Anglo American Platinum Ltd
JSE:AMS
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
50 695
98 000
|
| Price Target |
|
We'll email you a reminder when the closing price reaches Zac.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Earnings Call Analysis
Q2-2023 Analysis
Anglo American Platinum Ltd
The company navigated a challenging environment with a mix of resilience and strategic adaptation, preserving a strong balance sheet while dealing with external pressures like lower metal prices and energy constraints. Despite the 29% decrease in the dollar PGM basket price, revenue reached approximately ZAR 65 billion with an EBITDA of ZAR 13 billion, reflecting an EBITDA mining margin of 42%. These robust margins underscore the company's efficient capital usage, evident in the 30% return on capital employed. In response to reduced PGM prices, ZAR 24 billion in net cash was reported, including customer prepayment, and an interim dividend of ZAR 3 billion was declared, maintaining shareholder value amidst demanding market conditions.
The company's operational agility is evident as it dealt with 42 days of energy load curtailment with minimal impact on its mining operations, losing only 66,400 PGM ounces, which includes deferred ounces between ore stocks and concentrate. It showcases the company's predictive capabilities to plan and adjust operations despite intensified curtailment in winter, demonstrating resilience against grid instability.
Cost management has taken center stage due to inflationary pressures raising the cash cost per PGM ounce by 13% from the second half of 2022. The company has implemented a sustainable cost reduction program aimed at positioning assets firmly in the lower half of the cost curve, taking into account operational factors like equipment maintenance and cycle times to optimize efficiency. The company revised its year-to-date capital expenditure guidance lower to around ZAR 22 billion, reflecting a disciplined capital allocation strategy amid market volatility.
Looking ahead, the stripping ratio is deemed to increase due to deeper mining but is expected to settle back to normalized levels of around 7.5, maintaining operational efficiency. The company envisions improvements in all-in sustaining costs from around $1,250 to $1,160 per PGM ounce as it leverages new heavy mining equipment and other operational efficiencies.
The company is innovatively addressing modernization and mechanization, focusing on safety and efficiency improvements. It has rolled out new technology, like remote-controlled mining equipment, and is exploring hybrid mining methods. These advancements contribute to bolstering safety measures and enhancing productivity across operations.
In response to external economic forces and operational hurdles, the company has embraced a multifaceted approach to cost reduction. It has initiated benchmarking and bottom-up reviews to identify and implement operational efficiencies, such as optimizing equipment performance and trialing cost-effective materials, pointing to a proactive and comprehensive methodology in preserving operational sustainability.
You don't have any saved screeners yet
Good morning. I'm Fran Moodley, the Head of Investor Relations at Anglo American Platinum, and thank you for joining us today at our 2023 interim results. If I can guide you to our cautionary statement. If you could read this in full in your own time, I'd appreciate it. We will have time at the end of the session for Q&A.
I'll now hand over to Natascha, our CEO; and Craig Miller, our Finance Director, to take you through the presentation. Thank you.
And it's our opportunity to sing for our [indiscernible], I guess. Good morning, and welcome to the presentation of our 2023 interim results. Thank you for taking the time to join us here today, both in person and also virtually. I would like to acknowledge my colleagues in the room, all of our guests and then specifically also members of our Board our Chairman, Norman Masimo; and some of our Board members who joined us. Themba Mkhwanazi, Suresh Kana, John Vice that's here today. I haven't seen Thabi Leoka. I think we expected her and Roger Dixon, I'm sure that will join us a little bit later.
Now let's start with a summary of the first half's performance and also the operating context of the first half. We are firstly pleased to report zero fatalities at own operations and our joint ventures, as well as a record low total recordable case frequency rate of 1.58, reflecting a 34% improvement year-on-year.
Our metal and concentrate production was 1.85 million PGM ounces, and our own refined production was 1.7 million PGM ounces for the half. Our EBITDA was ZAR13 billion, and we achieved an EBITDA mining margin of 42%. In this half, our operating environment continued to present several challenges. We have seen continued global market volatility, concerns around the reopening of China's economy. Interest rate uncertainties and an increase in cost environment relating to inflationary and foreign exchange movements.
We continue to see a decline in the South African and Zimbabwean economies, amplifying many social economic challenges. Unfortunately, many of these issues are caused by crime and corruption, which impact not only our operations, but society at large. However, we do remain resilient and have navigated well through many of these challenges that are within our control, minimizing the impact on our operations, employees and host communities.
One example of this work is our management of the energy crisis. Despite increased load curtailment, we have been successful in limiting the impact on ounces lost, while progressing our large-scale renewable generation projects and further reducing our consumption to accelerate our energy independence.
Our strategy and our culture work together to achieve our purpose of reimagining mining to improve people's lives. Our strategy guides our choices and our culture enables every colleague who walks through our gates on a daily basis to be fully authorized and psychologically safe to do their best work every day. There is a diversified use of our metals, which include industrial, automotive, technology, battery storage, food preservation, investments and jewelry. In addition to that, we see many other emerging users, including, the development of the green hydrogen technology, which is PGM intensive and something we are very excited about.
I would like to take a moment to reflect on the delivery of our four strategic priorities. ESG is about collaborating with our host communities and our countries in which we operate to create better future. We continue to be industry pioneers ensuring a healthy environment, thriving communities and being a trusted corporate leader. We are set up to be a business that goes beyond resilience with the aim to thrive through the ever-increasing rate of change we experience today. This strategic priority forms the basis of safe, stable and capable operations, which will see us firmly placed in the first half of the cost curve for the long term.
Our world-class portfolio of assets form part of an integrated value chain, and we will continue to leverage these to deliver value to all of our stakeholders. We do this by looking after our resources, and driving innovation, making our jobs and our organization better. Our market development work is fundamental to ensure our projects – products, my apologies. To ensure our products have a sustainable and positive impact on the world. We are leveraging capabilities through these activities and capture value from adjacent value chains. Simply put, our purpose and what we do matters.
We have been shaping the value creation pathway of our world-class mining assets and have a deep understanding of the potential of every asset, as well as the inherent optionality that exists. This value is leveraged through our uniquely positioned integrated downstream process. We believe that we have the best PGM assets in our portfolio, creating optionality expected of a world-class business. These options are developed and continuously assessed against our capital allocation framework so that we make the right decisions at the right time.
Now just as a reminder of some of the options that we have. Our work on future of Mogalakwena will optimize value creation over the long-term for this very long-term asset. It is an absolute phenomenal resource and its polymetallic orebody will benefit from metal demand from the energy transition. Amandelbult’s prosplit has unique characteristics that provides the operation with a significant strategic advantage. It is supportive of the critical mineral requirements for the hydrogen economy and will continue to play a role in ICE vehicles.
In line with our strategic priority to maximize value from our core portfolio of assets, we are using existing infrastructure at Mototolo to extend mining into the [Debrecen] (ph) resource, which has now increased the life of that asset to beyond 30 years.
Unki represents one of the largest PGM deposits outside South Africa, and we continue to optimize the business for long-term value generation. We are the world's leading primary producer of PGMs, mining, refining and marketing our products for more than 90 years with an excellent understanding of the industry and our customers' needs. Now appropriate to the quality and life of our assets, we have a first-in-class logistics platform and global distribution network efficiently supplying PGMs across the world from a diverse and optimized supply base.
Now this is normally Craig’s slide, but I'm going to talk to this today. It's all about our disciplined capital allocation. And this framework has demonstrated our ability to retain a strong balance sheet that can be maintained throughout the cycles. And through the next couple of days, you're going to hear about this again and again. Our investments are value driven, ensuring that our assets will operate in the first half of the cost curve. We have been and will continue to prioritize the right sustaining capital investment to ensure a safe, stable and capable operations for the long life of our assets. But we are committed to our base dividend of 40% of headline earnings, and we continue to deliver on this and assess our business and its optionality against this framework. This has enabled us to declare an average dividend of 75% of headline earnings over the past five years.
We are one of just a few South African resource companies who have matched our returns to shareholders against the invested cash flows over the last two decades. We observe and assess the market fundamentals. Therefore, they are well understood and guide our investments. We study various long-term market outlook scenarios and our focus on making the right decisions to ensure we remain agile and resilient long into the future.
Now let's review our ESG performance for this half. As commented, I'm actually really, really grateful that we have not recorded any fatalities in the last 18 months at our own managed operations. We continue to see a drop in incidence recording our lowest injury frequency rate to date. We are continuously researching and implementing new ways to improve and reenergize our ambitions towards zero harm. This progressive step change are not by chance. We drive purposeful, focused interventions and continuously reviewing our approach as technology evolves, incorporating learnings and adopting best practice.
I would like to reflect on milestones that our operations have achieved. Three of our operations have recorded more than 11 years vitality-free, whilst Amandelbult has shown significant safety improvement as a result of our Back to Basic safety approach and the successes of modernization of the mine.
Our business relies on partnerships and collaboration with various public sector entities to operate effectively. This enables us to provide our employees and host communities with basic infrastructure needs. To minimize disruption on our operations and host communities, we have been partnering with government and business on solutions to secure energy, water, road and rail infrastructure, addressing fraud and corruption and ensuring social stability in our operating environment.
The National Energy Crisis Committee, or better known as NECOM, was established as a joint working platform between government, Eskom and business to realize the expedited implementation of the Presidential Energy Action Plan. As a company, we have been supporting working groups within NECOM to achieve energy security and minimize load shedding and load curtailment. Similarly, we have been partnering with government and business on water security to ensure that our host communities have the basic human rights of clean water supply and sanitation. We currently have 15 projects focused on water supply, refurbishment of water and sewage infrastructure and, importantly, water conservation.
Our most notable water project is the Willifons Management Model Project. It is a public-private partnership between government and the mining industry, which will significantly improve water security in Limpopo. Construction will continue to 2030 to deliver the full program of 200 kilometers of bulk raw water pipeline and associated infrastructure into the far eastern Lim.
Now let's look at operational performance for this half. In December 2022, our medium-term outlook for 2023 to 2025 was adjusted to reflect new operating conditions, mainly at Mogalakwena and Amandelbult. The results of our improved Mogalakwena operational geological drilling had highlighted a short to medium term reduction in higher-grade ore volumes and lowered the weighted average grade at the mine.
During the first half of 2023, we have increased the quality of our geological model through increasing our line of sight of drilling and reconciliation to actual performance. This is further supported by our resource drilling to expand the mineral resource into -- and conversion into mineral reserves. Our four year grade is expected to be between 2.7 and 2.9 grams per tonne from here on into 2025. And therefore, Mogalakwena is expected to produce between 1 million and 1.1 million PGM ounces per annum in each of these thee years.
At Amandelbult, the Tumela Upper Infrastructure and Dishaba open cast operations had come to the end of life of mine, resulting in lower mining volumes at Amandelbult. Due to the lower mining volumes, the decision was taken at the end of last year to close the aging and high-cost Merensky concentrator. At both Mogalakwena and Amandelbult, we also encountered short-term operational challenges in the half that has been resolved. In total, our PGM metal in concentrate production in the first half of 2023 decreased by 7% compared to the same period in 2022. We continue to see strong production performance from our Unki and Mototolo operations.
Now despite a very complex and challenging half, we have maintained a strong contribution to mining EBITDA from all our own managed operations and achieved an overall EBITDA margin of 42%. I want to do a little bit more of a deep dive into Mogalakwena and Amandelbult performance.
At Mogalakwena, PGM ounces were mainly affected by the expected lower build-up grade -- build-up head grade of about 10%. There was further production impact due to a planned primary shovel shutdown and the unplanned shut of [Biobat] (ph) plant in the first quarter. This was offset by higher throughput and reliability at our North concentrator in the second quarter.
Let's dive a little bit deeper into grade as well. Now I've mentioned that an updated and integrated resource and grade control model informed by increased reserve circulation drilling and diamond drilling over the past three years has provided us with an improved model for planning. The update informed the three year guidance we provided at the end of 2022. We've built confidence in our new geological model and the reconciliation of mined ore to our new model is well within acceptable ranges.
It is important to note that the downgrade to guidance last year was not a function of concerns in the quality of the asset. It only pointed to the accuracy of our short to medium term mine planning. And as we've heard out of some of our analyst feedback, we have not lost the orebody. It's still there. I’m hoping you are still there.
If you look at our resource and reserve statement, you will see that we remain confident and our guidance remains. We continue to make good progress on the six work streams of the future of Mogalakwena. Our work to date has focused on furthering the detail on the pathway defined as part of our resource development plan. The pathway to value and the associated investment decisions have been defined through the following steps.
Firstly, we are in the process of expanding mined volumes as the pit matures and deepens to continue exposing higher-grade areas of the orebody. We have committed ZAR4 billion to our heavy mining equipment fleet in 2022 to support the future volume growth of the open-pit operation. We have made significant progress with our heritage work and in resetting relationships and continue to build a social compact with our host communities.
In 2021, our heritage work identified a large number of graves at Mototolo in areas identified for near-term waste dumping. Our improved stakeholder relationship and diligence in following global best practice enabled us to relocate the majority of these grades in 2022 and the first half of this year, opening the required dumping space for the next 18 months.
There's still a lot of work to do as mining is moving westwards towards the villages of [indiscernible]. Over the next decade, these villages, consisting of about 1,100 households will be impacted by mining activities, such as blasting, dust and noise. We continue to study various ways to avoid or minimize the displacement impact, including underground mining, but redesign and improved blasting practices. Significant progress have been made with regards to the temporary relocation of the [Saritarita] (ph) School, which will provide a necessary buffer to assess ore -- to access ore and extend the life of the open-pit.
We are also making good progress with the first twin exploration decline at the Sandsloot underground. Phase B of the exploration decline will commence as a continuation of Phase A in the last quarter of this year, which will allow for the underground drilling and upgrading of the resource classification, whilst progressing towards the first bulk ore sample. This enables us to progress our mining studies to establish the investable case for Sandsloot underground.
The configuration of the current concentrators on mine has been optimized. Our study on the third concentrator continues to progress in line with our guidance for completion in the next 12 to 18 months. The coarse particle recovery plant has been commissioned, and the full circuit performance is now being evaluated against expectations. We are also investing capital in critical infrastructure that supports the current operation and future value pathways. This includes the Blinkwater 2 tailings facility, a pollution control dam and upgrade of the Eskom bulk infrastructure and internal road network. While the technical and social aspects are being addressed, the impact of global mega trends on demand, supply and prices of our metals remains front of mind as we progress the pathway to value and direct our disciplined capital allocation. We need to consider the full value to be unlocked as certain work streams are integral to unlocking further value.
Each step to deliver the future of Mogalakwena is currently at different levels of confidence and hold different levels of risk. Each requires separate capital investment decisions to be made at the right time and in line with our capital allocation framework to protect and strengthen our balance sheet.
Now let's look at Amandelbult. At Amandelbult, we have seen a marked improvement in safety, and this is a critical success factor for the future of Amandelbult. Our modernization program at the mine utilizes new technologies to continuously improve safety, mine productivity and simplify operational logistics. This has been a journey and a positive one, and we will continue to focus on the delivery of the program to enhance the work environment and to improve operating conditions.
Continued put ground conditions at Dishaba, a requirement for higher rates of redevelopment and short-term operational challenges at Tumela with underground rail maintenance stoppages impacted second quarter performance. The redevelopment requirements impacted development buffers at Dishaba. We have brought in additional labor skills mix to restore our mining buffers and provide flexibility to roll out the full benefits of cycle mining across the operations in a sustainable manner.
Now let's walk through the Amandelbult complex and its future in a little bit more detail, and it will consist of three main areas. Firstly, the modernization of the existing mining areas that has started to deliver safety and efficiency improvements. The start of the Middelaagte through the open-pit operation, and lastly, mining studies to shape the future of Middelaagte and to Tumela one sub-shaft.
We are focusing on continuing the rollout of modernization cycle elements. We are staggering implementation to manage change and truly embed the modernized mining cycle. This has enabled us to start to capture value through a cipher and higher productivity mining cycle and lowering cost. We are finalizing the permitting process and expect to start production at Middelaagte with an open mine at the end of this year. Production will ramp up to a maximum expected rate of between 110,000 tonnes and 180,000 tonnes per month. Furthermore, there are three studies currently underway that will provide optionality for either life extension or growth of the complex.
The future of Amandelbult studies objectives are to define the optimal mining strategy, volume and timing of various new mining areas and applied mining systems that could be both modernized conventional, mechanized mining and/or hybrid opportunities within the portfolio. The journey we've been undertaking to trial fully mechanized solution in 15 East has proven valuable to understand the successes and current limitations of mechanization for Amandelbult.
These learnings form part of the studies as we map out our optimal pathway for the future of Amandelbult. Depicted here on this slide is just a comparison on size and technology of the extra low-profile fleet that we are trialing with a fleet that we are trialing on your right-hand side and the more conventional low-profile equipment on your left-hand side.
The life and stability of our processing assets must match the life of our mining operations. This is recognized and form an integral part of our strategy and shapes our maintenance and capital allocation decision-making. You will recall that at Polokwane smelter our ramp-up was completed at the end of January this year, and we had also planned extended maintenance at our Waterval Smelter as part of our asset integrity work.
The first half of the year is generally a higher maintenance period for our processing operations, where we see various parts of the processing value chain entering plant shuts. In addition, our processing operations have been impacted by load curtailment. Despite that, we saw our own refined production at 1.7 million ounces for the first half with smelter utilization increasing steadily over the six months and Polokwane running at more than 90% utilization in the second quarter.
Overall, the utilization levels across the smelters have risen to normalized levels, and our processing operations are running well. Depicted here on, again, your right-hand side is a digital representation of the structures of waterfall smelter. Our digital modeling enables us to better understand the risk in stresses zones, high erosion exposure, localized heat sources and general stresses and strains in structures. By proactively managing risk through appropriate monitoring and predictive maintenance, we are able to make the right long-term decisions for our asset stability and longevity.
Now despite being impacted by 42 days of load curtailment in this half, thus far, our mining operations have not been impacted. We have had minimal lost ounces, and the deferred ounce impact was 66,400 PGM ounces between ore stocks and concentrate for the half. We have seen the curtailment impact increasing during the winter months. We are part of an intensive energy user group, which ensures that we have clear indications of what the state of the grid is. This allows us to make predictions around our own operations and plan accordingly. The models we've built allow us to match our operational response by overlaying maintenance days over curtailment days.
In the event of extended load curtailment, we have a clear business continuity plan in place to ensure that, if required, we can firstly bring our people to safety and our operations to a safe control stop ready for a restart. We also have near medium and long term renewable self-generation solutions in place.
I will now hand over to Craig to take us through the financial and market performance.
Thank you very much, Natascha. Good morning, everyone. I'll take you through the financial results for the first half of the year, considering the operating environment, which Natascha has just spoken about.
The company generated revenue in the first half of about ZAR65 billion and EBITDA of ZAR13 billion with a strong EBITDA mining margin of 42%. This was achieved despite a 29% decrease in the dollar PGM basket price. Our return on capital employed of 30% reflects our continued focus on efficient use of capital.
The company's balance sheet is strong with net cash of ZAR24 billion, including the customer prepayment. And in line with our disciplined capital allocation framework, the Board declared an interim dividend of ZAR3 billion or ZAR12 per share, which equates to 40% payout of headline earnings.
As we know, 2021 and 2022, we realized exceptionally high PGM prices. Prices have now reduced. And consequently, we realized the ZAR13 billion of EBITDA, which is similar to what we achieved in 2019. However, our EBITDA is down 69% on the first half of 2022. The 29% lower dollar PGM basket price was partially offset by a weaker rand, which had a combined impact of about ZAR20 billion. This includes the impact of the lower valuation of concentrate inventory, which the impact of that was about ZAR8 billion.
In addition, the anticipated lower sales volumes from our own operations contributed an ZAR8 billion reduction, while higher mining and processing costs due to the inflationary pressure reduced EBITDA by a further ZAR2 billion. EBITDA from our mining operations was ZAR18 billion in the period. In terms of cash cost per PGM ounce, these increased to ZAR18,076, up 13% on the second half of 2022. The increase is predominantly due to the lower planned volumes and the impact of load curtailment and the weaker rand.
In the first half, we did experience above CPI increases in electricity and consumables, but we have seen escalation stabilizing with prices of commodities such as diesel, explosives and steel reducing from the high levels that we recorded in the second half of last year. So taking into account the current economic and operating environment, we are implementing a sustainable cost reduction program to firmly position our assets in the lowest half of the cost curve. The focus areas are on both cost and operating efficiencies.
These actions, together with the expected higher volumes from our mining assets in the second half of the year gives us confidence to maintain our unit cost guidance at the upper end of the range of between ZAR16,800 and ZAR17,800 per PGM ounce. Net working capital increased by approximately ZAR1 billion. Metal inventory declined by ZAR7 billion, mainly due to the ZAR8 billion reduction as a result of the valuation of the purchase of concentrate inventory due to lower PGM prices, which were experienced in the first half of 2023 compared to what we experienced in the last six months of 2022. This was partially offset by higher work-in-progress inventory due to the Polokwane smelter rebuild, which resulted in a lockup of concentrate stock as well as the Eskom load curtailment impact of 66,000 ounces, which Natascha has referred to.
As previously guided, we expect the build up and work in progress to be released during the course of this year and into 2024. The purchase of concentrate creditor and the customer prepayment also reduced due to the lower PGM prices, and this led to the net increase in working capital. Our year-to-date capital expenditure is ZAR8.2 billion and our full year guidance has been revised lower to around ZAR22 billion. In terms of the categories we've spent in the first half, we've continued to invest in asset integrity and maintenance, completing the slag cleaning, furnace and the Polokwane smelter rebuild.
We also advanced the [indiscernible] at and invested in our tailings storage facilities to achieve conformance to the global industry standard for tailings management. We have and continue to review our capital expenditure, optimizing spend across the portfolio. So in the second half of the year, we will receive some heavy mining equipment at Mogalakwena. We'll continue the maintenance programs to support safe, stable and capable operations, as well as progressing the Mototolo/Der Brochen life extension project and the underground twin exploration decline at Mogalakwena.
So turning to cash and returns to shareholders. During the period, the company generated solid cash from operations of about ZAR17 billion. We paid taxes and royalties of ZAR3 billion to the fiscus and invested ZAR8 billion in CapEx. And once again, in line with our disciplined capital allocation approach, the Board has approved the interim dividend of ZAR3 billion or ZAR12 per share.
So if we now move over to the buckets. The PGM basket price has fallen in 2023. However, it's still higher than it was pre-COVID. Most of the adjustment has come about due to the normalizing of the rhodium price and across the three maiden PGMs, the basket is now well balanced. The minor PGMs, iridium and ruthenium, continue to make sizable contributions.
Global light vehicle production, the metric most related to PGM demand continues to recover from the pandemic shock. So far this year, output has been 13% higher than the same period last year. And while we expect the growth to slow given higher interest rates, concerns over a recession now seem exaggerated and a full year increase of between 6% and 7% is likely.
Within this, although BEVs continue to take market share, ICE vehicle production volumes are also expanding. Looking further ahead, industry forecasters expect continued growth in light vehicle production, but at a much slower pace than historically relative to GDP. Whether logical arguments as to why the world might become less-car aligned, strong growth in many emerging markets points the other way. If car production were to return to the pre-COVID trend, automated PGM demand could surprise on the upside in the coming years.
In 2023, we saw platinum price swing in line with the changing supply concerns, which saw a wave of investment and then disinvestment. Fluctuations in the US dollar have also been important. The underlying story, however, is positive. Automotive demand continues to rise as palladium substitution program, that began a few years ago, are realized. Industrial demand is also robust. And in line with our year-end forecast, we continue to see platinum in a deficit in the coming years, supporting its price. The palladium price has steadily weakened over the year. Concerns over Russian supply post the invasion of the Ukraine have eased as Russian flows have recovered to pre-invasion levels.
With the automotive palladium purchasing subdued, speculators have bet heavily against palladium, taking the short position to a record high. If underlying automotive production remains strong, the shore position raises the prospect of a short covering price rally. While we believe palladium is in deficit this year, we forecast a surplus in the next few years.
Rhodium has been weak this year with the price falling to a four year low. One reason for this has been the disposals by the fiberglass industry. A switch to richer platinum alloys has been ongoing for several years, but this has been masked by a rapid expansion of plant capacity. That seems to have stalled in 2021, meaning the ongoing switch has now led to a buildup of surplus rhodium stock.
With the industry under some financial pressure, rhodium sales have followed. It's uncertain when this will end, though various factors suggest that we're near the end of that process rather than at the beginning. Underlying rhodium demand remains robust. A steady spread of real-world emissions testing will continue to support rhodium autocatalyst loadings in the coming years. And as such, while the rhodium is in surplus due to stock disposals, it remains a really modest one.
So I'd like to spend some time talking about hydrogen. I know we spent a lot -- we've spoken a lot about it over the years, and you're probably wondering why. After all, the sector is currently a very small proportion of total PGM demand. Put simply, it's because it matters. It matters for our planet, but it matters for the future of PGMs. We all know the potential for PGMs from PEM electrolyzers to make green hydrogen and PEM fuel cells to convert hydrogen to electricity. As this slide illustrates, PGMs are used or have the potential to be used in a whole host of other hydrogen applications from production and conversion through transportation and storage to end use.
We're certainly seeing the momentum build in the hydrogen economy. There have been over 1,000 hydrogen project proposals announced globally for full or partial deployment by 2030. Direct investments of $320 billion have been made into hydrogen projects announced through to 2030, of which, approximately 10% have passed the final investment decision stages.
We, as Anglo Platinum, continue to invest in the development of a diverse range of existing and new opportunity areas for our metals. Our opportunity areas tap into key global trends such as decarbonization of difficult to abate industries and mobility. And for example, in Germany, our H2 moves Berlin, our fuel cell electric vehicle demonstration partnership with Toyota Germany and the Safe Driver Group now has more than 100 [indiscernible] deployed as taxis on the streets of the German capital. Initiatives like these are helping the uptake of fuel cell electric vehicles by aligning end-user demand with the supply of vehicles and infrastructure access and by influencing new audiences via proactive marketing and education activities.
I'll now hand you back to Natascha to take you through the strategic performance.
Thank you, Craig. Just a short bit to go. As a mining company, success lies in a comprehensive strategy that allows for agility to steer through the cyclical nature of the business and a culture that enables our employees to execute on that strategy.
Our targeted outcome is to ensure shared value to shareholders and our broader stakeholders, and we continue to track our delivery against our value creation, as you can see on this slide. I truly believe that the decisions we've been making and we'll continue to make daily as a management team and supported by our Board has set our business up to demonstrate resilience, agility and adaptability through this continuous change that we face.
We respond effectively to changing market conditions, commodity prices and regulatory environments. We can respond and adjust our operational practices and follow our capital allocation process to remain competitive, seize opportunities through these optionalities that we have at the right time.
We have created a stable, sustainable foundation through the building blocks of the decisions we make. These are view that leadership success get measured not during your tenure, but in the years after you leave. I believe we have taken decisions for this business that is aimed at securing the building blocks that protects the long-term sustainability of our business. And I have every faith that we will continue to deliver value to all of our stakeholders.
This concludes our presentation. Thank you once again for joining us both in person and online. And I will hand back to Fran to facilitate questions-and-answers. Thank you, Fran.
Thank you, Natascha. We'll now start by taking Q&A from the floor. Chris Nicholson, first.
Good morning, Natascha. Craig, good morning. [indiscernible] It's Chris Nicholson from RMB Morgan Stanley. Can we talk about CapEx, please? So I see that you've broadly let your CapEx guidance intact, not just for this year, for the next two years as well. But clearly, market prices have changed quite materially. I'm not sure if that's a view that either this dip in prices is temporary or willingness to invest through the cycle, but maybe you could comment at what point you would start to reconsider some of those CapEx plans? Maybe more specifically, when would you be prepared to gear up the balance sheet to continue that CapEx spending?
And then I'll just ask a second question because it's linked to it. Within this framework, I think it's quite clear that maybe Amandelbult hasn't got the CapEx that it's needed over the last number of years otherwise, volumes wouldn't have done what they've done. Will Amandelbult get the CapEx it needs going forward? Thank you.
Okay. Thanks, Chris. Good morning. So in terms of the CapEx, as I articulated, we continue to review the capital profile of the business. And we have revised it down by about ZAR1 billion, ZAR1.5 billion. And we'll continue to assess that, taking into account the situation that we're in. However, we've obviously learned a number of expensive lessons over the years, and we'll continue to make the investments in ensuring that we've got the safe, stable and capable operations.
In terms of the second half, we broadly do see the delivery of HME equipment coming through at Mogalakwena. We do continue to see the investment that we need to make at Mototolo in terms of its life extension. We've got a series of rebuilds that go into 2024 and 2025. So we're starting to do some of that work in the smelters. But we continue to evaluate it, and we'll do the right thing from the business.
In terms of sort of broader in terms of where we're at, I mean, clearly, the focus has to be and is getting the assets into the first half of the cost curve. And that we will focus in terms of what we need to do going forward in order to withstand the current operating environment.
We will, as part of our disciplined capital allocation approach, retain a strong balance sheet. I could see ourselves if we're needing to access debt in order to support some of the growth options into the future. But absolutely, in terms of stay in business capital, we need to be able to generate that from our cash flows. So that's where the focus will be.
In terms of Amandelbult, I mean, we've articulated some of the work that we have at Amandelbult. We continue to assess the options there in terms of what the appropriate structure and the timing of the various investments needs to be. And that would be the sort of the ongoing focus, particularly going into the second half of the year.
Good morning. I'm Nkateko Mathonsi from Investec Bank. Thank you so much for -- Natascha for detailed presentation on Mogalakwena. My question is relating to unit cost performance and the contribution of Mogalakwena, especially as a result of lower grades. If you can also comment in terms of the grades beyond 2025, beyond the 2.7 to 2.9 guidance in the next two years? And then my second question is on jewelry and the market development that is being focused at jewelry and whether it has potential to actually underpin the basket price in the near term?
Do you want to start on cost, I'll take grade and jewelry?
Okay. Yes, certainly. So -- I mean, I think we have seen -- we've obviously experienced an increase in cost at Mogalakwena. Those were anticipated. And I think we articulated some of that at the beginning of the year, particularly as the pit has deepened, distances have increased and so a lot of that associated increase in Mogalakwena cost is associated with some of those planned operational challenges. We do see the second half getting a bit better. We had a number of pieces of equipment that were under maintenance in the first half that was planned, those have been returned to the pit. So you should start to see better efficiencies coming through in the second half, which will help immigrate some of those cost increases we've seen.
In terms of just broader costs, I mean, I reiterate the point. I mean we do have a process underway at the moment, which we've done -- which we've started with the operations, really benchmarking the performance, benchmarking sort of consumables, benchmarking headcount, benchmarking contractors, et cetera. And we've got dedicated work streams underway in order to take cost out of the business. In addition to that, we've got work underway at the corporate center, which looks at not in the corporate office, but some of the functional areas, and we'll look around a restructuring there where we would look to achieve better efficiencies and effectiveness of the current cost that we have in the business.
I think if I can add to some of what Craig said. We know that we're in a higher stripping time period for Mogalakwena. The pit has matured, so we have a number of pushbacks that we need to do. So, if we look at the inflationary pressures, specifically around diesel, things like cycle time actually really starts to make a significant impact. So the work that [Evan] (ph) and her team has done to give us that additional dumping space much closer to the operations, optimizing cycle times. And we've gone now from before we had that dumping space to now we've halved basically our cycle times. And that, if you consider inflation on diesel, will have a significant impact on cost.
So that's the level of efficiency measures that we are looking at. GP equipment in pit, better efficiency from a cycle time point of view. And the team is going into the detail of looking at literally the minutes that count on change and shift changeover as an example. So in all of these matters, the examples I'm giving is just to give you an indication that we are delving into detail of minutes and kilometers to really optimize how we do work because we know that we're in a higher stripping ratio period of time.
I think it's important to note that this is a short-term period. We won't continue to see this high stripping ratios. We will get back to our normalized stripping ratios of about 7.5%, but it will go up fairly high in the medium term. At the same time, we are obviously developing the underground options. And the other underground options targeted to be on an all-in sustaining cost point of view the same as a normalized open-pit operation. So whilst when we talk about open pit people do get concerned around cost, we are considering all-in sustaining costs with stripping included in that entire cost.
So that is really the target of the underground operations and the underground operations -- and I'm going to feed into your question on grade, the underground operations has been targeting the higher grade portion of the orebody, not having to strip out the entire orebody that can become between 40 to 60 meters wide, really targeting that high-grade area.
So where we are currently seeing between 2.7 to 2.9 grams per tonne, we see that after 2025 that will go back to where we used to run to about 3.4 grams per tonne to normalized levels. And then the underground indication is really quite lucrative. We're seeing intersections that will indicate grades of way ahead of 4 grams per tonne up to as high as 6 grams per tonne from underground, all indicating that continuously, we see a continuation of the orebody. We see really good intersections in terms of the quality of the orebody when we do go underground. And that level and that drilling program well advanced and will continue to advance through the exploration declines.
Thank you. Leory Mnguni from HSBC. I've got -- my first question is the -- you mentioned the modernization at the Amandelbult is progressing very well. How do you measure your success? And how are you tracking relative to your benchmark where you have rolled out the modernization? And then the Sandsloot declines at Mogalakwena, based on your plans, how far are you from doing the bulk sampling? And then lastly, I'm just curious how the recent load shedding that we've had or load curtailment, sorry, compares to the load curtailment in those challenging sort of April and May months and how that's impacting your business?
I'll start with the first [indiscernible].
Sure. Okay.
Okay. So firstly, modernization. I think modernization is measured in two ways. Firstly, safety. What the modernization design originally intended to do is to target the areas that's got fatal risk and replace that with improved technology. So areas like winch operations, fall of ground, rail-bound equipment. We have made significant progress on the rollout of all of the aspects of modernization from a safety point of view. And I believe that, that is a fundamental reason on why we've seen the improved safety performance out of Amandelbult.
For a mine like Amandelbult to be nearly three years fatal-free and we're very grateful for that, we will never become bullish about that, I think, is an extraordinary performance for that team. But I think it is underscored by that work. The last bit that we're currently rolling out is we've gone from just rock-stop nets to blast on mesh on the entire mine. We started at Dishaba, that is the most difficult underground ground conditions. That is tracking well, and then we will move to Tumela, that's got a lower risk in that area. And we see the benefit, and we also see our operators telling us that their understanding and their focus on safety is enhanced because you just get to a place that you don't tolerate any risk factors anymore because they are well equipped to manage those risks.
The second one is from an efficiency point of view. And that specific portion of the modernization has got two aspects. The one is drilling both face drilling and support drilling. The other aspect of it is cycle mining. Support in both the face drilling and support drilling, we're rolling out Epiroc drills. The face drilling is slow. We are seeing quite a bit of challenges with this technology because it's not as robust as our conventional drills. We do see the operators loving it, though, because they get to do -- get their work done quicker. These health benefits, you've got less vibration, but the equipment is not robust enough for the kind of operating environment. So it's slow because we continue to develop our equipment handling, but also the actual design of the equipment.
So that's been slow in its delivery. The support drilling is going well. And again, that feeds into easier support drilling, making the environment safe, again, back to safety. From an efficiency point of view, cycle mining and cycle mining is about how we schedule our mining cycle. And it is similar to how we think about mechanized mining, where every fleet, every unit of fleet has got more than one face or operating face. So, in the same why we have teams that we've consolidated. So will you have more than one operating face, making sure that every team has got efficiency and deliver efficiently every day.
We've seen a 10% consistent improvement at Tumela, where it's rolled out well. And that's the kind of expectations we can see. At Dishaba, it's been less successful because as we develop faster, we need more developing buffer ahead of us. Before -- because of the Dishaba ground conditions we've struggled to keep up with the level of development because we have redevelopment. We develop, we lose panels due to round condition, we need to redevelop. So that work will take us a little bit longer. But it's about that 10%. We've targeted about 10% to 15% improvement, and we see that consistently coming through at Tumela now. Load sheeding?
Okay. In terms of load shedding. So yes, Leroy, you're correct. April was pretty intense. And what we've seen over the last couple of weeks is probably about another 4,000 ounces impact as a result of load shedding. So that was until last Friday, but it's substantially lower than what we experienced in April.
So -- but I mean, I think just to go back to what we are forecasting, you recall at the beginning of the year, we estimated the impact of load shedding to be between 150,000 and 200,000 ounces. I think the stability and the sort of energy supply that we had both in May and into June, we've revised that forecast down to between 130,000 now and 150,000 ounces. I think we've missed to take his question on jewelry.
My apologies. Yes, I did. Do you want to take it, whilst you there. Sorry my apologies. The timing of the bulk sampling, we are doing drilling already. So the drilling that we're currently using surface drilling and we'll start the underground drilling now that we've got Phase A done. We'll start that bulk drilling at -- towards the end of the year. That's already feeding into a pre-fease eye. And then the bulk sample will be at the end of Phase B, which is another 18 months. But that doesn't stop the development of the work. It gives us all of the drilling work that we need for pre-feasibility already. Do you want to take…
Yes. So just in terms of jewelry, particularly, one platinum jewelry, we do see that not deteriorating much more in China this year. And however, that is dependent on sort of what we see coming through from the economy. But you certainly still think a relatively robust demand in some of the other sectors, particularly the European and the US market, but not necessarily much more deterioration in China. But it just does depend on what happens from an economic perspective.
[indiscernible] I do agree, I think the safety record that Amandelbult, in particular, is extraordinary. Some of your peers are talking about DMRE safety stoppages and self-induced safety stoppages have you suffered from any of those and to what extent?
And then just second question, I see there's a significant pickup in trading activity, in trading metal, which you say is in line with your strategy. What exactly is the approach that you take when you trade metals? And what's the profitability of that activity?
Okay. So let's start with safety. You'll do the trading one?
Sure.
Okay. So we do have DMRE activity. We always do, and we always welcome it because it's a new set of eyes. We do see Section 54s but not to the extent that it's impacted our performance. This one is a little bit bitter sweet, the Tumela impact that we've seen at the beginning of the year, where we have had a stoppage of the entire Tumela mine due to rail maintenance. There's quite a bit of detail behind it that I won't necessarily bore you with.
But I think fundamentally, what was important there for me is that, our employees stop the mine. And I think that is fundamental to the safety drive that we have, that employees feel safe enough and deliberate enough about the safety that they do take that action. So whilst we should have never been there in terms of rail maintenance, the fact that our employees took that matter and say. Well, no, we will first fix this. We fixed it, and we will make up that ounces in the second half. So -- but not DMRE activity continuously, but not impacting on our performance. Craig?
And in terms of trading. And so as you know, we've built up quite a bit of capability in the marketing team, not only selling our own volumes, but then sort of helping that with the insights in terms of the strategy around those sales. But as a consequence of that, we've identified an opportunity to trade some of the metal. It's a really small component. I mean the volume looks high, but actually in terms of the activity it’s really, really small. I think the profit that we generated in the first half of the year was around about ZAR400 million. So not -- but nearly as significant as the activities that the marketing team deploy in terms of selling our own equity volumes.
Hi. It's Steve Friedman from UBS. Maybe just a follow-up on Mogalakwena. You spoke earlier on about sort of a normalized unit cost position for the openpit. And just curious if you could kind of give us a bit of a longer-term sort of outlook on stripping ratios, capitalized waste stripping, how you sort of see that playing out? Obviously, over the medium term, you're creating the flexibility and we've seen that big pickup in sort of tonnes mined and obviously, the purchase of the additional HME equipment. But yes, if you could just maybe give us a bit more color because that will sort of give us a bit more of insight in terms of what you're expecting for underground as well, I suppose, on what a normalized unit cost is? Thanks.
So let me talk about the stripping ratio and then maybe you take pickup on cost. So we currently -- we've been running in a stripping ratio of about 7, 7.5. We've seen that pick up to 9. We'll see that going up further to about 11 and then come back to that 7.5 to 8 stripping ratio. That's why we'll see that the volume move from -- will increase to the same kind of ratios. And again, if we go back to what I've earlier touched on in terms of diesel cost effectiveness in cycle times. We used to move about 90 million tonnes per annum, that's going to increase to about 130 million, 140 million tonnes per annum. So by the time you then look at diesel efficiency and cycle times, it really, really start to make a big impact.
In terms of the costs, Steve. So this year, I think -- well, our half one all-in sustaining cost was around about ZAR1,250 -- $1,250 per PGM ounce. If you take out the additional increase in HME equipment, you probably take out around about $70. Our full year forecast that would increase to taking out around about $90. So certainly, the impact of additional HME coming through. And then this would sort of start to normalize in 2025 and into 2026.
And I think we have guided higher waste stripping next year and then they're starting to come off then in 2025 and into 2026. As that normalizes, then obviously, then you start to see the sort of the improvements of grade, which Natascha has spoken about. So yes, so that's the current position. But clearly, obviously, that's all under review as part of the cost containment exercise that we have underway.
Last question on the floor to Rene.
Natascha and Craig. Thanks for the presentation. Just to clarify [indiscernible] on question on Mogalakwena underground grade at 4 to 6 grams a tonne. Is that built up head grade or is that in situ?
Buildup
Buildup?
Yes.
Okay. And then just on energy sufficiency or power efficiency. If I remember correctly, you need about 3.5 gigawatts of power to run your whole operation with the subsidized or the extra energy plants that you're building, what proportion of that could you supply yourselves?
So Rene, you will remember we spoke about embedded supply that started off with Mogalakwena 100 megawatts there. We will continue to build. We're targeting another 125 at Amandelbult, about 35 at Mototolo, and we've got Unki plant up and running all targets as well.
In addition to that, in the meantime, due to the energy security through the agreement we have within Envusa, you'll remember that we've got that 5-gigawatt target or an agreement within Envusa, we're targeting another 520-megawatt to give us that additional energy security in the short term. So that's all targeted for the next two to three years to come in. And after that, of course, we are targeting by the time we get to the full 5 gigawatts that we will be fully on renewables by 2030.
Okay. Fine. Thanks. And then just the security situation on your minds. I remember a little while ago, you had to evacuate one of your general managers because of threats to him and his family. How is that situation developing? Is that still a worry?
Security remains a big challenge for us. I think the fraud and corruption and social stability, as we touched on earlier, is a real concern for us. We're addressing this in a number of ways. For starters, as we continue to drive really hard our own work with our communities to stabilize our relationships and build opportunities for local economic development. That is much slower and much smaller than societal expectation, though. But I think that's an important starting point.
Through the partnerships that we've spoken about earlier today, whether it's through NECOM or the Olifants River water management model. These are all areas that's obviously to our own benefit from a business point of view, but all of these create further infrastructure and job opportunities to local economic development in the areas that we operate. So that's another factor.
Part of the partnerships that we have is working with the police. We've got a pretty good working relationship with the police in the various areas and the NPA. But there is quite a bit of resources that's going into those partnerships to secure that societal stability around our operations. The last one is, of course, just really the governance around our own processes in making sure that we're really rigorous in how we flow through on our own processes, placing orders, keeping an eye on procurement mafia.
And I should have added just as part of the police work. The police work is not only to bring social stability into these communities, also addressing illegal mining, which in our case is very specific underground copper rather than -- so that kind of relationship with getting the right resources in place, following through investigations and take it all the way to prosecution is important. So we address it on all of the different levels through governance processes and partnerships.
Thanks very much.
We'll now take questions on the call, please.
Thank you. We have a question from Adrian Hammond of SBG. Please go ahead.
Good day, Natascha and Craig. Firstly, Natascha, two questions for you. And congratulations firstly on your safety record thus far, which brings me to the first question around Amandelbult. And I do notice you target 100% modernization and mechanization by 2030. If Amandelbult doesn't achieve this, do you see this mine exiting the portfolio, firstly?
And then secondly, could you give us the Board's position on finding your successor, any update there? And then for Craig, thanks for the market overview on prices, and I appreciate the issue [indiscernible] and but we are forecasting higher sales year-on-year. We've got lower supply. So any color while prices keep falling, particularly pallidum, if you can add on that? And then what levers can you pull in the group should prices fall further? Thanks.
So Adrian, firstly, I think we are very aggressive in terms of looking at a mechanization strategy. I think it's really important to say that, because fundamentally we have to say, well, is there a different way that we can do this. Saying that, however, I think it would be naive to think that we're just going to get it right. And I think you are one of the people who continuously point out to us some of the challenges that we do have in terms of making real mechanization work underground at Amandelbult. So that's why I think there's -- firstly, modernization is -- this is just going to happen. We've seen the benefit.
The strategies and the development work that we are doing is to develop and see, well, can we make mechanization work at 15 East drop down, we've now got the system, the entire mining system operating with the kind of equipment that you've seen on that slide, I can't remember the slide number.
But it's a track equipment, it's much lower than your conventional mining equipment and it is remote control as well. That gives you a very different kind of equipment than what we used to. That entire system, as I say, is up and running as a full mining unit and we see that team hitting all of their milestones at the moment. We do accept that there's quite a bit of work still need to be done because that needs to be sustained through all of the equipment, all of the maintenance, so quite a bit of work still have to happen.
So when we talk about our studies, our studies are modernized conventional, which is -- that is the baseline. We are continuing to look at mechanize. But as an alternative, we're also studying hybrid options that could look something like mechanized development and conventional stoping. And in there, there's a number of different scenarios that we are evaluating.
So important to note that whilst we're driving that for the right reasons, we might end up somewhere in between conventional and mechanized. As far as success is concerned, the process has been really robust. The process is run well, and it's near its end, and an announcement is imminent.
Just in response to your questions around what do we see from a PGM price perspective given sort of anticipated higher motor vehicle production. And I think we indicated that ICE vehicle and PGM demand as a result could be 3% to 4% higher. I think there's a couple of aspects in terms of why you don't necessarily see that translating into price just at the moment. In talking to the marketing team, I think OEMs are relatively well stocked, so some of the supply concerns that we've had in terms of the Russian invasion of the Ukraine and the situation around Russian supply has, to some extent, sort of dissipated.
And then also, obviously, from a South African perspective still relatively reasonable production coming through despite some of the operating challenges around Eskom load curtailment. So customers are continuing to take off take as planned, but not necessarily rushing to take on board additional inventory. And so, I think that's one of the levers.
In terms of just, I think -- and the other aspect, and as I touched on that is you are seeing some of the response taking place in the platinum price as you've seen that substitution of palladium for platinum coming through. And I think that's really supported the platinum price and the expectation that, that should rally as you move into the deficit next year.
In terms of our own levers, I think the key focus for us is really ensuring that the assets are at the bottom half of the cost curve. No immediate plans to take out additional supply at this stage. However, the focus is really around cost and operating efficiencies to ensure that we keep the business sustainable. And we're able to withstand some of the challenges that we're currently experiencing, just in terms of the downturn in prices. But I think it's really important that we're set up and set the business up for the future because I think as we've spoken about it, the potential for additional demand from ICE vehicles could very much materialize into the future and ensuring that we're able to leverage from those opportunities is critical.
That’s clear. Thanks.
I think that's it from the line. We'll move on to Q&A. Just one question for you, Craig. It's a merged question because a couple of analysts have asked around this. One is from Shashi Shekar from Citi and Cameron Needham from Bank of America, around the cost reduction plans. To what extent can you elaborate on that right now? And to what extent are the changes made through bottom-up approaches versus pushing top down?
Okay. So yes, so -- no, I think we're continually evaluating our costs. I think demonstrating Amandelbult last year, shut down very expensive Merensky operation. So we'll continue to focus around that. However, the initiatives that we have underway is very much associated with benchmarking our performance, our performance at the moment with what happened previously. .
We have identified a series of levers that we can drive in terms of operational -- operating efficiencies of our equipment, getting them back to where they need to be that we have spoken about rope shovel at Mogalakwena. It was under maintenance in the first half. It's come back into production in the second half. And our expectation then with the associated et cetera, is that we reduce some of the waiting times and drive those efficiencies. And that then for allows us to be able to park some excess equipment and the ancillary equipment that we have on site. We've also then had a look at some of the consumptions that we have at the concentrators and really looking through those and also trialing new chemicals, reagents, et cetera, which are cheaper, but potentially give us the same recovery and output. So those are some of the initiatives that we have underway.
So it's not only -- it is bottom up. The operations have identified key areas of focus for themselves. That's been augmented by the benchmarking analysis that we've done to help support that. And then there's also been very clearly some articulation in terms of what the value is of those savings that they need to be and how those are built into the plan. So it's multifaceted.
And then in addition to that, as I said, we've got the review underway at the corporate and the functional areas, and that's really focused around how do we sort of reduce cost, reduce initiatives, and relooking at our structures to be able to support that.
Perfect. That wraps up Q&A. So thank you, everyone, for joining, and we're closed. Thank you.