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Edited Transcript of ARI.J earnings conference call or presentation 28-Feb-20 9:00am GMT

Q2 2020 African Rainbow Minerals Ltd Earnings Presentation

Sandton Mar 11, 2020 (Thomson StreetEvents) -- Edited Transcript of African Rainbow Minerals Ltd earnings conference call or presentation Friday, February 28, 2020 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Abigail Muelelwa Mukhuba

African Rainbow Minerals Limited - Financial Director & Director

* André Joubert

African Rainbow Minerals Limited - Chief Executive of ARM Ferrous

* H. L. Mkatshana

African Rainbow Minerals Limited - Executive Director

* Jongisa Magagula

African Rainbow Minerals Limited - Executive Director of IR & New Business Development and Executive Director

* Michael P. Schmidt

African Rainbow Minerals Limited - CEO & Director

* Patrice Tlhopane Motsepe

African Rainbow Minerals Limited - Executive Chairman

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Conference Call Participants

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* Thabang Thlaku

SBG Securities (Proprietary) Limited, Research Division - Research Analyst

* Brendan Ryan

* Ian Cruickshanks

* Martin Creamer

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Presentation

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Jongisa Magagula, African Rainbow Minerals Limited - Executive Director of IR & New Business Development and Executive Director [1]

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Good morning, ladies and gentlemen, and thank you for joining us this morning for the presentation of the 6-month to December 2019 results for African Rainbow Minerals.

We'd like to also welcome those who are joining us remotely via webcast, and just remind those that are joining on the webcast that you may put a question in at any stage during the presentation, which we will address as part of the Q&A at the end.

Now I ask that we please place all mobile devices on either silent mode or switch them off.

And without any further delay, I'd like to invite our Executive Chairman, Mr. Patrice Motsepe -- Dr. Patrice Motsepe, to come take us through the results. Thank you.

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Patrice Tlhopane Motsepe, African Rainbow Minerals Limited - Executive Chairman [2]

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Whenever they say Dr. Patrice Motsepe, I look for my wife. Where is the doctor? Anyway, thank you so much for coming. And we're going to do a quick presentation, and as usual, stay behind for questions and deal with all of the questions that you may have.

Two quick issues. I usually don't sleep until late at night, but when I woke up this morning, the whole thing is about coronavirus, and I'm supposed to be traveling later this evening. I don't know what to do. But what it does indicate is the mining industry, African Rainbow Minerals, and in fact, South Africa, is part of the global economies. And whether we agree or disagree or whether we like it or don't like it, we are going to be affected by what happens worldwide. It will have an impact on our businesses. It will also have an impact on the value we create for shareholders. And it's important for us as African Rainbow Minerals, but also the mining industry and the country, at all times, to make sure that these circumstances that are outside our control, we're always a good place to do business. Because when problems happen, it exacerbates everything.

Okay. Two quick issues. The first note, African Rainbow Minerals benefited from commodity diversification as headline earnings from platinum operations increased. I mean, it's self-explanatory. But it does indicate, and Mike will go into greater detail, the benefit of diversification and how platinum has contributed during these times when the iron ore and the manganese were not playing the -- they continue to play an important role. But in comparison with the previous reporting period, their contribution to revenue and profits were not -- in fact, it has gone down somewhat.

But the whole commitment to diversification is something that's very important. And we've had many of our shareholders -- and you will see in the presentation, we've got some spare cash. And shareholders always want to know, that if you have spare cash and you've got an acquisition, you should use that for the acquisition.

The critical thing about an acquisition is you've got to create value. And there's always an inclination when you've got spare cash, is to spend it to show growth. And this is not the best time to be buying. I don't know whether the coronavirus may create the environment for us to buy, but it's always better to buy when there are problems.

Some people say it's better -- it's always good to acquire when there's blood in the market. But I think the most important thing is to consistently create a track record for shareholders, that when we acquire and when we invest in growth, we do so to create value. And we don't just acquire for the sake of acquiring or for the sake of showing growth, okay?

The disclaimer, this wonderful photo that we have there. And safety is critical. Mike was on a conference call a few days ago with the CEOs of the top 20 mining companies in the world, we are part of the ICMM, huge commitment to safety. And you'll see that we lost 3 of our colleagues, but 2 were in the operations that we manage, and the other colleague that we lost is in one of the operations that we don't manage. But the issue of safety cannot be sufficiently overemphasized. It's a daily obligation, and we've got to make sure that this commitment to 0 harm is reflected in really not just -- well, 0 fatalities more than anything else, but to make sure that there's no harm to our -- to the people that we work with.

Headline earnings, ZAR 2.2 billion. You've got the document in front of you, so you can look at it. Adjusted headline earnings were down 17% to ZAR 2 billion. Segmental EBITDA, up 10% to ZAR 4.6 billion. And basic earnings, up 63% to ZAR 2.1 billion.

Salient features: Dividends and financial position. We've always said that because we are a globally competitive company, shareholders want to see -- part of being globally competitive is competitive dividends and consistent competitive dividends, and of course, also an increase in the share price.

I took my boys to go and watch Warren Buffet in Omaha. The 2 always go with me because we are part of the Giving Pledge that was started by Warren Buffet and Bill Gates and Melinda. But the point is -- so we took the young one last year. And it's an incredible experience. I'd encourage many of us -- many of you to invite your children to go ahead and see that. It's almost a pilgrimage, people from all over the world go to Omaha.

But then the shareholders were fighting, some of them from -- I think, from South Korea. You've got so much cash, why don't you declare dividends? Because part of his policy is not to declare dividends. And his answer was, "Listen, man. Look at the share price. If you need cash, the share price is rising all the time. Sell some of the shares, and you've got some cash."

So the 2 criteria of competitive dividend declaration as well as a share price that is reflective of the value of the business but also that increases are critically important.

And of course, this morning, when I came up the stairs, Mike came running to me and said, "Please look at the share price of mining companies worldwide. And not just mining companies worldwide, but also companies on the New York Stock Exchange, London Stock Exchange." But we are in a long-term business. We are in a long-term business, and we've got to create value over the long term. And we have to look at -- as important as the share price is -- but I still believe that the coronavirus because that is the wet blanket over the market right now, that is where a huge chunk of the negative sentiment arises.

And I was watching the President of America. I was told I must never use the name, "Africa loves" and a resident of another country in the same sentence. And it just shows how hopeless I am. I don't remember what people say last year or last week because I was told at a young age, you never keep grudges. Forget about those things. But more importantly, my main concern was, at the time, of course, at Davos, was the huge barrage of negative argument, that you guys, you hate America. And we've been hearing it consistently. And maybe I should have said we don't hate America, but what does it sound like? But let's leave that.

We need to work with the rest of the world. And of course, I've got no doubt, we need to have good ties with America, with the investment community, with the rest of the world. It's very, very important. Our key focus of -- in that context is job creation and an economy that grows.

But I think right now, if you see the whole issue on the coronavirus, there's still a bit of uncertainty. And from an African Rainbow Minerals perspective, we are confident that in the short -- well, in the medium term, there should be -- that the markets will have the coronavirus under control. We don't know how much more the numbers are going to increase. I think in China, it's diminishing, but it's now increasing all over the world.

My wife came running to me this morning because I'm flying out later this evening. And they were saying that in Johannesburg, there's some -- at the Johannesburg Gen Hospital, there's some suspicion, they're checking out somebody. Now as I was coming here, many people are shaking my hand. Now of course, I mean, in Africa, if you don't shake hands, you are in trouble. So okay, shake hands.

But a few weeks ago, I was in the -- we were here hosting one of the most successful entrepreneurs in the world. Here. And the first thing he said, "Guys, please, if you don't want to shake hands, don't shake hands. You can nod to say, "Hello. Hello. Hello, even." But I think the other thing as well is we should take it seriously and be aware of it, but we shouldn't panic and overreact.

And this is the ARM strategy. And all of these things are nice to see, nice words. But at the end of the day, what are your consistent performances? And let me quickly say, talking about consistent performances. I am not happy with the performance of management. And of course, I'm the head of management, so it starts with me. If there are problems in the company, I have to take the blame. It starts and ends with me.

But our results are good, particularly on the platinum. But it's somewhat artificial because it's good because the price of, specifically the palladium and rhodium, has increased. So it's nice, we can show we've made good money. And some of my shareholders say, "Yes, but we invest because we know that commodities are cyclical, which -- and whenever there's money, we're happy because we'd rather have the problem of having lots of money that comes from an increase of share price -- sorry, increase in the price of the commodities rather than not having cash and dividends because the prices are very low."

But the bottom line is, and Mike will talk to this, there's a lot of significant improvement, particularly in relation to volumes and our efficiencies or productivity. And that's what -- every company is only as good as the management. I'm privileged to work with some of the smartest and brightest at this country has, and globally. So it's good for me when the CEO and various others say, "We've got -- we must significantly improve in terms of the volumes and make sure that we don't get fooled because we've got good performances, but which are largely driven by higher commodity prices." We should have profitability which is essentially driven by management, efficiencies and productivity and profitability as well.

Safe. I've spoken about a commitment to safety and responsible production and efficient productivity. I think that slide is self-explanatory.

Capital allocation. We are privileged at ARM that we always try and attract some of the smartest Board members. Tom Boardman, brilliant. There's a guy called [Moreland], who was the CFO of Sanlam -- sorry, the Chief Financial Officer of Sanlam, for many, many years. And whilst, as soon as he stepped down and there was a cooling period, I asked him to come and sit with us on the Board of African Rainbow Minerals. And one of the key issues he spoke was capital allocation. Critically, critically important.

And as I said earlier, you've got cash, and then you go and invest it in acquisitions that don't create value for shareholders. And you do that once, and every time there's extra cash, your shareholders are suspicious. They're going to do the same funny thing, maybe the same stupid thing they did the last time, throwing cash in the wrong place. And also capital allocation, we invest in our existing businesses, of debt repayment. We invest in organic business growth and mergers and acquisitions.

I was telling one of the -- at the Board meeting that I had the privilege of -- when [Derek Keith] was with us, one of the top, top, top people in South Africa. And you always learn by being with great people. And one of the things that were very important was the whole issue of -- maybe I shouldn't say what we discussed with Derek Keith , eh? It's fine. You can think what you -- but anyway, he's a good guy, and we learn, and we always get inspired by people like those. But he said things about the mining industry, experiences when he was at [Jamco] and some of the Board members that were with us, used to work with him.

Anyway. So this capital allocation is self-explanatory. The dividends per share, you can see that there's a consistent commitment because this is the track record you have to create. And commodities are commodities. There's going to come a time when things are a little bit not as good as they are currently. And we have to consistently create that track record of paying dividends. And the danger is if your dividend is high now, and a few years down the line, is not as good, it sort of creates not the confidence that you like.

And the focus on value-enhancing growth, we're in a good financial position. We've got a world-class management team and the commodity prices have strengthened. And we -- if you're in the mining business, and this is the point I wanted to make about Derek Keith , you continuously have to replace your -- the minerals that you are depleting. So you have to grow. And that's partly why -- part of the process going forward is indeed to show that we have quality growth.

Now Mike is going to take over. When I was made, a few months ago, a member of the trustees of the World Economic Forum. I mean, this is a great honor. It's got some of the most incredible people in the world. As I walked into the room, they clapped hands. And the lady warned me. She said, "When we call you, they clap hands. And don't get a shock and want to run out." They clap hands because it's the culture.

So I'm going to ask you to clap hands for Mike Schmidt, so that he can also...

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Michael P. Schmidt, African Rainbow Minerals Limited - CEO & Director [3]

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Ladies and gentlemen, good morning to everyone. Well, I think Patrice has stolen the thunder. There's 3 key messages, and he said them all. And would I repeat that? And yes, I will. I will. So bear with me.

If I go to the first slide. Jongisa, [now you actually have to help]. Sorry, I see it. If I go to that slide, and while you look at that slide, I just want to make 7, probably 8, key underlying messages of what the last 6 months were and where we are today. And then it -- really, these key messages underpin what the couple of -- next couple of slides in the presentation say.

But before I do that, I really just want to acknowledge the management team here. And Patrice alluded to it. In tough times, challenging times -- and I have a management team, and we work with partners who look beyond challenges and see opportunities. And sometimes, like an acquisition, you can't let the cat out of the bag. And so -- and it's not done until it's written on paper. But there are really some progressive, exciting, dynamic thinking in terms of productivity enhancement, efficiency enhancements and really creating value and taking opportunities of low-hanging fruit. And those opportunities come and go all the time. So really, just my acknowledgment to the first-class management, with our partners and the operational teams, for the work they do under challenging circumstances.

Generally, as Patrice alluded, we're pretty comfortable and satisfied with the set of results for the 6 months. We're pleased with the dividend and the escalating with an increase to that dividend. And we do it on the back of good cash flow, and well within the policy which we put out last year.

There's only been a marginal drop on headline earnings. And if you think about the significant drop in coal prices worldwide and manganese that came down nearly 40%, and for ARM, which those are 2 big components or bolts in our division, still managed to come in on a flat headline earnings. It is on the back of strong fundamentals or strong, robust PGM prices.

And people say that you're price takers. And I say that's true. But if you don't have skin in the game and you don't have a management team who can proactively look at these, challenge things, you'll always find challenges, and things can still go wrong. And that's the point I wanted to raise.

So there has been a significant drop in those prices, offset against PGMs. So we end up looking at you with a very, very strong financial position, good cash, cash positive, free cash earnings, good dividends payout. And we need to spend that wise -- money wisely going forward on behalf of you people as shareholders.

There are cost pressures and we have challenges. And I think I want to spend a disproportionate time today to explain where we were in -- where the cost pressures emanate. Outside of coal, coal is taking a lot of headwind, there are significant pressures in terms of getting metal to the market, and there's challenges with domestic supply. But there's also been inadvertent rain over the period. And so the cost performance out of our coal division is not a rosy picture and is primarily based on low volumes, which should pick up as we see the plans going forward.

But the one I want to spend a lot of time on and it's really to complement, manage it, give you reassurance that we're on top of challenges in terms of PGMs on the cost base, grade base and how we're going to increase those volumes. If we get those volumes proportionally up, unit costs, undoubtedly, will come down. And we can then, at these prices, share the spoils and benefits of what's on the table.

And we do believe that the platinum and rhodium prices, based on the market shortfalls, are with us for at least a couple of years. Whether the substitution and the migration between palladium and platinum, that first thing -- undeniably, inevitably will take place. But platinum and PGMs will probably hold a good space for a couple of years. And pleasingly, we are well positioned in terms of our volumes at our 2 operations, in terms of our contribution, and it will make a significant difference to our bottom line going forward.

Our absolute focus is on safety, cost, productivity and efficiency, and we relentlessly pursue that. And obviously, site workings, 0 harm to our operations, to our employees is key and paramount with no compromise to that.

What that slide demonstrates is the changes. And again, this really just amplifies the benefit of being diversified. So the iron ores has held up pretty well. The premiums we get out of the lumpy and the qualities is still there. Manganese bottomed out. It is improving, but we see a significant improving -- improvement on the EBITDA coming out of the PGM space. And there's a lot of work being done, I want to share with you, in terms of growing that base into PGM. For now an organic module, but there are certainly other opportunities going forward.

The margins. Again, we see that the manganese and the coal margins were squeezed, but the rest of them and -- are pretty robust, iron ore and PGMs and manganese, even at these depressed prices, we have quite solid margin. And that's really indicative of the work that's gone into the platinum over the last 3 years and continues in terms of the investment in the modernization and getting our unit costs down and getting the volumes up. It is starting to pay dividends, it will pay even a lot more dividend. It's going to be a very important contributor going forward, our -- the manganese division.

In terms of the iron ore. Maybe a little bit, if I may. If you look at Khumani, Khumani is up to 14 million tonnes per annum. It still has a 23- to 25-year life of mine with a very low strip ratio of 2.45. The unit costs at this mine have been below inflation for the last 7 years consecutively. And a lot of work's gone in to do that. We do demand a premium in terms of quality and [lumpy], and that will continue. And as I earlier said, solid, experienced management team at Khumani, and it will continue to deliver for our business.

Beeshoek. Some people may not even know this. Beeshoek has been in operation since 1928. And it effectively came -- it's had 3 life extensions. Effectively, it was being shut down in 2015. And then we established the Village pit. And up until then, it used to peak at about 6.5 million tonnes. And again, at a very, very low cost base continually. Superb performance out of that. Subsequent to 2015, we have the Village pit going. It's been going now for the last 10 to 12 years, we still have a 7-year life. And there's a lot of work done on adjoining satellite ore bodies. And if that pans out, we potentially see another 20-year lives. So these bodies will -- always will just continue. And quite positively about Beeshoek. It's been running 17 years fatal-free. It's just staggering safety results, good cost control. Very, very proud of their operation.

The manganese. I think we spent a lot of time on the manganese in previous, but I do want to highlight a few points. It is a long-life, high-grade ore body. It still got a life of mine in excess of 30 years. We are busy ramping that up. We have the potential to take this from a historic 2.5, currently at about 3.7, targeting day 4 this year. We have the potential to take this mine a year from now, if the market allowed that, is to take that mine up to 5 million tonnes based on the modernization and the upgrade of that operation, primarily driven about getting us down the costs, getting the right volumes at the right cost and capitalizing when price is good.

So if we think about the modernization project, we committed ZAR 10 billion to that project 3 years ago. In terms of Nchwaning 2 and 3, we're 90% complete. By next year this time, we'll by and large have commissioned the whole of Nchwaning, being surface underground. The Gloria, which was a ZAR 2.73 billion expansion and modernization, it's 40% complete. The end of next year, 2021, that will be commissioned, and we'll be very well positioned within black rock, per se.

Alloy business. Alloy business continues to take extreme pressure, primarily because of market conditions and pricing. And alloy in South Africa has been hit by power quite substantially. And maybe I can take the time now to explain what happens. Because -- when they want to introduce load sharing at our operations, we take our smelting operations down. I think the word they use is [TEP 1] and do not produce metal. And that we wheel that power through our operations. And that's on behalf of Assmang and with our partners that have graciously done this for us.

So it's been keeping the lights on, and we see a very small loss in terms of significant power outages that we've experienced in South Africa. Our operations are by and large unaffected because of that wheeling, which I think that strategy is -- and the cooperation that exists between us and the partners has really bode us exceptionally well.

It may -- at this stage, we are tuned to see that we've seen a significant decrease in the unit costs of both Cato and Sakura over the last year based on a lot of interventions in terms of efficiencies out of the smelters, in terms of lowering the input cost of raw materials, doing those optimized mixes and blends, but certainly is to reuse what we call would have been really unusable product in the past, which is fine, super-fine and ultra-fine. Because how do you feed that into a smelter? And the breakthrough that's been achieved on the mines. It's easily in its infancy. We're already putting 20% of total consumption going into Cato is from that material, not from raw material, which allows us to export that or produce more efficiency. And they continue to look at that technology into Sakura to lower the unit cost. And I think it's innovative breakthrough, and we think we can do a lot better going forward and sustainably.

So again, I have to amplify the amount of work that's done by our teams in terms of grabbing these opportunities and reaching out and not just looking for excuses. In facing challenges, you have to be a dynamic, entrepreneurial and progressive. And that's what we are privileged to work with. So I mean that slide really amplifies what I've been talking and I'll just move off on that for now.

I move on to the platinum, and slide really talks more around volumes and the impact. So although we benefit significantly, and I think we'll even see great things and a lot better going forward, we've lost a bigger opportunity in that our volumes are not where they need to be. And it's not that we've woken up to it. There's a lot of groundwork which I'll explain in the next slide, but I do want to touch that -- to say that -- and what caused it and then what we're doing about it.

So Modikwa production volumes were negatively impacted by safety stoppage. And if I qualify those, not only 54s from the DMR. But a lot of internal stoppages, saying, "We want to raise the bar. We want to improve the standard of work and the compliance so that we produce safe tonnes and that makes us sustainable." So a lot of this is self-imposed and there's a lot of high-level interventions taking place to fix that to improve productivity going forward.

So whilst it seems negative, and there's a slide that demonstrates the impact of that probably on the next one. It's not been -- it's good to acknowledge who you are or what you are, but what are you doing about it is more important. So we've introduced significant interventions in terms of addressing those challenges.

The mine has also, over the last year and particularly the last 6 months, spent, with partners' permission, significant amount of working capital in upgrading the fleet and getting the efficiency and utilization of the fleet back to a standard that it can perform and deliver. And what we've seen just in the last 2 months post this reporting period is evidencing it's working well. So I'm looking forward to the next 6 months.

The mine has further import on accelerated sinking. And we're bringing in contractors so that we can create more flexibility and we can ramp up to the capacity that still exists. That mines running -- through -- Modikwa, around about 200,000, can get to 240,000, it has the installed capacity. And this program is to do that.

The next point that they've introduced, we've moved away completely from the big-scale waste development in [6x4], and we're ramping up to on-reef narrow ore bodies, changed the fleet of equipment to low-profile. And that will yield for more flexibility and create far more opportunities for us in terms of ramping up a lot sooner than otherwise the expense of waste, and certainly helps with regards to modernizing and getting productivity and efficiency in the right direction.

If I take Two Rivers, just to capture that, it had a number of safety stoppages. And unfortunately, one of the fatals that Patrice alluded you came there. And it did require that we go back to the drawing board and say, "Is this appropriate? Retrain everyone." The impact of that, you can't walk away from that.

The main reason, however, that's affected Two Rivers is the fact that we're moving into lower grade, that's what the ore body gives, and we need to manage that mine according to that ore body. And there's a lot of progressive thinking and interventions coming in place. I'm going to share a few with you on them when I move to the next slide. So I'm very confident that the team will deliver and get the volumes and ultimately get the price down to where it should be within inflationary terms.

So just a little bit of a story, and I'll just elaborate from Two Rivers. Two Rivers is a well-run operation with an experienced management team. So during the last 14 years, we've been privileged to mine what would be a single, homogeneous orebody, delivering over 4 grams a tonne and met all targets, low on the cost curve and certainly been an industry leader in terms of cost and delivery.

The orebody has changed. We are in the process of transitioning into split-reef, and that does require a change to the mining method. It is slower, it is more difficult. And the fact that you are transitioning, the whole content is you have to take a position as to what one of the split reefs you're going to do. So it is slower. And -- but the plans that they've got in place in terms of mitigating grade are really yielding good results.

The other thing which we have announced is that we are going to ramp up that plant and take it from the current 300,000 ounces to 360,000 ounces sustainably over the next 18 months. So the plant, as we sit now, long-lead items have been ordered. We start with the building of that plant by the end of March, which is a month away. And the primary driver as to the timing of this is that the tailings dam has met -- has reached design capacity and we could not overload that for now. But we are in the process of building a new 500,000 tonne tailings facility. And understand that today, we only produced 260,000. So there's a 40,000 ramp up to 300,000 for UG2, which still leaves an opportunity of 200,000 tonnes capacity on the tailings dam. And we've been guaranteed the power supply and the water supply to support that is coming in. And these pieces are coming together. That then allows us to extract or co-extract the overlying Merensky. And it will have a major impact in reducing the overheads and certainly bring significant ounces to the table.

So that is under review, under consideration and probably within the next 6 -- at the next reporting period, I believe I'll confidently tell you as to what we're doing there. So Two Rivers will get back to its rightful position and maintain that. It has more than a 30-year life of assets we've got on that. So extremely long life, and it will be repositioned accordingly.

I want to touch a little bit on Modikwa. So it's also an extremely high grade. At the [seam width], it's at 8 grams a tonne. Now obviously, you can't mine at [55]. So as [we mine], it's still a high-grade orebody. It has an exceptionally long life and a long strike. We're mining 12 of 28 kilometers today, all shallow, and it all extends on strike. So the opportunity there is immense.

Its platinum to palladium ratio is hugely favorable to the market today, and it has a significant good rhodium content. And the benefit of that with the right volumes at the right costs, Modikwa will be a key revenue earner and contributor to our bottom line in a very short time going forward.

As I said, we accelerated the development, recapitalized the fleet, moving to on-reef development. We are, as we sit now, building a chrome plant. It's another 15 months, give or take, Thando. We commissioned that, another stream of revenue, another good stream of profitability. That comes literally free and a good contributor.

So Modikwa, watch this space. It's probably going to be a key producer for ARM going into the future. The growth opportunity is there to 240,000, and it also has an overlying Merensky. And incidentally, we've done a box sample. We know what it delivers. We probably, in the next 6 months, going to take -- we're going to do another sample of 40,000 tonnes by June. And then -- and we'll probably batch-campaign that. But at these prices, if they are sustainable, even if 30% less, Merensky orebodies will come through via rightfully owned for co-extraction, both for Modikwa and for Two Rivers. That bodes exceptionally well for our PGM portfolio going forward.

Nickel. Well, I'm not going to dwell on nickel. I think the nickel operations, the results are really reflective on high variability that is associated with closing a mine, ramp down, in terms of ramping down to closure. So we have a lot of geological stuff to contend. We are not developing. We stopped all waste development. We are just capitalizing on the orebody. And you have limited flexibility, but we need to responsibly and safely close -- bring that mine down to care and maintenance.

So these numbers are really indicative of what I've said along and they're there for the reading. I will maybe just highlight one point. If you look at the bottom right, and you'll see the impact of palladium, rhodium on the bottom line. So it's quite significant, what the palladium and rhodium does to our earnings.

The coal division. I'm certainly not going to dwell a lot on coal other than just to say it has been negatively impacted by a steep decline in seaborne prices and a reduction in salable production. So although that the production's there, in many cases, it's about getting it out. And it's a really tough market, notwithstanding the double-digit increases you've seen on the presentation. The coal, if you look at them from a global cost curve position, still exceptionally well positioned on the global cost curve. We still see, even at these lower prices, how our debt has reduced. Peak debt at ZAR 3.4 billion, down to about ZAR 1.7 billion and falling. And in the next couple of years, debt's gone, it's going to be an important component.

Worries about coal? Well, I say coal will be clean energy. Perceived dirty today. The technology investment into coal, coal will be with us for many years and our exposure is what it is. And we see that technology and innovation in coal technology will put it back on the map. Although the [ISG] concerned around coal today. So we are not uncomfortable with our coal position.

I think I touched that in my discussion on that slide, and that just evidence what I wanted to bring across to the table side. I really would like to close and say that as a management team, I have full confidence in the mine teams, the partners in terms of our platinum operations to put them back on the map, volumes and costs and deliver. That's all, Thomas. Thank you for that.

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Patrice Tlhopane Motsepe, African Rainbow Minerals Limited - Executive Chairman [4]

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Thank you so much. Can we clap hands for Mike? Thank you. We're going to take questions as usual. Just 2 quick issues. First, I want to Abigail -- while Abigail is going, I want to express our gratitude to our partners who are with us from Assore, Tiaan van Aswegen and Kieran Daly as well as our partners from Sumitomo whose surnames are in Zulu, Kazuyuki [Zuma Zuma] Takahashi. What a wonderful name. I was walking around in Tokyo and I saw a [resident say "Zuma"] and I kept my comments to myself. Tsuyoshi Ueda, thank you so much, Tsuyoshi. Kazunori Sakano [Buthelezi]. Thank you. Can we clap hands for our partners, please.

And as our Finance Director is getting ready, I refer to the slides that are self-explanatory. But you will see that our interim dividend is up 25% to ZAR 5 per share. And last year for the same period in 2019, it was ZAR 4 per share. Abigail? I'm sorry. Can we clap hands for Abigail?

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Abigail Muelelwa Mukhuba, African Rainbow Minerals Limited - Financial Director & Director [5]

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Good morning, everybody. I think we just have 2 more slides that we would like to go through. This particular slide shows us how they generated -- or how we generated and allocated cash in over the past 6 months.

We generated just below ZAR 1 billion and Assmang declared a dividend, of which our attributable portion was about ZAR 2 billion. Of the cash generated of ZAR 921 million, it takes into account about ZAR 1.2 billion increase in net working capital outflows. So out of all those sources of funds, we then applied that cash to obviously first, paying our tax dues then we invested in our business, just under ZAR 0.5 billion in sustaining capital expenditure. Then the largest outflow of our funds was applied in declaring a final dividend to our ARM shareholders of ZAR 1.7 billion, which was 18% higher than the ZAR 1.5 billion we paid last year.

On the next slide, our net cash and debt. I just want to highlight in terms of our borrowings, our borrowings remained flat at about ZAR 2 billion. 60% of our borrowings is interest-free partner loans. The 2 major ones that everybody is aware of, I hope, is the ARM Coal loan as well as the Modikwa loans from Anglo, then the remaining 40% is the one that's interest-bearing. And of that 40%, ZAR 300 million relates to the ARM BBEE Trust, which is a loan that the trust has with Harmony, and then ZAR 500 or so million relates to facilities at the Two Rivers plant or Two Rivers mine.

This means that ARM has low interest-bearing debt. And in general, we're sitting in a net cash to equity ratio of about 9%. Earlier this week, Assmang declared and paid a dividend of about ZAR 3.5 billion. ARM's attributable portion to that is about ZAR 1.75 billion.

In terms of our capital expenditure, the guidance that we provided the last time around in terms of the annual capital expenditure has not changed much from what we previously stated to you. Our 100% capital expenditure over the 6 months was flat at about ZAR 1.6 billion, and most of that was split in the following manner: 60% to ferrous, 30% PGMs and the remaining 10% to coal. ZAR 1 billion was for general fleet replacement and refurbishment, electrical and mechanical installations as well as waste stripping across the operations.

The major capital expenditure, which is at Black Rock, our Gloria mine, the modernization and optimization project, it accounted for about ZAR 360 million of the 6-month capital expenditure. You'll remember that 90% of the Nchwaning mine capital has already been spent. The Gloria mine project is now at 40% committed and spent, but it remains on schedule as well as within budget.

In terms of the Gloria mine modernization project, as Mike has already alluded to, we continue to reap the fruits of our investment in the manganese business as evidenced in the higher volumes as well as lower cost this time around. I also just want to highlight that the ZAR 1.6 billion that we spent thus far is slightly below or behind our full year ZAR 3.4 billion guidance. This guidance still in the full terms. It remains unchanged. And the majority of that number, about ZAR 2.2 billion to ZAR 2.4 billion relates to staying business capital expenditure.

In terms of Modikwa, we just want to update that in terms of the Modikwa chrome recovery plant, the project, we previously said it was expected to be ZAR 351 million. It is now updated to be at ZAR 443 million. And the main reason for this is that there's been an update in terms of the procurement approach in the process of trying to derisk the project further. And in this process, we've also improved the expected projected chrome recovery yield from about 10% to about 12%. We expect that the plant will be commissioned in the first quarter of calendar year 2021 with the sales -- chrome sales being in the same period. We continue to be very confident that this investment is going to be value-enhancing addition to the Modikwa mine, as Mike has already alluded to.

Then the last one that I just wanted to highlight was in terms of the Two Rivers operation. The 40,000 tonnes UG2 plant expansion, we previously communicated that it's approximately ZAR 420 million, which has been approved and is expected to start in May 2020 with completion planned for about November 2021.

As Mike already also talked to it, it will dovetail on the new tailings dam commissioning, which is planned for around April in 2021. The tailings dam is also expected to cost approximately around ZAR 400 million. So both the Two Rivers plant and the Modikwa numbers that I referred to are taken into account in the annual guidance of ZAR 3.4 billion. Thank you.

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Questions and Answers

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Patrice Tlhopane Motsepe, African Rainbow Minerals Limited - Executive Chairman [1]

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Thank you. Can we clap hands? So thanks, Abigail. So we'll now go into the questions, and I was looking at the audience. There's a lady who always waits for me. She's got an NGO. She always waits for me when I come out of church, and she came twice to our presentations. And she wanted big money for her NGO, and she said, "I thought I should catch you at church because you must be at your weakest point when you come out of church, and you'll just agree to everything." So I want us to leave here before she arrives because I'm told she's going to find me. All right. So will we -- just introduce yourself, and then we'll take the first 5 questions. And we've got a whole team here that will help in responding to those questions. Good to see you, Martin.

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Martin Creamer, [2]

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I'm from Mining Weekly, Martin Creamer. Anyway, I'm thinking about your mines -- Assmang mines in the Northern Cape -- in that hot sunny Northern Cape. I'm thinking about our Eskom and our crisis here. And I wouldn't mind hearing something from you about your attitude to using that sun in Sunny South Africa for some solar power. And then when we get to your smelters, of course, that might be a more difficult situation, but you do have flue gas there. There are things that you can capture and turn into electricity, which I think could help South Africa at the moment. So I'd like your response to that.

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Patrice Tlhopane Motsepe, African Rainbow Minerals Limited - Executive Chairman [3]

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Mike will answer that question. And I mean, just listening to you, these are some of the reasons why I'm so inspired and proud to be a South African. That this country has got exceptional people. We've got problems. We've got serious problems with unemployment and serious problems with many of our people being poor in this country. But I mean, just the sort of positive attitude, and we can -- and we will change things. We will improve things when all of us work together with the kind of confidence and enthusiasm you expressed. We should not run away from our problems or even deny them. We should be very frank in identifying them but also try and find solutions. Thank you so much, Martin. The next question? Let the lady ask a question here. I see a lady -- sort of next to you, there's a lady, yes?

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Thabang Thlaku, SBG Securities (Proprietary) Limited, Research Division - Research Analyst [4]

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It's Thabang Thlaku from SBG Securities.

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Patrice Tlhopane Motsepe, African Rainbow Minerals Limited - Executive Chairman [5]

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From S?

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Thabang Thlaku, SBG Securities (Proprietary) Limited, Research Division - Research Analyst [6]

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BG Securities.

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Patrice Tlhopane Motsepe, African Rainbow Minerals Limited - Executive Chairman [7]

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Oh, Standard Bank, yes?

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Thabang Thlaku, SBG Securities (Proprietary) Limited, Research Division - Research Analyst [8]

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Yes.

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Patrice Tlhopane Motsepe, African Rainbow Minerals Limited - Executive Chairman [9]

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That's Standard Bank. They are the ones who refused my loan many years ago. And the CEO used to work with me for many, many years. So every time I see him, he says, "No, Patrice. It's not true. We didn't refuse your loan." But anyway, let me hear what...

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Thabang Thlaku, SBG Securities (Proprietary) Limited, Research Division - Research Analyst [10]

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I just want -- have a few questions around the PGM operations. So when you look at this additional milling capacity at Two Rivers, you're increasing it by about 30% relative to current capacity. But when we look at your total production, it's not growing by the same impetus. So relative to 2019 numbers, it's growing by about 15% to 20%, which implies that your unit cost is still rising, even though you're adding more milling capacity. Can you just give us some guidance on the PGM costs at Two Rivers? And maybe explain to us what they would have been if you don't make this investment, just so we can understand why you need to spend that ZAR 420 million.

And my second question is at Modikwa. This ramp-up from 200,000 tonnes to 240,000 tonnes. How long will that take? And over that period, how should we think about unit costs going forward? Because I think you guys are losing an opportunity there in terms of these high PGM prices.

And then my last question is on Nkomati, significant one-offs coming this year. Should we expect that into the second half of 2020 or into 2021? Or have we seen the last of the sort of expenses that come with closing down on Nkomati.

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Patrice Tlhopane Motsepe, African Rainbow Minerals Limited - Executive Chairman [11]

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Your name is Thabang, what a wonderful name. And the person who will answer you, his name is Thando. So Thando will answer Thabang. And you must answer it, it will make all of us (foreign language). Thabang means be happy. So Thando means love. So I want the happy question will go to the love answer.

Okay. I saw another hand there.

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Unidentified Analyst, [12]

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Okay. My name is (inaudible)

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Patrice Tlhopane Motsepe, African Rainbow Minerals Limited - Executive Chairman [13]

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Sorry. What is your name?

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Unidentified Analyst, [14]

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(inaudible)

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Patrice Tlhopane Motsepe, African Rainbow Minerals Limited - Executive Chairman [15]

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Sorry?

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Unidentified Analyst, [16]

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(inaudible)

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Patrice Tlhopane Motsepe, African Rainbow Minerals Limited - Executive Chairman [17]

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Did you hear that?

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Jongisa Magagula, African Rainbow Minerals Limited - Executive Director of IR & New Business Development and Executive Director [18]

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(inaudible)

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Patrice Tlhopane Motsepe, African Rainbow Minerals Limited - Executive Chairman [19]

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(foreign language)

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Unidentified Analyst, [20]

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From [Marothodi] Capital?

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Patrice Tlhopane Motsepe, African Rainbow Minerals Limited - Executive Chairman [21]

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From?

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Unidentified Analyst, [22]

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[Marothodi] Capital. Just one quick question. Any chance of increasing your stake in Harmony given the fact...

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Patrice Tlhopane Motsepe, African Rainbow Minerals Limited - Executive Chairman [23]

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I must increase my shares in your company. What else? Very good question. What else?

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Unidentified Analyst, [24]

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Yes, that's the only question that I have.

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Patrice Tlhopane Motsepe, African Rainbow Minerals Limited - Executive Chairman [25]

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Okay. Who should I ask to answer that one? Mike? No. No. It's one of those trick questions, and you will answer that. I mean, how do you answer this questions when you see share? When I go on a road show with the team, at times, I deliberately keep quiet, so that I can hear how they answer the questions and also for purposes of consistency. And sometimes, you see those who like Harmony and those who don't like Harmony. But when I'm there, they all like Harmony. When I'm not there, I don't know what they say. Okay. Can we take 2 more -- 2, 3 more questions? So Mike, you will deal with the Harmony issue, and one of the Board members of Harmony -- sorry, one of the shareholders, one of -- the Finance Director of Harmony is on the Board of ARM. And he doesn't -- we had a Board meeting this week, and he was reminding us of how intelligent we are because the price has gone through the roof.

Anyway, are there any further questions? Okay. Let's answer the questions. And let me just repeat, we're going to be -- we're going to stay behind for quite some time, the CEO and the rest of the team to answer because we know many of you do want to ask private questions, one-on-one questions, and we'll be available. Where do we -- sorry, there's a question. Will you press that button?

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Jongisa Magagula, African Rainbow Minerals Limited - Executive Director of IR & New Business Development and Executive Director [26]

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There's one question on the webcast, which I'm just going to add to the list. It's from Warren Riley from Bateleur Capital. And he says given the virtual shutdown of China over the last 2 months, have you experienced any issues getting iron ore to the market? Are you confident of still achieving improved sales run rate in the second half of the year?

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Patrice Tlhopane Motsepe, African Rainbow Minerals Limited - Executive Chairman [27]

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André, you'll have a part -- deal with part of that answer there. And then Mike will deal with the rest.

Okay. So should we -- I think let's start with Thando in response to Thabang's question and then Mike, you'll deal with all of your questions. And André, you will add on that China thing. Thando?

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H. L. Mkatshana, African Rainbow Minerals Limited - Executive Director [28]

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Thank you, Chair. I think on the TRP side, that's Two Rivers, one thing to highlight, which Mike touched on, is that our cost this first half has been impacted by the mineralogy impact that resulted in us in dropping the volumes. However, that challenge has been overcome. So going forward, we do expect that the cost will compare to a normalized number given all the challenges of the trade. So Thabang, in about 18 months, when the new plant has been commissioned, we're looking at producing in the region of 360 to 380 ounces with a base cost of about 9,000 tonnes -- sorry, ZAR 9,000 per ounce. So that is our target, and then we're working towards that.

On Modikwa, I think Modikwa has a huge opportunity. As probably you all aware that our installed capacity to the plant is 240 tonnes per month. Our bottleneck has been on the mining side. And Mike touched on the fact that we have appointed a contractor now to open up the working areas. We're looking at getting through that full capacity of 280 in financial year 2022.

At that time, I think our costs will be in the region of about ZAR 10.5 per ounce. And I think the contractors, Mike has also touched on that. They have started now. So that buildup of about 18 months opening up areas so we can deploy more crews to achieve those volumes.

Chair, in terms of the last one was around Nkomati. If you look at online costs on Nkomati is that we have broken even. Most of the underperformance that came there is related to accounting issues with regard to stocks and write-down as well as the issues associated with the volume and treatment costs. All those should come out now.

Mike also touched on the fact that we have completed waste stripping. So most of our mining will be really harvesting what is left of the orebody. So those costs will come out in the next 6 months until closure. Thank you.

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Patrice Tlhopane Motsepe, African Rainbow Minerals Limited - Executive Chairman [29]

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Thanks. Thank you so much. Mike?

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Michael P. Schmidt, African Rainbow Minerals Limited - CEO & Director [30]

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Patrice, I go straight back to Martin, and he asked us about the use of alternative energy, particularly in the Northern Cape. And so we have put together, and we have been for some time working close with our partners and his team and industry leader, in looking at what options are available to us and making sure we don't just say solar. There are another -- a number of other options. So energy and power utilization and efficiencies is ongoing. In addition to that, yes, Martin, we are aggressively looking at alternative energy sources. So the progression is even a lot bigger, and I touched on that and maybe I can just elaborate. So we're looking at sort of different ways of bringing ore to metalization in a more cost effective, whether with gas or with coal or with electricity is find those alternatives.

So we have 2 dedicated teams. In fact, one of the teams has been working 4 years, all gray-haired by now, but doing phenomenally good work in terms of power and power efficiencies, and we have to do that going forward.

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Patrice Tlhopane Motsepe, African Rainbow Minerals Limited - Executive Chairman [31]

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Okay. I mean, you may have seen from -- Larry Fink is the CEO of the largest asset management company in the world. He's got $5 trillion. And in an open session, he was talking about -- I mean, the whole renewables, Martin, and the huge, huge technological advances in that regard. And electricity is a key issue for this country.

The challenge for all of us is the issue about jobs and technology should be -- and there will be new jobs created as far as in renewables are concerned. And the high cost of electricity, you can't be globally competitive with the electricity cost that in itself is not globally competitive. And so there's good work that's been done. And I think you will see huge developments in renewables also specifically in relation to the technological developments.

We are part of a group that was started by Bill Gates about after the Paris climate talks, and there's about 20 of us. It's -- and we -- not ARM but in another capacity, and the main aim was to partner to use the best technologies in the world to produce clean energy. It's called Breakthrough Energy Ventures. And he basically said I need $50 million. My apologies, I need $50 million from each of you. I will put in $200 million of my own money.

I can tell you, and that's why it was more philanthropic in that context because the perception was we would all lose our money. But 3 years -- in fact, the perception was because it was revolutionary technology, it would take time. So they spoke about patient capital. But what I've seen over the last 4 or 5 years, it's unbelievable. Absolutely unbelievable.

And that's why in a separate context, we went into renewables, partly because of the huge commitment to make sure that we are in line with technological developments in the world. And this country benefits from the advances of technology and renewable. But the last thing I want to say is that we live in a country where particularly people like myself have a huge obligation in terms of job creation. And the developments in electricity and renewables must be seen in the context of helping people to transition.

I mean, Mike was talking about coal. And in Davos, I've never -- I've been going to Davos for the last 20 years. I've never seen such abnormal focus on climate change, and I've never seen such negativity towards coal and not just coal but also all fossil fuels. And the secret is to transition because you can't do these things overnight.

And at the end of the day, it has to be about people. I mean, we've got to create value for shareholders, without a doubt, but we also have a duty to the workers, the unemployed and the poor. Are there any further questions?

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Jongisa Magagula, African Rainbow Minerals Limited - Executive Director of IR & New Business Development and Executive Director [32]

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Chairman, I've got one. Oh, sorry.

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André Joubert, African Rainbow Minerals Limited - Chief Executive of ARM Ferrous [33]

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There's 2 questions.

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Patrice Tlhopane Motsepe, African Rainbow Minerals Limited - Executive Chairman [34]

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Oh, sorry. You were supposed to answer something. Yes.

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André Joubert, African Rainbow Minerals Limited - Chief Executive of ARM Ferrous [35]

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The question from Warren was does the coronavirus have a negative impact on our iron ore exports so far, and the answer to that is not yet. We haven't had any cancellations of any ships or anything to do with the coronavirus. And also our current shipments that we are shipping out for that area is still on schedule. But the expectation is certainly that the Chinese economy will slow down. The Chinese steelmaking business made -- actually had a record month in January, with February slowing down a little bit.

But all the eyes are still on what the impact of that can be. And -- but we know that the Chinese also have a brilliant ability to stimulate the economy again after something like this happened.

So we're not naïve to this. We're monitoring this situation. And we've a very close contact with our partners in that part of the world. But for now, we have not had any negative impact or cancellation of sales.

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Patrice Tlhopane Motsepe, African Rainbow Minerals Limited - Executive Chairman [36]

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Yes. Thank you. I mean, thanks. He was just reminding me about Harmony. Just very quickly, 3 issues. There are no holy cows. There are no holy cows. Our job from an ARM perspective is to deal with every company where we've got investments based on one principle and one principle alone: what is in the best interest of the shareholders of ARM and ARM itself.

We are excited about Harmony. It's doing very, very well. I'm very excited about the CEO and the management team. The share price has gone up. And the future of gold looks -- it doesn't cost us anything, and it doesn't even reflect in our share price. Yes.

But there is a -- there are 2 issues that are important from an ARM perspective. Number one is that Harmony still is one of the best orebodies in copper in the world. And with the way the world is going as far as electric vehicles are concerned, from an ARM perspective, we've got to keep looking at it in terms of one principle and one principle alone and the principle being, how does that translate into value for ARM?

I've had many shareholders on the road shows say to me, "Just sell the Harmony shares." You don't sell it when the share price is depressed, but the very fundamental objective in relation to whether it's Harmony or any other company where we've got equity or where we've got a partnership, they've got to pass the value-creation test. So that is the way in which we look at them.

We will -- there's a whole lot of new questions, I'll take that as the last question. I'll start with you, and I see if -- and I'll come to you, and we'll take the next set of hands. Can I start here?

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Brendan Ryan, [37]

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Patrice, Brendan Ryan, miningmx. Eighteen months or so ago, you stood up there, you said that you're looking at various world-class options to get another copper prospect following your selling out of Zambia. You haven't mentioned copper at this briefing until now when you -- in relation to Harmony. So are you still looking for a copper prospect? Or have you given up in copper? Or are you viewing the potential of Harmony's project in Papua New Guinea as your copper exposure?

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Patrice Tlhopane Motsepe, African Rainbow Minerals Limited - Executive Chairman [38]

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Very good question. Did you write it down, Mike? Thank you. Can we come to another young fellow here?

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Ian Cruickshanks, [39]

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Ian Cruickshanks, Institute of Race Relations. On your -- looking into PGMs, excluding commodity, we had production, which came down a bit and had a small loss there. But what the interesting point was rand PGM basket price was 49% higher than in first half 2019. Do you hedge against either the movement in the commodity price itself, and/or in the rand exchange rate? Because both individually can have significant impacts on revenue there.

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Patrice Tlhopane Motsepe, African Rainbow Minerals Limited - Executive Chairman [40]

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Very good question. Thank you so much. Did you write it down, Mike? Okay. Are there any other questions before we take this online question? Okay. Can we take the online one?

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Jongisa Magagula, African Rainbow Minerals Limited - Executive Director of IR & New Business Development and Executive Director [41]

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Okay. So the online question comes from Brian Morgan from RMB Morgan Stanley. He says you flagged the split reef issue at Two Rivers since 2012 but will only have expanded concentrator capacity in November 2021. From the outside looking in, it seems that the response to the geological issues have been slow, would you agree?

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Patrice Tlhopane Motsepe, African Rainbow Minerals Limited - Executive Chairman [42]

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Very good. You hear that?

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Michael P. Schmidt, African Rainbow Minerals Limited - CEO & Director [43]

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I'll take it.

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Patrice Tlhopane Motsepe, African Rainbow Minerals Limited - Executive Chairman [44]

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Okay. All right. So do we start with you, Mike, and then I'll end up on the copper -- sorry, is there another question? Okay, Mike, Thando? I mean, if anybody wants to add just to some of the questions, just do so.

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Michael P. Schmidt, African Rainbow Minerals Limited - CEO & Director [45]

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So Brian, on your question is that, yes, we have flagged it. You'll appreciate that over the life of mine, we always knew that we're going to get this day. But it's an incremental move into the split reef. So the mining method is appropriate at the time when you get it, and that's taken on. But understandably, you're mining half the content at double the cost. It's difficult, slow and the recovery is out of that because that's what the orebody is. So know, we -- as we're getting exposure to this, we're dealing with it. And in terms of geo techs, we've taken it on and we were overcautious in terms of undercutting but -- or relaxing those as we gain more confidence. So no, we always knew it is in time, and we have not been slow in terms of the milling capacity to offset that drop in volume and that it was premised, as I explained earlier. It was premised that you couldn't ramp up volumes because of tailings facility that's meeting its end of life and overloading that would be irresponsible.

So we've consciously kept the ramp-up to dovetail with the tailings dam. So the tailings dam ramp up to 500,000 in new tailing dam will, first off, be used for the steady state, the ramp up in terms of the 40,000 tonnes per month giving us the associated ounces. And then once it's at steady state, that opportunity lends itself to get into the overlying Merensky orebody.

So it is a dovetail, responsible approach. The last thing in caveat was, as you're all aware, that the lack of power in South Africa to get that additional power for that mill and for the new operation, needed a lot of engagement, a lot of capital upfront in repositioning power at that mine, which is now banked, which will come in the next 18 months, which allows us then to expand and reposition Two Rivers. Thank you, Brian.

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Patrice Tlhopane Motsepe, African Rainbow Minerals Limited - Executive Chairman [46]

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Have we answered all the questions? I'm coming to the copper one. Mike?

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Michael P. Schmidt, African Rainbow Minerals Limited - CEO & Director [47]

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Hedging and copper.

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Patrice Tlhopane Motsepe, African Rainbow Minerals Limited - Executive Chairman [48]

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Yes. But let me deal with the copper and the hedging. I mean, we haven't hedged. We don't hedge.

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Abigail Muelelwa Mukhuba, African Rainbow Minerals Limited - Financial Director & Director [49]

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We have policy but we haven't.

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Patrice Tlhopane Motsepe, African Rainbow Minerals Limited - Executive Chairman [50]

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Yes, and the problem with hedging is I always get it wrong. The people -- I mean, the last 20, 30 years. When we started ARM Gold with that young man there at the corner, young man at the corner there, and we had to hedge there just to stay alive many, many years ago because -- but that is ARM Gold. And the price of the commodities was just going down, down -- of gold at the time, only gold. We had about 8,000 employees at the time. And the range was strengthening.

So from an ARM Gold perspective, purely just to stay alive, we were not listed. We had to take out the hedge. But the policy at this stage is we don't hedge, yes? Yes.

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Abigail Muelelwa Mukhuba, African Rainbow Minerals Limited - Financial Director & Director [51]

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We have an audit committee approved policy, and a Board-approved policy of about 25% exposure on both currency and commodity prices. But we're very particular about not hedging for speculative purposes. And for the 6-month period, no, we haven't hedged anything.

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Patrice Tlhopane Motsepe, African Rainbow Minerals Limited - Executive Chairman [52]

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When there's something that you don't like, you even forget that there's a policy that talks -- that states something differently. We always get it wrong. And your shareholders should justifiably shout at you when you -- it looks like the price is high, and you lock it in, and then it goes higher. And your competitors do very well and your shareholders say, "But why are we not participating in the upside?" And the opposite is true. The price is high. You are convinced it's going to go even higher, and then it goes down. And we've got a good cash position. So -- and I have no doubt personally and, of course, subject to what everybody else thinks, we're not going to do those sort of things as far as Mike -- as far as platinum is concerned there to go and hedge -- to put in any hedge in place. Of course, it's got to go to the subcommittee and audit, and they have to guide. And sometimes, they come and say, "What Patrice says is wrong." And 99% when I disagree with them, they are right, and I am wrong. But I just don't like hedges at all unless if it's in circumstances where there's an absolute, absolute good reason why you need to hedge. But she has just espoused the position of the company, and that's what we are bound by.

Let me go to copper. You said something very important, Zambia. Zambia is a learning experience for us. And shareholders can be very unforgiving, and they should be unforgiving. If you go -- we did Zambia copper because at the time, it was very, very, very good. And then they went and increased their royalties, and the copper price went down. And it was just a perfect storm, but a negative perfect storm. So we are a growth company, and we make no secret about the interest we have in copper. And we do get opportunities to look at in copper, and we have to be satisfied that from a long-term perspective that the transaction that we concluded, the acquisition that we make will create value because 5, 7 years after we've left Zambia, the shareholders who've been with us still remind us, and they should remind us that you should not go and do another transaction that will be very, very destructive.

So I'm quite happy. We've said clearly, platinum is a growth area for us. We'll continue to look at platinum. There's an incredibly exciting opportunity that we were looking at for quite some time. And we were in a -- and it was an exciting transaction. And then the price of platinum -- of palladium went up and up and up and up.

So timing, you don't do the transactions based on timing. I always get the timing wrong. You do transactions based on long-term value. So if the price of platinum had not increased so dramatically in a short period of time, there was consensus, it would have been an incredibly, incredibly exciting transaction. And then it became too expensive. And now when we look at what was expensive at the time, it's not even so much more expensive.

Have we answered everything? Okay. Are there any further questions? Yes?

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Brendan Ryan, [53]

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Sorry. You haven't answered my question. Have you lost interest in copper or not, and what is your view on Wafi-Golpu?

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Patrice Tlhopane Motsepe, African Rainbow Minerals Limited - Executive Chairman [54]

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Yes. I have not lost interest on copper. I continue to be -- and again, this is Patrice. I've got my apostle behind me. I can tell you clearly that from -- we continue to look at opportunities in copper. Copper is one of those opportunities from an ARM perspective that we will continue to pursue. Wafi-Golpu is a Harmony asset. It excites me as a Board member of Harmony. And Peter, the management team of Harmony goes around worldwide to tell the shareholders and the investment community what the plans of Harmony is as far as Wafi-Golpu is concerned.

As the Chairman of Harmony, hugely excited. From an ARM perspective, ARM looks at every single company based on that principle that I espoused. What is in the exclusive interest of ARM? And when I say exclusive, of course, that exclusive means shareholders, and it extends to employees, workers, the communities living near mines and all the other stakeholders that we've got a duty towards. Is that okay? Thank you so much.

We'll stay behind. There is no other question? All right. Is there a lunch? Mike.

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Michael P. Schmidt, African Rainbow Minerals Limited - CEO & Director [55]

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There's a good lunch outside, yes. That side there.

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Patrice Tlhopane Motsepe, African Rainbow Minerals Limited - Executive Chairman [56]

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Because I usually complain when the lunch is not so good. I mean, whilst the results are good, just give people nice food. Can I ask all of you just -- in fact, I want to conclude by thanking each and every one of you. We are most grateful for you to join us, and we'll see you in the next results. Can we just clap our hands for the ARM management team and for everybody for a moment?

And as I said earlier, we're going to stay behind for anybody who's got questions. I know this is a time when some of the young BEEs come to me and say, "We want tenders and procurement." And we'll be around, don't worry. But thank you so much.