56 INTEGRATED ANNUAL REPORT 2018 ARM PLATINUM 100% 83% 54% 50% 46% Thando Mkatshana Chief Executive – ARM Platinum ARM Mining Two Kalplats Nkomati Consortium Rivers* Prospect 17% MODIKWA TWO 50% PLATINUM RIVERS MINE PLATINUM MINE KALPLATS Modikwa 46% 50% 44% 10% PROSPECT LIMPOPO NKOMATI Impala Norilsk NICKEL 50% Platinum Nickel MPUMALANGA MINE GAUTENG NORTH WEST Anglo American Stella Anglo Platinum Platinum American FREE STATE KWAZULU-NATAL NORTHERN CAPE LESOTHO Modikwa communities EASTERN CAPE * ARM’s interest in Two Rivers Mine increased to 54% from 9 November 2017 when the mine’s amended mining right was executed by the DMR. WESTERN CAPE INTEGRATED ANNUAL REPORT 2018 57 MATERIAL MATTERS ARM PLATINUM $ Decline in chrome prices. KEY FEATURES $ Improved nickel and PGM basket prices. $ Improvement of concentrate offtake FOR F2018 agreements at Modikwa and Nkomati mines. Headline earnings REVIEWS: OPERATIONAL increased to $ Grade decline at Two Rivers, Modikwa and R420 million Nkomati mines. from R350 million Temporary improvement $ Labour unrest at Nkomati Mine. in the terms and Community unrest and expectations for conditions of the $ mines to address high unemployment and Modikwa and Nkomati service delivery issues particularly at mines’ purchase of Modikwa and Two Rivers mines. concentrate agreements. $ Regulatory uncertainty. PRODUCTION PROCESS PGMs Copper Nickel Cobalt Iron sulphur Refinery (electrolysis) Ore extraction Insoluble PGM Converter Separation matte PGM and Extracts purification Froth valuable flotation material PLATINUM RHODIUM Small Crushing Converter and milling rock PALLADIUM GOLD air blower Drying and smelting @ 1 500ºC 58 INTEGRATED ANNUAL REPORT 2018 ARM PLATINUM continued SCORECARD TWO RIVERS MINE F2018 OBJECTIVES PERFORMANCE AGAINST F2018 OBJECTIVES F2019 OBJECTIVES Produce 375 thousand 6E PGM Not achieved Produce 370 thousand 6E ounces while maintaining Two PGM ounces while maintaining Rivers Mine’s position on the Two Rivers Mine produced 348 thousand Two Rivers Mine’s position on cost curve. 6E PGM ounces and is positioned on the the global PGM cost curve. 20th percentile of the global PGM cost curve. Production volumes are expected to be lower due to grade decline caused by mining of split reef. Achieve sales volumes of Not achieved Achieve sales volumes of 275 thousand tonnes of 260 thousand tonnes of chrome chrome concentrate. The decline in grade resulted in lower chrome concentrate. yield. Sales volumes were 230 thousand tonnes. MODIKWA MINE F2018 OBJECTIVES PERFORMANCE AGAINST F2018 OBJECTIVES F2019 OBJECTIVES Achieve 315 thousand 6E PGM Achieved Achieve 340 thousand 6E PGM ounces while continuing to ounces and improve Modikwa’s improve Modikwa’s position on Modikwa Mine produced 334 thousand position on the global PGM the global PGM cost curve. PGM ounces. cost curve. Continue South 2 Shaft ramp-up In progress Continue South 2 Shaft ramp- towards 60 thousand tonnes per up and achieve 50 thousand month which will be achieved in The ramp up of South 2 Shaft is continuing with tonnes per month. F2019. an average of 31 thousand tonnes achieved during F2018. Complete feasibility for Achieved Finalise and approve a installation of a chrome commercial deal with Samancor recovery plant. Feasibility completed. and recommend the Chrome Project to the Modikwa Mine joint venture partners for approval. NKOMATI MINE F2018 OBJECTIVES PERFORMANCE AGAINST F2018 OBJECTIVES F2019 OBJECTIVES Improve the average milling Not achieved Sustain the current average rate to 300 thousand tonnes per milling rate and current month at the PCMZ plant and The capital costs to upgrade the plant to efficiencies. sustain recoveries. 300 thousand tonnes per month could not be justified. Recoveries were sustained. Increase the milling rate at the Not achieved Sustain the MMZ plant milling MMZ plant to 400 thousand rate at 400 thousand tonnes tonnes per month and maintain The targeted recoveries were not achieved as per month. Current recoveries the recovery. Very Low Grade (VLG) MMZ stockpile material to be sustained while significant was processed during the period. The VLG MMZ volumes of VLG material from material, with an average nickel grade of 0.18%, stockpiles are included in the resulted in the average mill feed grade declining MMZ plant feed. by 16%. Achieve sales of 360 thousand Not achieved Achieve sales of 350 thousand tonnes of chrome concentrate tonnes of chrome concentrate. and establish a long-term Chrome sales were 328 thousand tonnes due An action plan to resolve PCMZ offtake agreement for chrome. to reduced efficiencies from the PCMZ plant plant efficiencies has been chrome circuit. Offtake agreement for the chrome concluded with associated concentrate was concluded. improvements to achieve the target sales volumes. INTEGRATED ANNUAL REPORT 2018 59 OPERATING CONTEXT Financial review ARM PLATINUM Platinum ARM Platinum’s attributable headline earnings increased by 20% to R420 million (F2017: R350 million). Concentrate offtake During F2018, the platinum price continued to decrease from agreements for both Modikwa and Nkomati mines were US$925 in June 2017 to US$853 on 30 June 2018. renegotiated with temporary improvement to the terms and The outlook for platinum autocatalyst demand turned even more conditions. OPERATIONAL REVIEWS: OPERATIONAL bearish as European diesel share declined quicker than expected. Improved US Dollar and Rand palladium, rhodium, cobalt, Jewellery demand is also likely to decrease as Chinese demand nickel and copper prices also contributed to this result. Rand continues to shrink. Industrial platinum usage was at record and US Dollar prices for platinum and chrome concentrate, levels, reflecting buoyant demand from the glass and chemicals however, were lower than the corresponding period. Due to sectors. The rapid deterioration in demand fundamentals for Modikwa Mine’s higher palladium content, the mine’s average platinum has taken a sustained price appreciation off the table for Rand per 6E kilogram (6E kg) basket price increased by 14% the next two years. We do, however, believe that the long-term to R380 603/6E kg (F2017: R334 051/6E kg), whereas the fundamentals of platinum remain sound. average basket price at Two Rivers Mine increased by 11% to ARM Platinum achieved an average platinum price of US$936 R370 755/6E kg (F2017: R333 749/6E kg). per ounce for F2018 (F2017: US$987 per ounce). AVERAGE US DOLLAR METAL PRICES Palladium The palladium price continued to improve during F2018, from Average for the 12 months ended 30 June US$864 in June 2017, to US$956 on 30 June 2018. Palladium demand from autocatalysts, chemical producers and industrial % consumption resulted in global demand exceeding 10 million 2018 2017 change ounces. There is unlikely to be significant substitution of platinum for palladium in gasoline vehicles over the medium- Platinum US$/oz 936 987 (5) term as technology improvements are still needed to match the Palladium US$/oz 974 734 33 effectiveness of palladium-rhodium catalysts. It is expected Rhodium US$/oz 1 540 783 97 that strong palladium autocatalyst demand growth will be Nickel US$/t 12 397 9 882 25 sustained through the end of the decade amid a shift towards Cobalt US$/lb 35 19 85 gasoline hybridisation. ARM maintains its bullish view on this metal. Copper US$/t 6 798 5 474 24 UG2 chrome concentrate The average price achieved in F2018 by ARM Platinum for – Two Rivers (CIF*) US$/t 174 193 (10) palladium was US$974 per ounce (F2017: US$734 per ounce). High sulphur chrome concentrate – Rhodium Nkomati (FOT**) US$/t 82 165 (50) The rhodium price performed exceptionally well during F2018, * CIF refers to Cost, Insurance and Freight. increasing from US$1 040 in June 2017 to US$2 260 on 30 June ** FOT refers to Free On Truck. 2018. Demand for rhodium from the auto sector increased, reflecting moderate growth in global output of gasoline vehicles, AVERAGE RAND METAL PRICES and increases in catalyst loadings, especially in North America. Demand is, however, predicted to contract as modestly higher Average for the 12 months automotive consumption is offset by lower purchasing by glass ended 30 June and chemicals companies. % ARM Platinum achieved an average rhodium price of US$1 540 2018 2017 change per ounce (F2017: US$734 per ounce). Exchange rate R/US$ 12.84 13.60 (6) Nickel Platinum R/oz 12 020 13 408 (10) Palladium R/oz 12 509 9 973 25 The nickel price increased substantially during F2018, from Rhodium R/oz 19 780 10 636 86 US$9 375 per tonne in June 2017, closing at US$14 940 per Nickel R/t 159 172 134 295 19 tonne on 30 June 2018. While some of the upside may have Cobalt R/lb 443 254 74 been influenced by non-commercial market participants, it is Copper R/t 87 282 74 387 17 believed that many of the usual market metrics suggest that UG2 chrome the price gains are justified. Global inventories have fallen by concentrate – around 110kt since the beginning of 2018. Long-term Two Rivers (CIF*) R/t 2 232 2 629 (15) fundamentals for nickel remain strong, with specific reference High sulphur chrome to an increase in demand expected from electric vehicles. concentrate – ARM Platinum achieved an average nickel price of US$12 397 Nkomati (FOT**) R/t 1 059 2 245 (53) per tonne (F2017: US$9 882 per tonne). * CIF refers to Cost, Insurance and Freight. ** FOT refers to Free On Truck. 60 INTEGRATED ANNUAL REPORT 2018 ARM PLATINUM continued An 11% increase in production at Modikwa Mine was fully offset Capital expenditure at ARM Platinum operations (on a 100% by an 11% decrease in PGM production at both Nkomati and basis) decreased by 10% to R1.15 billion (F2017: R1.27 billion). Two Rivers mines, resulting in production volumes (on a 100% basis) decreasing by 3% to 792 583 6E ounces (F2017: Capital expenditure at Modikwa Mine increased by 2% to 815 188 6E ounces).