In a year that presented multiple challenges, our operations delivered and improved safety performance reducing the group LTIFR by 24%. The total recordable injury frequency rate improved by 15% to 0.69 (F2021: 0.81). This performance was, however, marred by the loss of two colleagues in F2022.
As noted in the executive chairman’s report, two colleagues were fatally injured in separate accidents in the financial year under review. At Two Rivers Mine, Mr Jacob Puleng Leshaba was fatally injured in a fall of ground accident on 1 September 2021. At Modikwa Platinum Mine, Ms Phasoana Rheina Malatji, was fatally injured after being struck by a run-away load haul dump (LHD) tyre on 10 June 2022. We continue to focus on initiatives across our operations to ensure ongoing safety training and that safety standards are strictly upheld.
Our commitment to zero harm is reflected in safety being a key performance indicator in executive remuneration. Safety achievements during the year included:
The health and wellbeing of our people remain a key priority. We continued to assist our host communities, suppliers and other stakeholders to the fullest extent possible through these uncertain times, as detailed in the ESG report.
In F2022, ARM created total value of R27.5 billion (F2021: R30.6 billion). Of the value created, R6.3 billion was paid to shareholders as dividends and approximately R2.3 billion1 to providers of capital. We also reinvested R8.2 billion in the group to support our continued growth.
1 This figure includes value attributable to non-controlling interests of R1.9 billion.
The financial and operational reviews included on pages 44 to 61 of the full 2022 integrated annual report detail our performance for the year. My review therefore focuses on progress against strategic objectives more broadly and the significant infrastructure challenges facing our operations.
As noted by the executive chairman, the acquisition of Bokoni Mine presents a significant value creating opportunity for ARM. Home to the second-largest PGM resource in South Africa, Bokoni Mine has operated since 1969 but was placed on care and maintenance in October 2017 due to adverse market conditions.
The higher-grade UG2 reef accounts for two-thirds of the mine’s mineral resources of 153 million 4E PGM ounces (measured, indicated and inferred). With an average grade of 6.56g/t), the UG2 mineral resource has a favourable prill split for palladium (49%) and rhodium (8%), with platinum comprising 41% on a 4E basis.
Mining infrastructure includes two decline production shafts: Brakfontein for the extraction of Merensky ore and Middelpunt Hill for extracting UG2 ore. In addition, there are separate concentrator plants for processing UG2 and Merensky ore, a village, a clinic and ancillary assets in the mining right area.
We will consider using both existing shafts and plant infrastructure while investing in new infrastructure as part of our business plan to mechanise Bokoni. The new mine plan will focus on exploiting the UG2 resource with mechanised mining, where practical and sustainable, in new mining areas and target mainly on-reef development.
Central to this mine plan is improving efficiencies, reducing unit costs and providing early revenue. We will concurrently evaluate the opportunity of mining the Merensky Reef while developing the UG2 mine to capitalise on current strong PGM basket prices.
A definitive feasibility study will be completed in the second half of F2023, enabling mining operations to begin in the latter half of the 2023 calendar year, pending the required mining approvals.
We envisage development capital of around R5.3 billion (in real 2021 terms) over three years to ramp the mine up to steady-state production of some 300 000 ounces of 6E PGM and 255 000 tonnes of chromite concentrate per annum from 2028.
By comparison, for Bokoni Mine’s last operational financial year (31 December 2016), the mine produced approximately 159 000 4E PGM ounces. At the time, both Merensky and UG2 were mined with annual production output of 593 000 tonnes of Merensky from Brakfontein and 572 000 tonnes of UG2 output from Middelpunt Hill.
Our operations rely on the efficient provision of utilities and logistics infrastructure in South Africa. There have been numerous challenges in the reliable supply of power, water security and performance on logistics channels. In the review period, these had varying impacts across our operations:
As detailed in the risk section on pages 35 to 37 of the full 2022 integrated annual report, infrastructure constraints in both rail and port, and unreliable water supply in the Northern Cape are our top two risks and have a direct bearing on our number three risk, increased unit costs.
Infrastructure constraints and input cost escalations are expected to continue putting pressure on unit costs across the South African mining industry. We remain fully committed to working with government and all stakeholders to find sustainable solutions to these challenges.
We are implementing efficiency-improvement and cost-containment initiatives at all operations to mitigate above-inflation unit cost increases. Extensive work is also underway to identify opportunities to sustainably reduce our carbon emissions. Refer to the executive chairman's report for further details.
Our diversified portfolio of commodities again benefited the group in a year characterised by volatile commodity prices. As illustrated below, this diversification positions ARM well as we continue to focus on operating a world-class business in a challenging sector.
* Other is made up of chrome, nickel and ARM Corporate.
In summary:
Increasing global debt levels, a recovery in global supply chains after pandemic-related disruptions, intermittent Covid-19 lockdowns in China, rising global inflation, and a dislocation in energy markets following geopolitical turbulence from the conflict between Russia and Ukraine have all contributed to heightened levels of uncertainty in commodity and capital markets over the past year.
In addition, accelerated tightening of interest rates in developed markets and recession risks in the US and Europe have compounded volatility.
After starting F2022 at over US$200 per tonne, iron ore prices fell to below US$100 in December 2021. Prices recovered in the last quarter of the financial year under review, before declining subsequent to year end. The iron ore market is expected to be largely balanced for calendar year 2022, which supports current price stability.
Concerns remain, however, that increased iron ore supply from major producers and pressure on China’s crude steel production are likely to move the market into surplus from 2023, placing downward pressure on prices. Our focus remains on cost containment and improving our global cost position as well as ensuring our iron ore operations benefit from the move to reduce carbon emissions in the steel industry globally. This in turn is expected to increase demand for high-quality lumpy iron ore products.
Similarly, in manganese ore, the significant investment over the last ten years in Black Rock Mine is expected to position the mine to deliver high-quality manganese ore into a seaborne market whose supply of the same is expected to be constrained.
In PGMs, a recovery in autocatalyst demand and tightening emission standards are expected to be positive for PGM demand in the short to medium term. While we are cognisant of the threat that battery electric vehicles may have on demand, PGMs – particularly platinum – are expected to play a significant role in clean mobility (through hydrogen technology) alongside battery electric vehicles. Constrained supply growth is also expected to underpin robust fundamentals for PGM markets and provide price support.
Our focus remains on cost containment and improving our global cost position as well as ensuring our iron ore operations benefit from the move to reduce carbon emissions in the steel industry globally.
Source: All graphs Iress.
We are pleased with the progress made by Modikwa and Two Rivers mines to improve their position on the global PGM unit cost curve in recent years. Our confidence in the fundamentals of the PGM sector is evidenced through our acquisition of Bokoni Platinum Mine, discussed earlier.
The commitment and dedication of our employees underpins our ability to create sustainable value. As we navigate the challenges of doing business in the prevailing global uncertainty, I thank each of my colleagues for their contributions, as well as our executive chairman and the board for their expert direction and counsel.
We remain fully committed to mutually beneficial relationships with all our stakeholders and joint-venture partners to ensure we build a resilient and enduring business that creates sustainable value for all.
Mike Schmidt
CEO
7 October 2022
The value created by our activities is distributed to a range of stakeholders. In F2022, R27.1 billion of financial value on a segmental basis was distributed as illustrated below.
Read more
ARM’s strategic priorities to operate safely, responsibly and efficiently, and to partner with communities and other stakeholders, are founded on responsible environmental, social and governance (ESG) practices and our commitment, as ICMM members, to mining with principles.
Read more