Sibanye Stillwater - H1 2024

Transcript

Neal Froneman (CEO)

Ladies and gentlemen, good afternoon and good morning. On behalf of the C-suite, welcome, and thank you for taking time out of your busy schedules. At our twenty twenty-three year-end results in February, we made a commitment to focus on our balance sheet. Today, I hope you will recognize the tremendous effort from the Sibanye-Stillwater team in doing just that, and hence the theme of the H12024 presentation is reflected in the presentation title, and let me read it. It says: Delivering on our commitment to strengthen the balance sheet while also increasing liquidity. Please take note of our safe harbor statement. The agenda for today includes a brief strategic context that will be led by myself, and essentially, it all starts and ends in the market, and you will see what I'm referring to when we get into that.

I will also cover the salient features for the first half of 2024. Charl Keyter, our CFO, will then complete the financial review, after which he will hand over to our Chief Regional Officers, who will each cover their regions. We have Richard Stewart doing the South African region. We have Mika Seitovirta doing the European region. Charles Carter will do the US region, and Robert van Niekerk, who's also our Chief Technical and Innovation Officer, is also the Chief Regional Officer for Australia, and he will cover the Australian region. So our 3D strategy is well-known to the market. There's just a few points that I wanna make, and I'm not gonna go through all the detail on the slide.

Our board, together with the executive, have recently been through an extensive strategic review, and we remain confident that our strategy is relevant, and delivering on shared value remains a keen focus for us. Our focus, however, remains on the strategic essentials, especially through the current commodity price cycle. There are two other things that I wanna mention that I think are relevant to the discussion today. Despite the noise that is creeping into the debate regarding the relevance of ESG, we, as a company, remain steadfast in our view regarding the importance and the relevance of ESG. We believe it's a good business practice, and it will remain embedded as the way we do business. I also read much around the issues of diversity, with suggestions that if you go woke, you go broke.

And again, I think that's such nonsense. We will continue to drive inclusivity, diversity and belonging, as we believe it creates a competitive advantage for a company like ourselves. Just moving on to the strategic context. I wanna say that in terms of the metals that we have exposure to, understanding mobility, or probably more particularly, the evolution of mobility, is important to understanding how the green metals could well be used in the future. I think it's important to note that electric powertrains are technologically smart and will certainly be the powertrains of the future. Within a short period of time, the issues around constraints and negative views of battery electric vehicles will be addressed, and there is no doubt in my mind that battery electric vehicles will remain a very significant part of the future global car pool.

I think it's also important to note that, legislation on its own cannot drive what policy is being implemented in many countries. Consumer preferences and societal patterns will also influence the market and the way cars and powertrains are utilized. I think as such, and it's well noted on this slide, powertrains will be an evolving mix of technologies, and it will include internal combustion engines for a long period of time still, hybrids, fuel cells, and pure battery electric vehicles. Hydrogen will certainly play a role in powertrains, both in fuel cells as well as in direct combustion engines. Synthetic fuels have the potential to extend the era of vehicles with pure internal combustion engines.

Our views in this regard have been very consistent, and it's amazing to me how the pendulum swings from extreme positivity of battery electric vehicles to negative views, and the same regarding internal combustion engines and PGMs. I think the bottom line is that you need to be on the right side of technology, and we have, I believe, good exposure to all the evolving technologies from our metals point of view. We will now move on to just talk a little bit about the markets, specifically PGMs and lithium. Within our C-suite, we have dedicated commodity champions whose responsibility it is to stay abreast of market trends and developments that relate to the metals and to develop our house views. Richard Stewart is our commodity champion for PGMs, and Mika Seitovirta is our commodity champion for battery metals.

So at this point, I'm gonna hand over to Richard to take us through our house view on, on PGMs, more specifically platinum and palladium. And after that, I'll ask Richard to hand over directly to Mika, to cover the lithium market. Thank you, Richard. Over to you.

Richard Stewart (Chief Regional Officer)

Thank you very much, Neil, and good afternoon, ladies and gentlemen. We're discussing commodity markets at the moment. I guess many are asking many questions about where these markets are going, and PGMs are certainly no exception. And the way we look at the markets at the moment to drive our business is really across three different time periods. So we look at a short term, generally less than two years. Tactically, how do we respond to the current market? We look at a medium term, generally out to about ten years, where I think we have some confidence in terms of the way we forecast, and then slightly more speculative beyond ten years.

So certainly our view in terms of the short term and what we're seeing is that there has been a distinct dislocation between the fundamentals that we see. You know, fundamentally, we believe the 3E metals, PGMs, are very much in deficit and the price trends that we've seen, which of course have been falling a lot faster and a lot further than I think many imagined. Of course, the question is why is that the case? We don't see a silver bullet or a single reason for this. It really has been a coming together of multitudes of factors. We have mentioned in the past things like destocking. Several OEMs did build up stocks post-COVID, and that has been coming out over the last few years, although we do think that that is declining.

We have also seen in the market some significant disruptions to supply chains and changes to supply chains, in particular, a lot more Russian metal finding its way into China. And then we have some in the PGM market, probably about 80% of the metal trades as physical metal under long-term supply agreements, with a very small portion trading in the spot market that ultimately sets the price. And of course, when you have disruptions to supply chains and take some spot buyers out of the market, that does have a significant impact. Combine all of that with some negative sentiment around global macroeconomics, BEV growth rates, and essentially what you end up is a highly dislocated market between, let's call it, paper trading and ultimate fundamental or physical trading.

When we've seen this in the past, it does tend to come together again, and the more extended the dislocation, the more severe the correction, so our view is that for the short term, we do still expect volatility, but ultimately, we think the fundamentals will come through, and therefore there is risk upside for some very rapid reactions and price appreciation, as markets continue to tighten, but certainly we are planning for a volatile short-term period. In terms of the medium term, we have, in fact, I think, become more robust given what we've seen happening over the last eighteen months.

Our view on the markets has not materially changed, but because of the lower price environments we've seen, the primary supply coming out of particularly South Africa and North America has in fact declined more than what we originally forecast, and we don't see much growth coming out of Russian supply. Similarly, secondary supply, we think, is gonna remain constrained because of both margin pressure as well as supply chain disruptions. And as we've seen, demand for, in terms of the rates at which BEVs are growing, and they will continue to grow, but just that rate has been moderated. And we think that gap will be filled by ICE hybrid vehicles, which is good for both PGMs and battery metals.

Taking a combination of that supply pressure and demand moderation in the medium term, we actually think the PGM market remains pretty robust, a view that we have held for an extended period of time. Over the long term, it does become a bit more speculative, and we do see structural changes occurring. Today, PGM demand, about two-thirds of it is underpinned by autocatalysts, and we see that declining to about 50%, out to 2040. The difference in demand will be made up by industrial applications, a significant portion of which will be associated with the hydrogen economy. But of course, there are still many factors that we need to understand how these technologies develop and are taken up, before we can get confidence in that forecast.

That drives our long-term market development strategy around securing sticky industrial applications to replace largely autocatalyst demand for the decades to come.... Just looking at our overall view of that market, we do model it as a 2E basket, being platinum and palladium, given that they are substitutable. What you can see in the white bars is almost an average of various market research houses, which would suggest that we still have deficits up to about 2027, and then moving into surpluses. For the factors that we've mentioned above, the supply constraints, as well as a moderation in terms of battery electric vehicle penetration, we in fact see deficits for the balance of this decade, only then moving into slight surpluses early in the following decade.

So overall, a robust view for the medium term for PGMs. I'll now hand over to Mika, who will discuss lithium markets. Thank you.

Mika Seitovirta (Chief Regional Officer)

Thank you, Richard. A few words about lithium supply and demand balance and the outlook, how we see that. First of all, behind there is obviously the growth of the electric vehicles. Many of us have revised downwards the forecasts and the volumes of the EVs, and so have we. Even in the downward scenario, though, we believe that during the next five years, by 2030, the volumes are going to be double against today's volumes. This is obviously something that is going to impact the lithium demand a lot. So despite of the short-term surplus in the market, we see a very strong outlook long term for lithium demand. Meaning that actually during the next five years, consequently, we believe that lithium demand is going to double as well.

It is also to be noted that the deficit starts 2026, 2027, which is a perfect timing for our Keliber project when we start the commissioning with our own ore. Over to you, Neal.

Neal Froneman (CEO)

Thank you, Mika and Richard. Let's now move ahead with the salient features for the first half of twenty twenty-four. The picture on the right-hand side of the slide is actually the first slide in the year-end presentation, which was delivered in February of this year. As I mentioned in my introduction today, we committed at that point in time to focusing on our balance sheet, and the piggy bank was also used to reflect the cost savings we intended to achieve from the large amounts of operational restructuring that we intended undertaking and had undertaken to preserve our margins through this lower price commodity downturn. I am particularly pleased with what we've achieved to date on both of these. Richard will cover the cost benefits of our operational restructuring in his section.

Let me start with the impact that we've made on the balance sheet. So I'm very pleased to advise that we've increased our balance sheet strength and liquidity by more than ZAR 25 billion, or $1.4 billion. We will in the following slide show you how that amount has been calculated. But first of all, what did we do? The H1 balance sheet initiatives are listed there, and I intend to go through them in some detail. We announced the uplifted agreements we had on our covenants. The debt covenants have been uplifted to three and a half times until June 2025, and three times until December 2025.

We have a currency geared collar that we've implemented at our South African PGM operations to protect the margin in a strengthening ZAR environment. That was done on the basis that we could see the potential of an improving climate in South Africa, and I dare say, the appointment of a government of national unity is a first very important step in that, and we believe the rand will continue to strengthen, and that is a protection on the downside. Our convertible bond derivative, excuse me, was reclassified as equity following the Sibanye-Stillwater shareholder approval. The ZAR 6 billion RCF refinancing and upsizing was completed. We entered into post June 30, in fact, in August, a ZAR 1.8 billion gold prepay that is currently being implemented.

The Keliber Lithium project was separately financed to the tune of EUR 500 million through a green financing. Then, of course, operationally, we benefited from improved adjusted free cash flow compared to the second half of 2023, following some of the operational restructuring starting to impact. Very pleasingly, and I've highlighted it in dark black, is that our net debt to Adjusted EBITDA is currently at 1.43 times. And I wanna point out, that does not include the gold prepay, and I will give you a pro forma indication of what that looks like with the gold prepay.

As I said, a very pleasing result, and certainly the expectations, I think, of the sell-side analysts, that we would be resorting to some form of deeply discounted rights offer must now be moot. So I did indicate that in the following slide, which you can now see, we would indicate what we have completed and the value ascribed to each one of those initiatives. The covenant uplift gives us a turn of one times, and assuming our adjusted EBITDA for a year is about ZAR 13 billion at this point in time, that's a ZAR 13 billion benefit.

The currency hedging and geared collar is on the slide, the prepay, the refinancing, the green loan, and all of that totals up to just over ZAR 25 billion, or, as I said, $1.4 billion. What we still have in the pipeline is another $600 million-$700 million of streams and other prepays that we are working on. So we are looking forward to an estimated pro forma total of increasing the balance sheet strength and liquidity in excess of ZAR 36 billion or about $2 billion. And as I've said, any suggestions that we're gonna have to revert to equity to strengthen our balance sheet must be somewhat moot now. There is one area where we still have some work to do.

The polygons on the left indicate a number of ticks, areas where we've completed restructuring, or in Sandouville's case, we've terminated what we believe was an onerous contract. The covenant uplifts, the convertible bond and the gold prepay are all done. The one area where we're still plagued with losses in our business is in the US, and with the announcement today, we have initiated what I believe will hopefully be the last phase of restructuring, and I think it's quite material and quite significant, so let me talk you through it, and when Charles covers the US region, he will provide more detail, but we are now entering a final phase where we will be restructuring the US business for a 2E PGM basket price below $1,000 per 2E ounce.

How are we gonna do that? We are terminating high-cost production of about 202,000 ounces from the US PGM operations. Stillwater Mine will be put on care and maintenance. We will increase productions slightly from our higher-grade Stillwater East operations, which has lower cost infrastructure and more efficient infrastructure. We will also reduce production from East Boulder, and that will essentially improve their cost performance, but also defer expansion capital. Unfortunately, it does result in a further headcount reduction of approximately 800 employees and contractors. The net result is that we will still ensure sufficient scale of operation to maintain our very important recycling operations and to leverage off the recent Reldan acquisition. Probably more importantly, with a high-quality ore body of this nature, we retain mining optionality for a higher 2E basket price environment.

We certainly did look at putting the entire business on care and maintenance. That is a much higher cost option than what we have set out here, but I will leave it to Charles to talk us through that detail. As we always do, we are sharing with you our gearing, and this is a graph of adjusted EBITDA and of course net debt to adjusted EBITDA multiples, reflected in the red dotted line. Pleasingly, and as I've said, without the gold prepay, our net debt to adjusted EBITDA as of thirtieth June comes out at one point four three times. If we include the gold prepay, that number is actually one point two nine....

You would remember that we have said around one times is a net debt to Adjusted EBITDA multiple that we are comfortable with. So again, I think very pleasing from our point of view, under these circumstances, to be operating at those sort of levels. So we've covered protecting the balance sheet. Let's now move on to some of the other salient features in terms of embedding ESG in our business. Very pleasingly, we are achieving record group safety performance, and I will leave it to Richard to talk in more detail about that. We're advancing our green metal strategy and growing our secondary and urban mining platform that is inherently environmentally friendly and responsible.

Our journey to Net Zero continues with 407 megawatts of renewable energy PPAs, projects under construction. And in addressing the Marikana massacre, which was not during our ownership of those assets, we have implemented the Marikana renewal process, and that is resulting in significant collaboration from those impacted and affected communities, and it's resulting in positive change. And I'm sure you may have seen some of the media commentary on that at the anniversary. In terms of delivering on operational improvements and operational sustainability, very pleasingly, the South African PGM business had a solid operational performance, benefiting from the proactive restructuring done earlier this year.

Our gold business had a disappointing operational performance, mainly due to seismicity, and of course, any restructuring is disruptive, but we certainly look forward to improved performance for the second half of 2024. Our US PGM business had a solid operational first half and continued to build on the good results of the restructuring later last year. But because of low palladium prices, it remains loss-making and hence the restructuring that I referred to in the previous slide. Our US recycling business generates positive earnings and cashflow. Sandouville also generated an improved performance, but of course, because of the structural change in the low nickel market and the low nickel prices, we brought forward the conclusion or the termination of the nickel supply contract that we had with Boliden.

The Keliber Lithium project continues well and in line with our expectations and pleasingly, the Century Zinc Retreatment operation is on track for a profitable 2024. I'm not gonna go through all the financial numbers. Charl will cover that in the financial review, but just to say, clearly, earnings and cashflow impacted by a significant decline in the PGM basket price. We made a basic loss of ZAR 7.5 billion. We had headline earnings of ZAR 137 million. There was a ZAR 7.5 billion impairment of the US PGM operations, and you can see that basic loss is basically the impairment.

Our gross debt of ZAR 34.2 billion is actually 9% lower than at 31 December 2023, and we ended up with cash and cash equivalents of just over ZAR 15.5 billion. I would like to just talk a little bit about unlocking the latent value potential as the last slide in this section. There are a number of areas where there is significant value that we are in the process of unlocking. Our South African uranium assets and strategy has good direction, especially with the appointment of Greg Cochrane to lead this part of our business. In terms of the Cooke tailings resource, we've completed a review. We will complete a further feasibility study in 2025.

I think important to note that it's near to midterm potential from a uranium production point of view, plus it has the benefit of gold by-product credits. It's an opportunity to use this asset to build a uranium business, leveraging off Cooke's low technical risk development. The Beisa Uranium mine also has significant U3O8 resources, and there's significant potential to unlock value through a partnership or sale to third parties, where we are in discussion. In terms of the Century operations, very pleasingly, we are now starting to assess opportunities to leverage the existing infrastructure, which is the port, the concentrator, the pipeline. By looking at phosphate deposits within that region, we have a number of our own phosphate deposits, but there's the region is well-endowed with some very good phosphate deposits.

So that, that will be receiving some attention, and, we look forward to providing you with more information in due course. We completed the Class III feasibility study on Mt Lyell, during the first half of this year, and we have decided that it warrants taking the feasibility study to a Class II estimate, and we expect that being completed in twenty twenty-five. Rhyolite Ridge, there's a decision pending. Once we have the environmental permit record of decision and, the Class II feasibility results, so we look forward to receiving those and applying our minds. Reldan has very significant future recycling growth potential in Mexico and India, and it's not just through electronic waste. This business is being very complementary, to our auto cat recycling business in Columbus.

I would like to, at this point, hand over to Charl Keyter to take us through the financial reviews. Thanks, Charl. Over to you.

Charl Keyter (CFO)

Thank you, Neil. Good morning and good afternoon to all participants. Starting with the financial performance for half one 2024, revenue was down 9% due to significantly lower PGM prices. Although production volumes were up at the SA and US PGM operations, the 4E and 2E basket price were down 28%, respectively, and the 3E basket price was down 53% for our US PGM recycling operation. Pleasingly, the gold price was up 18%, but this was almost fully offset by lower volumes. Cost of sales increased period over period, but this half year includes six months for the new Century operations, compared to four months in the previous period, and it includes the newly acquired Reldan operation from 15 March 2024. Normalizing for the Reldan acquisition, costs in absolute terms only went up by 2%.

Adjusted EBITDA came in at just over ZAR 6.6 billion, almost half the number for the same period in the previous year, and this was predominantly driven by lower revenues. During this period, we also reperformed our impairment assessment, and based on consensus, lower future palladium prices, an impairment of $400 million was recognized at our US PGM operations. The loss for the period was ZAR 7.2 billion, but after backing out the US impairment and the associated taxes, the profit would have been approximately ZAR 550 million. In line with our dividend policy, no dividend was declared. This slide shows our debt maturities and liquidity.

Net debt at the end of the period was ZAR 18.7 billion, and the repayment profile following the refinancing of our rand revolving credit facility remains very manageable, with the 2026 bonds being our first significant maturity. Liquidity headroom is just under ZAR 40 billion, which is roughly two and a half times our requirement, and that is having two months of operational and capital expenditure in available headroom. Liquidity headroom was extended through the refinancing and upsizing of the rand revolving credit facility, the conclusion of the Keliber EUR 500 million green financing, and the execution of a ZAR 1.8 billion gold prepay. Just a few words on the cyberattack that we experienced post-half one 2024, and also the reason for the delay in results. In July, we experienced a cyberattack that impacted our global ICT systems.

On discovery, the group ICT team acted swiftly to isolate our networks and systems across all regions and business units. The operational impact was limited, but I think very importantly, safety of our employees were prioritized in all instances. The biggest impact was at our US metallurgical complex, impacting smelting and recycling processes that resulted in increased stockpiles that will be processed over the rest of 2024. All credit has to go to our ICT team that restored the majority of our ICT environment in just over three weeks. I will now hand over to Richard Stewart to take you through the results of the SA region. Thank you.

Richard Stewart (Chief Regional Officer)

Thank you very much, Charl, and again, good afternoon, ladies and gentlemen. We'll work through the regional operating updates. Thank you. I guess just to kick off with our first and last priority is safety. I think it's been very pleasing over the last few years. As we have shared with the market, we implemented a fatal elimination strategy in 2022, and I think it's been very pleasing over the last few years to see the positive impact the strategy has had... in reducing risk across our operations.

Over the current period, we saw our best ever serious injury frequency rate, and a continued decline in the high potential incidents that we measure across our operations. These are all leading and lagging indicators that suggest that high energy incidents, which can result in fatal accidents, are being mitigated and reduced on a sustainable basis. Despite that, tragically, we did have a significant improvement year-on-year, but tragically, still lost three colleagues during the reporting period. We lost a colleague at our Beatrix operations, Kloof operations, and Bathopele. On behalf of the management team and board, our sincere condolences go to our lost colleagues.

Over the past eighteen months, and in particular in the South African region, we have undertaken a significant amount of restructuring of our operations, specifically to position ourselves for sustainability in the current price environment we find ourselves in. Across South Africa, that's included the closure of unprofitable operations. That's included four shafts that we've closed and two processing plants. We've also restructured operations that were marginal, and that included the Marikana Rowland shaft and the Rustenburg Siphumelele shaft, and then to meet that downgrade in terms of production or restructured production, we also have restructured our regional overheads and services, to align with that new operating footprint. We used the opportunity of the restructuring to introduce a new operating model, for services in the region.

We no longer have separate teams servicing gold and PGMs, but rather a single central services team, providing services to all our operations in the region, which we certainly believe will introduce increased efficiency, and effectiveness to our operations, bringing revenue benefits. This has been a significant restructuring. In total, since the beginning of last year, we've seen our total employee base, which includes contractors, declining from about 82,000 employees to just under 70,000. That is a total reduction of about 15%, and in line with the reduced operating footprint as a result of the restructured shafts. Of course, this restructuring has been highly disruptive to operations and does come with a cost.

Most of those costs have been incurred now, with the final costs to be incurred during the third quarter of this year, and we then look forward to seeing the full benefits coming through in the years to come. The estimated savings from the restructuring in the South African region is about ZAR 3.5 billion per annum, and that's measured against the cost base of 2022, and we expect to see the full costs from the final restructuring that was completed in June of this year, coming through by the end of the year. We have also undertaken significant capital reviews, and in that regard, have made a decision to delay the Burnstone capital, and place that project essentially on care and maintenance, in the current environment.

The table on the right, we have presented something similar before, and this reflects updated numbers based on the actual savings realized. And as can be seen, gross savings from operational restructuring is currently sitting at just under ZAR 5 billion per annum, and when we consider the capital deferrals that are included in that on an annual basis, we're looking at a total saving of close to ZAR 7.5 billion per annum. I think despite those significant disruptions through that restructuring, the South African PGM operations delivered a solid and steady performance. Total production for the half year came in at just under 880,000 ounces, which is 4% higher than the equivalent period last year.

The market will recall that we acquired 50% of Kroondal from Anglo during the fourth quarter of last year, and that added just under 70,000 ounces for the current reporting period, and more than offset the losses from restructuring and shaft closures across the rest of the PGM footprint. Our production was negatively affected by a shaft bin failure that we suffered at Siphumelele, that put that shaft out for almost two months. And then the legal industrial action that we had at Kroondal, specifically at our K6 and 6W shafts. Adjusted EBITDA came in at just under ZAR 5 billion. And although that is a significant decline year-on-year, that is primarily driven due to the much less 28% drop in the total basket price.

But I think pleasing is that we have maintained our capital investment into our operations year-on-year, with a total of ZAR 2.55 billion being spent during the current reporting period, and I think testament to our sustained investment in our assets, for the future. All-in Sustaining Costs increase was disappointing at 9%. Much of that driven by the one-off costs associated with the restructuring, as well as the closure of the Klipfontein open cast, at Kroondal. Taking off the one-off adjustments, what we tended to see is an increase of about 6%-7% in the fundamental underlying costs, which is broadly in line with inflation year-on-year. I think we're ready just to highlight that Kroondal did deliver its last ounces into the purchase of concentrate agreement with Anglo, during August.

As from the first of September, that means Kroondal will now be on a toll processing agreement similar to Rustenburg. This will result in Kroondal's costs increasing, but also the total revenue increasing in terms of getting 100% of basket prices. Net-net, that does give us a positive margin, margin gain for Kroondal as we move from a POC to a toll agreement. Gold operational output was a little bit disappointing. Overall, we saw a decline of about 17% year-on-year to just over 10.7 tons of gold produced. A significant portion of this was due to the closure of Kloof Four Shaft, which was finally closed earlier this year, and that did account for about 7% of the total decline.

We did experience some increased seismicity, specifically at Kloof and Driefontein. In addition, we did suspend some wide reef mining operations at Beatrix, where we suffered a fall of ground in a back area, where we stopped production to investigate the mode of that and understand the implications going forward. I think very pleasing is that Driefontein returned to normal production during the half, and by June, was back at expected levels. Driefontein has significant flexibility to deal with the seismicity, and we are looking forward to that sustained production into the second half of the year. At Beatrix, we have instituted a new mining method for the wide reef areas, and by the end of the first half, two-thirds of those had been brought back online, and we expect the last portion to be brought back online during Q3.

So we look to Beatrix to return to steady state levels by the end of Q4. At our Kloof operations, with the closure of Kloof Four Shaft, we have had a reduction in terms of the total flexibility, so the seismic impact there was significantly greater. In order to address this, we are increasing flexibility and opening up mining areas on secondary reefs, lower grade reefs, the Kloof reef, as well as investigating other high-grade areas, and this will be a process that's undertaken during the course of this year. We do, however, expect Kloof to maintain current levels and therefore below optimal output for the balance of this year. As a result of the decline in production, all-in sustaining unit costs were 18% higher. That is driven by volume.

Our total absolute cost base at gold had in fact decreased by 3% with the restructuring initiatives, which year-on-year, taking into account inflation, is about a 10% real discount, in terms of those costs. Adjusted EBITDA, despite the challenges, came in at ZAR 2.2 billion. This accounts for almost a third of the group EBITDA, and I think is testament to the benefit of having gold in the portfolio, during these macroeconomic, challenging times. DRD contributed just under 2.5 tons of gold to the total output at an all-in sustaining cost of about ZAR 930 a kilogram. And finally, our gold wage agreements that expired toward the end of June of this year, and we are currently in final negotiations with organized labor across our gold operations. Thank you, and I'll now hand over to Mika.

Mika Seitovirta (Chief Regional Officer)

Thank you, Richard. In Sandouville, we have had focus on two things mainly. First of all, reducing the losses. Secondly, building up the future through our GalliCam project. We have been rather successful in reducing the losses in Sandouville. H1 is clearly less losses than it was last year. There is a 57% improvement. However, we are still loss-making, and therefore, we have also decided that with the current feed and with the current products, we are going to stop the production. It means that there will be no more feed after the year-end, and we are ramping down consequently, Q1 2025. GalliCam is moving forward, and it is a project which is now in the pre-feasibility study phase. We believe that we are going to finalize that by the year-end.

Then we are going to do the decisions about the definitive feasibility study and a possible demo plant in Sandouville, provided that the results are as encouraging as they have been so far. The good news are that we have actually produced pCAM in our lab, and our innovation is working through the chlorine route. Secondly, we have also patented this one to protect ourselves. We see a good future for GalliCam process, and the next time we can tell you more about it is definitely when we have the results out of the pre-feasibility study. Coming to Keliber. Keliber is moving forward, and there are no changes when it comes to commissioning the refinery H2 2025.

You can see from our CapEx number, the latest forecast for this year, it has been changed from 360 to 300, and we are in some of the installations a bit late, which means that the CapEx is going to be spent on the next year's side instead of this year's side. But the commissioning of the unit H225 is still valid. Some milestones. Our project is now fully funded, so we have a EUR 500 million green loan secured in August, and we got very good support from the European Investment Bank, Finnvera, and a consortium of leading banks. And it confirms to all of us, the strategic importance of this project, not only for Sibanye-Stillwater, but also for the European Union and European customers as such. For the future, we have also done exploration, so we have some really good results on that one.

Obviously, long term, we all wanna see growth, and we know that there is a strong demand of lithium, so we continue that work in parallel with the construction of the sites. Now, I wanna show you some very beautiful pictures from Finland. You can see, on the left-hand side, you can see two pictures of the refinery in Kokkola. That construction is the most advanced of the three places where we are doing the construction. You can also see that actually, in Päiväniemi, the concentrator is moving forward as well. Even the Syväjärvi open pit mine site has started well and really ready for, first of all, with the external spodumene feed, starting the commissioning for the refinery H2 2025, but with our own ore during, towards the very end of 2026. Over to you, Robert.

Robert van Niekerk (Chief Technical and Innovation Officer and Chief Regional Officer)

Thank you, Mika, and hello, everybody. The Century operations again had a very tough start to the year. They received about 1,100 millimeters of rain in the first three months of the year. This compared to a historic average of about 550 millimeters of rain. That said, I'm pleased to say that the lessons learned from last year and the rain protection precautions the team put in place to enable them to produce 16,000 tons of payable zinc in quarter one. The operations recovered very nicely in the second quarter of the year. They produced 26,000 tons of zinc. So all in, we have produced 42,000 tons of zinc for H1 2024.

It's very difficult to compare the first half of this year to the first half of last year, as we didn't own these operations for the whole for the first half of last year. But I can, I can tell you that quarter two this year, the production was substantially better than quarter two from last year. Our All-in Sustaining Costs improved by 8% to $2,228 per ton of zinc, compared to the same period last year. This is largely due to improved production, but also in part due to very tight cost control measures the team on the operations have introduced. Our EBITDA loss has reduced from $28 million in H1 last year to $19 million in H1 this year. A substantial portion of that $19 million is directly due to the five-yearly maintenance of our transshipment vessel.

I can confidently report, though, that all of our deliveries will be filled before the end of this year. In conclusion, I am looking forward to a good finish to the end of this year. I'm looking forward to a good H2 2024, and in fact, I'm looking forward to a good 2025 as well, in part assisted by two tailwinds at the moment. The first being, metal prices are substantially more than we anticipated and better than what we budgeted for, and spot treatment costs are also lower than the current benchmark spot treatment costs. You can see on the slide that we have hedged approximately 20% of our production for the next 18 months, so that is about 2,000 tons per month of payable zinc from July of this year through to December next year.

So I think I will leave it there and hand over to Charles. Thank you very much.

Charles Carter (Chief Regional Officer)

Thank you, Robert. As we turn to the Americas region, what you'll see in these results are the benefits of the restructuring we did late last year. We had a 16% increase in mine PGM production to 238,139 2E ounces, which is the highest production rate since H2 2021. We also had a 23% decline in all-in sustaining costs to $1,343 an ounce. Operating unit costs remained stable at $1,067 an ounce, despite inflation year on year, which was due to improved production. Both production and costs were ahead of plan, and I want to recognize our operating teams for that strong performance.

Ore reserve development was 42% lower at $65 million, and sustaining capital, 51% lower at $21 million, a combined saving of $68 million. Project capital declined by 63% to $8 million. However, during this period, the average 2E PGM basket price declined 30% to $977 an ounce, which has now led us to take more significant restructuring steps that I'll talk to in a moment. Adjusted EBITDA of $27 million, as you are aware, includes EUR 43 million insurance payout from the 2022 flood. As Neal has outlined, with a PGM basket price below $1,000 an ounce, we are now needing to do further restructuring in our Montana business. This will see us reducing next year's production by approximately 200,000 ounces or some 44% of current run rates.

We are doing this by placing the Stillwater West Mine on Care and Maintenance, while keeping Stillwater East going, where we intend to increase production to approximately 130,000 ounces next year. At East Boulder, mine production will be reduced to 135,000 ounces. We will be mining four ramps instead of the current six, which in turn allows us to defer expansion capital in the tailings and rock dump facilities. We are also reducing fleet at both operations, which will have a number of cost and resourcing benefits. This reduction in mine ounces should see us reducing absolute dollar All-in Sustaining Costs by some 41% or approximately $385 million on current projections. Our total capital for next year will more than halve to some $29 million.

Neal has highlighted the significant reduction in headcount, which will see our employees' numbers reduced by almost 40% as we align hourly and salaried employees with a revised production profile. As part of this restructure, we are collapsing our current dual management structure across two mines into one new structure, reducing some layers and moving select management functions to the center to service all business units. We will also further reduce our contractors and backfill these roles with our own employees where possible. We will make a number of changes that are not complex, but retain sufficient scale to support our PGM recycling operations. Importantly, at all business units, we will retain the optionality to return to higher production as prices permit.

This restructure is not just about reducing volumes and people, but critically, it's also about improving operating efficiencies, ongoing cost reduction, and throughout, preserving the optionality of these high quality, long life ore bodies at both mines. With this restructuring, we are also initiating a new vision to drive towards a sustainable business through the price cycle for the long term. Let me characterize key aspects of this vision for our Montana business. First, a key foundation for all the changes required to create this vision are engaged employees committed to delivering world-class outcomes. Obviously, with the restructuring of the scale, we run the risk of losing significant talent and undermining team morale. But I do believe that as we deliver the necessary changes to make this profitable, we can make these operations a rewarding place to work for the long term.

Second, we want to continue our best-in-class ESG performance. An example of this is that we have just received the record of decision for a dual federal and state environmental impact statement for our East Boulder tailings and rock storage expansion. This follows a three-year, nine-month process with no legal challenges and with the final decision issued with no objections, both of which are unprecedented in mining permitting processes in the U.S. today. This speaks to the integrity of our stakeholder engagement and our collaborative relationships with environmental and community NGOs. It's also a testament to a robust regulatory structure in Montana, where an independent review panel must sign off on all new tailings facilities. Last but not least, it talks to an exceptional environmental planning and permitting team in our Montana business.

Obviously, with the significant restructuring announced today, many of these relationships with our diverse local and regional stakeholders will likely be stressed, but I believe that the integrity with which we conduct these engagements will ultimately prevail, and the test of any partnership is to be able to have open and honest conversations, especially in challenging times. Another key aspect of our vision for this business is to drive our All-in Sustaining Costs to $1,000 an ounce, which we believe we can achieve over the next three years, primarily with a focus on ongoing cost optimization. We will focus on optimizing and resource loading the current mining front while introducing task mining as appropriate. On mining methods, we want to fully mechanize Cut and Fill, and convert to Sub-level Extraction where possible at both operations.

As mentioned, we will fully optimize fleet requirements, and we also intend to improve shift execution and blast cycles, which will be a key parameter to get better efficiencies and cost outcomes. Throughout this process, we are introducing a digital twin for enhanced planning, and more strategic look at how to optimize these operations. While scaling back production in the short term, we believe that we can also use this time to properly reposition these operations for improved future performance. This is especially true at Stillwater West, which, as noted, we are placing on care and maintenance, but we have work to do here to ensure that when that operation restarts, it does so with improved underground infrastructure and efficiencies. On all of this transformative repositioning work, we will need to work collaboratively with the United Steelworkers to find new pathways to improved efficiencies and operating flexibility.

...This is an important partner for us, who we firmly believe can help us create a long-term, sustainable mining business that is world competitive. In concluding, let me note that we are uniquely positioned as a leading U.S. critical minerals PGM miner and recycler. The steps we are taking today will position this business for sustainable long-term future that is important to the U.S. critical minerals self-sufficiency agenda. As I hand over to Grant to take you through recycling, let me just note how proud I am of the work that he and the Reldan team have done to integrate this E and industrial scrap business into our Americas platform in a very short period of time. You will see the first glimpses of this impact in these results as we now introduce gold, silver, and copper to our Americas business.

But I also know that the embedded growth potential of this enlarged metals recycling platform is significant, and it's only a matter of time before you, as owners and analysts, will start to recognize this in Sibanye-Stillwater's valuation. Thank you, and let me hand over to Grant.

Grant Stuart (Head of Recycle)

Thanks very much, Charles, and good day to you all. Yeah, it's important to note that the Columbus Recycle business remains largely unimpacted by the restructure. We will continue to receive material and differentiate ourselves in the market through our positioned approach to responsible sourcing, our strong assay turnaround, time capability, and our long-term relationships built on experience, knowledge, and trust. Despite the sustained macroeconomic pressures on spent autocat volumes, the US PGM recycling business remains solid, with volumes stabilizing at around 155,000 3E ounces. Gross margins have remained stable at between 4%-5%, despite the 54% decline in 3E prices from the first half of 2023 to the $1,252 that we have received this year.

The PGM recycling segment contributed a solid $8 million, that's ZAR 147 million, in adjusted EBITDA for the first half of 2024, again, underscoring the strength and stability of our operations. In mid-March of this year, we also concluded the Reldan transaction, marking a strategic milestone in our recycling strategy beyond our traditional focus on PGMs from auto cats. We have expanded beyond solely relying on PGMs from spent auto cats and tapped into high-margin industrial waste streams, which open up new avenues for growth. Reldan specializes in processing industrial and electronic waste, offering a significantly less capital-intensive alternative to traditional mining operations for producing a suite of green metals.

From March to June 2024, Reldan processed 6 million pounds of mixed scrap and sold 42,000 ounces of gold, 850,000 ounces of silver, just under 15,000 ounces of platinum, palladium, and 1.1 million pounds of copper. The resulting combination of Columbus and Reldan industrial and precious metal suites presents a natural hedge, reinforcing the sustainability of our business model. The acquisition further enables us to leverage Reldan's network sales team and metal logistics routes to capitalize on existing territories and relationships within the US, Mexico, and India for the benefit of the Columbus Met Complex. Reldan's strong early performance contributed $300,000 in Adjusted EBITDA and Adjusted free cash flow of $9 million for the initial four months under our ownership.

Having recently visited both operations within Mexico and India, I'm deeply excited about the growth prospects in both of these regions, so please watch this space. Neal, over to you for the conclusion. Thanks.

Neal Froneman (CEO)

Thanks, Grant, and two slides in the conclusion. The first slide is really about guidance. And let me say, other than our South African gold operations, which have been severely disrupted through the restructuring and seismicity, we are having to adjust guidance, unfortunately, on that. The Keliber lithium project, we won't quite spend all the capital we intended this year, so the revision is really a revision in spending. There's no other revisions to that project to date. We are not changing the US guidance, but I do wanna say we should expect significant, well, there's the potential for disruptions due to the restructuring that we hope to have completed by the end of the year.

But I think that is just a bit of a warning or a heads-up. So the anti-fragility journey continues, and in my mind, the key aspects of becoming anti-fragile are the bullet points set out below. First of all, let's recognize the record safety performance that has been achieved with a continuous focus on eliminating fatalities and reducing high-potential incidents. As I mentioned right at the beginning of the presentation, ESG will remain embedded in the way we do business. We think it's appropriate, and it leads to sustainability. As I also mentioned right at the beginning, diversity, equity, inclusion, and belonging will remain an integral part of our strategic differentiation. The fundamentals, as elaborated on by Richard and Mika, indicates that-...

From the metals we produce, we have exposure. We remain positive regarding that exposure. We've also shared with you significant strengthening of the balance sheet, with more non-debt initiatives well advanced, and we look forward to including those when we deliver our year-end results. We have sufficient liquidity to ride out an extended depressed commodity price environment and progress our key projects should that depressed commodity price environment occur. We've taken decisive steps to optimize our operations for the short and medium term, and Richard shared with you the very impressive amount of savings that we are looking forward to from that. There was a strong performance from our South African PGM operations.

There are operational improvements expected from South African Gold in the second half of this year, and clearly, we hope that's sustainable into 2025. Unfortunately, the U.S. PGM operations enter a new phase of restructuring for the current lower price environment to reduce the cash flow outflows and preserve optionality. Again, I want to say it means we are taking 200,000 ounces out of the market over 2025, and that will probably be ongoing. We are working towards a cost structure of $1,000 an ounce over a two to three-year period. Our integrated global recycling footprint, which spans autocats, industrial and electronic waste, is very well positioned for growth in key regions, being the U.S., Mexico, and India.

So bottom line, we exposed to the right metals and ecosystems, very importantly, at the right time. And we look forward to a much better future, in terms of improving commodity prices and profitability. With that, I will hand over to James to pick up any questions. Thank you, James. Over to you.

James Wellsted (EVP of Investor Relations and Corporate Affairs)

Thank you, Neil. The first question comes from Andre Luiz Alves Catanani, asking about the company's outlook on increasing allocation of gold assets, specifically in terms of expanding gold share of the total asset portfolio through investment in additional mines.

Neal Froneman (CEO)

Let me pick that up, James. I think, as we've said previously, we like gold. We still think gold has got quite a bit of upside, but we are not focused on external growth at the moment. I thought I made it clear right at the beginning that our focus is on the strategic essentials, focusing on the balance sheet and, of course, delivering good operational results. So perhaps sometime in the future, but certainly not right now.

James Wellsted (EVP of Investor Relations and Corporate Affairs)

Thanks, Neil. Then a series of questions from Arnold van Graan from Nedbank. You've proactively and prudently shored up the balance sheet to ride out the storm, which should be commended. How much time has this given you? And in other words, how long can you run at current metal prices before further action is needed?

Neal Froneman (CEO)

Certainly, I'd like to ask Charl to give his view as well. In my view, as long as the commodity prices stay the same, and Arnold, you made it clear, at current metal prices, together with the restructuring that we've done and the additional strengthening that we're gonna still follow through with, I think we can run a very long time. Whether that's three years, five years, or 10 years, we certainly will not consume our balance sheet and all our debts. We will get to a breakeven position and then have sufficient reserves in our balance sheet. Charl, I don't know if you wanna add to that.

Charl Keyter (CFO)

Yeah. Thank you, Neil. And Arnold, I mean, to answer your question is, we always had a three-year hump ahead of us, which was associated with the Keliber. So it was the incurrence of the debt and the financing, and then, you know, building the project. And once that started ramping up, you know, our forecast showed that, you know, we would be in a equal or an even financial position. In other words, operating well below our covenants. So effectively, what we did was just to be proactive in this process and to make sure that we can get over this three-year hump. So I'm saying we. You know, it sounds like we bought three years, but it's really a hump that sorts itself out, from 2027 onwards.

James Wellsted (EVP of Investor Relations and Corporate Affairs)

Thanks, Charles. Again, on the debt, you referred to the possibility of adding a further $600 million-$700 million in non-debt financing to the balance sheet. Is there not a risk that you're paying way too much of the future upside and value with these alternative funding structures, the tenure and impact of which invariably outlasts the downcycle? Equity dilution is never great, but isn't it cheaper than some of these alternative deals, Neal, do you think?

Neal Froneman (CEO)

Yeah. So did Arnold ask that question?

James Wellsted (EVP of Investor Relations and Corporate Affairs)

Yeah.

Neal Froneman (CEO)

Yes. So Arnold, listen, we, we're very aware of, let's call it the long-term impact of a stream arrangement, as an example. But I can assure you that first of all, we don't stream primary products. There might be very small streams on primary products. Secondary products actually have very little value, or they attract very little in terms of valuations by analysts. So as long as you're streaming a secondary product, and as long as you're streaming a by-product at a significant high in the price cycle, I think it's smart. We are very well aware of the cost of capital related to equity and the cost of a stream. So we don't go blindly into streams. The work we're doing on it at the moment, we are quite comfortable that it's the right decision.

James Wellsted (EVP of Investor Relations and Corporate Affairs)

Thanks, Neil. I think this, these two will be for Charles. Does the Keliber green funding loan have recourse to the Sibanye-Stillwater balance sheet, or is it ring-fenced to the project, first of all? And then, what concessions did we have to make to the lenders for the covenant uplift?

Charl Keyter (CFO)

Thanks, James. In terms of the Keliber green financing, yes, it has recourse to the balance sheet, to the extent that it's drawn. You know, obviously, Keliber being a very important part of the company going forward, they signed up as a borrower and a guarantor under our facilities, and hence the reason why they will be included, but you know, I'd just like to make the point that to the extent that it's drawn, that amount will be included. Insofar as concessions to the lenders, you know, it was a voluntary concession that we as a company offered, but it's effectively twenty basis points or 0.2% at the top end. Should we go over three times leverage, there's a twenty basis points additional on the margin. So, no major concessions or any restrictions from our lender side.

James Wellsted (EVP of Investor Relations and Corporate Affairs)

Thank you, Charles. There's a couple of questions on the US PGM, restructuring. I think we've answered most of them. Looking at 2024, we haven't changed guidance, so obviously what we look at is the 200,000 ounce reduction in production coming through in 2025. In terms of all-in sustaining costs, I think that was covered as well. It won't be immediately down to $1,000, but certainly we will be working to get costs down to $1,000 per ounce, is the target. I think the specific questions which may be of interest is, and Neil or Charles, how quickly would we be able to reopen Stillwater West, should prices recover? And what kind of prices would drive that decision?

Neal Froneman (CEO)

So I think reopening any mine is probably a six-to-nine-month sort of process. But Charles, would you like to come in on that?

Charles Carter (Chief Regional Officer)

Yeah. Thanks, Neil. Look, we're not in a rush to do that, because we've got work to do, as I alluded to, on the underground infrastructure at Stillwater West mine, that particularly relates to the haulage systems. We have multiple handling at the moment. It's not cost effective. So we've got to look carefully at that, and we've got to look at the infrastructure around our shaft, just on some upgrades, et cetera. So you certainly need higher prices, but we just need a bit more time to work on improved efficiencies, because it's a very spread-out mine. It's old infrastructure. It's long travel times, and that doesn't change, but within that we have work to do.

And we, you know, we're not rushing to do that spend through 2025, but we are gonna be doing the planning and the thinking and the optimization trade-offs. So, you know, I've got no doubt we will get higher pricing through 2025. But this is not an on/off switch that you trigger very quickly. But so it's more about the work to do. And then, you know, once we have the efficiencies identified and the mining cost efficiencies daylighted, then we would make that decision. I think the other parameter that's not an on/off switch is simply getting labor back. So this takes time. And you know that we, we'll have to work that in.

I don't see this as a 2025 option realistically, but I do think, you know, it's incumbent on us to keep the option developing. Work on the underlying issues. That means that when it comes back, it's a much more productive operation with a better cost profile. Thank you.

James Wellsted (EVP of Investor Relations and Corporate Affairs)

Further to that one from Arnold van Graan, just, you mentioned that you'd be increasing output at Stillwater East and East Boulder, and increasing grades. Is this akin to high grading? And what impact would this have on the flexibility of these operations in future?

Charles Carter (Chief Regional Officer)

Yeah, it's not about- Sorry, Neil, go.

Neal Froneman (CEO)

Yeah, go, Charles.

Charles Carter (Chief Regional Officer)

No, it's not about high grading. So, you know, as I've just mentioned, why are we putting the West mine on care and maintenance, which has good grades in patchy areas, is the underlying infrastructural cost issues, handling issues, and constraints around that. On Soweto East, we have good grades. We are selective because of ground conditions on those grades. But we've got very new infrastructure, and we've got very clean haulage systems and handling systems, and very efficient systems. So the grade switch is really just a function, again, of infrastructure and modern infrastructure. And we've opened up a very good set of options there that we can just continue to leverage going forward.

That's not about high grading, that's just about the quality of the infrastructure and the ore body. Within that, we've got selectivity, but again, not driven by grade, it's more driven by ground conditions at the moment. As we solve for that, you know, that new East mine has significant leverage long-term. At East Boulder, again, it's not about high grading. The decision to go from six ramps to four, within which we are selective on those ramps, on the basis of cost and efficiency, is more about the fact that if we go flat out on the current six ramps, which we can do, we then accelerate the spend on the enhanced tailings facility, and the extended rock dump facility.

And that means a big capital spend in 2025. So we have the latitude to push that out a bit. And that's why we are reducing volumes. We are favoring the volumes at East Boulder on more efficient stopes and better cost profiles. Again, not high grading. So those are some of the trade-offs we've been doing, and I think it solves for multiple things. But it allows us, at any point, to switch back to bringing that. You know, now that we've got the permitting on all of that expansion, we've got the time to decide when we trigger, and that'll be driven by decisions around capital spend timing. And, you know, I mean, that gives us choice. So I think the flexibility is in our hands there. Thank you.

James Wellsted (EVP of Investor Relations and Corporate Affairs)

Thank you. I think, this one is for Richard Stewart. I think, some market participants are now saying that PGM loadings in China have fallen over the last two to three years, more than previously expected, and thus current deficits are overestimated, hence the low prices. What's your view on that?

Richard Stewart (Chief Regional Officer)

Thanks very much, James. I think there's no doubt that the Chinese sort of loading, in terms of their vehicles, has been lower and has been declining over the last couple of years relative to Western markets. So I think that's quite well known. I also think that is built into the existing deficits and current deficits that have been forecast. I don't think there's much of an impact on current. The reason for those small, lower loadings is largely driven by less stringent controls, less stringent testing that needs to be done, specifically real-world driving testing. So the real question I think that needs to be asked. So current deficits, I don't think are impacted. It's well-modeled. But what does that mean going forward?

One of the concerns that's been raised is if Chinese OEMs start getting an increasing market share relative to Western OEM companies in the rest of the world, you know, would that result in an overall lower PGM loading globally? I think that's more the concern that's been raised. I think it's important to recognize, though, is that if you are gonna be selling markets into... Sorry, if OEMs are gonna be selling cars into global markets, they would have to meet with the requirements in those markets. So we have looked at the lower loadings, particularly in China. We've built that into our models and our forecast, and quite comfortable that the deficits we're forecasting have got that in account. So it's a well-known number. I think it's in a lot of the numbers already. I don't think it's a huge surprise.

James Wellsted (EVP of Investor Relations and Corporate Affairs)

Thanks, Richard. We'll ask one more question, then go to the phone lines, if that's okay. Is, Neal, I think this is definitely for you. From Arnold van Graan: "Is your business not spread too wide? Lots of moving parts, businesses at different life cycles, markets, commodities, and capital cycles." Sounds like he's quite confused, Arnold. Can you really manage this effectively?

Neal Froneman (CEO)

Yes. Arnold, it sounds like you and I are having a one-on-one discussion today. Absolutely, we can manage it effectively. I think what you see today through the presentation is Chief Regional Officers totally in control of their regions and actually making positive impacts. It is complex, but we thrive on the complexity, and we certainly have the skills base to deal with it. I would also say that certainly it provides a platform, and we probably haven't made this as clear in this presentation, other than saying we're in the right metals, in the right ecosystems. We are very well positioned to work through this commodity cycle in PGMs, which is affecting probably 90% of our revenue at the moment.

But as Keliber comes on stream, as we move from, you know, from zinc into phosphates in Australia, as we develop Mt Lyell, as we increase our exposure into other metals, we become a very different company. The environmental credentials and the business opportunities from secondary mining and recycling are just fantastic. We are unique in that combination and very well-positioned to create value in the long term. The one thing that is very certain to me is this company will not become a dinosaur. So you can see I'm certainly very well aware, and our board continuously checks with us that we have the capacity and competency to manage a business like this, and we certainly do. So I remain very positive about our exposure and the breadth of the business. Thank you.

James Wellsted (EVP of Investor Relations and Corporate Affairs)

Thank you. Operator, could we now take a couple of calls from the chorus call line, please?

Operator (participant)

Thank you, sir. First question comes from Chris Nicholson of RMB Morgan Stanley. Please go ahead.

Chris Nicholson (Head of Research and Equity Analyst)

Hi. Good afternoon, Neil, James, and team. Thanks so much. I'll limit my questions to two, please. First question is on the US PGM assets. So it looks like obviously you've reduced production there from around 450 to about 250 thousand ounces, so it's about a 40-45% cut to production. I got the comment there from Charles that you're cutting CapEx by more than 50%. So I guess my key, and I think he gave a number, so I might have missed that. But my key question is: How long can you actually maintain that current production run rate at that reduced level of capital spend?

Should we expect that you still have a, you know, a life of mine out to 2040, 2050, at 250,000 ounces, or does production start dropping off below 200, say, by the end of the decade? So that's the first question. Then the second question, just going back to a question I think Charles answered earlier. I mean, earlier this year, you talked on your plans to having maybe a free cash outflow somewhere between 8-9 billion ZAR this year. I see that your free cash outflow was 7.3 billion ZAR in the first half of this year, so obviously, probably pretty disappointing, maybe against your own plans there.

Just from the comments, clearly you're taking action in the US, you're taking action at Sandouville. Can you get this business to free cash flow breakeven by twenty twenty-five? It just seems that the way you talk about the CapEx hump, that maybe it's only twenty twenty-six or twenty twenty-seven that we only get to free cash flow breakeven under current prices. Thank you.

Neal Froneman (CEO)

All right. So, Chris, I'm gonna ask Charles and Charles to comment directly to your questions. But we have to get to free cash flow breakeven. It's not just about a capital hump, and certainly I don't think it's just about cutting capital in the US. It's about deferring capital just to make it clear. The plan to get to $1,000 an ounce is a plan that is sustainable in the US. There's no doubt that our South African business will be cash flow, at least cash flow neutral, if not positive, and our Australian business will be cash flow positive. Europe, post the Keliber construction, will of course also move into a cash flow positive status.

So listen, the cash outflow this year is recognized. I do think it'll be less than doubling what you saw in the first quarter. But let me first ask Charles to come in on your US PGM question, and then, Charles, if you can just hand over to Charles to deal with the cash outflow.

Charles Carter (Chief Regional Officer)

Yeah. Thanks, Neal. You know, so what we've been talking to today is really the twenty twenty-five plan that's a work in progress, which has a lot of moving pieces that I think we've touched on to give you a sense of the significant shift. You know, with year end and early next year, when the company guides to the full planning cycle, we will be talking also to the three-year plan, which we're busy working on. So it's not that we've backed ourselves into a corner and now it's cut, cut, cut, and then there's nowhere to go. We have made, I think, some very good choices around constraints facing us right now, that we are taking head-on, and the flexibility we need to retain as we move forward.

So we've, you know, the development pullback, the capital pullback is to match the current production run rates, which we replace with development. The capital, as Neil said, and I've illustrated, is about short-term deferral. That doesn't back you into a corner. But we do have sizable capital in the three- to five-year window. So those are the choices which would have otherwise been triggered. If we were going full bore on current run rates, we'd be triggering that next year. So we've freed up next year to do a lot of work on costs, a lot of work on asset optimization. And we expect in that three-year window. So to bring it to $1,000 an ounce is not simply about lifting the ounces, it's about lifting the efficiencies.

And we believe as we get that right, we then can lever up really good free cash flow. And then we have the flexibility to decide on volume. So East Boulder, you can switch back to six ramps very quickly. They're there, they're developed, they're active. We are doing the development to protect all of that. Stillwater East, as I've illustrated, it, you know, it's new infrastructure. We can further develop, which we're doing. We can further open up. We've got significant leverage there. Both of that protects reserves and it protects life. And then Stillwater West, you know, it's care and maintenance for now, which I see going through next year. We will do the work during that year to decide when we bring it back.

That'll be as much about price as it will be about infrastructure optimization and getting it set up properly. So I don't see any impact on life. I don't see any impact on reserves. I don't see any impact on flexibility to lift this game when we decide to, and that'll be very much free cash flow driven as a decision point. So I think we're setting out the store for next year, and you should have comfort in what that looks like. Year-end, we'll be setting up the store for the medium term. I'm actually quite excited about what that starts to look like. Thank you.

Charl Keyter (CFO)

Thanks, Chris. And yeah, to Neal's point, you know, there's definitely, you know, if we look at twenty twenty-five, if we look at current commodity prices, because I think that's a big determinant in whether we will be free cash flow neutral. But definitely, you know, looking at our operations, South African Gold, SAPGM, Australian zinc retreatment, I mean, clearly there, we will be at a cashflow break-even position. And I would even, you know, go as far as to say that we would be putting some money in the till. There are two outliers. Clearly, Stillwater needs a slightly higher 2E price. Our US operations needs a slightly higher 2E price.

Based on current estimations, albeit a much significantly lower cash outflow, there will still be a moderate cash outflow for 2025. And then Keliber is the other big outlier. You know, we need to spend about 600 million in CapEx there, roughly 300 this year, 300 next year. So those would be the two, you know, that would be consuming cash over that period. But the operations themselves will fully fund themselves, and as I said, you know, we'll put some money back into the bank.

James Wellsted (EVP of Investor Relations and Corporate Affairs)

Thanks. Just maybe point out to Chris as well, if you look at that cash flow statement or cash flow, free cash flow table, the SA gold operations show H1 2023 free cash outflow of ZAR 1.25 billion, and then it increases to ZAR 2.4 billion for H1 2024. But remember that we consolidate DRDGOLD as well, and DRDGOLD's CapEx has gone from ZAR 657 million in H1 2023 to ZAR 2.5 billion in H1 2024. So that's about a ZAR 1.8 billion impact on the free cash flow, and that does explain quite a bit of the increase in the free cash outflow from the gold operations. Could we have another call from the line, please?

Operator (participant)

Thank you. Next question comes from Adrian Hammond of SBG Securities. Please go ahead.

Adrian Hammond (Executive Director)

Yeah, thanks, operator. Hi, Neal. So, firstly, and Neal, I'd like to know a bit more about what levers you can pull, should you have to, continue to fund the balance sheet. Would you consider selling assets, such as your interest in DRD, which is, very cash generative, right now? It's quite a valuable asset or via any other opportunities you can think of. Or are you prepared to keep cutting costs of the business to fund your offshore strategy? That's the first one. Perhaps for sure, any indication of what we should be modeling for the restructuring costs for Stillwater this year? And I do notice you sold a lot more metal than you produced out of the SAPGM business.

Do you have quite a bit of stock there? Could you give us a bit more color as to how much you might draw down for 2H? And then just maybe for Richard, you've obviously got quite a insight into recycling. I noticed that the flows there are quite weak still, yet the market seems quite optimistic about a recovery. But could you perhaps share some insights there? Thanks.

Neal Froneman (CEO)

Yeah, thanks, Adrian. And then, and clearly, Charles and Richard will pick up the relevant portions. We're not anti-selling assets. In fact, our uranium strategy specifically includes considerations like that. I also wanna say there's a limit to cost cutting. And I know you can always cut costs further, but at a point, it does cause damage. I personally am a lot more upbeat about the restructuring flowing through in the right way, and 2025 will hopefully be a year where there's no net negative impacts from restructuring and reorganization.

As Charles said, as long as commodity prices continue at this sort of level, and let me also be clear that we do want to complete the balance that we refer to of the $600 million-$700 million of balance sheet strengthening, which is non-debt and non-equity, just to be clear. Once that's in place, and commodity prices remain roughly where they are together with the savings that we've already shared with you, and that flowing through into twenty twenty-five, I think we are well positioned with the current projects.

I'm not talking about new projects, with our current projects, and we will be prudent. We are really very negatively disposed towards using equity. As I said earlier, we know the cost of that, and it, it's not something that we're gonna resort to, and I don't think we have to resort to it even over a two to three-year period. So, Adrian, we'll keep a balanced view. But I don't know that, post, the additional streaming and prepay that we're intending to do, that we'll actually need to do anything more. Thanks. Charles, will you go next, and then, Rich, you can follow Charles.

Charl Keyter (CFO)

Thanks, Adrian. So Adrian, the retrenchment costs to be modeled, I would say, is on the order of about $12-15 million. You know, that's by our own calculations, the number. So, you know, not a big or massive outflow from a restructuring perspective. On the stock buildup, I'll also take that question. So, we had a furnace rebuild at our PGM refineries. And that has resulted in us building up additional stock at the end of 2023. You know, clearly, we take a very keen eye on working capital, and you know, we ask the team to work that through the process, and a lot of that came through in quarter one of this year.

That's why you'll see a higher metal sold than a metal produced. I would say we are now back to historical averages. So, you know, there's not a lot of metal that we can accelerate through the process. Thanks, Rich.

Richard Stewart (Chief Regional Officer)

Thanks very much, and, yeah, hi, Adrian. Just in terms of the recycling, I guess, the reason why we're possibly a little bit more bearish on the recycling, I guess, is three things. So, firstly, we do think that recycling is impacted by margins. We often hear recycling is a fixed-margin business, so it's price inelastic. But at low prices, even fixed margins become less money. A big part of recycling is obviously how you finance it, so it's working capital. So a combination of small markets and high financing costs, where we're sitting at the moment, definitely impacts on those businesses. And then the final one is spare capacity. So over the last four or five years, we've seen a significant amount of spare capacity, processing capacity for recycled materials being built up, during the high cycle.

A lot of those facilities are running well below where they should be or designed to be, and that increases unit costs. So overall, the recycling market is currently under a lot of pressure, and we'd need to see that changing. I think importantly, what do we put into our models? So when we showed our sort of house view, what our model is based on is we look at history, how much of the metal that went into automobiles ultimately finds its way back in terms of recycling. And when you look over an extended period of time, that number is actually pretty consistent, over the last sort of decade or so. So it becomes quite a good benchmark to use going forward.

Yep, you might get volatility in the short term, but overall, that should be the metal we see coming back, and that's what we've built into our models, with some short-term pressure. So I think that's how we get to our numbers. Thanks. Hope that helps.

James Wellsted (EVP of Investor Relations and Corporate Affairs)

Next caller from the lines, please.

Operator (participant)

Thank you. The next question from Rene Hochreiter of Sieberana Research, Noah Capital Markets. Please go ahead.

René Hochreiter (Managing Director and Consulting Mining Analyst)

Hi, everybody. Thanks for taking my question. Just two quick questions from me. How much does chrome contribute to revenue at your SA PGM ops, just in percentage terms or in ZAR billions or whatever? And then, in terms of the Keliber project, what long-term lithium price are you using for the valuation of Keliber, and is it giving you a decent IRR at current lithium prices?

Neal Froneman (CEO)

Thanks, Rene, and I'll ask Mika to go first, just to comment on the assumptions regarding the lithium prices. And then, Charl or Richard, if you can just pick up the chrome question. Thanks, Rene.

Mika Seitovirta (Chief Regional Officer)

Thank you very much for, thanks, Neal. We are actually not disclosing the prices we are using in our financial model, but I can assure you that our prices are very moderate, they are flat, and they have been there since the definitive feasibility study, and we have kept them the same. So we feel that we are quite safe, actually, against the forecast that we showed a bit earlier in this presentation, where we can clearly see that, if you take, whatever consensus forecast, you can see that they go right towards thirty thousand, reaching first twenty thousand, probably during the next five years. And, against that picture, we are sure that we can keep our costs and, break-even levels well below those levels. So we are confident that we are on the right, side of that. Thank you.

Richard Stewart (Chief Regional Officer)

Thanks very much, yep, Rene. So just on the chrome side, for the half year, the revenue was about ZAR 3 billion. So full-year annualized closer to ZAR 6 billion at current prices. That's about, at the moment, running at about 7%-8% of the total revenue basket for the South African PGM operations. It's in that sort of ballpark, and that's about 1.3 million tons that we're seeing coming through there. So that is a significant portion of the total revenue basket.

James Wellsted (EVP of Investor Relations and Corporate Affairs)

Yeah, thank you. Now the next caller, please, from the lines.

Operator (participant)

Thank you. Next question comes from Kateka Matonzi of Investec Bank. Please go ahead.

Nkateko Mathonsi (Head of Equity Research)

Good afternoon. Thank you for taking my call. My first question is on Stillwater and the restructuring, All-in Sustaining Costs of about one to two E. And I mean, I think Charles did say that at current prices, or at current environment, you need higher prices to actually generate positive free cash out of that operation. And then based on your supply-demand numbers that you presented, maybe in the medium term, we do get those higher prices. But longer term, as some of the commodities actually move into a balance and surplus, we may not have those higher prices. So my question is, and I think Neil talked about you consider the full closure of this operation.

My question is, why is the restructuring the most optimal solution versus a full closure when you consider the long-term headwind as far as a commodity like palladium is concerned? Then my second question on the gold side of things, Burnstone, you put it on care and maintenance. At this record prices, why not closure? Or is the care and maintenance the first stage before you actually go for a full closure of that operation? Then also still on gold, seismicity seems to have increased quite a bit. Is it fair to say, as far as the cost structure of your gold operation is concerned, you've made a step change on the cost curve as far as positioning is concerned? I'm gonna leave it there, and yeah.

Neal Froneman (CEO)

Okay. Thanks, Kateka, and, I'll try and just lead into the, the Stillwater and palladium, question, and then Charles come in, afterwards. In terms of... You know, these are not just commercial decisions. We employ people, and there's a balance in our decision-making, looking after social impacts as well. So, it's not a, it's not simple, we close, and we, you know, displace, in this case, fifteen hundred or sixteen hundred employees. That's not the sort of company we are. However, let me say, we're also very commercial, and putting the operations on care and maintenance is actually a higher cost option.

You have a continuous negative cash flow with no possibility of recovering those costs. Now, your point, Kateka, of you know, in the longer term, current indications are that palladium will face headwinds. But if you look a little bit deeper into our market development strategy, there are lots of initiatives that are focused on the market development for palladium. But also, I would suggest that the reason we produce a 2E graph that shows what it shows is because of the almost the ability to substitute platinum with palladium. So, yeah, we have a slightly different view of the market and the long term. I just wanna make a point on Burnstone as well.

Burnstone is not a project that. Well, let me say the reasons for what we're doing with Burnstone is to preserve capital now. And it's a good project, and when we have spare capital, we will certainly develop it. And Rich, you may wanna say more when you answer the gold question. But let me just see if Charles, if you wanna add anything to the decision-making around Stillwater, and then we can hand over to Richard to deal with gold as well.

Charles Carter (Chief Regional Officer)

Yeah, Neal, not much to add to what you've said, which I think captures it all. But just to reinforce, we made lots of trade-off analyses and looked long and hard at the best outcomes. And I think the, you know, the takeaway should be that this is a world-class ore body. The geology is exceptional, but it's not easy. It's very fickle. It's not a linear reef pattern. It requires, you know, quite an adept mining approach. And over the last couple of years, we've been working hard to improve efficiencies around that. Now I think we're in the game of getting that right.

And as we get that right, and we bring that cost structure down, and we bring the optimization up, you have a very levered option here, and you still have choice. Care and maintenance might remain for a while. It allows you to bring it back. It allows you to later on say, you know, on balance we have a long-term bearish outlook, and therefore, we make a choice. We don't have that outlook, by the way, and I think Neil's made that very clear, and so has Richard. So you wanna protect optionality here, and you wanna protect a world-class long life asset that in anyone's portfolio is a tier one asset when optimized and when mined efficiently.

So I think we have all of those choices on the plate, and we have a game plan for getting it right through next year, and then we have a game plan that gives us optionality beyond that. Choices can be made either way as market circumstances dictate. Thank you.

Richard Stewart (Chief Regional Officer)

Yeah, I think that's it. Thanks very much. I think just maybe just a comment on Burnstone. I think, you know, Neil said the crux of it. It's a project we like very much. It's a good project. A lot of the capital's been spent, and it's really now about the ramp up. You know, yes, it's a high gold price environment now, but clearly that is still a project that needs to ramp up, and those sort of profiles are obviously long-term decisions we make, as opposed to, you know, where we think the gold price is gonna be six to twelve months. And it is about looking at the region as a whole. So we do look at the capital we've got.

You know, what can we turn off or slow down now that doesn't have a big impact on the rest of the business, and turn back on again at the right time? So it's a combination of factors, but certainly Burnstone is not a project we would put into full closure, given where it is and certainly the value of the project that we see, we still see there. So that would be that reasoning, just to add to Neal's comments. In terms of the gold costs, I think important to recognize, obviously, the gold operations we've got are very operationally geared. And what I mean by that is, it is a high fixed cost base.

These are assets that originally were expected to close, you know, more than five years ago, and we've still got ten years worth of reserves on it. But that means it needs to be carefully managed, and there are two ways to manage that. The one is obviously volume and output, and the other way is managing fixed costs, which is a lot of the restructuring we've done, predominantly through infrastructure and overheads. So where do we see this business based on where we've got it right now? You know, I think our outlook for a steady state in terms of the big three operations, Kloof, Beatrix, and Driefontein, so I'm excluding DRD, is probably somewhere in the region of about 550-600 thousand ounces per annum.

You know, that's where we see the current steady state, and that would be off a cost base of between ZAR 1 million and ZAR 1.1 million per kilogram at those sort of output levels. Today, Driefontein is operating there. Beatrix, we expect to see getting there towards the end of the current half, and then, of course, as I mentioned, Kloof, we need to do a bit of opening up to get that flexibility. So if you translate that into a dollar per ounce number at those output levels, it's in the region of about $1,800-$1,900 per ounce, which is roughly the cost structure we would see for these operations. Thanks.

James Wellsted (EVP of Investor Relations and Corporate Affairs)

We getting short of time now. So could we just take the last two calls on the line, please? First caller.

Operator (participant)

Next caller comes from Leroy Mnguni of HSBC. Please go ahead.

Leroy Mnguni (Mining Equity Analyst)

Hi, good afternoon, Neal and team. I'd like to ask about the fixed costs in your US PGM business. So you've got a business that was by design, sort of, designed to cater for 750,000 ounces, to maybe a bit more, and a much bigger recycling business, as well, compared to what it's delivering at the moment. You're now cutting that to about 250 in terms of the mining side. How are you ensuring that you can take out the fixed costs so that it doesn't drown your unit costs at your reduced production rate?

Neal Froneman (CEO)

Yeah. Thanks, Leroy, and a very good question, which we apply all the time when we go through a restructuring, especially on the basis of reduced outputs. There's a very significant cost reduction based on taking out 800 employees. Some of those, you may argue, are variable because they are production people. But as Charles explained, simplifying the management structure to one GM across the entire operations, effectively taking out a whole level, addresses your question. And certainly, we can give you some more detail on that, but it has been addressed. Charles, do you wanna add anything to that?

Charles Carter (Chief Regional Officer)

Yeah, I think, you know, putting Stillwater West on care and maintenance had a significant fixed cost component because of the aged infrastructure and the travel times, and the shaft setup, and everything else. So that is a big swing on getting a lower operating cost structure for the rest of the business. And then the met obviously has a higher fixed cost component. But the met also has flexibility. So we are currently running one furnace. We have two furnaces available. You can scale up or down, and you have the backup furnace as needed. But that gives you a residual fixed cost structure that really needs this kind of operating profile, and that operating profile also protects your recycling profile.

We have some upside on that recycling volume as it currently sits at the met. So you've got to get the mix right, and I think this plan that we're putting on the table today does that. You know, obviously, as you get volumes up at the right times, your unit costs drop and you know, your cash flow opens up significantly. But I think we're moving now to a place where we've made some very hard decisions on the organizational structure, and you know, talent in the U.S. is very expensive. So but you know, for good reason, because we pay prevailing wages. We are well-regulated. We have exceptional ESG, environmental, and other performance, which is very costly.

So, you know, we're running the business now on a scale-down basis that protects all of that, but that gives us optionality going forward. And I think the mix of the mining and the recycling, and the growing recycling platform, and the growing mix within the metals and the sourcing, et cetera, that's a very interesting business long-term, and that's the one we're protecting right now.

James Wellsted (EVP of Investor Relations and Corporate Affairs)

Thank you very much, and, I'm afraid we've run out of time. We do have details of the people who have sent other questions in, so we'll make sure that we respond to you by email, most likely. So we will try and deal with all outstanding questions. Neil, if I can hand over to you for a last word, please.

Neal Froneman (CEO)

Yeah. Thanks, James, and thank you, everybody, for attending, and those that asked questions, I hope we answered them in a way that was understandable and... Yeah, look, I think I wanna say we've worked very hard. This has been a tough six months for us. We did commit to address our balance sheet, which I think is the issue that has caused the most concern more recently, and I dare say we've done a good job of doing that. And there's more in the pipeline, and I'm pretty confident we will close it out before the end of the year.

In addition to that, what can go very badly wrong in a phase like this is the restructuring and the wheels coming off your operational engine room and of course, that just depletes the balance sheet in a much quicker way. I'm again very pleased with the regions in delivering the results they've delivered. Clearly, there are some areas of disappointment. We're well aware of that, but I think if you look through those, there are lots of good results. And if you understand and see the cost savings that are gonna come through with the restructuring, you see a business that even in a low price environment is going to be essentially sustainable. So very, very pleasing achievements, which I do believe will lead to the creation of value.

In addition to that, I think we have a wonderful strategy. We're in the right metals at the right time, and certainly in the ecosystems that we participate in, we are well-supported. So this company is actually very well-positioned, and I think we can look forward to a re-rating now from the bottom. So thank you again, all, for your time, and we look forward to sharing our year-end results with you early next year. Thank you very much.