Sibanye Stillwater Limited
Q2 2020 Earnings Call Transcript

Published: 28 Aug 2020

[Operator:]

Good day, ladies and gentlemen, and welcome to the Sibanye-Stillwater Interim Results Presentation. All participants will be in listen-only mode. There will be an opportunity to ask questions later during the conference. [Operator Instructions] Please note that this call is being recorded. I would now like to turn the conference over to Neal Froneman. Please go ahead, Neal.

[Neal Froneman:]

Good morning to those in America and good afternoon to those in South Africa and Europe. It's indeed a pleasure to welcome you to the presentation of our H1 2020 results, which I have the pleasure of presenting. As always, moving on to the second slide, that's a Safe Harbor statement. And I would urge you to take note of the forward-looking risks related to this presentation. Moving on to the next slide and the foundation of any business is, of course, strategy. And we constantly measure ourselves according to our strategy. And our strategy is simply strengthening our position as a leading international precious metals mining company by doing the following. And it really starts with and I'm looking at the 12 o'clock position, building a values-based culture, ensuring safe production and operational excellence, deleveraging our balance sheet, addressing our South African discount and then based on a strengthened equity rating pursuing value-accretive growth. Of course, all of that is pulled together by embedding our environmental, social and governance excellence as a way we do business. And I would like to move on to the next slide and actually just look at how we are progressing related to each one of those strategic goals. I'm not going to go through the slide in detail. But, first of all, looking at building a values-based organisational culture, we made good progress during COVID. We actually used the opportunity to accelerate our program, but still work in progress. And as you can see, we think we're about halfway there. Ensuring safe production and operating excellence, I personally think that as a company, we did extremely well, considering the COVID disruptions and from an operating point of view and a progress point of view we've given ourselves a big tick. Embedding ESG excellence in the way we do work - we do business. And again, this is work in progress. We'll probably always be work in progress. We've put in a huge amount of effort, but, I think, again, we could - we can give ourselves half a tick. In terms of progress in deleveraging our balance sheet, I think this was one of the highlights of the quarter. We are well below our interim target of one times and we are close to the type of leverage levels before we embarked on any acquisitions. And with a net debt-to-EBITDA, adjusted EBITDA of 0.55x. We can give ourselves a big green tick today. Addressing our South African discount, this is probably going to be something that is ongoing. And again, I think, we can give ourselves half a tick. We've had very good engagements in South Africa with our regulators. I do believe we’re making progress and, as I say, half a tick there is fine. Pursuing value accretive growth, well, when I get to the end of this presentation, I will show you very clearly that we are significantly undervalued and until we see a proper valuation of our stock or our equity rating, we will not pursue value accretive growth. So there's still a lot of work in progress there to be done. Moving on to the next section of the presentation, and I really just want to spend some time on embedding ESG excellence in the way we do business, one of our central focus areas. And I want to start with the initiatives that we embarked on during the COVID-19 pandemic, which is obviously still at play. We made very significant contributions to ease the plight of our communities and other stakeholders. We contributed R23 million to the relief funds. We provided financial support to our employees that were not working to the tune of R1.5 billion, a very, very significant contribution and probably one of the biggest in the industries. Employee donations, interestingly, matched by the company amounted to R2 million, very significant and great to see the participation of our employees. Through a very difficult period, we provided counselling and psychological support, which was extended not just to our employees, but to their families as well. We've provided over R14.5 million of support to small businesses. We provided R5.5 million of social relief through food parcels, water tanks, blankets and mattresses. And we contributed R3 million through sanitization and catch-up programs to school and education. One of the bigger contributions, of course, was preparing our own business for quarantine and isolation facilities. And we established a 2,196 bed facility. We also contributed PPE, oxygen tanks for health facilities, sanitization tracking and tracing, and that was to the tune of almost R60 million. Hard to quantify the amount spent on education and awareness and especially with 80,000 employees, that's a very significant part of getting people to behave in the right way regarding COVID-19 as well. So, in my mind, a very significant step-up to the plate. Moving on to the next slide regarding social issues is really the commitment to renewal and restitution at Marikana. We acquired the Lonmin assets with our eyes wide open and that really was referenced to the Marikana tragedy. We saw this as an opportunity to create a new future with all stakeholders. We do not intend to sweep this under the carpet that is really an opportunity to do what I don't think has been done up until now. And, first of all, we've created sustainability by incorporating this business into our business and it is profitable, it's significantly profitable. We are looking to progress fostering and healing and getting closer by providing ongoing counselling and emotional support for the widows and their families. You would have seen from the many media releases after our memorial lecture, the Marikana memorial lecture, that we intend pursuing unfulfilled justice on behalf of the widows and the communities and restitution for those affected that have not yet received restitution. We intend honouring the educational support and sustainability that was set in place by the previous owners and managers of Lonmin. There is 144 beneficiaries to that. And then, of course, honouring Lonmin’s outstanding SLP obligations that is a commitment we made at the Competition Commission, and we are now in the process of engaging on what we call SLP 3 commitments. And important to look at the pictures on this slide, you can see we handed over 6 houses, and this is despite COVID, we have another 19 houses we intend to hand over before the end of the year, and the balance of the widows' houses will be completed next year. These are substantial and material houses. You can see a picture in the right bottom hand corner of the slide of one of the houses. During the week of the commemorations or the week that the tragedy happened in 2012, we held pre-sessions. And also amazingly up until now, there has been no wall or monument unveiled, and we unveiled a wall of remembrance, which was erected in memory of the fallen mineworkers. I think these are very significant steps, and certainly in less than a year of owning these operations, a significant step-up to the plate again. One aspect that perhaps gets forgotten about is our investment in DRDGOLD. And in our view, DRDGOLD is a smart commercial entry into rehabilitation of legacy environmental site in the South African gold mining industry. And a number of ESG highlights are contained on this slide and there has been continued investment by DRD in rehabilitation, hundreds of hectares have been cleared, vegetating tailings deposits to reduce dusts, which is a major complaint and problem to the communities in the Johannesburg area. So that's ongoing. And then DRD specific response to COVID-19 has shown in the last few bullet points. They established a quarantine facility with 50 beds that was at a cost of R600,000, R1.6 million in employee contributions to the Solidarity Fund, which is a voluntary contribution and then over 5,000 food parcels which was supplemented with support relief from 2,500 urban pharmas. So also, again, one of our subsidiaries contributing to the COVID-19 pandemic in a very real and material way. In terms of recognition for our ESG efforts, and remember what I said at the beginning of the presentation, I think we're only halfway there. We were admitted as ICMM members in February 2020. And that's not just an organisation you apply to become members of and you become a member when you pay your fees. They are all very rigorous evaluation processes and standards required, and we are very proud to have been accepted as an ICMM member. And you can see the CDP climate change disclosure, we received an A rating, one of only 179 companies globally, and the only one from South Africa, so that in our view is also significant. And we were included in the Bloomberg 2020 Gender Equality Index, and we’re one of only eight South African companies over 11 sectors to have received that inclusion. We were reincluded in the FTSE Russell ESG index of the JSE and very pleasing we were recognised by the Rand Water Board as the most collaborative and water saving company in the South African mining industry. And of course, we very proudly members of the World Gold Council, and we subscribe to their protocols as well. One aspect that I would say is world class in terms of the basis on which this agreement has been created is what we have at our U.S. PGM operations. We call it the Good Neighbour Agreement and we have marked 20 years this year of environmental and community collaboration. And in that period, we've had absolutely no litigation. So it shows in a very litigious environment, mining companies can operate when they do the right thing and engage their communities in the right way and become good neighbours. So we're very proud of those recognitions and achievements. Obviously, the primary focus of this presentation is our H1 results and that really consists of two parts. One is the operational performance, safe operational performance, and of course the financials. I will cover the operational performance and as always starting with safety. So I'm looking at the slide that says progressive safety performance, important to note that we had zero fatalities in the group in the second quarter of 2020. And that's always pleasing, and it's just part of the journey. Our South African goal operations have run fatality-free for almost two years now. We've had 710 days with 13 million fatality-free shifts. Unfortunately, we recently had a fatality so that progress has been interrupted. And we are seriously committed to achieving even better performance in our next part of the journey to zero harm. Our U.S. PG operations have been fatal-free since October 2011, that's 3,194 days with 3 million fatality-free shifts, and pleasing our South African PGM operations were also fatal-free since March 2020 and they've now achieved 2 million fatality free shifts. The graphs on the right hand side reflect the safety and performance. The graph that is worthy of some mentioned is the serious injury frequency rate. In my view, the difference between a fatality and a serious injury is really a marginal difference and we do track our serious injuries very carefully because, as we all know, once you build up a number of serious injuries, you are most likely to have a fatality. But what's pleasing with that graph is the continuous downward trajectory and we will strive to take that even lower. We've also been recognised and I've moved on to the next slide now for our safety achievements at the South African mining industry safety and health excellence awards, we received the JT Ryan Award, a very prestigious award. Our platinum division was recognised came in first place at the Bathopele operations, Kroondal West to third place and our processing business first place was ChromTech at our South African PGM operations, and in second place was our Precious Metals Refinery in South Africa. So, again, some recognition for the hard work that we as a company are doing in this area. Moving on to the next slide, which is titled responsible approach to COVID-19 and I want to spend a little bit of time on this slide. The approach to COVID-19 although similar in the U.S. and South Africa, obviously had very, very different impacts. Our U.S. PGM business was largely unaffected outside of ongoing social distancing measures, which do disrupt production. They do occur higher costs, so all of those needs to be factored into the production and cost profiles in this presentation. And the U.S. production achieved 89% of what they planned in quarter two. And that's a great achievement considering the disruption of displacing contractors introducing sanitising and social distancing and so on. I think that's a commendable performance under these conditions. The South African operations entered full lockdown from the end of March and restarting - only started from the end of April 2020. And we have been particularly careful in the rebuild process in terms of making sure that we can prevent and manage the transmission of COVID-19. So, we have not - we have been conservative in restarting our business. And the South African gold and PGM production was 54% and 47% respectively of planned output. So, you can see approximately half of what was planned was achieved during quarter two due to the lockdown. By the end of H1, our South African gold operation had called back about 73% of the workforce, was achieving 80% of output that's reflected in the graph on the left hand side of this slide, the South African PGM business had staffed up to 65% levels and was achieving 73% output level. So we are seeing better productivity due to, I would argue, less constraints and easier logistics with lower staffing levels at this stage. It's something we'll watch and we will fine tune our restaffing around these type of opportunities. Interestingly, we have introduced a protocol to protect employees with comorbidities. We have recognised that vulnerable employees are those with comorbidities and just about every single death we have had due to COVID-19 is employees that have comorbidity. So this is a moral issue. And we have introduced a protocol and that is in place and being implemented. Moving on to the next slide, I want to state right up front, these are record earnings, despite COVID-19 for our company. Q2 was severely impacted by COVID-19. You can see, as I said in the last slide, that we only had about 50% of quarter two production, but it was anchored by a strong quarter one. And quarter one really gives you an indication of the earnings potential of the company under normal conditions. We had an eight times increase in adjusted EBITDA year-on-year and that was R16.5 billion versus R2 billion that was recorded in H1 2019 and in dollar terms that is $990 million versus $142 million in H1 2019. Very important to note that 94% of our earnings have come from operations that we have recently acquired. And that would suggest to me that we have completed a very, very successful acquisition strategy and, of course, that is an entry into the PGM sector. And as I said, right at the beginning of the presentation, we deleveraged back into preacquisition levels from a point of view of net debt to EBITDA. Now, I want to make the point that it's not just output that delivers results like this. During COVID-19, the Sibanye-Stillwater team sprung into action, got to grips with potentially very significant cost runaways due to lowering or decreasing volumes, got into control of capital and working capital management. And all of that contributes to the results that you see today. So, it's not just to focus on output, it's a focus on controlling costs as much as we can under circumstances like this. Just moving on to the next slide. And the exposure to what I've seen referenced as rock star commodities at the right time is reflected in this slide. You can see the three year performance of rhodium, ruthenium, palladium, iridium, silver, gold are really at the top end of this table and very pleasingly we have significant exposure to these metals. In terms of revenue contribution, interestingly, you can see rhodium makes up 21% of our revenue, which is similar to gold. And of course, platinum is the laggard. But I think it's safe to say that we were very well positioned for what we believe is a platinum market that is got longer - medium and longer term really good underpinning fundamentals. So we look forward to getting the benefit from the future upside in platinum as well. Moving on to the individual operations and I am discussing them in order of contribution. So the next slide is titled South African PGM operations, and they've contributed 54% of group adjusted EBITDA. And some important things to note, production is 5% higher than the previous year, but that is really due to the inclusion of Marikana. So that creates a little bit of a distortion and offsets the COVID-19 disruption, but the ramp up in platinum was really very smartly done. It was risk base done. And the production came in at 47%. And it was offset by obviously much higher 4E PGM basket prices. The buildup was prioritized mechanized sections because that's clearly where you get higher productivity. And if you look at the details you may see lower grades during this period and that is because the focus was on UG2 Reef, which in the mechanized sections is lower grade and but with the contribution from rhodium and chrome is higher revenue per tonne. And so ramp-up was appropriately focused and the other difference between this and gold is PGM ore bodies are more homogeneous in their grade profile in gold, and you will see the relevance of that when I come to gold. But there is clearly flexibility to high grade PGM mine. In fact, I'll say there's no flexibility to do that. Interestingly, at this point in time, we've increased our staffing levels to 80%. And I think the other important aspect to note is that our margin - the adjusted EBITDA margin is now sitting at 42% from these operations, which is remarkable that literally a short while ago and certainly when we purchased them, most of them were loss-making or really just breakeven, so very significant profitability from our South African PGM business. And we always get a lot of questions around Marikana and I’ll move to the next slide, and I think very important to note that at the last results presentation, I mentioned that we had exceeded our own estimates of R730 million a year of overhead cost synergies really achieved 1.2 billion. While I'm very pleased to report that today, we've identified 1.85 billion of annual Marikana, synergies that are now being recognized. That's more than double what we originally estimated. And that's highlighted in the annual benefits column very much on the right hand side of this slide. So that is very pleasing. And, of course, there is still additional upside from future processing of Rustenburg or when we do make the decision to move it from the Anglo Platinum processing facilities to our own. But to be clear, we have not made that decision yet. I'd like to move on to the U.S. PGM operations, which is the next slide. They contributed 36% of group adjusted EBITDA and the combination of mined and recycled production is shown in the graph. And important to note that year-on-year, we despite COVID, we've achieved a 5% higher production output. And we were able to continue with these operations. We had to displace our contractors. That was an agreement with the health practitioners or regulators in that region, which has affected our capital growth projects. I'll get to that shortly. And these are high margin underground operations with a 60% adjusted EBITDA margins. And also important to remember when you look at the cost line that the higher PGM prices increase your taxes and royalties and we've estimated that amounts to about $14 per 2E ounce in the cost line. We were able to reduce our restocking inventory during the second quarter that released about $300 million of working capital. Of course, collections since then have been slow. And when I get to the overview of the market towards the end, I will share with you our view on recycling and the impact that COVID has had. The Blitz built-up has clearly been delayed. We have not brought back the contractors onto site. We are expecting a delay of something between 12 to 18 months due to the contractor demobilizations. There has been force majeure declared on equipment, and we are improving understanding on the ore body and factoring that into the ramp up as well. To be clear Blitz will still achieve the same steady state production. But we are factoring in the delays of 12 to 18 months. And much of it will also be dependent on the receptivity of the demand markets and I'll get to that towards the end of the presentation. Fill the Mill project is proceeding as planned. That is basically all in house work. Moving on to the next slide, very pleased to say that our gold operations were profitable. Although as you can see gold in our business has become relatively small and only contribute to 10% of group adjusted EBITDA. And it is a 17% year-on-year increase in production, but we are comparing it to H1 2019, which was severely disrupted by the AMCU strike. And we believe that the gold team approach the post-COVID ramp up in exactly the right way as well. And Q2 production levels are at 54%, and that was offset by 28% higher rand gold price which contributed to the profitability. As of today, we've increased staffing levels to 90%. And that's been a responsible ramp up making sure that we weren't exposing our workers to any health risks due to COVID-19 that has been very well managed in all sections of our business. We focused on higher grade panels and effectively we've high graded the startup, and that is by design. And of course we'll get back to more grade levels and I'm really referring yet to the underground drives. Of course, we made use of whatever surface capacity we could provide to fill the mills. And of course, when you combine these you may see a total lower grade, but the underground grade has been increased because of selectively targeting high grade areas. Our goal business is running at a 16% adjusted EBITDA margin. And I have included the production at 77,000 ounces at an all in sustaining cost of 605,000 rand per kilogram. At this stage, I'd like to hand it over to Charl Keyter to do the financial review. Thank you, Charl.

[Charl Keyter:]

Thank you, Neal. Good morning and good afternoon. It gives me great pleasure to share our financial performance with you today. Moving on to the half 1 2020 results. As has been highlighted throughout the presentation, COVID-19 had a significant impact on quarter two. If we start with our deleveraging profile, you can see that net debt-to-adjusted EBITDA, which to date has been our primary financial performance measure reduced to 0.55 times that is down from 1.25 times at half 2 2019. And we are now well below our covenant limit, which is set at two and a half times. Net debt on an absolute basis reduced by 38%, or R5 billion to R16 billion. Adjusted EBITDA considering the impact of COVID-19 increased to just below R50 billion. The conversion of the convertible bond, which is currently trading well above the soft call will reduce debt and leverage significantly. As illustrated, you can see that net debt-to-adjusted EBITDA on a pro forma basis would have been 0.23 times at the end of half 1 2020. Looking at the next slide. The group is in a very good position from both the liquidity and the debt maturity position. And our next meaningful debt maturity is the 2022 bonds of $354 million dollars. Gross debt as at the end of half 1 2020 was R28 billion, and our medium term target is to reduce this to R15 billion as stated previously, and we are not far from our target considering that we are 12 billion cash on hand at the end of half 1 2020. First half 1 2020, we have already started repaying the rand and the dollar RCF, as I believe the risk of accessing these RCF's has abated. If we turned to the income statement, half one so 154% increase in revenue. The main reasons for this was the inclusion of the Marikana operations for a full six months and basket prices being up 92% at our SA PGM operations 43% in dollar per ounce terms at the U.S. PGM operations, and 45% at our SA gold operations. This was our ever impacted by the severe production disruption due to COVID-19. Cost of sales increased to R57.7 billion. And that is again mainly due to the inclusion of Marikana operations for a full six months, and then an increase in recycling costs. As has been highlighted by Neal, adjusted EBITDA at $16.5 billion increased eight fold from R2 billion in half 1 2019. The next big item to look at it the income statement is the gain on the financial instrument. And this relates to the downward valuation of the convertible bond and that is due to the movement in the share price. Mining tax at ZAR2 billion is directly attributable to the profitability of the company. If we look at earnings for the period, that was just below R10 billion or R3.51 or 351 cents for share, compared to a loss of ZAR200 million for the same period in 2019. Moving on to the next slide, the surge in earnings and our commitment to reinstating dividends once our net debt to adjusted EBITDA was below one times has resulted in us declaring an interim dividend of $0.50 per share or about R1.3 billion. Although a conservative interim dividend equaling 15% of normalized earnings, it does take into consideration the uncertain journey that is still ahead of us due to COVID-19. It has to be said that over only 15% of normalized earnings, it is the single biggest dividend declared to-date, and it highlights the significant transformation of the company into a global precious metals company. If the current trajectory continues and commodity prices hold up, I believe you can expect a significant dividend based on our full-year results. I will now hand back to Neal to conclude on the presentation. Thank you, Neal.

[Neal Froneman:]

Thank you, Charl. And I'll do the last part of the presentation now and I first want to talk about the PGM market outlook and I'm not going to spend too much time on this because we are in a very volatile phase that can change at short notice, but at this point in time, on the supply side, we are estimating a 15% decline year-on-year predominantly based on the South African PGM production, which has been disrupted due to the lockdown due to COVID-19. We also expect the recycling supply to decline by 15% year-on-year in 2020. On the demand side, order demand is expected to fall about 20% year-on-year to about 17 million passenger vehicles. We only expect passenger vehicle sales back to 2019 levels by 2022. And on the demand side, we will really expressed a very bearish jewelry outlook previously, but we will revise this down again by 20% in 2020 and 2021. As such if you now look at the market balance, our longer term forecasts remain unchanged. And rhodium moves closer to balance in 2020 and 2021. Platinum surplus narrows this year, but it increases in 2021 due to increased production from the South African region. And we believe and I have seen some commentary that there is some suggestion that substitution of palladium with Platinum won't happen, I can assure you it will happen. And actually it's inevitable. And if we don't do this, we will not alleviate the sustained palladium deficits and OEMs have a need to reduce the cost. So that will also provide a solution to the increasing cost of rhodium. Overall, we remain positive about the overall basket price when these moves change place, and I expect you will have much better visibility of substitution from 2021. Moving just to some guidelines and some final conclusion. The slide titled 2020 annual guidelines and I'm not going to go through all the details suffice to say that and clearly production from an ounce point of view is down in all regions. But I still think quite respectable considering the disruptions we've had in the second quarter. Costs are mainly up and left primarily due to lower volumes. So unit costs do increase because of the half fixed cost component, and we've adjusted the capital costs to suit going forward, and you can see the range of capital costs there. I think you’ve got a good see that in context of the graph on the right hand side. And we've - if you look at the rand for the basket price and the rand gold price, and those more than offset the reduction in volumes and the increase in costs, so we actually see the second half of the year significantly better than the first half of the from a profitability point of view. Moving on to the next slide, which is titled offering value and we offer very significant value as an investment. And I mentioned earlier on that part of our strategy of value treated growth can only really be done off strengthened equity rating will - that shows you why - then you increase the growth is not something we can consider using equity at this point in time. Although we've seen a substantial rewriting in our share price, you can see we are still significantly undervalued and when you can look at all the different metrics on the slide, EV to EBITDA price for free cash flow per share, net debt-to-EBITDA, we are now significantly de-risked and I do believe that with the introduction of the dividend, we will see now further significant rewriting and even on an EV and market cap we will start seeing the enterprise value of the company being converted into market capitalization. So, I remain very bullish regarding the way the market will revalue our company, again, despite the very significant increase in valuations that we've seen in the last short while. So with that, I'd like to thank you for your time and we will now open up the forum to questions. Thank you.

[Operator:]

Thank you. [Operator Instructions]. First question comes from Arnold Van Graan from Nedbank. Please go ahead Arnold.

[Arnold Van Graan:]

Good afternoon. So a couple of questions my side Neal. So the first one is can you just quantify the COVID losses for this half? Maybe I missed it and sorry if I did just sort of ounces per operation. And then my other question is related to Blitz. What really is the issue there seems geological challenges can you just give us a upgrade on executive working countering. And then the other question that relates to that is, will you be able to ramp it up to the regional plant level? So, you said it will ramp up it is going to take longer, but can you achieve your initial targets? And then importantly from a cost perspective, given the delays and given the geological challenges that you're facing there. Do you think you'll be able to achieve your regional envisage costs on that operation? Thank you.

[Neal Froneman:]

Thanks, Arnold. Let me answer your questions in the order you gave them. So the COVID losses, and I don't have it in answers, but if you look at what was achieved in quarter two was roughly in the South African operations roughly 50% at Gold and 50% at Platinum So we lost 50% of quarter two's output and you can put a number to that. In terms of Blitz, it's a myriad of issues. And I'll ask Chris to come in. I'll just give you my view and then you can get it from the horse's mouth. But let's start to - our challenges started with the fall of grounds that we had, there was some knock on effects where we tried to concentrate mining, and we had ventilation constraints. And I must say all of these are actually just typical startup type problems that you find with bringing a new mine online. I've experienced that many times before the COVID, the COVID disruption is one way we can't complete some of the capital expansion around the most and we've had to remove a lot of contract labor in order to run let's call it the rest of the business, which is more steady state. And the ongoing impacts of COVID are really on the growth side of that business that's almost the flexibility we have to switch that on and off. So when you couple all of that, and let's say our improving understanding of the whole body, we anticipate delays of something like between 12 and 18 months, we are busy just redoing some of the planning around that. Let's walk it up to its original target of 300,000 ounces of additional production. And we expect that to happen 12 to 18 months later, Chris, I don't know if you want to add anything to what I've said.

[Chris Bateman:]

Neal, I mean quantify on the COVID cost in the U.S. those 3 million in the first half related to increase costs of COVID that equates to about 10 bucks an ounce was still spending around $500,000 a month and related to COVID. And I think Neal you hit all of the key points, we did have force majeure declared on various mill parts and we had a very short time period to respond to the COVID outbreak and one of the things we agreed with the county health officials Neal mentioned in his presentation was getting people upside. So we suspended a lot of the surface works the non-critical capital, we did keep going with Blitz underground development and we're pushing through that during COVID. I'm pleased to report good progress being made on the Benbow terminal which will connect the east side to the west side of Blitz, and we're expecting to finish that up in the first half of next year. We've got through the most challenging grants on there. That will open up a lot more ventilation, and as we develop on the 56th level, which was one of the other three main tunnel infrastructure we're drilling and further defining the ore body. And as we get that data, we're running it back through the models because the initial drilling was from surface and not density to fully define the ore body. So progress has been made. There'll be more news as we really run the numbers and look at the timelines with the impacts from COVID.

[Neal Froneman:]

Thanks, Chris. And we ready for the next question.

[Operator:]

Okay, the next question comes from Laurence Heller from JPM. Please go ahead Laurence.

[Laurence Heller:]

Hello, can you hear me?

[Operator:]

Yes.

[Dominic O'Kane:]

Hello. This is Dominic, JPMorgan. I got three questions if you don't mind. The first relates to the gold assets. So if we look at the guidance for second half of the year, we could be looking at a potential 50% increase in the output. The reserves for your South African gold operations are based off 600,000 rounds per kilogram. The current spot price is over a million rand per kilogram. How should we think about the optionality and the strategy in the gold assets? And if you don't mind, I'll may be follow-up with two quick questions afterwards?

[Neal Froneman:]

Okay, thanks, Dominic. Yes, you correct. The significant upside in the second quarter. And our planning parameters are conservative. And it does open up the opportunity to scale up our gold business and probably in flexibility looking at cutoff grades and so on. And I would argue and of course we would do that although we prefer to rather retain the margin than then let's say increase output. So we will look at that going forward, but I think the point is that our current gold business is being well managed at a certain level. And even if we were to I suppose, stretch it a bit more, that's still only going to be I don't know maybe 15% of revenue in the future. So, it is something we will constantly optimize and look at, but I think your overall sort of points you're making is upset.

[Dominic O'Kane:]

Okay. And then just two follow-on questions. So the Lonmin synergy number is up-scaled again. But how conservative is that number written realistically? Because Am I correct in assuming that there is no assumption in there for long-term mining synergies with respect to the boundary between Marikana and Rustenburg? And then my final question is related to sort of the comments around value accretive growth and I guess one of the things that we talk about with investors is M&A aspirations. Could you maybe just give us some context around what the rush is for pursuing those types of valuable creative growth opportunities and what the criteria you and the board are currently setting for looking at sort of M&A growth options?

[Neal Froneman:]

Yes. So let me pick up on the Lonmin synergies. It's our experience that the mining related synergies when you think of crossing boundaries and saving capital infrastructure is actually much bigger than these type of synergies that we've tabled today. And the problem is they come some way in the future and it's normally a commitment to progress a project. So there is no doubt in my mind that there is still significant upside in terms of value to be created from things like mining through boundaries, and so on at Lonmin. I would, however, say that I've considered our teams. We thought the 730 million overhead synergies was conservative. And it has turned out to be conservative. But remember, we also only had limited ability to do due diligence and hence, the conservative original estimates. So I wouldn't suggest you should go and extrapolate the increases year-on-year that we've had, I would say, we're now getting towards the sort of overhead synergy number that we always envisaged, but do not want to make public just because we didn't have the background information to do that. In terms of value-accretive growth, suppose we've made it very clear that certainly from an entry into PGMs, we like the idea and we see a lot of complementary benefits. When we look at the battery metals, there has been a study that is ongoing and remains an area of interest. We have previously said that we like gold, and in fact earlier this year prior to COVID gold would have been a really good entry. And the basis on which we said that is somewhat counter cyclical to PGMs and it is a business we know well, but it's incredibly difficult to find value in gold today. So we maintain a watching brief from a board perspective that’s really been - we were not - let's say actively engaged, the board has been very clear that our commitments to shareholders have been first of all deleverage. And I think you got a good what you got good information on there today. And secondly, we made a commitment to our shareholders that we will reinstate our dividend. And yes, we've done that. And clearly we need to make sure that our dividend is sustainable and when it comes, I suppose overall, we will not embark upon M&A if it's not value accretive, and I think we've amply demonstrated that there were a lot of naysayers, but our entry into PGMs was really well timed and very value accretive. And when we talk value accretion, we really look at a cash flow per share as well as all the other metrics as well. But if it's not cash flow per share accretive in a reasonable period of time, it just doesn't stack up. And when you start factoring all those into account, you can imagine how difficult it is to identify any value accretive targets at this point in time. Dominic, I hope that answered your questions.

[Dominic O'Kane:]

Thank you very much.

[Operator:]

The next question comes from Chris Nicholson from RMB Morgan Stanley. Please go ahead Chris.

[Chris Nicholson:]

Hi, good afternoon, Neal. Good afternoon, Charl. I also had three questions to be quite brief, and the first question is that it appears that you've drawn down on the inventory pipeline to the tune of about 150,000 for youngsters, we'll say in South Africa, and but what extent will you need to rebuild that later this year? So where are we in terms of those pipeline inventories? Second question on Blitz, I'm so interested to see that you're CapEx guidance for Stillwater is pretty much unchanged this year. Maybe a bit surprising given the slowdown we've seen in the Blitz project in particular, maybe just highlight why that CapEx has still come to prior levels? And should we be expecting with the extension of Blitz, CapEx exceeding, let say R200 million to R250 million next year or to what we call teach ethics. And then the final comment if you have some shave either and to travel to from the dilation of the convertible bond. This would seem to be obvious thing to do with your life that your final five your presentation tool shows. Thank you.

[Neal Froneman:]

Yes, thanks. Thanks, Chris. And funny we as an executive team did receive your note just before the call and your 130,000 ounces of inventory drawdown is not corrected probably less than half of that, and I think you got affect it in the force majeure and the blockage that we had with the Anglo converter issue, and you're right on the CapEx development, and the applets - you are right on the CapEx number, but I think as Chris pointed out, we have tried to continue to develop to get flexibility I would think that there could be an increase in total capital for Blitz because of the delay you do have fixed project costs, but as Chris also said, we are running a - let's call it an assessment of Blitz to come up with a re-plan. And that should probably be in the next three to four months. It'll be completed. So we'll give guidance on if there is any CapEx increase, which I think they may be I mean, that's just being you know, it's logical. In terms of share buyback due to the convert, and the answer is probably no. And the reason is that when we entered into that convert, what sorry - let me take a step back. When we entered into the acquisition of basically Stillwater, we would have wanted to do a bigger rights offer and have more equity and the pin in terms of the financing for Stillwater. Some of our shareholders couldn't step up to the plate, and we didn't want to overly burden them and dilute them so. So we had to embark on a smaller rights offer. And I think in terms of the convert and where it was struck in there, and the whole rights offer, at was our hope that the convert would convert and because we raised a lot of money at about 18, 19 rand Shea and you know the nice thing about a converter that converts it at a much higher price and then the stock price. And therefore we would like to see that we become equity in the company. And I also think we want to be prudent without our cash. And I understand the benefits of buyback. But I don't think in this case, that's what we are going to do. But that's not a final decision, Chris.

[Chris Nicholson:]

Great, thank you and other points on inventory. Thank you.

[Neal Froneman:]

Thank you, Chris.

[Operator:]

The next question comes from Adrian Hammond from SPG Securities. Please go ahead Adrian.

[Adrian Hammond:]

Hi, Neal and team. Please - Neal, given the change in fortunes for boomers have led, could you just reiterate your capital allocation strategy to us? And secondly - previously, you mentioned that all cash flows from the gold business would be returned to shareholders. But obviously, that's still under the water, despite record gold prices. So how do you think about this strategy going forward? And would you consider divesting of these assets? Do you think they'll be better in the hands of other producers?

[Neal Froneman:]

Thanks, Adrian. And certainly image data front, we have no intention of divesting of our gold assets. I think in the longer run, we see real benefits of being a precious metals company, not just the PGM company, and if anything, we'd want to build out gold profile at the right point in time. Only at that point in time, maybe we might consider improving the let's call it the risk profile of the company. But certainly we like the exposure to gold. So coming to capital allocation, and I think that's it's suffice to say at the moment, we were very prudent on the dividend declaration, it was really only 15% as opposed to somewhere between 25% and 35%. It's I think we are just being prudent in terms of there could be a little bit more volatility in the last half of the year. And I think we would want to just be well positioned for that I think Charl made it quite clear that coming to a final dividend, and I think it'll be substantially bigger, I don't want to commit now. And we would like to get more towards our dividend policy in terms of a final declaration. So in terms of capital allocation, it is still very much the same. It's, I think our leverage post, let's say a convertible bond conversion will be at levels where that is very sustainable. That means the cash that is not allocated to let's say direct costs and capital, we don't intend to really embark on any major growth capital at this stage other than that, that's committed such as Blitz. The first priority remains returning cash back to shareholders in terms of our commitment to dividend out gold, all the gold earnings, we intend to do that I just think you need to give us a better chance just to get to steady state and make sure that the COVID disruptions are somewhat behind us and then I think we would have to sit back and say the balance of the cash especially at these commodity prices, can we employ it perhaps better than what our shareholders could, and if we can't, well, then I think our shareholders can look forward to even more cash returns. That's really how we think about capital allocation in this case.

[Adrian Hammond:]

Just to be clear then, I mean, if you're going to reduce debt through the calling of the bond, you should get pretty close to gross debt of 15 at no cost to you really, other than raising other than issuing new shares. So, just trying to understand what you intend doing all the cash because your dividend policy, then perhaps would you reconsider adjusting that policy to return more cash to shareholders or would you keep the balance short for potential M&A?

[Neal Froneman:]

No, I think we would be - if we cannot create more value than by returning it back to shareholders, we will exceed our dividend policy of 25% to 35%. So Adrian, we would have to see at the time, but certainly it would be very nice to return more cash back to shareholders than this.

[Adrian Hammond:]

Thanks and just maybe one question for Richard, if he is around, just want to - could you perhaps give us some color on how we should think about sales versus production at Rustenburg for the year given the benefits you had of the pipeline in H1 and whether there's going to be a lag effect in H2 at all, please?

[Neal Froneman:]

Rich?

[Richard Stewart:]

Sure. Good afternoon, Adrian. Yes, it's I think just in terms of sales in a very high level as Neal mentioned, two different factors, obviously, the COVID impact and then the downtime on the converter plant. Roughly speaking, if you take the total pipeline over Rustenburg, that was - it's called a depleted net of being delayed through force majeure notices and COVID against metal that's been delayed into the future. We're looking at about 50,000 ounces on the Rustenburg side, and Marikana saw benefit of a similar amount due to treating material essentially stepping in for processing and totaling on behalf of [indiscernible] during that period for the other operations. I hope that addresses your question Adrian.

[Adrian Hammond:]

Just say, are we going to balance out by the end of the year in terms of a full year number, or is it going to be like into a next year?

[Richard Stewart:]

No, we'll be balanced after we'll be comfortably balanced out by the end of the year Adrian, that’s right. Yes.

[Adrian Hammond:]

Great. Thanks.

[Richard Stewart:]

Thank you.

[Operator:]

The next question comes from Leroy Mnguni from HSBC. Please go ahead, Leroy.

[Leroy Mnguni:]

Hi, good afternoon guys. A couple of questions, please. So the first one is when Anglo Plats declared the force majeure, and you processed your own material, I understand it would have been brief because the lockdown kicked in, but how did your processing operations cope with the increased volumes? Were there any learnings any sort of areas of concern around increasing the throughput? And then just on the substitution of platinum back in for palladium in the gasoline Autocat. Like I understand that the time it was a specific model in the U.S. where it was going to be applied and it was quite a large vehicle. Are there any indications at the moment that solution can be applied a bit more broadly, or slightly smaller models? And then, just lastly, you spoken quite a bit about your equity being cheap at the moment and it needing to re-rate before you consider value creative M&A. I mean, how do you think about that, how will you know when equities fairly valued? Is there a kind of an absolute share price? Is there a target multiple? Or do you just kind of use a peer group average? Thanks.

[Neal Froneman:]

Yes, thanks, Leroy. And let me pick up on the force majeure. And because it was such a quick move from let's call it total lockdown to you can restart your business. There was very little and slowly and the other thing is of course, Anglo platinum repaired their converters much, much quicker than what we expected. There was very little processing that actually went through from Rustenburg into the Marikana facilities now, so we never really got to test the nameplate capacity, but there were a lot of learnings. It's not as simple process just to one day add in another constituent of PGM. So, there is a lot of chemistry involved and a lot of planning and logistics. So getting to understand the sulfur content the copper and nickel and so on. It was critical and that took our team some time to get to grips with and then of course introducing you no match or any other material into a process not through your normal pipelines is challenging. So there were a lot of good learnings. I would say that other than having tested or not being able to test our processing facilities for that additional material, we learned a lot and we are certainly in a much better position, should another incident like that happen. So, that is what happened around the force majeure issue in terms of substitution clearly from the last time we spoken mentioned this issue COVID-19 has occurred and I would suggest that most companies have been busy navigating their way through a lockdown and a restart and supply chains have been severely disrupted, so substitution hasn't been the main focus. And as far as I'm aware, larger vehicles are still predominantly the target market. And it's not just in America, I think we already seen substitution in China. And just repeat your question on value accretive growth again. I just lost track of that.

[Leroy Mnguni:]

Sorry, that was just how do you gauge when your share price, the value is and when you're ready to do M&A?

[Neal Froneman:]

Yes, sorry. That's a good question. And really, I think it's all relative. So the last slide in the presentation is the slide that tells us whether we are being valued appropriately and it's really based on multiples and where you slot within your peer group, and when you sit at the bottom of those tables and we know why we are there, I really do believe it'll change because our risk profile has changed. But that's only when you sit and you're in your peer group, can you really start considering the relative valuation of your equity. There is not an absolute number. It's how you all already relative to your peers, of course to shareholders, this is an absolute number. And, and we know that number is significantly higher than where it is now.

[Leroy Mnguni:]

No, thank you.

[Operator:]

The next question comes from Alexandre Ayoub from Waha Capital. Please go ahead Alexandre.

[Alexandre Ayoub:]

Hi, and thank you very much and congrats for the results. I'm calling from the bond side. So just want to have a bit more insight on the capital structure, your use of cash, if you don't mind reminding us quickly on the debt strategy. So what is it you want to hit the 1 billion gross debt? And we'll be using some of that cash to decrease your gross debt. Is that correct?

[Neal Froneman:]

Alexandre, I'm going to actually ask Charl to fill that question. Charl?

[Charl Keyter:]

Yes, Alexandre. Good afternoon. Yes, I mean, exactly that remember - that we've put out a quality intermediate target. Our first primary consideration was to get our leverage below one, which we've achieved now. And the next target we imposed upon ourselves was to get out grossed it down to about $1 billion, and that is simply a number that we back calculated to make sure that, we are comfortable throughout any cycle that we can face. So yes, some of the cash that we have on hand will obviously go towards repaying some of the random dollar RCFs, as I said on the results presentation, we have restarted that. Remember, at the time when we went into lockdown, we fully drew under those facilities, just to make sure that we had adequate liquidity. And just to be careful that there were no restrictions imposed on us by the lenders, but clearly that was not the case. So we've restarted repaying those or RCFs, so yes, some of that cash is already been applied to that.

[Alexandre Ayoub:]

Sure, but then you still have a lot of cash on balance sheet. So I was running with you. For example, the calling the bonds, the 2022 bonds because I have a call option. And in relation to the convert, I guess it sounds like you're just been elected converting to share. So you will be issuing new shares and that there will not be any cash burden on the convert side is that correct.

[Charl Keyter:]

We are keeping an eye on the convertible bond, clearly it's trading above the soft call price. And it's something that we are keeping an eye on, but at this point, there is no immediate plans to call the 2022 or the 2025 bonds. As Neal said, you know, one we have to preserve liquidity in the business, I think we're going to have a bumpy ride is still ahead of us due to the global pandemic. So it's just an overall cautious approach to make sure that we have adequate liquidity. And as Neal said, clearly based on the results and if the results continue as is some of that money will be returned to the shareholders in the form of the final dividend.

[Neal Froneman:]

Yes. Just to add in there, I think we like the idea of a mature balance sheet with some gearing on it, and I don't think there is any intentions to early call any of the high yield bonds is such a thing.

[Alexandre Ayoub:]

So yes, that's correct.

[Neal Froneman:]

Yes.

[Alexandre Ayoub:]

Fantastic. And sorry. So, just to clarify, can you quantify what you mean by preserve liquidity like, Is it like $300 million of cash on balance sheet, and then just the last one is on M&A, so I understand you only look at value accretive M&A. But would you have kind of size the maximum size would you be going embarking through another maybe $1 billion acquisition or that's really not what you're having in mind now? Are you really exclude that?

[Neal Froneman:]

Yes. You do the capital.

[Alexandre Ayoub:]

In terms of liquidity, the internal policies to have two months of operating expenditure in the form of liquidity, and let's go through a balance of cash and available revolving credit facilities. So the number at this point in time is roughly about R12 billion. And about a third to a half of that we would like to have in cash, so I'm not converting it to dollars. So it's between R4 billion and R6 billion that we would like to have cash on balance sheet?

[Neal Froneman:]

Yes, on the size of M&A targets it doesn't make sense to do small acquisitions. Although I think, when we look at the battery metals strategy, we don't see that the same type of strategy as we embarked upon in the PGM sector, it's going to be a lot more selective and strategic, but so those could be smaller acquisitions. We are a company that can stretch our mind for the right reason, and the acquisition of Stillwater was at a time and Stillwater was bigger than the market cap of the company. So Alexandre, it really depends on the target. We don't have a specific size that we target. We look for certain quality and a certain value accretion and then we will work out how best to do it.

[Alexandre Ayoub:]

Is it fair to say that you would keep your leverage within one-time or around one-time even though you find a very large big acquisition or you would be happy to stretch it also temporarily?

[Neal Froneman:]

Yes, so listen under normal operating conditions, we'd want to be where we are now and below. So, that's when there's no M&A, that is mining and it's prudent and in our view the right thing. When it comes to M&A, there is no reason why you can't exceed 1x, possibly even though to 2, maybe 2.5x. As long as you are certain, and in most cases, you have to be absolutely certain you can mitigate any risks of deleveraging. And the Stillwater acquisition was exactly that we moved to about 2.5, just under 2.5x, but we were confident of the markets and our ability to deleverage. It's not pleasant going up to those sort of numbers, but - and a board will really only support it if they are reasonably confident you can deleverage. So under normal conditions 0.5 and below, for a good reason or an appropriate acquisition going above 1x is also not something that we would shy away from.

[Alexandre Ayoub:]

Got it. Thanks. Very helpful.

[Operator:]

[Operator Instructions] James, I'd like to hand over to you for the questions on the webcast. Hello, James.

[James Wellsted:]

I know James was also watching the webcast, so he might be on mute or not at his computer.

[Operator:]

Let’s just see. Ladies and gentlemen, if you could please remain online while we try and reach James if you could please hold. Thank you. While we try and reach James, we're going to take a question from Wade Napier from Avior Capital Markets. Please go ahead, Wade.

[Wade Napier:]

Hi, Neal and team. Thanks. Thanks for the opportunity. Just a couple of questions from my side. Given that production has recovered post the lockdowns ahead of the sort of rate of return of employees to the mines. Have you seen sort of any opportunities to sort of optimize your headcounts within this sort of SA operations? And then my second question is really around your tolling agreement with Amplats. I mean, you've previously described that as a sort of insurance policy against external risk factors such as load shedding. Are you sort of seeing anything in the next sort of two to three years that would suggest you - you’re willing to shift more volumes back through the Marikana processing facilities?

[Neal Froneman:]

Yes, thanks. Thanks, Wade. There is no doubt that COVID has provided, let's say, a number of opportunities to just relook at the way we do business and the one you're referring to we are watching very carefully and that is that we are getting - we're getting better productivity with less amount of production. So there is a case to be made that you're going to get to a point of diminishing returns as we call it. And we are watching that closely now. At the start of COVID-19 and with the introduction of social distancing constraints, we were concerned that, especially in our gold division, we would not get back to 100% just because of the logistics, I think, since we've done a lot more work. We do have plans that take us back to 100%. And so to answer your question, we will look to see if we can optimize our business a bit better. And we are getting to that 80%, 90% staffing level where we'll look at it, but I wouldn't like to commit any particular number in terms of productivity improvements or even worse, job losses. We certainly would not enter into a 189 under these conditions. We would look at other mechanisms’ natural attrition and so on. So, we will try and balance the productivity aspects as we enter this area of diminishing returns. On the tolling arrangement, it’s a very good arrangement for us with Anglo Platinum. And that does give us the flexibility in terms of growing our own business should we want to do that, and therefore, there doesn't seem to be any real strategic reason why we would want to give notice earlier on that agreement. Obviously, we just keep an open mind and we have a good relationship with Anglo Platinum. It works for us. I suspect it works for them as well. And we will keep an open mind on that. But certainly things like load shedding and so on, it does put us in, I think, a better position having that toll treatment arrangement.

[Wade Napier:]

Perfectly understood. Thank you.

[Neal Froneman:]

Thanks, Wade. James, are you online?

[James Wellsted:]

Yes. Hi, Neal. Can you hear me now?

[Neal Froneman:]

Yes, we can hear you now. So…

[James Wellsted:]

Okay, thanks. So sorry, I just had a bit of problems with it. Obviously wasn't coming through. I'll just read through a couple of the questions I've got on the webcast, from the webcast. Some of them are repeat, so if I don't ask your specific question, please I apologize up front. Just one from Sophie Davids asking about as low employees, how will they benefit as women in mining? I thought maybe you could make some comments about our approach to the gender equality of women in mining in response.

[Neal Froneman:]

Yes. So, I have actually volunteered to champion on behalf of the minerals in industry - sorry, the Minerals Council, the whole women in mining initiative and that's as a male in the women in mining task team now. I think we all know that you know right now the majority of senior management is men. And therefore men actually have the ability to make this work or not work. And I suppose outwardly men will say yes, let's make it work, but sometimes deep down they will stand on the sidelines and perhaps even watch an initiative fail. I think to - I intend to make sure that doesn't happen and promotes the benefits of women in mining. And first of all you increase your exposure to a source of expertise and capacity that in my mind in many areas do the work and tough, they do it better than men in many areas. And certainly, we are, as a company, going to drive the women in mining initiative on the basis that it's good for us, it's good for the company and it's just the right thing to do. So we've actually put very specific capacity in place. Within Sibanye-Stillwater there's been a number of meetings and we intend to double women in mining from the current levels of about 11%, 12% into the mid-20s within five years. And that's a very, very significant commitment. And then together with the Minerals Council on behalf of the mining industry, we are looking at getting up to the 40%, 50% levels by the end of the decade, 2030.

[James Wellsted:]

Thanks, Neal. The next question is from [indiscernible] asking what our long - what is the long-term plan for the DRDGOLD investment?

[Neal Froneman:]

Yes, Charles, we have them Niel Pretorius on the call and we work extremely, I suppose, closely and well with the DRD executive. Our view is to provide the support and the guidance that we can as a shareholder and hopefully see the DRD business evolving to something that is multi-commodity international and become an even better business than it is today and it's a great business today. We believe that the focus on environmental as we presented in our presentation is certainly a shareholder view. We are mindful of not affecting liquidity in terms of the share. We are very comfortable with our current position. We would like the current large exposure that we have, and we will certainly be supportive of the DRD vehicle going forward. We think that's a very good arrangement. I trust that answers the question, Charles.

[James Wellsted:]

Thanks, Neal. The next question or two questions are from Martin Creamer. Firstly, will we be taking steps to mechanize Marikana in the same way as Rustenburg and Kroondal are mechanized? And then the second one I think we've answered to some extent, which is the opportunity to convert more gold resources into reserves in the short-term. What is the opportunity at the gold operation?

[Neal Froneman:]

Yes, thanks James. And I think there is opportunity and I did cover that Martin. Martin, the - we would like to mechanize as much as we can. And certainly, I think, where we have the right ore body properties or profiles, we have mechanized and mechanized very successfully. We - a substantial part of our businesses is mechanized. The U.S. operations are basically totally mechanized and large parts of Rustenburg being Bathopele are also mechanized. However, that becomes very, very difficult to mechanize ore bodies that are narrow and tabular and that remains a challenge. But in principle, whatever we can mechanize, we will and we constantly trialling new equipment, low profile equipment to try and achieve that. And that's probably - it's a very broad answer. I can't give you any specifics, but I think the bottom line is where we can mechanize we certainly will.

[James Wellsted:]

The next question is from Rene Hochreiter asking about the SA discount, which he says he imagines can only be removed by leaving South Africa completely, which we obviously can't do. So could you expand a little bit on how we - what are we doing to try and reduce the SA discount?

[Neal Froneman:]

Yes. So, as I've said before, there's two parts to addressing the South African discount. The one is actually trying to improve the perception of business in South Africa and the investor climate in South Africa and that's an advocacy issue. It's an issue of engaging with government. And as you know, I've been pretty outspoken about the current state of affairs and my complete disillusionment with the current leadership. Now, having said that, I must also just add that we have a wonderful minister within in the DMRE that listens to us, that engages with us, doesn't always agree. In fact, we really agree, but at least we can engage. And unfortunately that's a microcosm in a much bigger national environment, which just doesn't allow that to blossom, but our minister is influential we'll continue to engage with them. It’s hard. It’s in the right place. And I have no doubt that if we can be successful as an industry that he will influence the national agenda. And so that is one key thrust that that we worked very hard at together with the Minerals Council. In terms of - you’re right, Rene, I think the ultimate is you need to exit South Africa or re-domicile. And unfortunately, we seem to have as a country taken a step back in that. So for now, there will always be a South African discount, but I think we can do a lot without re-domiciling from the current levels. And for us as a company, it really involves improving - improving our profile outside of South Africa. We have to build that profile to offset the perception that we are - majority of our assets are in South Africa. So, we will continue to drop both of those, but I think the recent AngloGold Ashanti issues are very, very sad and completely inappropriate for business that's just another negative regarding investors looking at this country. And I hope that government takes note that that is not the right thing to have done. Let me leave it there. Thanks, James.

[James Wellsted:]

The next question from Nkateko at Investec. Congratulations in the quarter. Just a question on the recycling volumes and our expectations for global recycling. We’re talking about a 15% decline. We're showing a 6% decline in H1 at the U.S. operations. What are the key contributors? And do we expect Stillwater volumes to suffer further in order to, I guess, match that expectation on the 15% global decline?

[Neal Froneman:]

Yes, so, the - more recently we've seen recycling volumes normalize. And I would suggest what we see as probably the biggest recycler internationally is probably indicative of what's happening in the rest of the world. So, recycling volumes are back to normal levels. So the decrease that we have put forward is really based on the period that's passed. I hope that clarifies the numbers, James. Thanks.

[James Wellsted:]

Yes, I think that's fine and I'll follow-up with the Nkateko check afterwards. And then from Jonathan Bloom, a potential from Burnstone under current gold price environment.

[Neal Froneman:]

Yes, so that's a good question. There is potential for Burnstone. We have been in the process of dusting off the study. However, I want to say that we would need to think very carefully about investing more money in South Africa at this point in time. I think the climate is not conducive to investment. And I've told the minister, there are many, many projects that companies have in their bottom drawers that we would be so happy to invest in if the right things were done. And all stakeholders need to actually take note that this is not a patriotic thing. You called the unpatriotic when you won't do it. And you’re only done if you do it under conditions like this. Government and other stakeholders need to nurture business, recognize business. It's highly unlikely that anyone can develop - anyone else - any other stakeholder can develop these types of projects. So the sooner there is a recognition to embrace business, create an investor friendly environment and nurture business and these projects that will happen. But other than - if that doesn't happen, I cannot see shareholders allowing us to use their money to invest under these conditions.

[James Wellsted:]

There was a similar question from Steve Shepard regarding K4 and the likely life of the Marikana asset. You mentioned that it's a very large, long life high grade Merensky and UG2 proposition, which was abandoned due to financial distress of the previous company. So maybe if you can just elaborate on that, whether the same conditions apply there.

[Neal Froneman:]

Yes, Steve, and it's a similar answer except we need to be mindful of, let's call it, how receptive the market would be to more platinum, palladium and - or PGMs in general. It's a great project and it is the one that I really hope our minister and our cabinet actually give us the excuse to develop because it deserves to be developed. We have made some commitments to the comp commission and we will obviously honor those, but it's a project that does deserve to be developed and again it's just one of these really good job creation opportunities that squandered by lack of leadership in South Africa. And this view that some stakeholders have that they just press a button and money is created. And so, I really do hope that these answers find their way into the media in terms of what is such a bad situation in South Africa at the moment.

[James Wellsted:]

Then I've got a couple of questions, which is similar around the - on costs. First of all, from Nkateko again guidance for the SA PGM for higher all-in sustaining costs, despite expecting higher production in the second half and the Marikana synergies, and then from Roger Williams about, it looks like a reconciliation on the cost per unit in gold, PGM and Stillwater because it looks like costs are escalating at about 15%, slightly different, but maybe if we can just cover them under the cost focus.

[Neal Froneman:]

Yes, and I'm going to speak just in general about costs a bit. And certainly, Nkateko, we can, as James said, just make sure that we answer your questions properly offline. I just want to say that one of your biggest cost drivers is volume. And I've tried to make that point at the beginning of the presentation. When I listen to myself, I didn't make it very well. As I say, one of your biggest cost drivers is volume and the moment especially in the short-term where you have volume reductions, you incur very significant higher unit costs. And the volume reductions in the second quarter have been a very substantial driver of higher unit costs. And then within specific regions, you have specific issues. So, in the U.S. we've had - because of commodity prices, we've had higher royalties and taxes, and we actually quantified that at about $40 an ounce. And in addition across the entire business, we've had increased costs due to sanitizing, transport, social distancing and so on. So, I would suggest that some of those are ongoing, and they are here with us for the long-term, some of them are once-off and they’re more or less a once off cost of establishing facilities and so on. But unfortunately the costs, the increasing costs are not because of poor management. I believe that we as a team did a very good job in managing costs under these conditions that could have been a lot worse. So, that is, unfortunately what it is. And we will try and clawback and I would think next year would be a more normal year. We will see better unit costs.

[James Wellsted:]

And then two questions similar in nature again around the electricity issues in South Africa and our plans to maybe generate renewable electricity ourselves or how we plan to deal with the issues that we’re facing with Eskom?

[Neal Froneman:]

Yes. So, it's a bit off of the same answers as some of the other questions. We are an energy intensive company. Primarily, my biggest concern is the exposure to CO2 emissions through Eskom as a consequence of them using coal. So there's many reasons why we would want to generate our own electricity from renewable sources not only just the unreliable power supply. However, it is very difficult to do that on the scale that is required. It is also still difficult to do it on the basis that some of our operations are - don't have enough life to recover the cost of the investment in those plants. However, I think, it's changing quite fast as well. And with rampant Eskom price increases, which we expect, that scenario can also change. We are looking at some new options where we have longer life. And we are also mindful of DRD as being part of that solution in especially in the [indiscernible] we've got many years of tailings retreatment. And, of course, that's not an energy intensive business. So between ourselves there could be quite a lot of sustainability. So that's all being addressed and not on a part time basis, we've got dedicated capacity looking at this working with the energy intensive user group and trying to assist the energy department in fine tuning these applications as is particularly complex because of wheeling, and then perhaps even having to consider selling power back to the state.

[James Wellsted:]

And just finally, I think similar questions again, but slightly different. Would reconsider if we don't re-rate and close the discount again? Would we consider disposals of assets, whether that would be in this instance mentioned gold or even Stillwater to a lot which would potentially get a substantial premium to the value that's been given in Sibanye?

[Neal Froneman:]

Yes. That I have to believe we will re-rate. And of course, if we don't, we - the sort of team that will ensure that we deliver value to our shareholders. I can assure you that all those things are well understood and have been debated many times. But, as I said earlier on, we know why we have traded at a discount relative to our peers. And that was principally because of the risk of the high leverage on our balance sheet. I think we understand the profile of our gold business, but there are other companies with similar profiles and we're not naïve to that. But I would suggest you will see a significant re-rating not in the next day or two. I think this is a first step in returning cash back to shareholders. It could well be seen as a flash in the pan that's going to take two or three dividend declaration. So I'm not proposing that that we would have a re-rating in the short-term. This is a medium-term expectation.

[James Wellsted:]

Thanks, Neal. I think that's it from my side. There are one or two questions, which we'll respond to, I think, individually in the interest of time. It's almost two hours since we began. So, from the webcast, I think that's all for now.

[Operator:]

And from the audio line, there are no further questions. Neal, do you perhaps have any closing comments before we conclude?

[Neal Froneman:]

Yes, thank you. And I know it's been a long two hours. And I want to say thank you to everybody for taking the time. The questions were really good. If there were specific details that we didn't quite answer we happy to do that. And really I think I can certainly say I'm really very pleased with the delivery that the Sibanye team has put you on the table. It's been a tough half to the year. And I think we move into the second half in a really good position. So, again, thank you for your time. And we look forward to talking to you early next year with our full year results.

[Operator:]

Thank you. Ladies and gentlemen that concludes today’s conference. Thank you for joining us. You may now disconnect your lines.