Earnings Transcript for ANGPY - Q2 Fiscal Year 2021

Natascha Viljoen: Good morning, and welcome to our virtual presentation of Anglo American Platinum's 2021 Interim Results. Thank you for taking the time to join us today. I am Natascha Viljoen, the CEO, and I'm joined today by Craig Miller, our Finance Director. And together, we will present the first half performance. We also have time for questions and answers at the end of the session. I would like to draw your attention to the cautionary statement, which we will appreciate if you could read in full in your own time. Before we start, I will take a moment on behalf of everyone at Anglo American Platinum to pay our respects to the victims of the COVID-19 virus and the recent social unrest experienced in South Africa. We support government's efforts to halt the lawless behavior, and we are committed to playing our part to rebuild our country.

Craig Miller: Thank you, Natascha, and good morning, everyone. I'm pleased to be reporting a very strong set of financial results. Revenue of ZAR 107.5 billion is up 155% on the prior year, underpinned by a robust PGM market, driven by a 29% increase in the rand PGM price as well as a recovery in refined production owing to the ACP incident in 2020. We're reporting record EBITDA of ZAR 63.3 billion, realizing an EBITDA margin of 71%. Headline earnings increased 573% to ZAR 46.4 billion, and we achieved a return on capital of 207%. The company's balance sheet remains strong with net cash of ZAR 57.6 billion, up ZAR 39 billion from December. On the back of these strong results and in line with our disciplined capital allocation framework, the Board has declared an interim dividend of ZAR 46.4 billion or ZAR 175 a share, which equates to 100% payout of headline earnings. Turning to EBITDA. EBITDA of ZAR 63.3 billion, a 385% increase from the first half of 2020, is a new high for Anglo American Platinum. This increase is mainly due to the higher U.S. dollar PGM prices, particularly rhodium, which more than doubled; and platinum, which was up 34%, contributing ZAR 43.4 billion. The increase was partially offset by the stronger rand-dollar exchange rate, inflation and higher royalties, which reduced EBITDA by ZAR 14.1 billion. EBITDA also increased as a result of the 109% increase in sales volumes following the improvement in the availability and the stability of the ACP, leading to greater throughput, refined production and sales. Trading volumes returned to more normal levels in 2021 with activities focused on realizing value from all our products. During the first 6 months to June, EBITDA generated from trading was around ZAR 0.5 billion. The overall group EBITDA margin increased from 32% to 59%. Trade working capital at the end of June was ZAR 9.9 billion, a reduction of ZAR 700 million in the 6 months. On the back of the improvement in refined production, there was a release of about ZAR 2 billion or 200,000 work-in-progress PGM ounces. However, the value of inventory in metal, ore stockpiles and stores increased by ZAR 7 billion as a result of an increase in prices, mainly affecting purchase of concentrate stock value. As previously guided, the buildup in work-in-progress furnace matte is expected to be released by the end of 2022. The net decrease in working capital was also attributable to the increase in the customer prepayments of ZAR 7.6 billion, taking the net value to ZAR 26 billion. Our cost performance is a disappointment in the half, with cash operating costs per PGM ounce produced in line with the comparative period at ZAR 12,572 per PGM ounce. Mining production increased by 28% compared to the first 6 months of 2020, reflecting the reduced impact from COVID. However, input cost inflation increased significantly above CPI to about 8% due to price increases in electricity, materials and consumables on the back of higher steel prices and oil price rises as well as wage increases exceeding CPI. COVID production-related losses of 40,000 ounces in the first half and the mitigation plans to protect production, particularly at Amandelbult, resulted in a ZAR 290 per PGM ounce increase in unit costs. The cost increases were further exacerbated by additional labor and maintenance costs to ensure asset integrity across our operations. In order to address these increases, we're doubling our P101 improvement efforts to drive greater efficiencies and throughput from our assets, reviewing our mine plans and cost base, ensuring greater asset reliability and improved planning through the implementation of the operating model. The continued impact from COVID and the sharp rise in inflationary increases experienced in the first half of the year are expected to continue into the second. And therefore, our full year unit cost guidance is between ZAR 12,000 and ZAR 12,500 per PGM ounce. Turning to our cash flow. The company ended the period in a strong cash position of ZAR 57.6 billion, an increase of ZAR 39 billion from the end of 2020. Cash from operations were ZAR 62 billion, up from the ZAR 1.8 billion generated in the first half of 2020. These cash flows were used to fund capital expenditure and capitalized waste stripping, collectively amounting to ZAR 5.2 billion. Taxes and royalties paid to the fiscus amounted to ZAR 16.6 billion, an increase of ZAR 14.4 billion. The net cash position is after the payment of the 2020 final dividend of ZAR 9.4 billion. The company has sufficient liquidity with unutilized committed debt facilities of ZAR 20.6 billion. Capital expenditure of ZAR 5.2 billion was higher than the prior period, reflecting the new asset reliability and maintenance programs and the recovery in operating activities following the COVID disruptions in 2020. The main components of SIB expenditure include the replacement of heavy mining equipment at Mogalakwena, the construction of tailings storage facilities at Mototolo and Mogalakwena as well as the ACP B rebuild. Project capital of ZAR 0.5 billion was incurred on the future of Mogalakwena feasibility studies, the development of the mechanized Tumela 15 East drop down as well as progressing the feasibility study at the Der Brochen replacement project at Mototolo. Breakthrough project capital was incurred on the equipment required for the modernization of Amandelbult on the copper leach project at the base metals refinery and Unki and Mototolo's debottlenecking projects as well as completing the first phase of the bulk ore sourcing plants at Mogalakwena. Year-to-date capital expenditure is below our plan. However, we retain our full year SIB capital guidance. This is, of course, subject to any further potential COVID-19 disruptions. In line with our disciplined and value-focused approach to capital allocation, the Board has approved an interim dividend of ZAR 46.4 billion or ZAR 175 a share. This comprises the base dividend of 40% of headline earnings, equating to ZAR 18.6 billion or ZAR 70 a share and a special dividend of ZAR 27.8 billion equal to ZAR 105 per share. This takes the total payout ratio to 100% of headline earnings, equivalent to an 11% dividend yield. Community trust share schemes can expect to receive approximately ZAR 245 million in respect of the first half dividend, supporting much-needed investment and relief in the communities. This is an excellent performance and reflects our ability to deliver industry-leading returns. Turning now to a review of the markets. The first half of 2021 was a record period for PGM prices. Our realized dollar basket price averaged 47% higher than in the first half of 2020, led by 168% increase in the rhodium price, while palladium averaged 22% higher over the period. Platinum was up 38% year-on-year to $1,170 per ounce. For the minor PGMs, iridium hit an all-time high to average $5,300 per ounce, where ruthenium reached a 14-year high, up 80% to average $470 per ounce. In the short term, demand from the automotive sector, which makes up approximately 2/3 of gross PGM demand has been robust. Since the COVID shock in the first half of 2020, we've seen an impressive recovery in auto sales and production, which has continued into 2021. However, the growth has slowed due to the semiconductor chip shortage, which has reduced auto output by around 4 million vehicles in the first half. Despite this, underlying demand for cars has been very strong, especially in the U.S. and China, and inventories are now low. This points to a strong production recovery when the chip shortage eases. And while the outlook for the recovery is uncertain, this seems likely in the second half of 2021 or early 2022 at the latest. Rising auto production is positive for all PGMs, but we expect platinum to see faster growth as it substitutes a portion of the palladium in the gasoline catalyst. There might be a role for palladium to replace rhodium in the catalyst, but our research suggests this is limited. Looking in a bit more detail at each of the major PGMs. Platinum hit a 6-year high in U.S. dollar terms in the first half. This was investor-driven, indicating confidence in the future demand prospects from gasoline automotive substitution and from the hydrogen economy. Platinum has fallen back a little since then. And in 2021, it will be in surplus after 2 years of deficit. While industrial platinum demand is strong, growing 14% on the back of solid capital investment, platinum jewelry demand continues to underperform with the retail sector still subdued due to COVID. Further out, we forecast platinum to return to deficit in the next few years as these positive future prospects start to materialize. Palladium hit a record high of over $3,000 per ounce, driven by strong demand and lower supply. This comes following 10 consecutive years of annual deficits, showing tightness in the market. We expect palladium will remain in deficit in the next years due to strong automotive demand, driven by a combination of recovering global light vehicle production and ongoing high palladium loadings. We do acknowledge that the palladium deficit should start to shrink as substitution, by platinum in gasoline catalysts and the growth of sales of battery electric vehicles bring this metal into balance. Rhodium's remarkable price performance during the first half, averaging nearly $25,000 per ounce, reflected a continuing fundamental deficit. Firm automotive demand, driven by robust automotive production and high rhodium loadings outweighed still constrained supply. The pullback in price by midyear reflects both improving supply and worse-than-anticipated auto production trends owing to the semiconductor issue. For these reasons, we expect the rhodium market to be in balance in 2021, yet increasing auto production means that the deficit is set to go again from 2022. Looking now to the medium term. The chart on the left-hand side shows tighter emission standards that means higher PGM loadings for light vehicles, as demonstrated by the various stages of European legislation. This has been further enhanced in recent years by more realistic real-world testing, effectively making these emissions rules tougher. Although there is always considerable pressure to thrift metals as Euro VII legislation is introduced later this decade, we expect to see another increase in loadings, as best-in-class technology reduces emissions in autos. Rolled out globally, we expect to see a similar story in large and growing markets of China and India. This should support and ensure global automotive PGM demand remains robust despite the rising share of battery electric vehicles. Thank you. I'll now hand you back to Natascha.

Natascha Viljoen: Thank you, Craig. Now turning to our market development activities. In line with our strategy, we continue to stimulate newer markets. The development of the hydrogen economy remains an important source of incremental future demand for PGMs. Many market commentators suggest that nations will not be able to fully decarbonize without green hydrogen playing a role. We have seen an acceleration of commitments worldwide, even in the last 6 months, with a number of large-scale projects announced increasing to 359, government pledges to develop the hydrogen economy increasing to $76 billion and 69 gigawatt of electrolyzer capacity announced with more planned. We have long understood the potential of the hydrogen economy for PGM demand and have been involved in market development for many years. We remain actively involved in advocacy of the hydrogen economy with Anglo American being one of the first members of the Hydrogen Council. We have leading roles in industry bodies in South Africa, the U.K. and China. The spin-out of AP Ventures has enabled them to increase their committed funding to nearly $400 million, which are so far been invested into 17 portfolio companies at various stages of the hydrogen economy cycle. Beyond the hydrogen economy, we are working on progressing PGM demand in a variety of end use sectors, which utilize the full basket of PGMs. You are likely familiar by now with our cofunding of the LION Battery Technologies to develop palladium- and platinum-enabled solutions for lithium batteries. We have recently been awarded 3 patents to take this technology forward to ultimate commercialization. Our collaboration with Alloyed in the U.K. created the world's first physical and digital alloy capability for PGMs. The potential of new alloys is allowing us to develop multiple projects in the jewelry, aerospace and industrial sectors that may open up untapped markets and other segments. The computing world is an opportunity area for PGMs. We are moving towards both a sustainable and more data-centric society and will need more devices or hardware with better performance and with lower energy consumption. This is where Spintronics such as magnetic memories or MRAM come in. In the last 12 months, we have established collaborations to research PGM materials that may enhance or enable memory capacity. In FoodTech, we are commercializing PGM-based technology that prolongs freshness of food, thereby minimizing food waste. In Japan and China, together with Furuya we have established the FT Eco company to develop and commercialize applications for home and retail appliances. We just concluded the successful e-commerce consumer market test in Japan and have identified our production site in China. Each of these value propositions are underpinned by PGM-enabled or PGM-enhanced products which should stimulate future demand for our metals. I want to conclude our presentation with our 2021 guidance and a summary of the first half. We have made some revisions to our guidance for the full year. Our metal in concentrate PGM production guidance has been tightened to between 4.2 million and 4.4 million PGM ounces due to lower third-party concentrate receipts and the ongoing effect of COVID on operations. Our refined PGM production has been revised upwards and tightened to between 4.8 million and 5 million ounces as we have proven operational stability in our processing operations and continue to be confident that we can drive performance in the second half. Our PGM sales volumes guidance, excluding trading activities, will revert to become in line with the refined production as we will have a small rebuild in refined metal inventory. Our unit cost for PGM ounce per PGM ounce will increase to between ZAR 12,000 and ZAR 12,500 per PGM ounce, as we see continued inflationary pressure on utilities and consumables. To end with a summary of the first half, safety remains a key priority, having achieved no fatalities at any of our operations and we continue to focus our efforts on eliminating injuries. We will be a trusted corporate leader through our responsible economic contribution to society with a value-add of almost ZAR 40 billion. Our focus on asset integrity and reliability was -- has been proven through our operational stability with recovery in metal in con production performance and a significant increase in refined production, and we have plans in place to further drive value from our assets. We are confident about demand and continue to see a robust market for PGMs. Through our market development efforts we will continue to leverage and grow this demand. We are proud to deliver industry-leading returns with record EBITDA, a strong balance sheet and a total dividend for the first half of ZAR 46.4 billion, equating to 100% payout of earnings. We continue to deliver on our strategic priorities to ultimately achieve our purpose of reimagining mining to improve people's lives. That concludes our presentation, and thank you once again for joining us. I now hand over to Emma Chapman, our Head of Investor Relations to facilitate our question-and-answer session. Thanks, Emma.

A - Emma Chapman: Thank you, Natascha. So with that, I will firstly go over to the conference call line and can we start to take some questions there, please? Thanks.

Operator: The first question comes from Adrian Hammond from SBG Securities.

Adrian Hammond : A couple of questions. Just a bit bothered about Amandelbult's performance. It's running at about 70% of 2019 levels. And I'm wanting to know when it could return to 7 million tonnes per annum, again? And I appreciate that absenteeism in Eskom has been causing issues for this mine, but it stands apart from many of its conventional peers. And secondly, costs, quite an astronomical increase in costs, 9% for your guidance. And I appreciate there's inflationary pressures, but those would have been foreseen. So are you employing contract -- more contractors to support your production base going forward? On the sort of outlook for CapEx, obviously, you haven't changed that. But you have paid 100% of your dividend and you certainly must be confident on your capital growth program. I'd be curious to know what the results of your pilot testing at Mogalakwena have yielded thus far? And how you're thinking around the expansion -- the size of the expansion for Mogalakwena could be? And then lastly, you're very bullish of hydrogen. You certainly painted a very bullish picture for China, as future demand some 6 million ounces platinum by 2035. So what are your plans -- or do you have any rollout plans other than your own fleet in South Africa to incorporate a hydrogen economy on your own turf?

Natascha Viljoen: Thank you, Adrian. And some very good questions there. And to start off, I believe, it's your birthday today?

Emma Chapman : It is.

Adrian Hammond: Yes, it is. Yes, I think you should give me a little something then.

Natascha Viljoen: I'll rather answer your difficult questions. How's that?

Adrian Hammond: That will do.

Natascha Viljoen: Happy birthday, Adrian. And very relevant questions. So Adrian, I'll start off with the Amandelbult question, and I'll ask Craig to come in on cost and CapEx as well, and I'll come back to the hydrogen question. So if you reflect on the closures and areas, specifically in Tumela Upper that areas in Amandelbult that's closed, and you normalize Amandelbult's performance H1 2019 to now, we are flat in terms of production year-on-year. And that's despite the fact that we did see the impacts of COVID and absenteeism. So Craig will touch on the fact that we did indeed increase LIBOR to -- last year already, to address some of the absenteeism due to people -- vulnerable employees not being able to come to work. And that certainly was a portion of the cost impact and Craig will deal with some of the other cost impacts. So back to 7 million tonnes. We are currently as part of our modernization rollout, the extension into 15 East, we are busy with the work that we've touched on in creating stability and that rollout program with the life of asset plan review to map out the way forward for Amandelbult. It will have -- it will obviously include the work that we're doing in 15 East and future growth opportunities going forward. But I think you just need to consider the areas that we've closed that come to the end of their life at Amandelbult. Craig, you want to cut...

Craig Miller: Yes. Certainly so. So Adrian, happy birthday, again. Just in terms of the cost, yes, so as clearly articulated, we're clearly disappointed with our cost performance in the first half. We have seen some really significant inflationary pressure coming through the business, particularly as a consequence of a lot of the higher input prices that we've seen on the back of higher steel prices, copper prices and oil prices. The consumables constitute to roundabout 30% of our input costs. And we've seen that sort of increase on average roundabout 10% year-on-year. So that's a significant driver and not necessarily anticipated in terms of the increase that we've seen there in coming through the business. So yes, so that is something that we are focused around. We've got -- we're redoubling our efforts with regards to P101, driving those efficiencies, driving those improvements and also making -- having a look at our cost base overall again. We have also incurred about ZAR 290 per PGM ounce of additional costs associated with COVID, particularly in the first 6 months, that being the lost -- an impact of the lost production, so roundabout 40,000 ounces, but also those additional costs that we've incurred, particularly with regards to additional labor, the contractors and some of that -- and additional overtime in order to continue to maintain production. So it's certainly there. But for us as a business, I'm very focused around how do we bring our cost back in line with what we're anticipating. And as we articulated back in February, our ambition is to get all our assets into the lower half of the cost curve, and that's what we're actively working on. In terms of the CapEx, so yes, I mean our CapEx spend at ZAR 5.2 billion in the half year is below what we had anticipated spending, and we've maintained our full year guidance. But I think for us, is we are starting to see the impact of COVID, and we've seen that on some of the contractors in the first half, either through our own onboarding and testing of those bringing people on to sites. There was a bit of disruption in the earlier part of the year. We've got that process sorted out. So we've maintained our full year guidance, but with that warning that COVID could continue to impact that. But the business is confident that we'd be able to -- that we will be able to spend the CapEx. But I do think there's a bit of a warning there that it might be impacted by COVID. Natascha, do you want to talk about the hydrogen?

Natascha Viljoen: Yes. So Adrian, from a hydrogen point of view, I think quite a bit of work that's happening in our world. We -- obviously, we have driven the technology development around hydrogen for quite a number of years now. We have been part of the first members of the Hydrogen Council. But I think closer to home and actively involved in that hydrogen development, we are working in a couple of collaborative processes to develop the hydrogen corridor here in South Africa, and we hope to make more specific announcements around that coming up. We -- also through our AP Ventures and spinning out AP Ventures who now has access to $400 million and is targeting 17 different projects that focuses on the development of technology across the entire extent of the hydrogen value chain. So quite a bit of activity in that area, both locally in South Africa, broader in -- globally and then both in the technology development and advocacy areas to support the development. I hope that has covered your questions.

Adrian Hammond: Yes, just on the pilot testing from the Mogalakwena bulk ore sorting project?

Natascha Viljoen: Oh, yes. So Adrian, the approach that we’re taking with technology in terms of the fast-track deployment is that we have tested technology on a bench scale, understanding that it works. We have now built a full-scale implementation program, where basically all our feed goes through that bulk ore sorter and not ready yet to talk to the outcome of that. It is in an optimization process, and we are optimizing literally in full scale as we integrate it into the broader system.

Operator: The next question comes from Chris Nicholson from RMB Morgan Stanley.

Chris Nicholson : My initial questions are also going to be on costs, and do you think that's a bit of a standout, but I'm not going to flog a dead horse after Adrian has asked most of the questions there. Potentially, could I ask a question on the Mogalakwena? For the first time in these results, you've talked about having to resettle some of the communities at Mogalakwena. So 2 things. I think we've seen in the past, I remember there were some issues with Kumba that this does have the potential to actually delay some projects. How material is that resettlement? Would it have to be under both the open-pit and underground options? So maybe a bit more detail around that. And then the strategy day in February this year. You talked about -- a little bit about redefining the relationship with the communities there. Could you provide any further info on that? Are you talking, I don't know, an ownership in the mine? What exactly are you looking at in terms of that community relationship?

Natascha Viljoen: Chris, thank you for those questions. And just to confirm, Craig did talk about cost, but cost is a huge priority for us. So just to underscore the point that we -- cost and safety is -- remain 2 of our biggest priorities going into the second half. So to then touch on Mogalakwena and the resettlements of communities. We do indeed need to look at the resettlement of Skimming and Leruleng and we are still busy concluding some of the final resettlements at Mototolo. Now we have over many years, learned and progressed our maturity in these resettlements, I would argue, significantly. And we are following our own Anglo Social Way, which is aligned with global best practice. And we would actually like to talk about resetting or resettling and reestablishing livelihoods instead of just resettling. And there's a very important difference in that, in that we take cognizance of ensuring that when we do have to move or want to move communities that we reset a full livelihood and not just move. It is a big part of the project, both for the open-pit because of -- despite the fact that we're fast-tracking the underground potential, we still need to move Skimming and Leruleng because we are -- in the next couple of years, we will move within the kilometer radius of some of these communities. And we are currently already putting mitigation in place, mitigation around areas like blasting practices, dust and vibration control. All of those processes are well underway. We have started very early. And I think I'll just combine the resetting relationships together because I can't talk to the one without the other. When we think about Mototolo, we have -- we're reviewing that relationship under 4 pillars. There is an open up of communication lines and the transparency of how we're engage and transparency on aspects of procurement, job opportunities. And really just making sure that there is trust and transparency in that communication. That's the first one. The second one is protecting value, and that is to make sure that we close out and ensure that all of our commitments that we have made to these communities are indeed closed out on. The third one is value creation. And I think this is certainly the one that's most exciting because that targets are on how we establish self-sustaining communities who aren't only looking at us for livelihoods but will -- can indeed have economies outside mining to sustain their livelihoods. And then the last aspect is resetting the resettling and land access. And that's the area where we are actively now already starting to engage with communities for the future resettlements. We've all started very early. The first engagement period that we've started is 30 months, and only then we will start to really getting into the execution of any resettling. I think the underground needs some specific attention because of -- it will certainly reduce any future surface impact. And that is the reason why we're also then fast-tracking the exploration through the exploration decline to be able to define what that underground options would look like sooner. Chris, I hope I've answered your question.

Emma Chapman: Sorry, back to the conference call.

Operator: The next question comes from Patrick Mann from Bank of America.

Patrick Mann : I had 2 main questions, please. Just 1 -- the first one is on the inventory unwind. So given that your third-party receipts are a bit lower and the ACPs seems to be performing ahead of your expectations, is it not likely that, that inventory releases before the end of 2022? I'm just wondering why the guidance hasn't come forward on that? And then the second question is, I saw your potential output from base metals going up to, I think, 50,000 to 55,000 tonnes. As far as I was aware, that's ahead of your capacity at the moment on the base metals side. Would you need any expansion downstream in order to go ahead with that?

Craig Miller: Do you want me to do the inventory? Okay. Yes, so in the first half of the year, we released about 200,000 PGM ounces from the work-in-progress buildup that we had at the end of last year. We continue to -- we'll continue to reduce that inventory over the next 18 months. And clearly, we'll need to just see what the performance is from an M&C perspective. In the second half of the year, as you know, we've reduced our guidance a bit there. But there's sort of a number of factors that are at play. So we're maintaining that position that we'll reduce it over the next 18 months, but we've taken about 200,000 ounces off in the first 6 months.

Natascha Viljoen: Thank you, Craig. Now the second question is on -- sorry, my apologies, Chris, -- Patrick, I was so listening to Craig. So one of the work streams for us at Mogalakwena is the downstream capacity. So what you're seeing there is just to indicate what the potential of base metals would be for us. And that's part of the work of one of the 6 work streams that we're doing as part of the future of Mogalakwena.

Patrick Mann: So can you just confirm what your current base metal capacity is?

Natascha Viljoen : It's 30,000 tonnes per month.

Patrick Mann: 30,000.

Natascha Viljoen: Yes.

Operator: The next question comes from Leroy Mnguni from HSBC.

Leroy Mnguni: Yes. My questions are around the rhodium market balance. So in February, you were forecasting a deficit for the year and that seems to have switched to the surplus. Is that mostly attributable to the shortage of microchips in the auto industry? Or are there any other factors there that we should be taking into account?

Natascha Viljoen: Yes. So we'll tag team on it. Leroy, thank you for that. Yes, certainly, the chip shortage has impacted vehicles by 4 million vehicles in the first half. So it certainly had a big impact and that was the majority of the swing from our earlier deficit to a slight increase. We do see, however, that, that will recover going into the end of this year or early in 2022. Anything else there, Craig?

Craig Miller: No, I think you covered it.

Leroy Mnguni: And then maybe just a second question, please is I mean, if your dividend yield, if you annualize it, is quite compelling for the year. Has there been any consideration of maybe buying back your minority stake in the market and just being sort of fully owned by Anglo American?

Craig Miller: Leroy, I think, if I may, it's probably -- I'll answer the sort of the first question, but taking the second question you probably need to address to Anglo. But taking I mean I think from our perspective, we've always been quite clear around the disciplined capital allocation approach, sort of paying -- generating the cash, investing in the business, the base dividend of 40% and returning that extra cash to shareholders. And certainly, at the half year, we considered that the appropriate return to make. But I think in terms of future projections for Anglo Platinum, you need to speak to Anglo American about.

Emma Chapman: Thank you. I'll take a couple of questions now from the webcast. So the first question comes from Nkateko at Investec, who says

Natascha Viljoen: Thank you for that question, Nkateko. I think 2 things to that question. The one is, we believe that we have reestablished our pipeline and we feel very confident in the pipeline performance through the year. I think the big concern to everybody last year was the fact that we've seen the impact on the ACP and the entire pipeline impacted by that. So we're very confident that the ACP's good performance will continue. I think the other point in terms of just your question on the broader asset strategy and reliability, we have been talking about the fact that we will be allocating more money to SIB specifically around asset strategy and reliability because there is work for us to do across our value chain, and we will continue to do it. Will any of this work have the same impact on -- as we had on ACP? I think we just need to consider that ACP is the true bottleneck, and that's why we had that significant impact. None of the other work will have the same impact as stopping the ACP. So confident in performance, confident that our program on the asset strategy and reliability is now very well defined. And we are -- really, we have good traction in that execution, but probably a good 18 to 24 months' worth of work across the value chain to -- and that's reflected in our SIB spend as well.

Emma Chapman : I'll quickly -- he's got a second question as well that asks, is there any progress on the sale Bokoni of the asset?

Craig Miller: Okay. Sure. So we continue to progress the disposal of Bokoni. We have completed a number of phases in the disposal process. We have identified some bidders to be able to participate in that process. We have those conversations ongoing, and we hope to sort of finalize the transaction in the near future.

Emma Chapman: Great. I've got a question from Wade. It's one for you, Craig. With H1 costs at ZAR 12,550 per PGM ounce, what underpins decreasing costs in H2 in order to achieve your guidance between ZAR 12,000 to ZAR 12,500 per PGM ounce?

Craig Miller: Thanks, Wade. Yes, certainly, as I said, we have a number of initiatives underway to be able to reduce our costs, not only just for the second half, but to make sure that they're sustainable into the future, referencing back to the P101 activities, having a look at that cost base, some tighter discipline. And then we also have a number of activities that took place in the first half of the year, particularly around some of the maintenance, which we don't anticipate that level of expenditure coming through in the second half. So yes, we're confident around the second half cost guidance. It's once again predicated in any significant disruptions coming through from as a result of COVID. But yes, there are plans underway, as you would imagine, for us to bring costs down, and as I said, on a sustainable basis.

Emma Chapman: I've got another question here from Justin Ritchie of Aylett who asks, can you comment on the economics of the PV plant at Mogalakwena? What return would you expect on the capital spend?

Natascha Viljoen: So we are still busy with the final adjudication of the PV plant. Early indications are that there will be good returns, specifically if it's for direct and own use. So I think we'll be able to more broadly speak about this in the next quarter. I don't know if there's anything else you want to add from just the evaluation, Craig?

Craig Miller: Yes. So certainly early indications are that the economics and the capital, I think that we've previously said would be between ZAR 1 billion and ZAR 1.5 billion. It's probably coming in towards the midpoint of that. And then in addition to that, the costs of electricity generated are very competitive versus what we're paying at the moment. So I expect the economics to stack up pretty well once we've completed the bid evaluation process.

Emma Chapman : I've got a question here from Catherine Cunningham of JPMorgan, who asks, what is the contribution from rhodium to work-in-progress inventory as of June 2021?

Natascha Viljoen: I don't have that number off the top of my head. Can we come back to you?

Craig Miller: Do you want me to help? Yes?

Natascha Viljoen: Do you have it? All right. Sorry. Go ahead.

Craig Miller: I can to some extent. So we obviously don't split out our working -- the value of our inventory and by particular metals. However, looking at what we produced in the first half in terms of M&C, in what we refined those are broadly in line. So having restored the pipeline and getting the ACP back up and running at the end of last year, the metal that we're producing is flowing through. And therefore, the unwind of rhodium that we had built up at the end of 2020 will continue to evolve over the next 18 months. As I said, we'll reduce the stockpile that we've had. And so that's really -- so what we had at the end of last year is still broadly similar sort of at quantities that we have, and it will unwind. I think it's just important to realize why more of -- why more hasn't unwound is just the pipeline in -- or the duration in the pipeline the rhodium has sort of average is sort of 40, 46 months. So you will start to see some of that unwind over the next 18 months, as I've said.

Emma Chapman: Thanks, Craig. Can we just take a couple more questions from the conference call? Claudia? Okay. It seems like we might be having some issues with the conference call. So I've got a couple more questions here that I can go to. So I've got a question from John Williams of Rezco Asset Management, who asks about substitution of palladium by platinum in light-duty gasoline vehicles. What substitution profile do you expect for thousands of ounces of platinum for palladium over the next 5 years?

Craig Miller: I can help. So John, good to speak to you. So as we said in our presentation, and we do anticipate the substitution of platinum for palladium in the gasoline autoCADs. We expect that to be between about 100,000 and 150,000 ounces this year, increasing to about 1 million ounces by 2025. And so -- and then similarly, we do think that there would be a small amount of substitution of rhodium for palladium, although we think that that's relatively limited.

Emma Chapman: Thanks. I've got a couple of questions now on the ESG front. So the first question comes from Arnold Van Graan of Nedbank, who asks, have you quantified the financial impact of your 0 Scope 1 and 2 emissions targets? What impact do you expect this to have on CapEx and costs over the next 5 to 10 years?

Natascha Viljoen: Arnold, I think there's a couple of aspects to that question. The first one is, we have divided our greenhouse gases into understanding, firstly, how we're more efficient, how we move our Scope 1 and 2 and then obviously, there's a Scope 3 aspect to it. Now when we talk closer to the near term, we -- Craig has spoken to the ZAR 1 billion to ZAR 1.5 billion for the PV plant that we are building at Mogalakwena, that is about 25% of our energy requirement at Mogalakwena, and we are working towards increasing that to about 320 megawatts to ultimately cover the Mogalakwena requirement. We have a much bigger requirement, and you would have seen that our CO2 equivalent is about 3.94 million tonnes of CO2 equivalent. And for that -- and because we are very reliant on Eskom a big portion of that is -- will have required us to move into renewables broader than just diesel and coal that we were using in our operations directly. For that, we are engaging with government, and we're also working with Anglo American to define a broader program across the country of harvesting renewables whether it's wind, water storage or PV. And we do have the benefit both from an Anglo Platinum point of view and an Anglo American in South Africa of the geographic distribution across the country to enable us to harvest this renewables in the best possible geographies. And the recent announcement that we will be able to, under certain conditions, will open up the opportunities for us to do so. Hopefully from that, you will see that many of these plans are in development. And the early indications, Craig has spoken to the economics of the PV plant going up at Mogalakwena, the economics seem to be -- look good. But certainly, the full capital requirement for us to achieve that is work that's still underway.

Emma Chapman: Thanks, Natascha. Just a warning to everyone, it seems like the conference call is not working. So if you have any questions, could you please submit them through the chatbox on the webcast. I've got a couple of questions here from Ian Rossouw of Barclays, who asks, do you expect any major maintenance in H2 that could impact refined production such as in Q1 with the BMR maintenance? And his second question, -- well, why don't we answer that first, and then I'll ask the second?

Natascha Viljoen: Ian there's nothing significant that we know of. So no planned maintenance -- significant planned maintenance in H2. No. I think probably just worthwhile commenting that we are continuously doing significant maintenance. We are on a rebuild cycle of our furnaces, for example. So that work is continuing, and that is then built into our guidance. So nothing additional to what we are aware of today.

Emma Chapman: And the second question is one for you, Craig. You have built up about $1.8 billion on the customer prepayment. Could you provide an update of the expected unwinding of that liability, the start of delivery of metal and over which period?

Craig Miller: Okay. So yes, we have seen a ZAR 7.6 billion increase in the value of the customer prepayment, taking that value to roundabout ZAR 26 billion at the end of June. In line with that contract, it starts to unwind from the second quarter of 2022 and that unwind will take approximately 12 months. So that's the current status of that particular contract. So it will start to happen into 2022 based on the current contractual terms.

Emma Chapman : His final question, which is linked to the customer prepayment question. So he asks, with PGM prices lower now, do you expect some working capital build in the second half if spot prices persist into the year-end?

Craig Miller: Sorry, could you just repeat that? Sorry.

Emma Chapman: So -- of course. So with PGM prices lower now, do you expect some working capital build in the second half if spot prices persist into year-end?

Craig Miller: So Ian I assume you're suggesting that the value of the prepayment would come down and -- sorry, yes, it would come down and therefore, working capital by inference potentially going up. Look, from our perspective, where is our biggest portion of working capital? It's sitting in work-in-progress. We continue to be very focused around unwinding that work-in-progress and bringing it down. And that's what we'll do for the -- over the next 18 months. So that's sort of our biggest opportunity. I think what is important is that value of the customer prepayment is translated at spot prices at the end of June. So it's already sort of been mark-to-mark down to where the prices are. And so hopefully, that answers your question. The focus for us is really around the work-in-progress.

Emma Chapman: I think I'll have to ask this as the last question, but any other questions that have come up, we will respond to. And the last question comes from Martin Creamer of Mining Weekly, who asks could renewable and green hydrogen be used in your PGM smelting process instead of coal-fired Eskom power and coking coal? If coal firepower continues to be used could your company be hurt by carbon import tariffs and carbon taxes?

Natascha Viljoen: Martin, so we've definitely seen the iron ore industry or in iron and steel industry deploying and making quite significant -- a number of announcements over the last while. We are looking into the potential for us to use similar forms of energy, but certainly not as far progressed as we are as the iron and steel industry is going at the moment. Do you want to just take the comment on the carbon tax, Craig?

Craig Miller: Yes. So certainly, the carbon tax is one of the considerations that we have in terms of future cost base and been able to evaluate the benefits of moving to a carbon-neutral position or reducing it by 40% by 2030 and then taking us to neutral by 20 -- by the end of 2040. That is a big component. So I think we paid around about ZAR 13 million in carbon tax in the first half, so relatively insignificant. However, what we do see is, obviously, the legislation that's in train, that increasing quite materially. And therefore, that's a greater incentive for us, not only with regards to the environmental benefits but also from a cost benefit and being able to look at alternative forms of energy to be able to reduce our overall cost base.

Emma Chapman: And I think we'll have to call that a day. So I thank you, everyone, for joining on the webcast. And if you have any further questions, please feel free to send an e-mail or give me a call. And with that, we will close this results presentation. Thank you.