Sibanye Stillwater Limited Q2 FY2022 earnings call

Management Statement and Operational Highlights

• Safety and ESG: Made progress post safety stoppages, brought in independent expert to review safety strategy. ESG focus on Marikana renewal with three pillars (Engage, Create). First PhD from Sixteen-Eight Memorial Trust employed.
• Strategic Positioning: Defined gray elephants (pandemics, aging, angry planet, big squeezes, multipolarity, artificial intelligence, etc.). Positioned in regional supply chains to address global challenges. Secured position in Keliber project in Finland for advanced lithium hydroxide production.
• Wage Negotiations: Achieved three-year inflationary settlement with gold operations, including wage averaging agreement. Wage negotiations at PGM operations commenced, aiming for conclusion by end of third quarter.
• Project Progress: K4 project at platinum operations progressed with first tonnes wasted in May. Burnstone project impacted by gold operations strike and slower labor buildup. Sandouville in Europe for nickel sulfate production as battery precursor.

Segment Performance

• South African PGMs: Volume down 8% year-on-year. All-in sustaining costs increased by 7%, which is below mining inflation. EBITDA over R21 billion. K4 project progressed with first tonnes wasted in May. Wage negotiations at Rustenburg and Marikana commenced. Paid significant payment to Anglo Platinum as per acquisition agreement.
• US region: Impacted by flood in Montana, Stillwater mine production affected for seven weeks. Revised plan for lower cost structure with long-term outlook to improve cost and production. Back in production with some access limitations.
• Recycling: Recycled ounces down 10% due to flooding, lower prices, and planned shutdowns. Higher working capital balance due to higher basket price with rhodium. Expecting reduction in inventory and working capital as ounces turn over.
• Gold: Production lower in first half due to industrial action and remediation at Beatrix tailings storage facility. Forecast to improve in second half with expected 450,000 ounces production, excluding DRD. Capital guidance reduced to R3.9 billion with projects like Burnstone and Kloof.

Guidance

• South African gold and US PGM production expected to normalize by fourth quarter.
• South African PGM business to continue moving down cost curve and generate strong cash flow.
• Capital guidance for 2022 at R3.9 billion, with projects like Burnstone and Kloof progressing.
• US PGM operations have revised plan with long-term outlook to improve cost and production, aiming for steady state of 700,000+ ounces with competitive cost structure.

Risks

• Industrial Action: Risk of ongoing wage negotiations impacting supply. Other major miners settled on five-year terms, adding risk.
• Supply Chain Issues: Impact from events like Ukraine invasion, supply chain disruptions, and zama-zamas (illegal mining) affecting operations.
• Inflationary Pressures: Higher costs for steel, fuel, lubricants, impacting all-in sustaining costs. Need to manage through operational efficiencies and supply chain management.

Question and Answer

Q: When do we expect to conclude the SA PGM wage negotiations? Are we targeting a five or a three-year term for ongoing PGM wage talks? Where are we with regards to wage negotiations? Are we close to reaching a deal? And then just a question on the wage negotiation risk on SA supply, considering that the other two major miners negotiated this year or negotiated this year have already settled on a five-year period?

A: Richard Stewart said negotiations commenced end of July/early August, aim to conclude by end of third quarter. Considering inflationary environment, longer-term agreement needs flexibility. Risk exists but lower than before with major miners settling.

Q: All-in sustaining costs have only risen by 7%, while mining year-to-date is at 12%. How did management achieve this, what were the levers specifics, please, if you can share, was it labor reductions, procurement, et cetera that were pulled? And how much more can these levers be pulled going into the 2023. And then also, given your small increases in all-in sustaining costs versus peers at your PGM business, do you believe that you're putting adequate sustaining CapEx into the business to ensure the future sustainability of your operations?

A: Richard Stewart said it's a combination of managing supply chains, efficiencies, and usage despite higher than inflation unit costs on some items. Levers include optimizing overhead costs, supply chain projects, and production volume. Adequate sustaining CapEx is being put into operations for equipment, fleets, and ore body sustainability.

Q: Real stated gold CapEx guidance of R3.9 billion is lower than the R5.2 billion guided previously. How much of this difference do you expect to carry over into 2023? Then a question on Burnstone, the industrial action at the gold, SA gold division impact development at Burnstone? Is it still on time and on budget? And then finally, on K4 and Klipfontein at the PGM operations, can we give color on the contribution of the Klipfontein project on production, as well as the progress on the K4 project?

A: Richard Stewart said CapEx carryover is due to shifted spending, not a significant hump. Burnstone impacted by strike and slower labor buildup, but not further behind once full complement. Rob Niekerk said K4 project progressed with underground visit showing good progress, Klipfontein produced marginally over 25,000 ounces in first half.