Impala Platinum Holdings Ltd
JSE:IMP
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Good morning, ladies and gentlemen. A warm welcome to everybody in the room with us today. Also, a heartly welcome to everybody that's joining us through the conference call, and also watching to this broadcast over the web. There will be an opportunity to ask questions in the room over the call and over the web, and we will just queue and explain again how to do that most effectively when we get there. So the idea is this is our normal market engagement.
After myself, I will introduce Nico, our CEO. It's always hard to introduce him. I'm not quite sure how. So I asked my daughter and she said it's actually easy. You go to chatGPT and you ask AI how to introduce the CEO? So this is not my words. This is straight of chatGPT. Since Nico Muller's appointment as CEO of the company has undergone a significant restructuring, which includes investments, cost-cutting measures and renewed focus on core assets. Under his leadership, Implats has also made significant progress in improving safety and productivity added operations. Nico has been widely praised for his strategic vision, operational expertise, and his ability to lead implats through a challenging period in the mining industry.
His leadership has created with -- his leadership that has been credited with helping to improve the company's financial performance and has been recognized as one of the most influential executives in South Africa's mining industry. Not my words. Again, it's a health warning. No pressure, Nico. I think when we come to results like this, the [indiscernible] are the people back on the coal front, the people that go down on the ground, blast, melt or produce the metal. And we thought that just share a little bit of that perspective. We've gotten around, we have become a camera and a microphone and we've asked a couple of people in our organization, what it means for them to work for this organization. And as an introduction, I'm just going to leave you with that, after which Nico will come up and address you. Thank you very much.
[Video Presentation]
Thank you, Johan, for that touching dedication to our people, fantastic. As funny the company is just rock steel is deal with other people. So let's dedicate this presentation to our staff, to the management team. And in particular, to three members of our family, one is Gerhard Potgieter and John Andrews, two executives that have carried this company through the last few decades. Thanks for your contribution. This is their last attendance. And also to Peter Davey, our Board member that passed away in February.
So before I continue, just a cautioned to any forward statements that we may make today. Just a minute.
Just give Nico a breather there. Peter Davey was always the first board member to comment on the results. He was also the first one to register for these calls. So his absence today is a big void in all of our lives and it would be remiss of us not to acknowledge the time that his family has given up for him to be with us. So with those few words, and we really think of the family in these difficult times and his immense contribution to the organization.
Okay. We will try again. So our results follow the results of a number of our peer companies. And it's clear that we've negotiated through very challenging operating conditions over the last year and in particular, during our reporting period. And so for a company to achieve a flat production such as what Impala has done. I mean typically, we've seen declines in production between 10% and 15%. That's not unusual. So I think that is a fantastic operational performance from the people that form our team.
I think the company has done exceptionally from an operating performance point of view. And then despite the decline in dollar metal prices, we've had depreciation of the rand, which has created a 5% increase in the rand metal prices. And as a consequence of our flat volumes, combined with the slightly beneficial rand basket price, we have seen a 4% increase in our gross revenue, which I think is absolutely unusual. We've seen a 2% increase in EBITDA of the company. So when you look at EBITDA production volumes, the tonnes building up by 5%. So what it says is that the foundations of the company is very strong and we have the benefit of, first of all, our geographical diversification.
We operate in South Africa as well as in Canada. And secondly, we are seeing the early benefits of the investment decisions, which, thankfully, the Board and team supported a number of years ago. We put expansion projects on the mining side as well as on the processing side at Two Rivers, at Marula and in particular at Zimplats, where we're doing [indiscernible] third concentrator at a smelter complex as well as resuscitating the management refinery.
One storm that we could not negotiate as well as I was hoping for was the high global inflation rates. And so when you look at our unit cost increase, you will see a 15% increase in the unit cost up to ZAR19,346 per 60 ounce. And that is a consequence of global inflation. I'm probably going ahead in the slides, I'll touch on it later, but it is particularly consumables, explosives, fuels, steel, that sort of thing, power. But in addition to that, we are seeing the translation cost of our dollar operating costs in Zimbabwe and in Canada because of the weakening of the South African rand. So when we translate back into rand, that adds to the cost increase and then we've seen reduction in efficiencies, mainly as a consequence of the low curtailment.
We have seen a similar increase in our capital expenditures. So the inflation has pulled through into -- if I just look at normal SIB capital expenditure, you'll see a similar increase in capital expenditure. But in addition to that, our capital has ramped up in line with our investment strategy and the projects that have been approved. So you see capital, we've gone up by 39% to ZAR4.9 billion. And so a combination of increased capital, increased operating costs, in particular because of capital prepayments in Zimbabwe, and then a very important issue for us during the last reporting period is the increase in [indiscernible].
So where we did have a hiccup is once the [indiscernible] is reduced, it's concentrated. But where we absorb load curtailment, the Implats is at our smelter complex in Rustenburg. So when we are asked to reduce consumption, we switch the furnaces off or reduce the consumption. And so you will see that the processing at a refined 6E production, we were down 9%. And so there's -- so we only operate with 625,000 ounces roughly of inventing the company at the end of the last reporting period -- similar reporting period the previous year. We had 40,000 excess in -- 40,000 ounces excess in [indiscernible]. And during this reporting period, we increased that by another 100,000.
So all of these things have had an impact on the cash flow. So if you look at the earnings, it went up by 4%, EBITDA went up by 2%. But when you translate it into cash flow, the cash flow reduced from ZAR15.1 billion to ZAR11 billion. So -- and that also then informed our dividend, which was slightly better than the minimum 30% of our policy, and we will have the base about the capital allocation and retention of ZAR6 billion or ZAR5.9 billion on our balance sheet, which I think has done for a very, very constructive purposes. But our ZAR11 billion cash was translated into a ZAR4.20 per share dividend or ZAR3.6 billion in total, which if you add returns to minority shareholders of ZAR600 million amounts to a total shareholder return of 36% of discretionary capital allocation.
So now I'll start with the presentation. I think we -- from just an easy point of view, I think we've had a very good reporting period. If I look at all of the accolades that the company received again for its sustainability efforts. One thing that we always look at, particularly is our safety performance. And the company is very proud of the fact that its overall safety performance is continuously improving. And again, we see a continued decline in the last time energy frequency rate, and we see a 12% decline in the total [indiscernible] rate.
However, we had two fatalities at our managed operations during the last reporting period. In addition to that, we had -- and you can see the part of the first three bullets there, on the 16th of November, we had a fatality at Two Rivers joint venture. And then post the reporting period, we had another two fatalities in the group. So just interesting observations. four of the five fatalities that I have mentioned are related to gravity. So it's either person falling, equipment falling on people or hang or side wall.
So that's a key focus for the company is how to mitigate the risk of gravity induced fatalities. Another very interesting observation is that three of the five fatalities occurred at traditionally some of our safest operations and it's shallow, mechanized operations. So the one was at Two Rivers. So that's the one on the 16th of November. And then on the 25th of December, we had one at Bimha, that's Zimplats. And we had on the 9th of February, the one at [indiscernible].
So these are all associated with shallow mechanized operations. But those operations have both something in common, and that's both of them are now associated with big expansion projects. So we've got big capital projects. So it is a reinforcement of a learning that when things change, the focus of management, the presence of management gets diluted by all of the new things. There's new behaviors, there's new standards. And so it is something that we will embed as a company is to endeavor to eliminate fatalities associated with a changing environment in our operations.
Our condolences to the family. And we hope to prevent a repeat of that going forward. I'm not sure I've got too much more to say. So I'm going to -- because I've spoken about some of the points, so I'm going to just maybe touch here and there rather than repeat everything that I've said.
Great operating performance. If you go through it individually, you'll see that on the left-hand side of the graph is predominantly SA-based operations. You can see the impact of Eskom. As I said, so our third-party providers do not have the benefit of low curtailment being absorbed in furnaces, which is why they toll process through us. So you can see our third-party production on the left, it's 10% lower. That is not unusual. And then you see in Palmarola, albeit small percentages, but you can see the impact of Eskom.
On the right-hand side, in particularly, if you look at Zimplats in Canada, both of those companies are benefiting from investment projects as Zimplats has the third concentrator that is starting to deliver. And at -- sorry, the other one was Two Rivers, where we got the Merensky project. And then Canada and all credit to Gerhard to Tim and the team have done just an exceptional job with. You'll remember that we had the multi [indiscernible] project. So that's not because of an expansion project. We've just seen a revolutionary improvement in operating performance. And so very delighted that Canada has finally delivered as we anticipated they could should drive form of capitalization and leadership prevail.
Refined production, 9%. That's, as I said, mainly the furnaces in addition to that, we took down our number four furnace. So it's mainly due to Eskom, but we also did scheduled rebuild of our number four furnace, and then number three furnace at a [indiscernible] for two weeks that we had to do. So that's why we had different production there. On the unit cost, I'm not going to talk -- sorry, I will -- that's refined production. Eskom, people ask, what is the impact of Eskom? It's roughly 10% of SA managed operation in direct and indirect in part the impact of Eskom result by virtue of lockup of ounces that are not being smelted and therefore, not refined. And then there's also loss production, so you're not taking the loss. And that is either directly because you don't have power or indirectly because people are fatigue, your supply chain is disrupted or some secondary consequences. Net impact on final metal produced is roughly 10% of SA managed operations.
The unit costs stated there is inflation, exchange rate weakening so the translation of the cost. And so on inflation, this is -- I mean, I'm not going to talk a lot about it, but you can see the biggest impact is on consumables, fuels, steel, chemicals and explosives. And then the increases in power cost varied across the sea jurisdictions, but -- so it went from 10% in SA to 21%. But I think the biggest threat for us about energy is not only the cost increase. It's got to do with security. We saw towards the back end of our reporting period and escalation of load curtailment and into the new year, it looks at things are progressively getting worse, and we are at the point where any further deterioration is going to create a material impact on the company's ability to continue producing.
Then capital expenditure is questions about that when we did announce a number of life extension projects, core growth projects, having many jurisdictions , the most important ones I've spoken about in Zim. And then we are also doing life extension projects at 11 and 12 Shaft at Impala, and we are doing an optimization of our base metal refining, which I think is going to produce about 10% additional capacity on that site.
So in terms of the guidance that we gave before, you will see an escalation of capital expenditure for the next three years to between ZAR11.5 billion and ZAR12.5 billion before it then reduces back to a normalized rate of around ZAR7 billion. And in the light blue, you can see the impact of ounce production that we are projecting as a consequence of this increased investment. The part that we are not showing is the life extension, which is beyond the scope of this growth.
Free cash flow, we've spoken about is off showing the profitability margin, the operating margins at the various operations. So just to confirm, all the operations are contributing. It is our policy not to cross subsidize. On the right-hand side, we see cash contributions from all the operations. And the only operation that did not managed to contribute cash was Zimplats and that was for very specific reasons. It's unusual and it will be remediated in this very next quarter.
They have seen a dramatic increase in unit cost reduction in dollar metal prices while on top of that, a massive increase in not only the capital expense but also prepayments because people are not prepared to do work in Zimbabwe unless we pay them before they do the work. So expenditure is running ahead of the actual progress of work.
So if you look at the financial performance, although we smelted 9% fewer ounces, we did draw down on the refining [indiscernible] and therefore, sold more or less in line what we sold the previous reporting period. So it's just gone down by minus 2%, increased rand revenue basket because of the weakening of the rand, and I've spoken about the gross revenue and EBITDA margin as well as the cash. So maybe just on capital allocation. So we had ZAR11 billion free cash flow from the operations, and we add back to that the ZAR700 million spent on growth capital because that is a decision that the company makes. So that was ZAR11.7 billion.
ZAR1.6 billion or 14% of that was allocated to growth in investment on the projects that are listed there. And then the remaining ZAR2 billion was balanced. We've got a dividend policy. That's a 30% -- at least 30% of free cash flow will be allocated to shareholder returns. And then we've got the important need to make sure that we are adequately funded for the RBPlat transaction, which I can now happily say we have done. And there will be no further need for any further retention of cash to fund that potential transaction. So if you -- and that's how you end up with the interim dividend of ZAR3.6 billion, which announced 31% of free cash flow and additional ZAR600 million went to the minority shareholders at Zimplats and Marula.
Just two things on the slide, one, this company, if you look at its posture its strategy, it's based on the fundamental premise that there is going to be long-term support for the products that it produces. That view has not changed. In spite of some weakening of dollar prices, in recent months. I'm not going to talk about that, but if there are questions, we can talk about why we believe the short-term decline is not necessarily representative of our confidence in the long-term market for our product. Based on that, our strategy will be to continue investing in our growth and the life extension of our asset.
Secondly, bottom right, it's got to do with the RBPlat transaction. So a fundamental part of our company. We did announce in November in 2021, the strategic importance of providing sustainability to our Rustenburg lease area. And it's not only important for the company. I mean, that's where 40,000 of the 50,000 people employed by the company is employed. We're talking about the sustainability of the Bojanala district, the Rustenburg economy, the Northwest province, the lives of 40,000 times 10 people that are being affected and the sustainability of South Africa's western limb, PGM production region. It remains as important as we did on day 1.
And we believe that we must do everything in our ability to achieve success in getting control of that asset, which is why we stayed at the wheel for more than a year. Having said that, it is natural that an infinite future with uncertainty is not constructive for any party, not for shareholders, not for Royal Bafokeng Platinum, nor for us. And therefore, for the company, it is important to prioritize closure.
We have engaged infinitely with all the regulating authorities with all the key shareholders, including the PIC. And it is important for us to stress during this results presentation, the importance of driving this process to a closure. We have had a firm undertaking from PIC that they will in the next few weeks, make a decision one way or another. And even if they are unable to do that, that in itself will be an outcome, which the company will use to direct its fruit decision-making.
The other part is the outstanding compliance certificate from the TRP. It is unlikely that there will be a satisfactory in conclusion to that process in the short or medium term. And that is a consequence of the way our legal system has been set up. It provides for a context. It provides for retigous actions, you can appeal the process. And to the extent that it's appealed, it can be escalated from a TRP to the TSC to the high court, and it's been done.
And we have been told by the regulatory authority that this could potentially go on for years, except it won't. Because to the extent that, that is the future that we look at. We will make other decisions because the company has to be in a position where it can control its future. So to the extent that the regulatory environment in South Africa does not support an imminent closer to this process, the company will exercise its options to take other courses of action.
Lastly, guidance. We have no reason to change any of the guidance previously given to the market other than on two years. One, we have seen a devaluation of the rand in excess of what we had guided when we started -- well, at the end of the last financial year. So we have increased the exchange rate from $16 to $17 and in the implats, every one rand weakening translating to around ZAR300 per 60 ounces. And so you'll see a commensurate change in the guided cost.
The biggest risk that we do face, particularly at the SA operations is a deterioration in the position of Eskom, this is perused on the basis that we don't have any further deterioration, and we are concerned about that. But as we were at the end of the reporting period and in the two months after that, we were not in a position where we felt it would be constructive to change our revision to the extent that there is a deterioration in the load curtailment and it does impact on the company, we will report that back to the market. On that basis, I would like to thank everyone for their continued support and open the floor to questions, which the team will assist in answering. Thank you so much.
Thank you, Nico. We're going to start in the room and then we'll move to the call. There's a mic roaming in the room here. So to the extent that we've questions in the room, please, Just raise your hand so that we can hand you a microphone. Just kindly introduce yourself to the people online and proceed to ask. Leroy, let's start with you.
Thanks, Johan. So Nico quite curious about your comments about policy not to cross subsidize assets. In a scenario where the palladium price continues to weaken, I know it's not as much your base case and Impala Canada is no longer free cash flow generative. What does that -- how does that policy how is it practically applied? Do you close or do you give it a bit of time before you close if you could just maybe talk us through your thinking around that and that scenario?
And then my second question is six months ago, you said you still a few years away from pulling the trigger on a base metal or battery minerals acquisition. I just wanted to check if anything has changed or if you've made progress on those timelines have shortened potentially? And then, I was curious on whether you'd be able to share with us the other courses of action that you would follow, if the of the RBPlats transaction is not completed in a reasonable amount of time, please?
Thank you. Thank you, Leroy. So let's just address the first question. I mean, obviously, we are in a long lead time intensive, capital-intensive business. So we don't make a loss one day and then shut the operation in each day, but there are various escalation positions in the company.
So Zimplats has made a loss in the last reporting period. So you're seeing the Company takes note of that. It is recorded where to the extent that this process and we will look on a quarterly basis that gets escalated to extra and to the Board and we start having different conversations. And of course, the first level of discussion is what can be done to alter the cost structure, the capital expenditure. So what my strategic point of view needs to change in order to ensure that we don't sustain a negative cash position. And then we will assess the duration that is forecast for that to happen.
So one of the problems I think that both Lonmin and Implats have historically made is that you don't ever change the conversation. You continue businesses normal, and you don't ever create a strategic intervention that will result in a prevention of a catastrophic failure of the company. Now that's when that happen. So to the extent that Canada gets itself into position where palladium prices regress. And there is a risk of ongoing losses. There will be a different strategic response internally. And I can tell you right now, it will not go on indefinitely. We will get to a position if we are not confident that we can turn it around where we will also spend the operations and will follow one-off civil strategies.
So just continued operation and making losses improving the company at risk is not what we will do. So let's just talk about what the alternative choices are that the company could potentially exercise. If we are unable to secure a sustained long-term operating position for the lease area, it will then translate into maximizing profits over the next five to seven years for the benefit of shareholders.
And so typically, the industry refers as a harvesting process, which I think from an economic point of view, will be fantastic. From a public interest point of view, I believe it will be absolutely catastrophic. And I'm saddened by the fact that the regulatory environment, even remotely allows something like that to even become a possibility. It will definitely not be our first choice but forced to not have -- having a different option, that will be the option and then we will find an alternate investment vehicle for a portion of the cash flows generated.
And then the other question was the -- it will take us a few years to find alternatives. So let's tie that to the ZAR27 billion gross cash that we have. That -- those funds have been allocated and earmarked for the transaction with RBPlat. To the extent that, that does not happen, the money will be returned to shareholders. We're not going to use that phase to leap into alternate commodities.
Secondly, the position remains clear. We are in the process of developing IP, understanding the markets and developing a transition process for the company in the future. For us, it's more long-term process and we are not particularly in the presence of a RBPlat transaction that has dragged on for quite a long time. So it's not something that we aim at doing in this financial year or potentially even in the next one, but we are studying the environment and developing a strategy for the company for the long-term future.
Okay, thanks for that. Maybe one follow up. So you're saying the cash that you earmarked to match the guarantee that ZAR15 billion that if the deal is not concluded that comes back to shareholders. Can we assume that in the event that you sell into the northern offer those proceeds would be included in the cash that comes back to shareholders as well? Would that be a reasonable assumption?
I think that will be an entirely sensible assumption.
Thank you.
Thanks, Leroy. I see one more hand raise. [Technical Difficulty] microphone over there as well.
Afternoon. Thank you very much for your time. It's Chris Nicholson from RMB Morgan Stanley. Two questions. So following a little bit on from Leroy's question and I understand you've chosen your way to carefully around of course of action for RBP. Is maintaining a minority stake in RBP one of the possible future courses of action, but that way, i.e., if you don't get control. Is that a position you would want to find yourself in? And then secondly, could you talk a little bit to just your solar and renewable rollout and some of the timelines permitting requirements and so forth around that? I completely understand that doesn't get baseload but ultimately, we're still getting loadshed in the day. So it will help. Thank you.
Thank you, Chris. We have got [indiscernible] in the room who will support Gerhard in answering the second question, as far as the renewable energy is concerned. Retaining of 40.71% in RBPlat is definitely one of the options. Retaining that share was ability to interact with the company, which is where we find ourselves right now is a problem. So there could be different outcomes. I mean, so let's assume that we don't get any further increasing shareholding, we can retain a 41% or we can sell down into lower position.
If we retain the 41%, the ambition will be to first of all to participate in a constructive way to make sure that shareholders from that particular asset is realized to its full potential. And secondly, it will be to ensure that through the combination of contiguous assets that we still find ways to maximize the potential leverage that we can get from the synergies that we identified when we initially made the offer.
And on the renewal --
While somebody gets a microphone to [indiscernible] to give you more detail on the wheeling options that we have. Let's just recap the approved projects within the group. So as our Zimplats operations, we've got a solar project for 185 megawatts which is being implemented in four phases. The first phase will be operational by the end of this year and at our Marula operations we have far advanced, 33 megawatts and I think the biggest question is how do we deal with our Impala operation, which is by far the biggest consumer and for which you need to have partners because we just don't have the capacity or the surface area to do solar.
So in area options, one is obviously with the Royal Bafokeng who have got property for solar. But I think we've identified early on that our biggest advantage should be to wheel in from third party providers. We've gone out with the request and we received very positive return from potential people to provide to us.
So I'm going to just ask [indiscernible] to update because we haven't spoken to the market about that process of getting our Rustenburg operations covered with alternative energy.
Thank you. We initiated a marketing inquiry and RFI in November 2022 which closed the end of January this year. I must say the response was overwhelming given the other players that we're competing with including the state run RIPP program we received in total about 49 projects, representing capacity of some 7.8 gigawatts of which 2.4 gigawatts is wind and 5.4 its solar.
So that is the level of reception, that the market gave us and that is what we'll be taking to the next stages in terms of request for proposals. The project is located in almost all provinces, say for KwaZulu-Natal which is very good for us in terms of geographical diversity of where we can pick the projects. Thank you.
We've got one more hand in the room that I can see [Multiple Speakers] Bruce Williamson here.
Hi good Nico, and it's Bruce from Integral Asset Management here. First of all, thank you very much for hosting a live presentation, beats the Internet. I happen to share your concerns around Eskom and on probably even more bearish could you give us an idea if level Stage 6 is held for a month or two. How many of your underground shafts that you would then probably not put the shift down? And what percentage of production would that account for?
Mark is thinking about his operations. So let's first unpack our South African operations. The risk was not having towers, the risk of leaving people underground that you can't bring out. So except for our Eskom operations, we don't have vertical shafts. So whether it's Two Rivers, whether it's Marula, we have people that can walk out of underground. So the risk of power total outage while people are underground is not within. So we will continue to put people underground even if it's stage six.
Rustenburg has got a different problem. They've got a problem of when you send people down, you must be able to bring them out. So we have sufficient generation capacity in the South and in the North, the diesel generators for an emergency but that emergency takes quite a while. So there are other steps that Mark then take to assess the risk before the our ships carry on. So Mark, now you can talk about it.
Thank you. Yes. I think we'll definitely have plans where we will start to continue putting people down. As Gerhard said, we have overcome the direct problem of safety about not being able to get people up, I've been able to build power across our property and then use generators. So we can do that. What -- and we have. Remember, we have about 100 megawatts in furnaces and then we also have concentrators that and we do the reclamation mining that we shut down from time to time. Those are all buffers before you get to losing the blast.
Then the next option that we have not had to use up till now is how do we do enforce cycle mining. In other words, start using compressors, and then pick your compressor because that's the next biggest user of power. So we will typically then say 1 Shaft being our lowest margin shaft. We will say, no, you only get compressed there every second day, which fits into [indiscernible] and we'll start expanding that principle across the property. So you're still mining. It's just getting a lot more difficult and challenging a lot more organization. So I do visit them in that case, you would have 10%, 15% drop in production by doing something like that. I think instead of [indiscernible] we have to stop at that.
Just to give you, we are just giving you 10% of South African production that we couldn't bring to find ounces, 5% of that was lost production, 5% is locked up in the system. So if you say the situation will be double as bad as what it was last quarter, you will lose 10% of your production that you can't claim back.
Thank you. I was wondering if people on the call and opportunity I see already there's two names that have registered to ask questions. I'm going to now hand over to the Bridge, and let him just remind you, how you can queue for questions and then start taking questions from the call as well.
Thank you. [Operator Instructions] The first question is from Adrian Hammond of SPG Securities. Please go ahead.
Hey good afternoon, Nico and team. Thanks so much for the presentation. Nico first question for you, just a bit more color around the projects that Impala Rustenburg? And how they fit into the sustainability of that operation update on 16 and 20 shaft and was expanded on 11- 12 shaft expansion. So with all those projects in play now, how long can we keep modeling 10 million tonnes per annum for this operation?
You also talked about 10% optimization in the base metals processing while you're expanding capacity there when you're concerned about the Group's overall production profile. So perhaps you can expand a bit on the strategy rates. You also receiving less -- material now from third parties. Are you willing to fill the gap there or is that something you'd like to keep it vacant for strategic reasons? And then perhaps someone on the team can comment on the falling rhodium and palladium prices some 20% year-to-date? Thanks.
Yeah, I think what I'm going to recommend is that Mark you are in a strong position to answer the first three and Emma you can probably talk to PGM prices in particular Palladium and Rhodium. Do you want to talk about the projects now actually into the life of mine.
So, I think let's just first identify the size of our Rustenburg operations in terms of our overall production and all along we can sustain that. So 11 and 12, shaft the part of those projects that sustained the mine's production and they put pretty shaft returns 12 shaft project will actually start producing this year and we will complete the 11 shaft one in 2026. So for the next five to seven years, and that's a term you've heard Nico speak as well. We can see Rustenburg producing flat out the same volumes that's what is producing now with no reduction in production.
So we're looking at 1.2 to 1.0 analysis a year through projects that we're putting in, but obviously, as we have other growth within the Group. We have growth in Zimbabwe. We have growth at Two Rivers that bring along a lot of base metals those ore bodies carry a lot of base metals. We have to create capacity for those base metal because are all coming on stream, while Rustenburg is still running flat out. And for that reason it made perfect sense for us expense spend our base metal capacity is already spoken for by the Zimplats and Two Rivers expansion.
On the long term, I think having spare capacity is a very good thing. There are many sources of PGM concentrates that are looking for a home. I don't think we'll ever not have feed for our capacity in the Group, but as part of the longer-term strategy of growth and our convention view we haven't spoken about lot of it for the long time, but -- better flow with full could -- almost half of what Rustenburg is producing in terms of concentrate volumes now.
So we are quite happy with the expansion, its spent expansions that pay themselves very soon in terms of the beneficiation but also it will create a space that we feel we can pull in the long term.
And of course despite our frustration we still planning for success with RBPlat. So don't discount that quickly Emma maybe you can add a comment on the market.
Yeah, I mean, I think just as a starting point we actually think at a fundamental level on an annual basis all three markets starting in this year. We do expect stronger demand is an auto recovery coming through, and we know that's primary supplier is challenged.
Notwithstanding that, I think that at various points over an annual period you can get to changes in liquidity and what is quite similarly traded physical market that can result in some distortion. So I think that kind of three broad buckets that we're thinking about it at the moment. I think the first is dollar dominant. So US macro the influence the outlook for US interest rates, it's having on the strength of the dollar on the outlook for commodities and specifically investor positioning.
We can see open interest in platinum and palladium clamping. We can see futures volume sparking. We can get the net short break down because that data was hacked. So we searching four, five weeks below on absolute clarity of that COMEX Report, but we think that's had a big part in terms of movements, particularly for platinum and palladium. I think the second aspect is Chinese physical demand and traditionally, we do think of the as Chinese not traditionally having long-term supply contracts and tending more to be active in the spot market. And if we think about Chinese physical demand, you had an unexpected lockdown, which means you had above inventory. You've had a slightly weaker-than-expected start to the year, and you had Chinese Lunar New Year in January, spring break in February. So there is absolutely no doubt that Chinese physical demand has been quite soft.
And I think that in itself that rhetoric and that comments than see that the investor kind of speculation, it's such a tiny market. So, I think part of that just trying to keep some perspective on the extent to which news flow gets circulated, vegetated and kind of come to 2 times and 3 times. We had a session yesterday with a big trading flow and they confirmed as it fair to say that volumes often on these press news, and their comment was [indiscernible]. So if I look at our customer base and to thesis here, we're not seeing demand dropping like a stone. We are seeing robust demand, but I think liquidity in spot market, some short-term kind of physical flows of skewing prices.
Thanks, Emma. May we can go to the next question.
The next question is from Rene Hochreiter of NOAH. Please go ahead.
Hello, chaps thanks very much for the presentation. Just a very quick question, would you have any objection to RBPlats? Would you have any objection of being a joint venture with Northam?
So we may not have a choice. I mean if things remain the way they are at the moment, we are forced into relationship with the counterparty anyway. So no and so a lot can be said about that and kind of work what my experience has been, is that I mean, so we have a joint ventures with a number of partners. We've got ARM in the Eastern Limb and [indiscernible] in ZIM and at the end of the day we are all sensible operators and you will find a way to work together. It will be a -- to overcome given the hostilities that have prevailed during the competitive transaction process. But my view is that in the end, the value of the asset will be protected by the mining companies and if not, we should replace the leadership of the companies.
Okay. Now thank you for that.
I don't see further questions on the call. Maybe I can just confirm with the Bridge?
Can I just add one sentence to what I've said. Having said what see it is far from ideal and we -- so, I mean the concern that I have in that scenario is the ability of Implats to generate the benefits associated with the identified synergies if it is opposed consistently as the transaction has been frustrating in a similar fashion. But there are immediate actions that shareholders could and should take if that happens, but it's not ideal.
Then I just confirm are there questions on the call?
There are no further questions on the conference call.
There are two on the web. I think they both have been asked, they both speak to Eskom. The one is other producers have indicated that losses could be up to 15% for the whole of South Africa. What's your view on that? And the most vulnerable part of your business to -- retirement. I think we have answered that. I think 15% given the right set of circumstances is certainly a possibility. And I think we have answered that our furnace operation is our first level of defense in Rustenburg and when they speak retirement that's where we will be hit first and will protect underground mining and people safety as based we can.
So with that I think we've concluded. We've got one more hand in the room and then that'll be the last question. So I'm going to hand over to Arnold for the final question out of the room.
Thank you. [indiscernible]. Nico, you talked about the harvest strategy as kind of a potential option and the impact that could have on the region et cetera? Is 17 shaft not part of a longer-term strategy at all in your mind?
Not at all. I mean to generate a positive return on investment over 17 shaft, I just believe that it's not economically viable. The only chance that I think a new mine has is if you can leverage for instance, a 20 shaft infrastructure to rapidly access a potential sales of two but unless you've got a similar advantage the notion of starting a new mine in [indiscernible] mine is I mean it's is not viable. I mean there is a reason why the loss mining had project started was installed in 2010. In the PGM there are no new projects for a good reason.
Thank you. I think that leaves the meeting. Just close proceedings a big massive thank you to everybody those joined us today live and otherwise. We obviously available and we're going to be on the road and meeting up with many of you in the next couple of weeks and looking forward to having further discussions.
Thank you so much for these people in the room and for the people listening. If you were here, you could have joined us for something to eat, drink and maybe your conversation with some of the executives here around the corner. Please Join us for some refreshments. Thank you very much.
Thank you.