perfect. I'll just quickly check. Gerhard, you've got a last question in the room.

Gerhard Engelbrecht

Thank you. Natascha, I just see you've been quoted on a Bloomberg article talking about gas as a potential source of energy and short-term gas options. Could you be more specific where does that gas come from and who's going to burn the gas to make the electricity?

Natascha Viljoen

So we have a short-term option that is under review for a current asset that is in -- that's not running, it's not up and running at the moment. To in turn to agreement to get that up and running and take that. And they're all linked to the grid. Cannot entirely talk about who that is yet.

Emma Chapman

I think on that note, I think we can end the Q&A session. There are a couple of other questions, but Fran will be able to respond to those in due course. But thank you, everyone, so much for attending the presentation. And if you do have any further questions, then please do send them through to Fran Moodley. So thank you for that.

Natascha Viljoen

And thank you, Emma. Emma will be literally jumping on a plane from here. So it is an opportunity to say goodbye as we walk out. She's been kindly committed to help us through today, handing over to Fran, and starting with [Tech’s] (ph) results tomorrow, talking about what she change over. Thank you. Thank you, everybody.