Earnings Call Transcript - SBSW Q3 2021

Neal Froneman, CEO

Good morning to all and a very warm welcome to our Results and Strategic Update for the year ended 31 December 2021. There are forward-looking statements in this presentation. So please take note of the Safe Harbor Statement. The agenda for today is Safety and ESG first, those are our single and most important priorities. I will be assisted in presenting that section by Jevon Martin and Grant Stuart. I'll then do a strategic update, which is titled Positioning for Positive Impact. And I think you will find that very interesting. We do use our year-end results to provide strategic guidance to the market and our shareholders. I will then hand over to Dr. Richard Stewart, our Chief Operating Officer who will present the results of the operations in detail, as you can see, we've called it operational excellence, we've had an outstanding year considering all the challenges of COVID and safety and so on, Rich will then hand over to our CFO, Charl Keyter, who will then conduct the financial review, which I think you will also enjoy, an outstanding year from a financial perspective, as well. And then I'll wrap up with a brief outlook and conclusion. So as I said, let's start with safety. And it gives me absolutely no pleasure to talk about fatalities. We've had a very, very tough year, where we've lost 20 of our colleagues throughout the group, tragically in 15 incidents, the majority of those happened in the second half of the year. And we really stepped in and took very decisive actions, including in October, a five-day suspension of all operations across the group to audit workplaces, refreshed safety focus. And then in December, we actually shut down portions of our operations in the gold sector, at Kloof 1#, Beatrix 1 and 3#, and then a partial closure at Driefontein to erase these unacceptable incidents. We had to do the same within our South African PGM business. And one of those Shafts, Thembelani was a result of a lack of supervision due to COVID-19. And we just deemed it inappropriate to try and operate with sufficient supervision. So COVID has had a very significant impact. At the same time, we conducted an independent review and that review, I'm pleased to say confirmed the appropriateness of the group safety strategy and its systems and in fact, confirmed that it is aligned and consistent with global industry standards and practices. So that gave us the confidence that we don't have a flawed safety approach. We did through that independent assessment identify opportunities to further operationalize and institutionalize the commitment and responsibility for safety among the land management of the organization. And at the same time, we have developed a very comprehensive fatal elimination plan, which is being rolled out, and I have no doubt will have a very positive impact on reducing fatalities. So, we are totally focused on our efforts to get to zero harm. I think it's always important when you have these types of dramatic and very serious incidents to look at the underlying data. And I do get confidence from the fact that we are clearly doing many of the right things, it doesn't change the fact that we lost 20 of our employees. But if you look at the rate of increase, in the left-hand graph of our workforce, you can see the rate of increase in terms of the number of employees in the group is much higher than the rate of increase in fatality. So it does mean we are having a positive impact on fatalities. In fact, if you go to the graph on the right-hand side, the fatality injury frequency rate, and you look at a three-year rolling average, again, you can see that we are moving in the right direction, which is what inspires us to continue on this road to zero harm. I think it's also important to note that we do lump all our fatalities together. But we need to remember we have a very substantial PGM division, both in South Africa and in the U.S. And of course, we have a large gold business as well. And what's very clear to us is that the gold business is challenging, being ultra-deep. But we also notice something else. I've seen references in other CEO presentations to the industry in general, whether it's in South Africa or in the U.S. is also regressing or regressed in 2021. If you look at South Africa, it regressed by about 22% and in the U.S. it regressed by 25%. So, there is something behind the current regression that seems to be an international issue regarding safety. Nevertheless, we remain very focused on making a difference. And as I say, we do look for confidence and comfort in the things that we are doing along this journey. If you look at some of the highlights, all our operations received ISO 45001 and 14001 accreditation. We have seen an improving trend in all injury frequency measures since H1 of 2021, and of course, injuries build up to fatality. So, if you can reduce injuries, you're certainly moving in the right direction. We also had a number of safety milestones such as at Marikana, we achieved 4 million fatality-free shifts. At Kloof lower one of our deepest operations, we went scratch-free for six weeks. And of course, the more the more you can duplicate this, the more you're going to impact on reducing injuries and hence reducing fatalities. And then at our surface processing business, we achieved 13 million fatality-free shifts on the 16th of September 2021. So those give us the confidence to continue down this really challenging and tough road to zero harm. Last year, I presented our sustainability strategy as a basis for our ongoing commitment to ESG excellence. In fact, the basis of our green metal strategy is based on the sustainability strategy. Last year, I presented building a green metals business and I will just recap on that briefly shortly. But today what we wanted to share with you in more detail was our road to carbon neutrality. We've made good progress since we made the commitments earlier last year to get to carbon neutrality by 2040, we can certainly believe and we certainly do believe we can do that much earlier. And then we've really made some outstanding progress on water demand and intensity. And Grant Stuart will present that to you. Just as I said, I wanted to just remind you of building a green metals portfolio, and that's based on building a climate change resilient business. And we've made again, significant progress and nothing has changed in terms of our focus area. As we said last time, we spent two years doing due diligence before we entered the battery metals market. We did four transactions in 2021, Keliber Sandouville, the Rhyolite-Ridge Project, and the acquisition of a stake in New Century. Just to remind you again, the battery metals together with the PGMs will provide a very significant green metals portfolio. We do intend to complement that with other metals such as copper, maybe manganese. Uranium is a byproduct of gold and we are working on our uranium strategy, but nuclear energy is now considered green and therefore the underlying metal must be considered green as well. And to complement that, we have advanced our thinking in recycling. And of course, tailings retreatment is another area that is similar to recycling. But we do and we are increasing our exposure in the circular economy. So that's the basis on which we make acquisitions, and it's the basis on which we will enhance our green credentials. So at this stage, I'm going to hand over to Jevon Martin to talk to you regarding our path to carbon neutrality by 2040. Thanks, Jevon.

Jevon Martin, Head of Sustainability

Thanks, Neal. Sibanye Stillwater believes climate change to be the most pressing threat our planet and global challenge of our time, as recognized by the Paris Agreement and the UN Sustainable Development Goals. As a force for good, Sibanye Stillwater has a role to play in the urgent global response to the threat of climate change. And as such, we have aligned our governance strategy, risk management, and targets across the group to align with the recommendations of the TCFD. First and foremost, we produce green metals as Neal’s indicated that supporting the reduction of greenhouse gases and the reverse of climate change. In 2021, we committed to achieving carbon neutrality by 2040 in advance of the requirements of climate science. Over the last year, we have refined our pathway and supporting interventions, and grown in confidence in our ability to deliver on this commitment. In graph depicted here, we have forecasted our greenhouse gas emissions profile over the life of our mines, based on a bottom-up analysis of the production profiles and energy requirements. In terms of business as usual, we expect a short-term increase in emissions through production growth, followed by a decline from 2025 through life of mine closures including decarbonization. If we overlay a size-based pathway, we're able to understand the operational decarbonization required to contribute to limiting global warming to 1.5 degrees Celsius and adhere to science-based targets, which we plan to update in 2022, including Marikana and Scope 3. Through the introduction of demand-side energy management, renewable energy electrification and fuel switching opportunities, including hydrogen, we are able to demonstrate an active decarbonization pathway. This pathway will be converted to internal annual carbon budgets prescribed at a group and segment level to inform our long-term incentive planning. Recognizing that there'll be remnants hard to abate emissions towards the end of our carbon neutral journey, we have compiled a carbon offset strategy that will generate the required offsets to neutralize the remaining emissions. Due to the infrastructure and extensive energy requirements of our South African operations, combined with the covenants on electricity supply from Eskom, 93% of our group greenhouse gas emissions emanate from grid-supplied electricity. Eskom also continues to pose a risk to our business through above-inflation tariff increases and unreliable electricity supply. The extensive electrification of our operations, however, presents an opportunity to mitigate these risks and accelerate decarbonization through the deployment of renewable energy. The relaxing of regulatory requirements and anticipated ability to trade electricity in South Africa has allowed us to grow our portfolio of renewable projects to 557 megawatts, including solar and wind projects. We have appointed a local project developer for the SA gold 50 megawatt solar PPA project and two local project developers for three several wind projects across South Africa.

Grant Stuart, Water Stewardship Head

Thanks, Jeff. Water stewardship is the use of water in ways that are socially equitable, environmentally sustainable and economically beneficial, and are strongly committed to comprehensive and transparent water governance, effective management of our water at site level and collaboration to achieve responsible and sustainable water use. We have been recognized for these efforts in 2021 by the CDP. In 2021, South African gold operations purchased 8% less potable water. Our reliance on purchased potable water at our gold operations reduced by some 1,278 million liters or 17% year-on-year, and 344 mega liters or 2.8% in our South African PGM operations year-on-year. This despite an increase of 4% and 15% in tonnes treated at the SA Gold and SA PGM operations respectively. As we move forward into 2022, we have committed to further reducing our reliance on the integrated water system. During 2021 we remained true to our cause of water independence in our gold operations. More holes to supply the cook plant completed in Q1 of 2020 and boreholes to supply Cooke 2 and 3 shaft in Q4 of 2021 have rendered that complex entirely independent of municipal supply. Ezulwini has also been independent of rainwater since Q1 of 2021. Although Driefontein has already been 90% independent of rainwater, an extension to Driefontein’s 20 million liter treatment plant per day by an additional five mega liters per day, will see Driefontein’s independence from municipal water supply by Q3 of this year. The Kloof water treatment plant, which forms part of the Phase 1 of the operations independence drive, has reduced the reliance of the municipal system by a third with full independence envisaged by Q1 of 2023. Our efforts to reduce water independence have not only reduced our reliance on the integrated water system but have also had a significant saving to the gold operations of some R85 million per annum last year with Phase 2 of Driefontein and Kloof expected to bring an additional saving of some R50 million per annum going forward. Our US PGM operations are located in a water-rich catchment and have similar challenges to the SA gold operations in respect of managing the risks associated with water pumping treatment of water and the discharging into pristine environments. The newly installed disc filters at Stillwater mine and East Boulder mine have demonstrated our ability to move beyond compliance with an average of 30% removal of the total nitrogen and 45% removal of metals from those compliance levels.

Richard Stewart, COO

Thank you very much, Neal. And good afternoon. Good morning, ladies and gentlemen. It's a real pleasure today to be able to share with you our operating results from the second half of last year. Because many of you would have been aware, we recently published our updated mineral resources and reserves as of the 31st of December. Just to highlight before we get into the details that we have had a change in the way that we report our mineral resources and reserves. And this has specifically had an impact on our South African operations, where historically we reported attributable resources and reserves based on an effective financial interest, whereas now we are basing that attributable number on an effective legal or equity interest, as of course, the financial liabilities do change year-on-year. I think it is very important to highlight this has got absolutely no impact on the underlying resources of the reserve numbers for their operations, nor does it have an impact on the financial exposure Sibanye has to these assets, it is just the attributable portion that changes. I think very pleasing in the numbers is that both our South African PGM and our US PGM operations, we saw a slight increase in reserve numbers, which effectively means our ongoing exploration more than replaced what we depleted during 2021. In our gold operations, we saw about a 700,000-ounce decrease in total reserves on a 100% attributable basis, so marginally less than what we depleted during the course of last year. 72.5 million-ounce reserve base that we have underpins a very sustainable portfolio. Our South African gold operations have lives of mines that vary from four years at Beatrix to in excess of 10 years at Driefontein and Kloof, and our gold projects have lives well in excess of 20 years. Our PGM operations generally have a life well in excess of 15 years with our US operations and Rustenburg in particular, having lives well beyond 30 years. So a very sustainable portfolio and underpinned by a significant mineral resource base for future replacement and growth. I think also very exciting is for the first time we are declaring resources as a result of our entry into the green metals last year. And in particular, our lithium resources, our Keliber project Europe, the Rhyolite-Ridge project in Nevada made resources for the first time there, and zinc as well through our exposure to new zinc resources in Australia. Our uranium resources in South Africa remain unchanged. And those are currently under economic studies. And of course, we also report our copper resources in Argentina, in South America at our Altar project. Moving on to our South African PGM operations, very pleasingly, they continued with great performance during the second half of last year. Total production from these operations amounted to just an excess of 940,000 ounces for the half year and 5% higher than the comparative period the year before. I think particularly pleasing was the strict control that we maintained over our costs resulted in a nominal 1% lower unit cost year-on-year. And for the year, we came in at around R17,000 the 4E ounce. We sold just under 960,000 ounces of PGMs. And that was an average basket price of just over R40,000 per 4E ounce margin higher year-on-year. This equated to a free cash flow out of these operations for the second half of the year, of just over 8.2 billion, significantly higher than the comparative period last year, and a very healthy 54% adjusted EBITDA margin, despite the drop-off in the PGM prices towards the back end of 2021. Our sustained and really discipline focus on costs meant that we have seen our operations gradually move down the cost curve. We now have a portfolio of PGM assets that sit squarely within the second and third cost quartiles. And I did say look forward to seeing that move to the left continue in the years to come. An important announcement at the beginning of this year, was the agreement that we reached with Anglo American Platinum on the PSA transaction on the PSA assets. Essentially, what this transaction is about is that we will ultimately take over that infrastructure of the PSA, including the rehabilitation liabilities, and how the transaction will work is that those conditions or the transaction will close once we have delivered 1.35 million ounces into the PSA under the current PSA terms, as well as got the required regulatory approvals from the competition commission on the DMRE. Important to note is that the 1.35 million ounces that actually started counting from January of last year. So as at the beginning of this year, there was marginally under 900,000 ounces that still needed to be delivered. Once these conditions have been fulfilled, we will then take over the infrastructure, and the PoC arrangements will convert into a toll arrangement on terms similar to the current Rustenburg toll. I think this is a transaction that's created significant value for all stakeholders. In the short term and immediately it allows the PSA to consider mine planning across mine boundaries. And then of course, allows us to optimize operational flexibility and efficiency through those mine plans. I think in the medium term it allows or creates an additional 1.8 million ounces of reserves at Rustenburg. And this was effectively ground that couldn't be accessed through Rustenburg infrastructure that will now be mined through the PSA infrastructure. In addition, a lot of the Rustenburg reserves that were going to be mined through Rustenburg infrastructure, the back end of the life can now be extracted far earlier through the PSA. And of course, for local stakeholders, a key value is that we almost double the life of the Kroondal operations. But the longest live shaft being extended for up to 16 years. And of course, that means sustained employment, and optimal return out of this infrastructure, which benefits all stakeholders. With Sibanye Stillwater, we estimate that this transaction has about a R6 billion rand value uplift for our company. The US PGM operations had a tough second half for the year, and this was following the very tragic fatal accident that we suffered in June. The production out of these operations was approximately 270,000 ounces for the second half of the year, which was about 11% lower than the comparative period in the year before. The lower production output combined with inflationary pressures and rising inflation in the U.S. environment, together with the need to bring in higher contractors to supplement skill shortages that we were suffering in the area, resulted in a year-on-year 18% increase in unit costs to just over $1,000 per ounce for the year and just under $1,040 for the second half. The operations battled with several operational constraints during the fourth quarter in particular, which largely have been dealt with. But in the medium term, we will continue to suffer constraints, predominantly as a result of revised operating procedures post the fatal accident. And what that has really meant is that we cannot have people in rubber-tired vehicles operating in rail ends at the same time as rail equipment. This has had a significant impact on our mining efficiencies, particularly at Stillwater West. That is likely to continue for the medium term until such time as we are fully installed proximity detection systems that will allow us to operate under a new procedure in that area. In addition, I think like much of the U.S., Montana currently has a very low effective negative unemployment rate. And as a result of that is the birth of schools in the region at the moment, and attracting skills and experiencing high attrition rates among our employees has been challenging during the course of the year. As a result of these constraints, and we do foresee them continuing into the medium term, we will be reassessing what the optimal output operational output is from the Stillwater assets over the coming months taking these constraints into account, as well as our forecast for the medium term palladium market conditions. Pleasingly was the conclusion of a three-year wage agreement at this Boulder, which was a sustainable agreement and my compliments to the team and the unions for constructive engagement during that process. The PGM recycling continued to deliver significant value despite some real challenges during the second half of last year, particularly logistic challenges associated with COVID, moving spent autocatalysts around the country. But in addition, there was also a significantly reduced amount of vehicle scrappage, that due to new car sales as a result of the microchip, as a result of the chip shortages that we saw during the course of last year. That means in total, we fed just over 350,000 ounces during the half. We were able to process a significant amount of our inventory, unlocking approximately $380 million in working capital during the period. Our recycling inventory at the end of the period was around 25 tonnes, which we expect to normalize to about 200 tonnes as we built it up throughout the year. Our output led to just over $50 million in adjusted EBITDA, along with an additional $9 million in interest earned from advances to our recycling customers. Moving on to our South African gold operations. Under the circumstances of some very tough safety interventions, self-imposed many of them. Under those circumstances, our gold operations managed to sustain a steady output and produced for the half, just over 550,000 ounces, which was 4% lower than the comparative period to last year. The lower output and significant inflationary cost pressures, in particular from Eskom, steel, and chemicals, as well as catching up capital in the form of orders of development sustaining capital that was underspent during 2020 as a result of COVID resulted in a total 16% increase in unit costs to R814,000 per kilogram. ERD production was 3% lower and a 10% higher costs. And that combined with an average rand gold price of R860,000 kilogram, some 11% lower than last year resulted in our EBITDA being R2.8 billion, or just under half of what we achieved over the comparative period. Nevertheless, this is still an 18% adjusted EBITDA margin. As many of you would be aware, we are continuing with wage negotiations at our South African gold operations. In December of last year, a modeling that was undertaken on our TSF together with ourselves and our engineers of record, identified the risk due to excessive pore pressures at our Beatrix tailings facility. And this modeling combined with the excessive rain that we were experiencing at the time, allowed us to make a decision to stop deposition onto this tailings facility until rehabilitation work had been undertaken. That rehabilitation work includes the building of the buttress wall in the area recognized as higher risk on the tailings dam. We anticipate that this rehabilitation will be completed by the end of March. During this period, underground production is continuing at Beatrix on that ore is being stockpiled. And we expect to be able to treat all of that stockpiled ore during the second and third quarters of this year. So in terms of annual guidance, starting off with our US PGM operations, and clearly taking into account the constraints which we are currently operating on that, we forecast production for this year to be between 550,000 and 580,000 ounces. As I mentioned, this is currently being assessed to determine what the optimal output should be in the medium term. All-in sustaining costs of those levels would equate to around $1,000 per ounce and capital is estimated at around $300 million, which includes $70 million of project capital. Our US recycling is forecast to be largely flat between 75,000 and 800,000 ounces. And similarly, at our South African PGM operations we are forecasting flat production at between 1.75 and 1.85 million ounces, at a cost of between R18,500 and R19,000 before adjustments. Capital at our PGM operations is marginally higher at R4.7 billion and that includes R1 billion of project capital being spent on our K4 project. At our South African gold operations, we had a self-imposed safety stoppage at Beatrix, our Beatrix operations only commenced production in February of this year. And as a result, we are lowering guidance for our gold operations to between 25 and 27 tons of gold. The lower production and the stoppage of Beatrix does mean that we are anticipating higher unit costs. Currently, we're forecasting between R875,000 and R925,000 per kilogram. Capital is marginally lower, having caught up much of the ore reserve development and capital last year from 2020. And that is forecasted about R5.2 billion and includes R1.5 billion for the Burnstone project and R350 million for the continuation of our Kloof 4 DTRAN project. Thank you very much. And I will now hand over to Charl for the financial review.

Charl Keyter, CFO

Thank you, Richard. Good afternoon and good morning to all participants on the call. Once again, it gives me great pleasure to share the excellent financial results with you for the year ended December 2021. Starting with the income statement, revenue increased 35% from R127 billion in 2020 to R172 billion in 2021, following the continued strong performance of PGM prices. Interesting to note compared to 2019, revenue increased by R100 billion, or 136%. Cost of sales were up 33% from R76 billion in 2020 to R101 billion in 2021. Most of the cost increases excluding the year-on-year above-inflation increases in labor, electricity and consumables related to an increase in recycling costs of R14.8 billion, which is directly linked to the increase in the recycling PGM basket price. The recycling PGM basket price increased from $2,200 per 3E ounce to about $3,500 per 3E ounce. The balance of the cost increases was due to the very profitable, albeit higher cost of the purchase of concentrates at our SA PGM operations amounting to R3.2 billion. The result of the aforementioned is that EBITDA increased 40% year-on-year to R69 billion rand. If we now turn our attention to the standard items for the year, net finance expenses were down from R2.1 billion to R1.3 billion rand in 2021, mainly due to lower average debt for the period and higher cash balances. For the period, we recognize the loss on financial instruments, which were mainly made up of the following a 4.7 billion loss on the Rustenburg deferred payment was realized. The loss is primarily driven by the significant increase in the 2021 actual profitability. The balance being changes in the future consensus PGM input prices used to value these liabilities. Just as a reminder, this liability is calculated at 35% of distributable free cash flow generated by the Rustenburg asset over a six-year period, ending in December 2022. The balance of the loss on financial instruments was due to the Rustenburg and Marikana share based payment obligations that increased R1.3 billion also driven by the changes in future consensus PGM input prices. Right down or in payment of our SA gold assets of just over R5 billion was recognized at year end. At 31 December 2021 a number of factors including above inflation, wages, and electricity prices were identified that negatively impacted the ability of the Driefontein Kloof and Beatrix operations to recover the carrying value of mining assets over their respective remaining lives of mines. Additionally, an assumed long-term gold price forecast and this is based on sell-side analysts consensus of approximately 750,000 grams per kilogram or $1,500 per ounce in real terms negatively affected the forecast cash flows from these operations. This led to the recognition of impairment losses at the Driefontein Kloof and Beatrix reportable segments. Royalties at R2.7 billion and mining and income tax of R13.7 billion increased 54% and 183% respectively. The increase in mining and income tax was due to the significant increase in profitability and the recognition of the previously unrecognized deferred tax asset at Marikana. After accounting for all of the aforementioned profit amounted to R34 billion. Headline earnings for 2021 were approximately R37 billion compared to R29 billion rand in 2020. Headline earnings per share for the period was 1.272 per share. Next slide. That debt and liquidity maturity profile highlights that we now have a deferred low risk maturity ladder. At period end, the $600 million and R5.5 billion RCF facilities were fully repaid. And the only outstanding debt that was recourse to the balance sheet was the $1.2 billion bond issued in November 2021. It is worth noting that the bonds issued in November were not only upsized to $1.2 billion, but will also result in an approximately $170 million of interest or coupon savings on a like-for-like basis compared to the 2022 and 2025 bonds that were issued in 2017. The US Dollar RCF matures in April 2023 and the rand RCF matures in November 2024. And these will be extended or refinanced well ahead of these maturities. Liquidity headroom at the end of the year, stood at R48 billion and consisted of R30 billion in cash and the balance of R18 billion in undrawn facilities. Next slide. The dividend momentum was maintained at the upper limit of our dividend policy. The final dividend for H2 2021 was 187 cents per share, bringing the full-year dividend to 479 cents per share, a 30% increase year-on-year and a yield of over 10%. Returns to shareholders for the 2021 year amounted to R22.3 and was split R13.8 billion in dividends and R8.5 billion in share buybacks. Thank you. Next slide. This table illustrates the clear value proposition of Sibanye Stillwater, looking through the lens of return of capital to shareholders. From a dividend yield perspective, Sibanye Stillwater can be at the number one position closely followed by our South African PGM assets. If we include buybacks, and we look at total returns to shareholders on an absolute basis, we still came in at the number three spot. However, measured in market capitalization, Sibanye Stillwater ranks in the number six position among the gold and PGM producers as presented on the slide. Moving on to the next slide. We continue our disciplined delivery on all aspects of our capital allocation framework. Looking at the performance for 2021, we achieved or exceeded our capital allocation priorities as measured in each of the capital allocation buckets. We have further refined our capital allocation framework, and I would like to highlight two additions to the capital allocation framework. The first is the renaming of the dividend bucket to the stakeholder shared value bucket. The change here is that we have looked at various funding mechanisms for social upliftment projects and to ensure that this is based on profitability and aligned to our other important stakeholders being our shareholders, we have decided that with each dividend declaration, we would like to set aside an amount equivalent to 1.5% of the dividend declared to fund these extremely important ESG initiatives. The second change or addition is the inclusion of a new innovation and market development, Research and Development Fund named the BioniCCubE. This was agreed to by the Board of Directors and on an annual basis we will allocate up to 1.5% of EBITDA subject to strict investment criteria. We believe that these two important factors further strengthen our discipline capital allocation. I would now like to hand back to Neal, who will take us through the outlook and the conclusion.

Neal Froneman, CEO

Thank you, Richard. And thank you Charl. I'm going to just complete the presentation with a brief outlook and conclusion. So, they are experts in PGMs. They are experts in battery electric vehicle forecasts, and I don't intend to try and portray myself as an expert, we understand the supply and demand side of these metals very clearly, and I don't want to repeat what is obviously good work done by many other people. But I do want to provide you with our view at a high level regarding perhaps a slightly different view, and we believe PGM demand will remain well supported well into the 2030s. And it's predominantly because internal combustion engine vehicles have a substantial future, much more than what I think is being given credit to. And it's because the forecasts of the penetration rates of battery electric vehicles are, in my view, substantially overstated. And yes, I do know that a lot of this has been legislated. But when we are not able to provide the metals required for batteries, I do suggest that governments will revisit their legislation to take account of that. But in addition, they are tightening emissions regulations, which will support PGM demand. And I would also say that I do believe that technology regarding internal combustion engines will also improve. The growth in heavy duty fuel cell electric vehicles will also underpin PGM demand. And then of course, in the longer term, the hydrogen economy will really provide that demand underpinned post 2030. So the outlooks for PGM remain constructive and robust. As I've said, on the battery metals, there's a very aggressive market forecast, and those are going to be tempered by battery metal supply constraints. I think we talk generically about lithium and nickel, but they are very specific requirements for battery-grade, lithium hydroxide. That's already in a deficit in 2021. And that deficit is going to deepen substantially. Nickel prices and nickel sulfate is of course the requirement or battery precursor. Nickel is at all-time highs, as demand clearly outstrips supply. So, I do see major constraints and I do think despite nickel prices being elevated, despite lithium prices being high, these are still lows in this battery metal cycle. So let me then conclude. And you will notice the heading is Adapt or die. And, as I said, right at the beginning, our strategies have served us very well. And they've in fact delivered the results that you've seen today. So, our strategic delivery, we do what we say we will do. It's not always popular. But we do what we say we will do and it's really worked to our benefit. We've delivered record annual earnings. We have a well-timed entry into the green metal sector. As I've said, I believe there's a lot of upside on battery metal prices, which is also going to constrain the penetration rates of battery electric vehicles. We are delivering on all elements of our capital allocation framework. You've seen that in terms of our dividend; you've seen that in terms of our share buyback. You've also seen refinements to our capital allocation framework and very importantly together with shareholders, we are making commitments to invest in social upliftment to avoid angry people and be a force for good. And you've also seen us enhance our approach to market development research and development through our BioniCCubE fund. We've been very focused and disciplined on M&A. If we can't grow in the battery metal space, because we can't create value, we won't do it. But we will not compromise on value and achieving our hurdle rates. And I think you've seen clear evidence of that. Our new refreshed strategy is enhanced and it's enhanced our strategic positioning for future resilience and I believe success. It's a class-leading strategy, it's a 10 to 15 year strategy. We've raised the bar in just about every area that we have a strategic focus, so I have no doubt, we will be a force for good. And then just again, Larry Fink in his letter, which you can read on the internet. He said, I believe the decarbonization of the global economy is going to create the greatest investment opportunity of our lifetime. It will also leave behind the companies that don't adapt, regardless of what industry they're in. And I think Larry Fink is spot on. And we are certainly going to be one of those companies that prospect in this environment. So at this stage, thank you for your time. I hope you found all the submissions and presentations interesting. I am going to hand over to James Wellsted to facilitate the question and answer session. Thank you, James.

Operator, Operator

Thanks, Neal. As usual, we'll start with the questions over the webcast. And then we'll go to the phones once we've been through a couple of questions that come through online. The first one, I think for you, Neal is Wayne. With the current lithium price at its all-time high, is Sibanye likely to exercise its option to increase its current investment in Keliber? And if so when?

Neal Froneman, CEO

Yes, thanks, James. Wayne, that's a good question. As I mentioned in my presentation, although some commodities are reaching all-time highs, the anticipated future shortages or constraints in these markets indicate that these prices are not at their peak. There is substantial potential for growth, particularly for high-quality metals produced correctly in the right market. Therefore, we will definitely continue our process to gain control of Keliber. I expect this to occur as we complete the feasibility studies, likely within the next six to nine months.

Operator, Operator

Thanks, Neal. I've got a couple more questions. Just these two are really similar on the Appian transaction. I'll ask from Tyler Broda, first, can you provide some color on what's happened with the Appian transaction? And why you decided to not complete it? And then what closes did you have in the sale and purchase agreement? Maybe you want to answer first and then I'll ask the rest?

Neal Froneman, CEO

Yeah, certainly. Thanks, James. And Tyler simply put, most M&A transactions have clauses that if there's a material adverse change or effect, post the signing of an agreement, it's your right as a buyer to exit the transaction and that's exactly what happened. There was a geotechnical event which we deemed as material. And because Serrote and Santa Rita were joined in the same transaction, we exercised our right on a material adverse effect clause to exit the transaction.

Operator, Operator

Then the next part of Tyler's question, do you see this affecting your ability to transact with other companies in the future? And then linked to that now with prices running, do you see more potential for M&A and if not do you expect excess cash to come back to shareholders?

Neal Froneman, CEO

So, first of all, I see absolutely no reason why this should affect our ability to do further transactions. These things do happen. And of course, I think from our shareholders, we will have full backing because the valuation considerations were very disciplined. In terms of pricing, I think I answered that in the previous question and alluded to it in the presentation. The low prices commodity prices are high, there are going to be severe constraints and I think we can look forward to much higher commodity prices. That does not mean we will assume much higher commodity prices in making our decisions regarding whether something is value accretive. But the perception that we had all-time highs, and this is the peak of the market in battery metals is completely wrong. And sorry, there was a third part to that James.

Operator, Operator

I have just deleted the question. I think it was about returning excess cash to the shareholders?

Neal Froneman, CEO

Yes, look, I think we have presented our capital allocation model and we've shown that we've applied a very disciplined approach to returning cash back to shareholders and stakeholders. Now, we are not going to declare exceptional this or extraordinary dividends at this stage, we have a useful proceeds. But if we get to a point where we cannot find, let's say external growth opportunities, we cannot create value through organic growth within our business, of course, we will return it to shareholders. But we believe our current dividend yield is industry-leading, we believe we are providing a fair return to shareholders. And if we have excess cash, we will use it for other purposes until we hit a dead end on those processes. So there will be no additional returns at this stage.

Operator, Operator

Thanks, Neal. This is from Ahmed Hakeem. He was just asking with regard to the recent claims and statements by Appian, could we provide more detail on the geotechnical event? And then I guess more importantly, what is your confidence level that you are legally secure?

Neal Froneman, CEO

Ahmed, thanks for that question. Look, the one thing I want to state up front is we are not going to litigate on this issue in the public domain. That's not proper, it's not appropriate. So I think, first of all, we've got a high degree of confidence in our rights in the fact that that was material. And really that is the amount of detail that I am going to supply. So just to summarize, we have a high degree of confidence. And we believe the geotechnical event was very significantly material. Thank you.

Operator, Operator

Then the next question from Wade Napier. And, Neal, I guess you could or perhaps Richard as well, what levers do the SA gold assets have to reduce costs in the event that demand turns free cash flow negative? And then the second part is related to the share price having increased by 50% year-to-date. Does this change how management might think about funding M&A? That is would be willing to issue shares to fund future M&A?

Neal Froneman, CEO

Yes. So I'll ask Richard to answer the gold question. Let me deal with the share price increase and whether we would use that as let's call it currency, in any M&A? Certainly we acknowledged the increase in our share price, it's pleasing. I would also suggest though, we still significantly undervalued. So the use of shares at this stage is highly unlikely. I think there's substantially more upside in our share price and perhaps higher values. That may make sense. Now, I need to quantify that and say it depends also on the target. If our relative share price is trading at a higher premium than the target, then of course it makes sense to use our currency, but in general, I would say we are still significantly undervalued.

Richard Stewart, COO

Thanks very much Neal. And, Wade, I guess there are a couple of triggers you can pull in these circumstances. What I would say the key ones are obviously having a stable production output is critical. And I think that is a base that we started establishing, again, last year, after many years of disruption, be it strikes and COVID. But that's the first critical one. Secondly, we obviously have a capital profile that is designed to support the current life of mines, which as I highlighted earlier, Beatrix 4 years and Kloof and Driefontein 10 years, under a very depressed environment, those life of mine we have looked at. And of course, then capital is a lever you can pull. But that is a long-term decision. I think in the short term, the two key aspects we need to focus on are one, we have a very aggressive overhead costs focus at the moment. And we do have several programs in place to try and reduce that. And then the final one is really managing our operating footprint. We do have many of our footprints, Cooke is a good example, with the care and maintenance and pumping costs of Cooke are currently costing us around R600 million a year. And that is really a regulatory process to go through to be able to close those and managing and reducing our operating footprint can have a substantial impact on costs, and therefore on sustainability of jobs as well. So certainly managing our footprint and rehabbing together with other stakeholders is a key element in keeping those costs down.

Operator, Operator

Thank you. The next question comes from Adrian Hammond. Well, two questions really potential size of claim from Appian, can we provide that and then will we need to make a provision?

Neal Froneman, CEO

So, Charl, you can answer the provision part of the question. Adrian, I think that's a question you must direct at Appian, we are not aware of a specific claim as of yet we've swapped letters, but I would ask you to address that to Appian. I just wanted to come back to the gold question that Wade asks, and just add on to what Richard said, is, we will not run out our gold business and bleed to death, should we have large negative cash flows? I just wanted to make that point. But Charl, I believe there is a note in the financial statements, but over to you.

Charl Keyter, CFO

Thank you, Neal. And Adrian, at this point in time, there is no requirement to raise a provision. I mean, there's just still too much uncertainty. The only time that you do raise a provision is where you have certainty. So if this gets to a position where we have certainty on a claim or a judge makes a decision on that, at that point in time, we'll consider raising anything, but for now, nothing.

Operator, Operator

Thanks Charl. For Richard from Adrian, the last question, can you expand on the new strategy from Kroondal? What is the life extension and will it remain a mechanized mine?

Richard Stewart, COO

Thanks, Adrian. Yes, it will remain a mechanized mine. So certainly, there is no intention to change the mining method, the infrastructure still remains as is and of course, that is to support that mining method. Essentially, what the strategy is, as Kroondal sort of mines down to the extent to the depth extent of what that mine boundary was, and in some cases also to lateral extents. And really, what we have the ability to do is now to drop those boundaries, continue down with a bit of depth, as well as continue laterally into the adjacent Rustenburg Grande. So really, what the strategy is, is to optimize the mine plan, seeing the Kroondal property or the old PSA property, and the Rustenburg property as one. That is really the strategy. In terms of extending the life. Most of those shafts without having done this transaction, most of those shafts would have come to an end of their life in around about 2024-2025; we just wouldn't have been able to carry it as a standalone unit. By doing that, but completing the transaction, a lot of those shafts will now continue well into the latter part of this decade; 2028-2029. As I mentioned with some of the shafts, from the mine in particular, actually been able to continue for 16 years. So it is about our original strategy with putting contiguous assets together, dropping mine boundaries, allows you to optimize surface infrastructure, underground infrastructure, and therefore mine plans.

Operator, Operator

Thanks, Richard. I'll just ask one more question. Then we'll go to the phone lines and then we'll come back to the online questions. Just a question from Luyolo Mkentane from Business Day. He's referring to the Strike Ballot Report that the CCMA produced, that's been distributed to the media. And just asking for a response on that, Neil.

Neal Froneman, CEO

Yeah, I think it's safe to say that if you look at those numbers, and I'm not familiar with exactly what's been circulated to the media. But certainly as you've seen, Solidarity is not in support of the strike. When I look at the numbers, I don't see UASA in support of the strike. When I look at the split across NUM, NUM Beatrix is not in support of a strike, within the West, BITS is in support of a strike. And of course, the AMCU is in support of a strike. But I must also point out that if you consider the balloting process fair when people stand in a stadium and raise their hands and the sample is somewhere around 15%, maybe 20%, I don't think that's indicative of a fair balloting process or representative of the workforce. Irrespective of the balloting process, we will not be changing our offer. Our offer is final. And really the union or this coalition needs to decide whether they're going to strike or not. We are not raising our offer. And that needs to be very clear. Thank you.

Operator, Operator

Thanks, Neal. And just to point out to what Neal's referring to, there were 8,224 employees who voted in this ballot process, and we employ about 31,000 people at our gold operations. So it's a very small segment of that population. Maybe if we could go to the phone lines for a couple of questions.