Earnings Call
Sibanye Stillwater Ltd (SBSW)
Earnings Call Transcript - SBSW Q2 2021
Neal Froneman, CEO
Good morning and good afternoon to our international audiences. Welcome to our H1 2021 results presentation and a strategic update that I think you will appreciate. Richard Stewart, our Chief Operating Officer, will share the operational results and updates for the first half of 2021, followed by Charl Keyter, our CFO, who will present the financial results for the same period. After the presentation, there will be a Q&A session where you can engage with our corporate executives. For those unfamiliar, the robotic arm we will discuss later is part of our advanced recycling business, which some of you might have seen during visits to our Montana operations. Now, let's move to the presentation highlights, starting with our safe harbor statement. People are our most valuable asset, and ensuring their safety and health is our top priority. We did experience a setback in safety, which Richard will address in detail, but I am pleased to report that we have revitalized our safety strategies, implemented new measures, and already seen positive results. We are also making great strides in our COVID-19 vaccination efforts, with over 40,000 of our employees vaccinated, and we aim to extend that to even more, working alongside the Department of Health to roll it out in our communities. Another key point, which I will elaborate on later, is that we have developed our ESG focus areas into a comprehensive sustainability strategy, which now drives our entire corporate strategy. We committed to achieving net carbon zero by 2040 and are making significant progress, particularly in renewable energy projects. We have delivered record financial results, especially in our South African PGM segment, which performed exceptionally well. Despite some safety stoppages impacting our US operations and, to a lesser extent, South African gold, we achieved remarkable financial outcomes. Our adjusted EBITDA reached ZAR40.5 billion or $2.8 billion for the first half of the year, with record adjusted free cash flow of ZAR17.3 billion or $1.19 billion. In terms of disciplined capital allocation, we previously shared our framework and have consistently adhered to it. We redeemed our 2020 two bonds during August 2021, declared an interim dividend of ZAR292 cents per share or $77.21 per ADR, equating to nearly a 10% dividend yield, and we also initiated a 5% share buyback, having repurchased 1.92%, or approximately ZAR2.4 billion worth of shares. Despite these commitments to shareholders, our balance sheet remains strong with a net cash position of ZAR10.2 billion or $702 million. We will discuss the precious metals markets in greater detail during our Investor Day in September, but strong long-term PGM fundamentals persist, even amidst short-term volatility. The gold market appears stable. There has been substantial interest in our battery metal strategy, and while we won't disclose everything to maintain our competitive edge, I will update you on our strategic acquisitions in the European battery electric vehicle sector, including the Keliber lithium hydroxide project and the Sandouville nickel facility, along with our complementary green metal strategy. Looking at our history of diversification and growth, you'll notice our significant PGM exposure and our substantial achievements in South Africa, with promising stability in gold and ongoing developments in the US. Our net cash to EBITDA ratio has doubled from last year, demonstrating our successful diversification strategy. Regarding production, please note the pie chart reflects production in ounces, not value, with a considerable portion from our South African PGM sector. Notably, we are now segmenting our recycling business as its own unit, and I will provide further details on that later. Recycling accounts for 17% of our production, indicating the success of our transition from a single commodity to a multi-commodity business. Now, I'll hand over to Richard for the operational update and results. After Richard's segment, he will pass it over to Charl for the financial results. Thank you.
Richard Stewart, COO
Thank you, Neal. Good afternoon, everyone, and good morning to our colleagues in the US. It is a pleasure to provide an update on our operational performance for the first half of 2021. As is our practice at Sibanye Stillwater, we begin with a safety moment. Unfortunately, we have observed a decline in our safety statistics during the first half of this year, a trend that began following the impacts of COVID lockdowns last year. We extend our heartfelt condolences to the friends and families of the eight colleagues we lost this year. Our safety strategy, which has been effective in the past, is supported by a cultural transformation program focused on values-based decision-making and effective risk reduction initiatives. In response to the ongoing safety decline, we launched our rules of life campaign in June, which focuses on high-risk behaviors with a zero-tolerance approach. This initiative is central to our Zero Harm safety strategy, which emphasizes empowered people, an enabling environment, and appropriate systems. We are pleased to report a notable improvement in all safety statistics since implementing this initiative and throughout the third quarter to date. Our South African PGM operations have performed excellently over the last six months, with a 42% production increase to just under 900,000 ounces compared to the same period last year. We have effectively managed our costs, achieving a 10% year-on-year reduction in all-in sustaining costs, keeping them below ZAR17,000 per 4 ounces. This production boost, alongside a 60% rise in the 4E PGM basket price, resulted in ZAR14 billion of free cash flow from these operations in the first six months, corresponding to a 66% adjusted EBITDA margin. Additionally, the integration of the Marikana operations has been successful, with an actual cost reduction of 13% over the past two years, despite lower volume output and inflationary pressures. We've effectively utilized spare capacity at our processing facilities, processing an extra 35,000 ounces of third-party material in the last six months. Our Stillwater operations were positioned to have a record performance for the past six months. However, a tragic safety incident at Stillwater West led to a 21-day shutdown, resulting in flat year-on-year output for the first half. The effects of this incident will continue to influence operations for the rest of the year. On a positive note, the ramp-up of the Blitz project has exceeded expectations, helping to partially mitigate the negative impact from Stillwater West. Consequently, the decline in production, along with a 24% increase in our 2E basket price that affects royalties and taxes, has contributed to a 12% rise in all-in sustaining costs at this operation, now at $973 per ounce. Despite these operational challenges, our underground operations achieved an adjusted EBITDA of $437 million for the first half of this year, reflecting a 65% EBITDA margin for only the underground segment. Stillwater also houses one of the largest recycling facilities globally, which produced over 400,000 ounces in the past six months. This output generated $50 million in adjusted EBITDA from our recycling operations, and when combined with $12 million in net interest income from short-term advances to recycling customers, it leads to an EBITDA margin of 5%. Given that our working capital turns approximately four times a year, this 5% margin translates to a 20% return on that investment. This recycling business not only offers low-risk opportunities with attractive returns, but also plays a vital role in the global demand and supply balance. Our recycled ounces have a significantly lower emission and waste footprint, which aligns well with our primary production and lays a strong foundation for future growth. Our South African gold operations showed steady performance, with a 29% production increase to just over half a million ounces compared to the disrupted period last year. DRDGOLD contributed about 88,000 ounces, while the rest came from Kloof, Beatrix, and Driefontein. Overall, our all-in sustaining cost was just under ZAR800,000 per kilogram, remaining stable year-on-year. Despite a 3% decrease in the average gold price, increased production resulted in a 40% rise in EBITDA to just under ZAR2.5 billion. Looking ahead, we forecast a slight decrease of about 40,000 ounces in our US PGM operations, or approximately 6%, due to the ongoing impact of the safety incident at Stillwater West. This reduced output has also led to an increase in all-in sustaining costs, and combined with a higher forecast for the 2E basket price impacting taxes and royalties, we anticipate all-in sustaining costs of between $910 and $940 per ounce, approximately 8% above previous guidance. Capital is expected to decrease by 6% to 7%. Our US recycling business remains stable, with a forecast of around 800,000 ounces for the full year. No changes are expected to our production or cost guidance at our South African PGM operations, though we do expect a reduction of about ZAR350 million in capital, which is driven by real cost savings and delays in some project capital due to permitting timelines. Our South African gold operations' production is flat, and guidance remains unchanged; however, due to higher-than-expected inflation, particularly in steel and electricity costs, we foresee a 5% increase in all-in sustaining costs to between ZAR815,000 and ZAR840,000 per kilogram. We also increased our capital outlook at our gold operations by ZAR300 million for the Burnstone project capital approved by our Board. Thank you, and now I will turn it over to Charl. Thank you.
Charl Keyter, CFO
Thank you, Richard, and good afternoon, and good morning to all participants on this call. It again gives me great pleasure to share our financial results for half one 2021 with you. If we start with revenue, revenue increased 63% to just under ZAR90 billion compared to the corresponding period in 2020. The improvement stems from very solid operational performance and strong commodity prices. Costs increased by 28% period-on-period and this was mainly due to the normalization of the cost base following containment measures implemented during the hard lockdown period in 2020. We also saw an increase in recycling material treated, remembering that the costs of our recycling business are directly proportionate to changes in platinum, palladium, and rhodium prices. The basket price for our recycling business averaged $3,200 per 3E ounce for half one 2021 compared with $2,200 per 3E ounce per half one 2020. We reported record adjusted EBITDA of ZAR40.5 billion compared to ZAR16.5 billion in half one 2020, which at the time was also a record. The ZAR40.5 billion represents a 45% margin. Moving on to finance expenses. Net finance expenses reduced from ZAR1.2 billion in half one 2020 to ZAR640 million in half one 2021, and this was due to lower outstanding debt and higher cash balances. Following the early settlement of the 2022 bonds, we expect this number to decrease even further. Share of results of equity-accounted investees after tax increased from ZAR484 million to ZAR1.4 billion, and this was driven mainly by the performance of Mimosa following the strong commodity prices that we experienced during half one 2021. Royalties were up fourfold to ZAR1.6 billion and mining and income tax up 4.5 times to ZAR9 billion. This was driven largely by the increase in profitability for the business. Profit for the period was ZAR25.3 billion, up from ZAR9.7 billion in half one 2020, and this equates to an earnings per share of ZAR843 cents per share. Moving on to the next slide. In line with our dividend policy, we declared an interim dividend of 2.92 cents per share or 35% of normalized earnings. Normalized earnings for the period were ZAR24.4 billion, and this resulted in an industry-leading dividend of about ZAR8.5 billion or a yield of 10%. This slide also highlights the track record since the resumption of dividend payments in half one 2020. Since half one 2020, we have returned ZAR19.3 billion in dividends. Overlay on this, the approximately ZAR9.6 billion in share buybacks, this is a return of almost ZAR30 billion. Turning to cash generation. The significant cash generation has continued into half one 2020. Cash generated by the operations was ZAR59.7 billion. Working capital increased by ZAR4.5 billion, mainly at our recycling business due to the increase in the 3E basket price, up from $2,200 per 3E ounce to $3,200 per 3E ounce. Capital expenditure was ZAR5.6 billion. Royalties and taxes amounted to an eye-watering ZAR10.3 billion for the half-year, and I'm sure the incoming Minister of Finance and the Commissioner of Revenue Services welcomed this contribution to the fiscus. The dividend for 2020, as well as dividends due in terms of our employee ownership plans, was paid during this reporting period and amounted to ZAR9.7 billion. The deferred payment of ZAR2.3 billion related to the deferred purchase consideration of the Rustenburg assets that we acquired from Anglo Platinum in 2016. During this period, we also repaid loans of ZAR750 million and the share buyback up to the end of June amounted to ZAR750 million. The net result of this is that cash increased from ZAR20 billion to ZAR26 billion. In terms of our capital allocation framework, we continued with our strict and disciplined approach. Looking at project capital, the project setup and administration of the K4 project, Burnstone and Klipfontein started during this period. An estimated expenditure for 2021 is approximately ZAR845 million. Cash reserves for half one 2021 were ZAR26 billion, which is well above our targeted level of ZAR20 billion, which consists of a debt buffer of ZAR15 billion and a cash liquidity buffer of ZAR5 billion. Returns to shareholders in the form of dividends for half one is ZAR8.5 billion, which is at the top end of our dividend policy. And as highlighted earlier, dividends since the start of 2020 amount to ZAR19.3 billion. We have further reduced our debt with approximately $350 million, post half one 2021 through the early settlement of the 2022 bonds. And we are still on track to refinance the 2025 bonds with a $500 million issuance towards quarter four. And as highlighted, this is to ensure that we have access to the debt capital markets but also to take advantage of the low-interest rate scenario. We committed when we have excess cash to consider share buybacks, and the buyback of 5% of our issued share capital started in June. The estimated quantum of the buyback is ZAR9.6 billion. Lastly, and to wrap up, we will continue to allocate capital in a prudent and responsible manner to ensure value is created for all stakeholders and to ensure that the sustainability of our operations is preserved. I will now hand back to Neal, who will take us through the final part of the presentation. Thank you.
Neal Froneman, CEO
Thank you, Richard, and Charl. I will now proceed with the strategic update. It’s essential for us to recognize our commitment to a greener future, and you will see that reflected in the upcoming slides. As I highlighted earlier, we've made significant strides in our ESG areas, leading to the development of a sustainability strategy, which represents a higher level of ESG commitment. This strategy is grounded in four key themes. First, we're focused on building a climate change resilient business, based on establishing a green metals operation. We are committed to avoiding involvement with non-environmentally friendly commodities and metals. Additionally, our operations must achieve carbon neutrality, and we have a detailed plan for reaching that goal. The second theme involves fostering long-term economic stability in the regions where we operate, with an emphasis on human rights and ethics, which are crucial for sustainability. Proper decision-making relies on accurate and granular data. These are the central sustainability themes I will discuss, particularly the focus on creating a green metals business and achieving carbon neutrality. Starting with carbon neutrality, I was pleased to announce the increase in generation licenses to 100 megawatts, a significant reform in the energy sector. I’ve mentioned to our minister the risks tied to uncertain processes and timelines, which have previously led to higher discount factors. The recent licensing changes have shortened project timelines by approximately three to six months and reduced risks, improving commercial outcomes. On the next slide about our carbon neutrality journey, you’ll see that renewable energy is our most effective decarbonization lever, since 88% of our greenhouse gas emissions come from electricity. We have numerous renewable energy projects approved for execution in South Africa, which address 97% of our scope two emissions. We had always planned for a renewable energy initiative in our gold division, but waited until we had clarity, and that site is now secured and fully permitted, with final approval steps underway for a late 2023 operational date. Furthermore, we’ve identified 250 megawatts of South African wind energy and are targeting a commercial operation date in late 2024. In our South African PGM sector, we're exploring 175 megawatts of solar energy projects, with permitting in progress and a target of operations by 2025. These projects are crucial for reducing our carbon footprint, and we'll execute them in a way that maximizes local economic empowerment and addresses social impact. Now, regarding the green metals business, this initiative is primarily supported by our current PGM exposure, as these metals help reduce harmful emissions and play a vital role in the hydrogen economy, particularly through fuel cells. Recycling and the circular economy are critical areas for us, and we plan to enhance our existing operations through better inventory management and logistics. Our involvement in tailings retreatment yields some of the greenest metals, including gold, and could extend to copper and PGMs. Importantly, this process also contributes to environmental cleanup. In terms of battery metals, we've been engaged in this sector for over two years, with initiatives like Keliber and Sandouville marking our entry into this space. We are focused on the European market for battery electric vehicles and are observing an increase in regionalized supply chains for battery metals. Lithium demand is expected to surpass current production rates, prompting us to expand our presence in the lithium sector. There’s also growing interest in nickel as battery chemistry evolves, which is why we acquired the Sandouville nickel refining facility in France. Our U.S. recycling business is a leader in recovering PGMs from spent auto catalysts using environmentally friendly methods. By recycling, we emit significantly less CO2, consume less water, and generate far less waste compared to traditional mining. Hence, we are establishing a dedicated recycling business unit, led out of the U.S., with aspirations for substantial growth in PGM recycling. Turning to uranium, we recognize its emerging importance and expect it to play a substantial role in our green metals strategy. The nuclear energy sector is poised for growth, especially in the Asia Pacific, and we're projecting increased prices for uranium in the long-term. We have considerable uranium resources at Beatrix West and Cooke, which we plan to develop further. Overall, our strategy focuses on transitioning to green metals while leveraging our existing portfolio of PGMs, tailings retreatment, battery metals, and uranium. We believe we have a unique first-mover advantage. While our market evaluation currently doesn’t align with our perception of value, we are working to enhance understanding of our business sections and their contributions to overall value. As we look forward, our financial performance has improved, with substantial increases in earnings and dividends compared to previous years. Our commitment to social responsibility is reflected in our investments and contributions to community initiatives and education. We aim for greater representation of women in our workforce, with a target of 30% female participation by 2025. Thank you for your attention; I will now hand over to James for the Q&A.
Operator, Operator
Thank you, Neal, and welcome, everybody. I'm just going to ask a few questions from the webcast first. The first one being from Warren Riley at Bateleur Capital. Let me just take this off for this section, please? Have auto manufacturers continued to buy PGMs despite the semiconductor shortages, eg, i.e., have they been stockpiling?
Neal Froneman, CEO
They have continued to buy. I would say that there's been a reduction in purchases, so I don't see it as a stockpiling event. Despite the chip shortages, the differences in vehicles that are being manufactured is really a few percentage points. So no, I wouldn't suggest that you're going to see ongoing demand disruption due to this. Certainly, the chip shortages will go on into next year, but I don't see it as a stockpiling. Thanks, James.
Operator, Operator
The next one is from Catherine Cunningham at JPMorgan. First question, on the SA gold cost provisions. How much of this is electricity driven and how much is the other costs? And then secondly, what other costs are seeing above-inflationary increases?
Richard Stewart, COO
In terms of that question, probably about 25% of the increase that we have changed our guidance by or forecast increase is due to electricity, and then the balance is really due to other inflation factors. The key other inflation or above-inflation increases we've been seeing are commodities driven. So anything that relates to steel support structures, draw rods, etc., that's definitely gone up quite significantly and then other industrial chemicals, etc., that we're using in our plants. Those would be the three big drivers.
Operator, Operator
The third question is from Arnold Van Graan at Nedbank. How long would it take to get full flexibility back at Stillwater? And could the issues there continue to impact 2022 production levels?
Neal Froneman, CEO
Thanks, James. Again, I think that's best answered by the Chief Operating Officer. So go ahead, Richard.
Richard Stewart, COO
Arnold, essentially, what has happened at Stillwater is we have a series of stopes that will be operating at less than normal capacity for a period of time; that will continue for this year. We can catch that up. The forecast we're looking at to get back to a normal level of faces is about 18 to 24 months. For a period of time, we will be operating at slightly less flexibility than what we would ideally be operating at.
Operator, Operator
The next question is from Steve Sheppard, a shareholder. Well done for the excellent results and the substantial returns to shareholders. Thank you, Steve. Looking at the valuation of the shares, which remain strangely inexpensive in my view, do you think it may make sense to back the gold operations into DRD for new DRD shares and then bundle these shares and ADRs to current shareholders? The name Sibanye Future Metals has a nice ring to it.
Neal Froneman, CEO
I would suggest that we should keep DRD focused on the tailings retreatment business. Compromising that strategy by reversing underground assets into it may not be advisable. We have stated to DRD that we do not want them to expand their underground portfolio. The focus should be on enhancing their tailings retreatment portfolio in line with the green metals strategy I presented. However, we will consider your suggestion. I like the sound of Sibanye Future Metals and we will take that into account. Thank you, Steve.
Operator, Operator
The next one is from Campbell Parry at Investec Wealth & Investment. Very concerned about the fatalities we've experienced at Sibanye since 2016. What real changes are you making to alter this unfortunate record and to what extent are the improvements baked into compensation?
Neal Froneman, CEO
Parry, thanks, and a very appropriate and good question. I assure you that safety and health and specifically safe production is our first, second, and third priority. It features before anything else in our discussions, in our business, and in our considerations. A few things are important to note, and it's very important to me not to make safety a statistic. Our safety strategy that we introduced more recently has been very successful. As you know, we built up a record number of fatality-free shifts in our ultra-deep level gold mining environment, which is our highest risk environment. Our strategy does work. I’ve noticed that COVID-19 and the return to work have created a major disruption in our safety performance. The link is really that a lot of our initiatives to achieve those record fatality-free shifts were based on getting teams to work together, getting team members to associate with their team members and look after each other. Unfortunately, in bringing people back to work post-COVID, we had to bring people back to work based on where they lived, not based on the original team. We've had to rebuild those team dynamics, and we don't do that overnight. That's been the primary driver. I also need to point out that if you look at absolute numbers, you're probably treating us very harshly, although, you have to look at absolute deaths and fatalities, but we do employ 85,000 people. When we look at rates, we are certainly performing better than most of our peers. We've still got a long way to go. We have made commitments to get down to industry levels related to the ICMM group, which includes a lot of open-pit mining operations in jurisdictions that are less risky. We’ve taken on that and we’re working towards that, and we have a strategy that takes us there. It is incorporated into our remuneration; both short-term and long-term remuneration are impacted by these very unfortunate events. To summarize, it's our key focus and it's our most important priority. Thank you.
Operator, Operator
The next question from asks good day. Thanks a lot for a great initiative on renewable energy. Any plans to share the energy with the public if the capacity allows or is it all focused on the business?
Neal Froneman, CEO
Absolutely. I think the way it's been designed out it would certainly be mostly focused on the business. If there were spare capacity and we do amend our strategy, certainly, we would look to do that.
Operator, Operator
Next one, again from . On PGM markets, do you see increasingly rampant autocatalyst impacting supply from this recycling source given the recyclers’ ESG imperatives, in brackets, can they risk buying stolen PGMs?
Neal Froneman, CEO
Steve, it's a major concern of ours. We have commitments and we are bound by assurances we give to various regulatory bodies in this regard. I'm going to ask Justin to comment on that in more detail. I specifically undertook a visit to a number of recyclers in the US. At each visit, I asked this question. I was comfortable with the amount of effort that goes into the regulatory controls that are in place and the sincerity with which these collectors and other recyclers look at catalysts. Justin, do you want to add to that?
Justin Froneman, Recycling Executive
As Neal has mentioned, it is a critical focus area for us. We are subject to good delivery requirements by Johnson Matthey and the LBMA and LPPM, which require us to source catalysts responsibly. Various subcommittees internally monitor this. We are also part of the IPMA concerning catalysts and catalyst theft and avoiding those being processed. As part of our KYC process, we only deal with sizable collectors. We undertake regular site visits to understand their processes. We also push down on those responsible sourcing requirements to our collectors. That is part of our contractual agreements as well as part of our KYC process. We're looking at technology around blockchain to trace catalysts. It's in its infancy but it’s certainly an area that we keep a lot of attention on. The entire industry is focused on this. It's a critical area for us to manage and mitigate.
Operator, Operator
The next question from asks good day. Well done on a great set of results. You mentioned that automotive manufacturing rebound is expected to satisfy pent-up demand during 2022. Are you seeing this currently from OEMs? Which metals are OEMs worried about in terms of demand? What would signal to you that we are on top of the cycle? And then when will you consider increasing the dividend payout ratio? So there's a few questions there. So maybe let's just start with the pent-up demand and what we're currently seeing from OEMs and what metals they're concerned about.
Neal Froneman, CEO
Yes, I do believe we will get back to normality in 2022. The chip shortages are being addressed in various ways; manufacturers are moving to get vehicles out with the highest profitability. They continue to deliver. They're delivering vehicles with chips to be retrofitted. While it's a bit of a crisis, it will resolve itself as the COVID disruptions become something of the past. This primarily occurs due to vaccinations, and it also become something of the past due to additional chip supply being put on stream. We do see things normalizing somewhere in 2022. In terms of the metals that remain critical and again, we'll give you more details on this at our Investor Day. But it's the same metals that are in deficit: rhodium, and this was with respect to order cuts at rhodium and palladium. Suffice to say that even under these conditions, we see the 3E basket being deficit even in this period. Thanks, James. The second part to that question, just to repeat it.
Operator, Operator
What would signal to you that we are at the top of the cycle? And then the next question was, will you consider increasing the dividend payout ratio?
Neal Froneman, CEO
Yes, let me get to the dividend payout ratio. I think we worked hard today to put to you and the investors that we believe and based on our track record that we can certainly create value through cash that is not earmarked for returns back to shareholders. We've laid that out in a way that shows how we can create superior value. If we are unable to deliver on that strategy, we will certainly increase our dividend payout ratio. I think we've demonstrated and very much in line with our capital allocation framework that we've put money aside to deal with volatility around debt and have some flexibility there. We've paid a dividend at the top end of our payout ratio, and we've implemented a share buyback. Yes, we do have some excess cash. I think shareholders will back us to continue creating value and sustainability. In terms of the top of the market question, I don't see a top in the market. I see a transition from good current fundamentals to one where PGM usage moves from predominantly order cuts into the hydrogen economy. The only metal that I see at some risk in that process and it will depend on developing other uses is palladium. That's not a new view; we've held it for some time. But certainly post-2025, with additional supply and the transition we’re talking about, palladium could come under pressure. Essentially, what I'm saying is palladium-rich projects that come into production around then are probably high-risk projects. Thank you.
Operator, Operator
The next question is from Patrick Mann of Bank of America.
Patrick Mann, Analyst
I just wanted to ask you on the green metal strategy. We understand that you’ve started this a while ago and you incorporated SFA Oxford, and you’ve done your homework. At the same time, it seems a bit of a feeding frenzy at the moment with everybody trying to pivot towards these green metals. How do you think about the kind of risk of overpaying or maybe a kind of winners curse here, where if you win an auction or bid for an asset that, given how desirable they are at this point, there's a risk of really overpaying to get your hands on it? Again, I understand you've done all the homework and that, but everybody seems to be fishing in the same pool.
Neal Froneman, CEO
Yes, Patrick, that's a great question. I will ask Laurent to provide a brief comment as well. Certainly, after two years of work, we are in a strong position to understand future market trends. We typically do not engage in competitive bidding processes, as we have a clear understanding of value based on our market insights and fundamental evaluations of resources and cash flow models. Laurent, who leads our business development, will emphasize that our primary rule is to avoid losing money, while the second is to ensure profitability. Having a strategy does not mean we will simply acquire assets during this competitive rush; we will remain very disciplined. I would prefer to return to our shareholders and explain that we could not execute our strategy while also noting that we anticipate many errors in the market. In the meantime, we will return cash to our investors because we were unable to proceed as planned, and we will pursue asset acquisitions in the future—most likely at more favorable valuations, given that we expect errors will occur. That is what we mean by discipline. While we can’t disclose the exact number, we've declined significantly more opportunities than we have pursued. Laurent, would you like to add anything?
Laurent Charbonnier, Business Development Executive
I will be brief on the two rules just for everybody's understanding. The first one, don't lose money, is about, are we the right owners of our business? How do we derisk the integrations? What is the ESG footprint? It's about being very disciplined with all the due diligence work, and it's important to be able to retain the very good people who are coming alongside these assets. When you're looking at some of these potential investments, whether acquisitions or smart partnerships, it is important to derisk capital deployment. We’re investing not only in assets but also in people. Very strict financial discipline is applied because it's important to work towards having an investment grade balance sheet. The second rule once you want to be the owner of a particular asset or invest in a partnership is to attract the right returns because we are very financially disciplined and want to rerate the company as opposed to making the wrong types of investments. There are a few opportunities available in battery materials and we hope to be successful in building a great battery material strategy.
Operator, Operator
Our next question is from Adrian Hammond of SBG Securities.
Adrian Hammond, Analyst
I have a couple of questions for you and your team. Just curious to understand a bit more about how the European governments and OEMs have changed towards battery manufacturing given the lead China has. Does this offer you support in terms of funding and partnerships? While we're on that strategy around battery metals, would you consider partnering with an OEM as part of your strategy? The second question is really for you, Neal. I'm interested to hear your comments around your view on the valuation. It's certainly not sell-side contrary to your comments given the consensus target price of ZAR92 a share. You've done all the right things, given improved earnings, dividends, share buybacks, debt reduction, strong ESG focus, etc. So I guess the question still remains: why do you think your stock is trading at a discount versus peers? The third question is for Richard around Stillwater. This mine has been experiencing some annual cost inflation of 9% in dollar per ton terms and I'm curious to ask around the outlook for Stillwater, whether the guidance. If you can remind us what the guidance is and whether that's still intact and whether these issues have consequences.
Neal Froneman, CEO
I will answer the first two and then Richard will address Stillwater specifically. What we have noticed strategically, and I'm sure most of you have seen this, is that COVID and the lockdowns, and because they didn't all happen at once, they were almost sequential, put OEMs in very difficult positions in that part of their supply chain, which came out of China or Korea got severely disrupted before they even went into lockdown in the US. From the beginning of COVID-19, there was a move or a consideration by OEMs to regionalize their supply chains into regions that they trust and can manage. We saw that feedback and it was visible just through reading. There's been a significant move around nationalism and the threat posed by focusing resources or production in one area of the world that has put other areas of the world at risk, and China and America is a good example. This regionalization of supply has actually resulted, very fortuitously for us, in being able to market North American Palladium for North America. This resonates with OEMs and governments. Governments have stepped up to the plate and are providing incentives and engaging with mining companies, certainly ourselves, to assist in the national interest worldwide. Our entry into Finland was essentially with the Finnish Mining Group, which is state-owned; our entry into France had a component of the French government as a shareholder. All these had approvals at high levels, but we committed to being focused and part of the solution in Europe. I dare say, we will do the same in North America and any other part of the world we step into. There are subsidiaries and backings that can be achieved from governments in the battery metal space because they are driving it based on their belief that it's environmentally responsible. The uptake will be much slower because of infrastructure constraints and a shortage of metals. Existing technology will survive longer than what people think because it will improve. Regarding partnering with an OEM, absolutely. We've engaged with OEMs on buying stakes in projects.
Richard Stewart, COO
At Stillwater, we fundamentally had two objectives over the last couple of years: the first has been about increasing flexibility at Stillwater West, so that's more development; the second has been about ramping up the Blitz project. You would have noticed that over the last half year, it was the highest capital expenditure we’ve ever done for Stillwater in terms of development, about 17% higher than we've ever done before. That build-up in capital does reflect in the all-in sustaining cost. I can say that the cash cost today at Stillwater, excluding all of capital, remains in the low 500s, which in fact is better than it has been over the last two years. The absolute increase that we've seen is pure capital, of which half of that is project capital. We expect long-term guidance to remain in the region of $700 per ounce at current prices. At lower prices, that number would be significantly lower. The recent incidents at Stillwater West have impacted flexibility, and that will remain for about 18 to 24 months, as mentioned earlier, as we get additional faces back online. That's really the only impact. There's no change to the long-term guidance or plan for the operation.
Operator, Operator
Our next question is from Raj Ray of BMO Capital Markets.
Raj Ray, Analyst
I just got a couple of questions. First is on the gold business, wage negotiations. Can you give us some color as to when we can expect updates on that? The second question is on leveraging the uranium assets. How soon can you expect these assets to be up and running? Does that fit within the Sibanye portfolio or is there better value in spinning it out while keeping a majority portion of the SpinCo? How are you looking at this?
Richard Stewart, COO
We are still in the middle of gold wages. I think we still have a way to go. Fundamentally, as you would have seen from the presentations, our underground operations are running on fairly thin margins given costs today. Stakeholders really need to come to the table to protect those margins and ensure those businesses survive through tougher times, allowing us to reap the value from them during the good times. This is a process that requires all stakeholders to come to the table. We've had some constructive discussions so far, but those discussions are continuing. I wouldn't want to commit to an absolute time right now; it's more important to allow the process to run appropriately.
Neal Froneman, CEO
On the uranium question, we haven't made a final decision on the structure yet. We've got a couple of ideas. Our structure with DRD has worked very well; it remains a separate listed entity where we have a controlling stake. We could do that with our uranium business. We need to retain credits from the exposure to green metals. That's under consideration. Timing will likely see more definition and perhaps even an announcement as to how that will transpire within the next quarter. However, producing uranium is probably still two years away. The Beatrix West mine has an operating shaft that would require some pre-development; some processing facilities might be necessary.
Raj Ray, Analyst
With respect to your SA PGM, the 175-megawatt solar project, you mentioned you completed the feasibility study in Q2. Can you give us an idea about what the capital is and the cost reduction you might see?
Neal Froneman, CEO
Rich, do you have any idea, you or Charl? We haven't approached it from a cost reduction point of view. But I have no doubt it will have a positive IRR and therefore, will yield some cost reduction. I don't think we've defined that enough. Rich or Charl, can you add anything?
Richard Stewart, COO
I don't have the exact capital numbers at hand. What I can say is the financing model we ultimately look at will be built off our balance sheet with a third party, and we ultimately sign up to a PPA. It won't be a direct capital outlay for us; it's a long-term commitment. Within the first year or two, we expect to achieve cost parity. The absolute side, I can't recall at this time. I can get back to you on that.
Operator, Operator
Our next question is from Leroy Mnguni of HSBC.
Leroy Mnguni, Analyst
I've got a couple of questions, two topics. First, your thinking around dividends versus buybacks or special dividends versus buybacks. Should we assume you’ll continue buybacks with excess cash for as long as the share price is well below what you think is fair value? The second topic is growth around your US recycling business. Referring to your comments, Neal, about palladium being at risk largely because of the growth of palladium-rich projects coming online. How do you see this development as different from your assets? Would this be limited to North America, or would you look to expand capacity elsewhere? Lastly, what are you currently running at in your recycling operations compared to capacity?
Neal Froneman, CEO
In terms of dividends versus buybacks, we always say dividends must be consistent, predictable, and industry-leading. The target should be around 4% to 5% dividend yield. That's not quite your question, but buybacks have to be more opportunistic. The research and work we did indicated that companies performing regular buybacks while maintaining good-quality dividend payments trade at a premium. So buybacks will continue to be part of returning value. Regarding special dividends, we would have no problem paying them, but I would see that as fairly of a strategy or of management to create value. We can’t give you an exact recipe; it depends on share price and other factors. In terms of US recycling, I think our focus is presently in the US as our recycling teams are based there, where we understand the market. Yes, we need to be considerate of palladium, but the recycling costs are much lower than those of primary sources. The Sandouville acquisition also gives us a step into Europe, which allows us to explore different recycling material compositions. So first, we aim to grow in the US before expanding to Europe. Justin, do you want to add anything?
Justin Froneman, Recycling Executive
From a capacity point of view, we don’t currently have a volume capacity constraint. Our operations feed about 25 long tons per day and are comfortable at that level. Managing the quality of feed is our biggest challenge. We could ramp up volume if needed but focus on low-silica carbide and low-carbon bearing materials pushes us to palladium-rich catalysts over diesel catalysts. The absolute volume that a recycling catalyst takes in our Montana smelter is relatively small compared to the concentrate. We will manage that in the meantime. Stillwater East's ramp-up will more likely pose a constraining factor, but that's a few years out for now.
Operator, Operator
Our next question is from Tyler Broda of RBC.
Tyler Broda, Analyst
I just had two questions. One is about the battery metals business due to the new push. How much CapEx do you think this will take per year once you reach a steady state? The second question is more philosophical or strategic: it seems like there's more focus now versus 12 months ago on the battery metals business. We haven't seen anything happen in gold and M&A. Do you see potentially better returns in the battery metals business than in gold M&A?
Neal Froneman, CEO
The acquisition strategy is not in isolation. We've committed that our acquisition strategy will not compromise dividends, so our CFO, Charl, is heavily involved in any decisions. We'll keep a close eye on capital costs, and while I can't provide a specific number for CapEx, it's considered while we focus. You're right; our priority is on battery metals, and we are not considering gold acquisitions at this time. We are aware of the combination of gold and other metals. While gold is precious, the risk lies with it, but we won't be pursuing gold now. Our focus is on battery metals. Our strategy has crystallized more, you'll see the building blocks coming together.
Operator, Operator
There are a couple more questions from the webcast, but some of them, I think we have covered. In the interest of time, we do have a bit of a hard cut off at about 5, which is a few minutes away. So I think the last question that I'd like to ask will be relevant and has been asked a few times, and I'll ask from Barry Davidson in Australia. He says well done on results, fabulous. Congratulations to all. Don't forget to greet to your shareholders in Australia. Is the South African government likely to manage the country from here on in a manner which will achieve economic performance allowing both social, political, and financial stability to enable society and business to operate viably? That’s a recurring theme Steve Sheppard mentioned earlier. How do we see the evolution of the business environment in South Africa? That will be our last question, and we’ll engage further at Investor Day. Thanks.
Neal Froneman, CEO
You're right; we were remiss in not acknowledging Australian shareholders and will correct that going forward. The recent events were not unexpected, and one of the highest risks on our risk register was social unrest due to various factors feeding into it. I was very unhappy that this risk arose. However, because of the work we had done and good governance, there was a relatively small impact on the business. Looking ahead, I think confidence in our government has eroded; it was low before. We see reform, but it's not backed by concrete actions. We continue to lobby with the government for the right decisions. What is clear is that civil society is trusting businesses much more than current government leadership, something seen in many parts of the world, including the U.S. We aim to do things in the national interest. The anarchy that occurred led to South Africans standing together and ensuring that such incidents do not occur again. To ensure operational viability, we will have to do more. We are in a position to do more.
Operator, Operator
Thank you, everyone, for attending. We appreciate your interest and the challenging questions. We will have our follow-up Investor Days in September. If you have additional questions, please feel free to email or call us, and we will address them.