Sibanye Stillwater Ltd Q4 FY2023 Earnings Call

Ladies and gentlemen, welcome to our 2023 H2 and Year End Presentation. Please take note of the international piggyback. We gave considerable thought as to what would be the appropriate way to signal our focus on the balance sheet and we thought this was the most appropriate way to indicate our focus. For a challenging 2024, we are not trying to create a silk purse out of a sow's ear. So let's move on. First of all, please take note of the safe harbor statement. There are lots of forward-looking statements, especially around what the markets may or may not do. What we intend to cover today is, I will go through the salient features of 2023. We want to start with it all starts and ends in the market. We really just want to focus on the PGM market. I think that is the priority. We want to share with you our proactive focus and our protection of the balance sheet. That is definitely our priority for 2024. I will also discuss a concept that I introduced, at the last presentation, a little bit more on resource stewardship. I will then hand over to Charl Keita, our CFO, who will do the financial review. Charl will hand over to the Chief Regional Officers, Richard, Charles, Mika, and Robert for the operational review. And then I will pick up again to conclude today's presentation. So let's just look at the salient features for the year ended 31 December, 2023. I think in terms of embedding ESG as the way we do business and work, we certainly can celebrate a record low serious injury frequency rate. Unfortunately, we did suffer regression in fatalities year-on-year, predominantly due to the Burnstone Conveyor contractor incident, where we unfortunately lost four human lives. We are pleased to say that we are well advanced with our renewable energy projects with 267 megawatts in construction. We're also pleased to say that we achieved conformance for our tailing storage facilities according to GISTM. And in line with our capital allocation model, we established the Sibanye Stillwater Foundation and the first allocations for the benefit of social upliftment have been made. Richard will cover that in his section. In terms of financial performance, earnings and cash flow were significantly impacted by a steep decline in PGM prices. We have been looking after our balance sheet not only recently, but for some time. And I'm pleased to say that we ended the year on a net debt to adjusted EBITDA ratio of 0.58x. We have a low-risk and well staggered debt maturity ladder. And of course, we applied our dividend policy. But due to the losses in the second half of the year, there is no final dividend. In terms of the South African PGM operations, we achieved consistent and solid operational performance. We achieved industry-leading cost control with only a 4% increase in our all-in sustaining costs to approximately R20,000 per 40 ounce. I want to point out, and Richard will do more of this, we had significant revenue generated by our byproducts, particularly Chrome. With byproduct credits contributing R10.9 billion, it had a notable impact. Load curtailment was very well managed, and we ended up the year with effectively zero inventory, which is a good outcome considering what other companies have had to report. We were proactive in restructuring many parts of our business. In the South African PGM operations, we started just after the mid-year results presentation, and that restructuring was completed in February of 2024. The South African operations, I'm pleased to say, both gold and platinum are profitable despite the depressed PGM basket price. In terms of South African gold operations, we saw a very significant turnaround from a R3.5 billion adjusted EBITDA loss to a R3.5 billion adjusted EBITDA profit, marking a R7 billion swing. Load curtailment was also managed very well. Kloof 4 shaft was restructured again proactively due to a constraint resulting from seismicity, and the implementation of our safety strategy resulted in the closure of that shaft. Obviously, the final catalyst was a shaft accident in that location. The South African gold operations are also profitable and generating a positive cash flow. Important, we often ask, why do we continue to pursue gold as part of our commodity mix? It's very clear in global economic downturns that gold's safe haven status is a positive. If we could create value by growing our gold portfolio, we absolutely would. The US saw challenges in the first half of 2023 due to a shaft accident at Stillwater West. We moved in quarter four to right size the operations for the lower palladium price environment, and that worked extremely well. There are several levers we can pull, and there's ongoing work to ensure that these operations become profitable. They're still loss-making at the moment. Looking at reserves and resources, we view Stillwater as a strategic asset, both for ourselves and for the US. We really have no option but to ensure that it becomes profitable even at these depressed palladium prices. Thus, it is not slated for closure at this stage. In Europe, the construction of the Caliber Lithium Refinery is on schedule and on budget. Late last week, we received a court ruling on the appeal regarding the environmental permits for the Rapasaari mine and the concentrator. The court upheld the permit, but referred certain conditions back to the permitting authority. We suspect that may impact when we bring Rapasaari mining into operation, and may also require some rescheduling of capital. Once we have this clarity, we will provide the market with more guidance. The Sandouville nickel refinery in France was severely impacted by the collapse in nickel prices. However, we had a very good outcome from our study on converting that refinery into a nickel sulfate processing plant, incorporating battery recycling. For the first time, we have a positive way forward for Sandouville. In Australia, we completed the acquisition of New Century Resources, and we now own 100% of the company. The adjusted EBITDA turned positive in Q4 after the extreme weather event in March of 2023. We also acquired 100% of the Mount Lyell copper project. So let me move on to the PGM market. Our view has been consistent. We recognize the current issues and remain very positive. The absolute light-duty vehicle production is forecast to grow over the remainder of this decade to well in excess of 100 million units per annum. Electric powertrains are expected to increase their market share in the coming years, but battery electric vehicle penetration rates are overstated. The hybrid market will continue to play a critical role. We do expect primary supply cuts from loss-making production. The steep price drop has already impacted inventory norms within production. We remain positive regarding the PGM markets. We initiated the substitution of palladium with platinum for good reasons. The market fundamentals remain sound, and we believe there are deficits projected all the way into 2030 concerning platinum and palladium. Regarding our balance sheet, it remains a critical focus area for us in 2024. Our proactive measures to protect and strengthen the balance sheet have resulted in gross savings and CapEx deferrals amounting to R6.6 billion or $375 million. We will maintain a solid operational year, but the fundamentals dictate we should prepare for lower earnings in 2024. Strategic essentials will underpin our actions this year. I would now like to hand over to Charl Tim Keita, who will take us through the financial review. Thanks, Charl.

Thank you, Neal. Good morning and good afternoon to all participants. Having now spent almost 30 years in the mining industry, you quickly learn that summers are short; financially speaking, we enter a period beginning to feel like autumn as we saw a pullback in commodity prices, specifically PGMs. This has had a significant impact on our results, which you will see during the financial review. Our balance sheet remained strong, and we maintained our financial flexibility. However, for the first time in four years, we moved into a net debt position. Net debt to adjusted EBITDA increased to 0.58x, driven predominantly by lower commodity prices, capital expenditure, and year-end payment timing. Debt maturities remain manageable. Gross debt, including borrowings, increased by approximately R15 billion, influenced by R4 billion drawn under the Rand revolving credit facility due to early payments in December associated with the South African mines closing around December 23. We also issued a convertible bond at the end of 2023. Currently, we have R25.5 billion in cash on hand, with net debt just under R12 billion. Liquidity remains very strong, and we have a headroom of just under R50 billion, split roughly half cash and half available facilities. Our North Star remains the capital allocation framework and decisions around cost cuts and production rightsizing testify to this. Looking at project capital, Burnstone has been slowed down, and we will review this based on the financial position of the group. For now, we will continue with our two major projects, K4 and Keliber. Revenue for the year was at R114 billion, down from R138 billion in 2022. Volumes at all our major primary producing operations were up but offset by pullbacks in PGM basket prices of between 24% and 32%. The gold price was the shining light, increasing by 21% year-on-year. Adjusted EBITDA halved year-on-year but still came in at a respectable R21 billion. We also booked payments to the value of R47 billion at our USPG operations. The biggest contributor was significantly lower consensus price outlooks. We fully impaired the now-closed Kloof 4 shaft. Taxes and royalties were also much lower, reflecting the decreased profitability. The net impact of all the above resulted in a loss period of R37 billion or R13.34 per share, primarily driven by the impairments booked during 2023. I'll now pass you back to our Chief Regional Officers to take you through the operational reviews. Thank you, Richard.

Thank you very much, Charl, and good afternoon or good morning, ladies and gentlemen. It gives me real pleasure to share with you our operational update. I will specifically share some of the group safety and South African regional updates. I'll then hand over to Charles to discuss the Americas region, Grant will update us on recycling, Mika on the EU region, and finally Robert will discuss the Australian region. Starting with safety, 2023 was really a story of two tales. It was regrettable that we saw an increase in the number of fatal incidents from five in 2022 to eight in 2023. One of these incidents was a devastating multiple fatal where we lost four contracting colleagues due to a conveyor belt at Burnstone. Our sincere condolences go to the families and friends of our lost colleagues. While the number of fatal incidents experienced is deeply regrettable, we have been implementing our fate elimination strategy since 2022. Many underlying trends show that we are progressing well along this journey. This strategy aims to eliminate high-energy or high-risk incidents. The serious injury frequency rate, which we use as a measure, saw a consistent year-on-year decline. Last year, frontline stoppages for safety exceeded stoppages from management and safety officers. This indicates that our frontline employees are empowered to identify risks and act accordingly. We've also noted a significant reduction in risks historically leading to fatalities. We are now 25 months without a fall-of-ground incident, demonstrating that where controls are implemented, we can eliminate fatalities. Moving on, Charl highlighted the formation of the Sibanye Stillwater Foundation last year. A key achievement toward delivering our vision of shared stakeholder value. The foundation allocated its first funds to the South African region last year, embedding social upliftment and focusing on infrastructure. Moving to Energy and ESG efforts, Sibanye is now one of the top three private power purchasers within the country and has the largest energy projects under construction, totaling 267 megawatts of solar and wind energy, projected to contribute to 15% of our total electricity requirements from 2026. This will significantly reduce our Scope 2 emissions by just under 1 million tonnes of carbon dioxide per annum. We are currently developing five additional projects, estimated to deliver a further 365 megawatts, contributing about 30% of our total energy requirement from 2027. This energy will be at lower tariffs compared to Eskom, further optimizing our energy costs based on a substantial capital investment, largely funded from third-party balance sheets. Regarding South African Gold operations, we saw a turnaround in 2023, moving from an adjusted EBITDA loss of R3.5 billion to a profit of R3.5 billion, reflecting a 30% increase in output and a 20% increase in the gold price received. Despite operational disruptions during the year, we were able to manage to achieve a 10% drop in all-in sustaining costs year-on-year. Notably, production from PGM operations remained stable year-on-year, with just under 1.75 million ounces produced, excluding around 21,000 ounces from Kroondal. Our total unit costs only increased by 4% to just over R20,000 per ounce, significantly below industry inflation rates. The restructuring of our PGM operations was concluded in February, resulting in R750 million in annual benefits in this segment. Overall, we look forward to the continued development of our business, the benefits of current restructuring, and the implementation of strategic plans for future growth. Thank you.

Thank you, Richard. We've come off a challenging year with production just over 427,000 ounces due to a shaft incident at Stillwater Mine affecting the West Mine in particular. The average basket price declined 33% year-on-year to $1,243 an ounce, significantly impacting our operations. We did significant restructuring late last year, including streamlining the leadership team, with general managers now reporting directly, and revising the mine plan for a lower for longer production profile. We constrained near-term growth allowing us to defer growth capital in order to manage our costs effectively. Our workforce restructuring saw a reduction of around 16% in contractors and employees, which was well executed by the teams involved. We're now seeing an estimated $400-an-ounce benefit on all-in sustaining costs, with a 19% reduction in gross mining costs at Stillwater Mine. Key infrastructure upgrades have put us in a better position for the future. We commissioned a new mill at Stillwater and have made significant upgrades to ventilation and transport systems. Our all-in sustaining cost is currently $1,872 an ounce, mainly due to lower-than-expected production, increased ORD, and sustaining capital expenditure. We’re maintaining development rates and aiming to improve overall operating efficiency while ensuring safety remains the top priority. We're also actively lobbying for the Inflation Reduction Act tax credit to ensure competitiveness for U.S. green metals. It's crucial for the long-term production of critical minerals. We've also seen a positive start to 2024, with improved safety and operational performance. I'm optimistic about the Reldan transaction, which broadens our recycling capabilities and strengthens our free cash flow potential moving forward.

It has been a cause for concern. PGMs from recycling totaled just over 310,000 3E ounces, down 48% from 2022, influenced by various factors in the U.S. auto industry. Towards the end of 2022, a notable dip in U.S. auto sales became apparent due to compressed disposable income levels and increased financing costs. Buyers are grappling with similar impacts on car loans, with average vehicle prices hovering around $48,000. Other factors include lifestyle changes post-COVID, where consumers are keeping their vehicles longer, which has led to a shorter supply of end-of-life vehicles. In 2022, our adjusted EBITDA stood at $78 million, while in the current period, it has dropped to $33 million, following a 24% decline in average realized 3E dollar price and a 45% decrease in volume fed. While facing these challenges, we maintain an optimistic outlook grounded in the resilience of our recycling platform for sustained growth within the circular economy. Several key factors remain supportive of this outlook, including palladium and rhodium in the short term, and the anticipated benefits of IRA credits for battery electric vehicles and hybrid vehicles. Moreover, we are seeing increased auto catalyst loadings to mitigate emissions, and potential supply cuts further substantiate this perspective. Our outlook is reinforced by a thorough assessment of the order catalyst recycling landscape, with upside potential anticipated following Reldan's integration.

Thank you, Grant, and hello, everyone. In Europe, we continued to implement our battery metals strategy during 2023, focusing mainly on two ecosystems: in France and Finland. We achieved positive safety developments, with fewer recordable incidents compared to 2022. Operationally, Sandouville suffered due to declining market conditions and increased maintenance needs, but we are conducting a strategic review of the asset. The timeline for a decision is still being assessed, but we plan to provide concrete details once feasibility studies are complete. For Keliber, we've made solid progress; most of the CapEx has already been committed. We're constructing in three locations with plans well on track, and our permitting process is progressing. Recently, we received a favorable court ruling regarding the Rapasaari mine and the concentrator, which is valid and allows us to proceed as planned on that front. The review process for the concentrator operations is underway, but we expect no substantial delays in the Keliber project. We aim to begin processing third-party materials by 2025.

Thank you, Mika. I'll discuss the Century zinc retreatment operation and the Mount Lyell copper project. In March 2023, we acquired a majority interest in New Century Resources, achieving 100% ownership on May 15, 2023. We've restructured to optimize regional and operational efficiencies, with positive production results achieved from zinc operations—as we've produced 76,000 tonnes of payable zinc metal and sold 77,000 tonnes. Adverse weather earlier affected production, but with effective control measures, adjusted EBITDA returned positive in Q4 2023. At Mount Lyell, we are conducting a feasibility study on the acquired project, expecting completion by the end of the first half of this year. We remain optimistic about the production outlook despite challenges faced by Century in previous years.

Thanks, Rob. Let me wrap up with some brief conclusions. Firstly, we delivered on guidance and had a solid operational year, financially impacted by lower commodity prices all around. We ended up with a net debt to adjusted EBITDA of just under 0.6x, which I deem a positive operational outcome under the circumstances. The proactive austerity measures implemented over the last 18 months have resulted in substantial savings on costs and capital totaling R6.6 billion or $375 million. We're continuously assessing all operations to ensure long-term sustainability. The analysis on PGMs shows that the fundamentals remain sound, and we maintain confidence in the fundamentals underpinning battery metals. While we are prepared for lower earnings in 2024 due to current commodity prices, we remain disciplined and focused on strategic essentials. The antifragility journey continues, and the focus on our balance sheet will remain our priority for 2024. Thank you, James, for the Q&A.

Thanks, Neal. I will now consolidate questions from the webcast and the call. First up, we have questions regarding Stillwater and its production adjustment linked to palladium prices. Follow-up questions relate to the impacts of our capital expenditure planning and potential rights issues in the current market, as well as discussions on free cash flow generation for 2024 and the group's strategic asset management. Thank you all for your participation as we cover these questions. Rest of the attendees, feel free to send them through.