Sibanye Stillwater Limited

Good day, ladies and gentlemen, and welcome to the Sibania Stillwater Interim Results Presentation. All participants will be in listen-only mode. There will be an opportunity to ask questions later during the conference. If you should need assistance during the call, please signal an operator by pressing star, then zero. Please note that this call is being recorded. I would now like to turn the conference over to Neil Frohneman. Please go ahead, Neil.

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 harbour 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 appreciative 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 organizational culture. We made good progress during COVID. We actually used the opportunity to accelerate our program. It's still work in progress. And as you can see, we think we're about halfway there. Thank you very much. Embedding ESG excellence in the way we do business. Again, this is work in progress. It will probably always be work in progress. We've put in a huge amount of effort, but I think, again, we can give ourselves half a tick. In terms of progress in deleveraging our balance sheet, I think this is one of the highlights of the quarter. We are well below our interim target of one times. We are close to the top of leverage levels before we embarked on any acquisitions. And with a net debt to EBITDA, adjusted EBITDA of 0.55 times, we can give ourselves a big green tick there. 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 23 million to the relief funds. We provided financial support to our employees that were not working to the tune of one and a half billion rand. A very, very significant contribution and probably one of the biggest in the industries. Employee donations interestingly matched by the company amounted to two million rand, 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 provided over 14 and a half million rand of support to small businesses. We provided five and a half million rand of social relief through food parcels, water tanks, blankets and mattresses. And we contributed three 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 60 million Rand. 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 London assets with our eyes wide open and that really was reference 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. It is really an opportunity to do what I don't think has been done up until now. 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 closure by providing ongoing counseling 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 Lonman. There's 144 beneficiaries to that. And then, of course, honouring Lonman'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. Important to look at the pictures on this slide. You can see we handed over six 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 widow's 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 prayer sessions and also amazingly up until now there's been no were all monument unveiled and we unveiled a wall of remembrance which was erected in memory of the fallen mine workers. 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 DRD Gold. And in our view, DRD Gold is a smart commercial entry into rehabilitation of legacy environmental sites in the South African gold mining industry. A number of ESG highlights are contained on this slide. There's 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 Janusburg area. So that's ongoing. And then DRD specific response to COVID-19 is shown in the last few bullet points. They established a quarantine facility with 50 beds that was at a cost of 600,000 rand. There's 1.6 million in employee contributions to the solidarity fund, which was a voluntary contribution. and then over 5,000 food parcels which were supplemented with support relief from 2,500 urban farmers. 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. There are very rigorous evaluation processes and standards required and we're very proud to have been accepted as an RCMM member. 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. 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 re-included in the FTSE Russell ESG Index of the JSC and very pleasing, we were recognized by the Rand Water Board as the most collaborative and water-saving company in the South African mining industry. And of course, we're 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 USPGM operations. We call it the Good Neighbour Agreement. We've 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. The 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 gold 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 that progress has been interrupted. We are seriously committed to achieving even better performance in our next part of the journey to zero harm. Our USPG operations have been fatal freeze since October 2011. that's 3194 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 The graph that is worthy of some mention 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 progression and we will strive to take that even lower. We've also been recognized, 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 J.T. Ryan Award, a very prestigious award. Our platinum division was recognized, came in first place. at the Batapele operations. Kruendal West was third place. And our processing business, first place was Chrometech 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 US and South Africa, obviously had very, very different impacts. Our US PGM business was largely unaffected outside of ongoing social distancing measures which do disrupt production. They do occur at higher costs, so all of those need to be factored into the production and cost profiles in this presentation. The US production achieved 89% of what they planned in quarter two. And that's a great achievement considering the disruption of displacing contractors, introducing sanitizing 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 been conservative in restaffing our business. 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 the slide. The South African PGM business had staffed up to 65% levels and was achieving 73% levels. 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 recognized 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 Q2 production, but it was anchored by a strong Q1. And Q1 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 $16.5 billion versus $2 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've deleveraged back into pre-acquisition 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 Sabania 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 a 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're very well positioned for what we believe is a platinum market that has 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 Marekana. 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-based done. The production came in at 47% and it was offset by obviously much higher 4E PGM basket prices. The build-up was prioritised at mechanised 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. But with the contribution from rhodium and chrome is higher revenue per ton. So the ramp up was appropriately done. The other difference between this and gold is PGM ore bodies are more homogeneous in their grade profile than gold. And you'll see the relevance of that when I come to gold. But there's clearly less flexibility to high grade a PGM mine. In fact, I'd 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. We always get a lot of questions around Marikana and I've moved 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. We had achieved R1.2 billion. Well, I'm very pleased to report that today we've identified 1.85 billion of annual Marikana synergies that are now being recognized. You know, 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. Of course, there's still additional upside from future processing of Rustenburg ore 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 US PGM operations, which is the next slide. They contribute to 36% of group adjusted EBITDA and the combination of mined and recycled production is shown in the graph. Important to note that year on year, despite COVID, we've achieved a 5% higher production output. 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. These are high margin underground operations with a 60% adjusted EBITDA margins. 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 that amounts to about $40 per two year ounce in the cost line. We were able to reduce our recycling 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 an overview of the market towards the end, I will share with you our view on recycling and the impact that COVID has had. Um... The blitz buildup has clearly been delayed. We have not brought back the contractors onto site. We're 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 our understanding on the ore body and factoring that in 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. Fulham All Project is proceeding as planned. That is basically all in-house work. Moving on to the next slide. I'm very pleased to say that our gold operations were profitable. Although, as you can see, gold in our business has become relatively small and it only contributes to 10% of group adjusted EBITDA. It is a 17% year on year We believe that the gold team approached the post-COVID ramp-up in exactly the right way as well. Q2 production levels, they had 54%. and that was offset by a 28% higher angle 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 start-up, that is by design and of course we'll get back to more normal grade levels and I'm really referring here to the underground grades. 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 gold boat business is running at a 16% adjusted. and I have included the DRD production at 77,000 ounces at an all-in sustaining cost of R605,000 per kilogram. At this stage, I'd like to hand over to Charles Carter to do the financial review. Thank you, Charles.

Thank you, Neil. Good morning and good afternoon. It gives me great pleasure to share our financial performance with you today. Moving on to the half one 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 to 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 5 billion rand to 16 billion rand. Adjusted EBITDA, considering the impact of COVID-19, increased to just below R30 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 one 2020. Looking at the next slide. The group is in a very good position from both a liquidity and a debt maturity position, and our next meaningful debt maturity is the 2022 bonds of $354 million. Gross debt, as at the end of half one 2020, was 28 billion rand, and our medium term target is to reduce this to 15 billion rand, as stated previously. and we are not far from our target considering that we had 12 billion cash on hand at the end of half one 2020. Post half one 2020, we have already started repaying the Rand and the dollar RCF as I believe the risk of accessing these RCFs has abated. If we turn to the income statement, half one saw 154% increase in revenue. The main reasons for this was the inclusion of the Marikona operations for a full six months and basket prices being up 92% at our SAPGM operations, 43% in dollar per ounce terms at the USPGM operations, and 45% at our SA Gold operations. This was, however, impacted by the severe production disruptions due to COVID-19. Cost of sales increased to R37.7 billion, and that is, again, mainly due to the inclusion of the Marikana operations for a full six months, and then an increase in recycling costs. As has been highlighted by Neil, adjusted EBITDA at R16.5 billion increased eightfold from R2 billion in half one 2019. The next big item to look at at 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 2 billion is directly attributable to the profitability of the company. If we look at earnings for the period, that was just below 10 billion rand, or three rand 51 cents or 351 cents per share compared to a loss of 200 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 50 cents per share or about 1.3 billion rand. 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 although 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 Neil to conclude on the presentation. Thank you, Neil.