Sibanye Stillwater Limited (SBSW) Q4 2014 Earnings Report, Transcript and Summary

Greetings. And welcome to the Stillwater Mining Company's Fourth Quarter Results. At this time, all of the participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host and Chief Executive Officer, Mr. Mick McMullen. Thank you Mr. McMullen, you may begin.

Thank you very much. And thanks everybody for dialing in for our fourth quarter and full year 2014 results. I have here with me Chris Bateman, our Chief Financial Officer and Greg Wing who was previously our Chief Financial Officer and has been working in extended hand over period with us as well as Mike Beckstead, our IR Manager. We have an investor deck that is available for people and I want to talk to that before taking questions. If we go to Slide two on the deck, the forward-looking statements, I would like people to read that at their leisure and also take note of the cautionary note at the bottom of that to investors regarding mineralized material. Going on to Slide three, our fourth quarter highlights and consolidated net income in the quarter was $14.7 million or $0.12 a share on a diluted basis. We had $22.4 million growth in cash and cash equivalents plus liquid investments over the quarter. Importantly, our all-in sustaining costs were reduced to $725 per mined ounce approaching management’s target of the low $700s that we said about a year ago. I would like people to note that whenever I talk about mined ounces, we always refer to a combination of palladium and platinum in a ratio of approximately 3.4 palladium to 1 platinum. Mine production during the quarter was relatively strong at a 137,600 ounces and recycled ounces of palladium platinum and rhodium was just under a 116,000 ounces. Overall, it was a relatively good quarter for us. We ended the year quite strongly and that trend of production and cost control has continued into 2015. For the full year 2014, net income attributable to common stockholders of $70.3 million, which equates to $0.56 per diluted share. We grew our cash and liquid investments by $65.5 million prior to paying back $30 million of Montana state bonds we had. We ended the year with $531.5 million of cash and liquid investments. And so earlier, in last year I set a target for the company to grow our cash and we manage to self-fund all of that capital projects which were not small and in addition to that we retired debt and we grew our cash balance. Importantly for us, we managed to reduce our all-in sustaining costs quite significantly. We had got in the market to $780 to $830 an ounce and we came in at $784 for the year. Mine production was 517,700 PGM ounces at the midpoint of the guidance range. Our recycling ounces, again the mix of palladium, platinum and rhodium was just under 470,000 ounces. We did retire that $30 million of Montana state bonds that was costing us 8% in interest. We feel retiring debt at face value that’s costing us 8% was a very good use of shareholders’ funds. Importantly, we managed to decrease corporate overhead and exploration spend by about 35% year-on-year to $37.8 million. We also had a modest increase improvement in probable reserves at our Montana mines despite producing 517,000 ounces. So the developed state of the mines has continued to grow. We’ve continued to invest in development and drill out of our large mineralized resource base or reserve base and we expect to continue that program. We are not cutting back on the spend of expanding the developed state of the mine. Moving to Slide five, you can see here the fourth quarter results for Q4 2014, versus Q4 2013. Mine production ounces was down slightly again in the fourth quarter 2013 was also particularly strong quarter. Despite the slightly smaller production, we did manage to reduce the cash cost year-on-year. All-in sustaining costs again were also down by about 3%. Corporate overhead went up slightly for the relevant periods. Capital expenditure went down very slightly as well and you can see a small drop in recycling ounces for the previous period. If we go Slide six and we look at the full year results year-on-year, again slight reduction in ounces. We had a 8.5% increase on total cash costs for the relevant period of the prior year. I would like to note that that 2013 did include a rebricking event in our furnace, which had a significant amount of metal that came out in the order of $20 million to $22 million that did push our cash cost down in 2013. So when we look at our all-in sustaining cost where we strip that effect out, we did have a 3.6% reduction year-on-year in all-in sustaining cost. Corporate overhead, again, I am pleased to say that we managed to reduce that cost significantly. Capital expenditures came down by just over 5% year-on-year and again, we did see a drop in recycling ounces. 2013 was a year of very high growth, it saw 38% growth from the prior year and the markets has sort of dissipated a bit in terms of where some of that metal has gone and we are probably back to a more normal trend line of products in comparison to 2013. Slide seven; I think it’s an important slide for us. We have delivered on our guidance and again this is the guidance that we updated in the middle of last year when we had already improved the ones. You can see from this slide that we have delivered on every single one of those metrics that we’ve set ourselves and in some cases we’ve come in at the very bottom end of the cost range. We think this is important for the company to be able to ensure that the market has confidence in us to bring out and deliver on what we say and we are very pleased with the effort that’s gone into this given the changes that we had at the company during the course of last year. Moving on to Slide eight, I will hand over to Chris Bateman our Chief Financial Officer to discuss our net income.

Thanks, Mick. Fourth quarter revenues were $14.7 million. This was achieved not withstanding a reduction of $101 an ounce in our basket price to $882 an ounce. In addition, we took a pre-tax charge of $4.4 million for reorganization costs. Net income for the year was $70.3 million, compared to a loss of $270.2 million in 2013.

Thanks. If we just go to Slide nine, this is a title that we’ve started publishing with our results and I think it’s important for stakeholders to understand where our costs have been and where we’ve taken them to. If you look on our cost per ton milled basis during the course of – from the end of 2013 to the end of 2014, we managed to reduce our cost of Stillwater Mine by 15% on a per ton basis and at the East Boulder Mine by 20% on a per ton basis and as a company by 17%. I’ll draw people’s attention to the mining line. As you can see clearly that a very large component of our cost is the mining cost. Hence while most of the changes that we made are areas that we are focusing on for cost reductions has been in the mining area. We had a very good reduction in cost at the Stillwater Mine from Q3 to Q4 and again, we also had some fairly substantial reductions in administration which is site administration costs over the same period. That administration cost reductions came about partly as a result of the royalty we had which again, as the price was reduced, the barrier of the royalty went down. But, also the volumes were very strong at the Stillwater Mine in Q4 and the fixed administration cost spread across the larger tonnage managed to reduce that down on a per ton basis. So overall to reduce our cost at the Stillwater mine from $275 a ton to $204 a ton was a pretty good result. I will still say that a $204 a ton cost us too quite high relative to other mines and even relative to East Boulder and we feel that there is significant amount of work still to be done in this area. We have seen that the byproduct credit has fallen over the course of the year. This is related to a nickel and copper production. We have a small amount of nickel and copper in the ore and as the prices for those two metals has fallen, the value contribution from those credits has fallen also. At East Boulder, we saw again, really each quarter we just saw consistent reductions in costs and really the drop from Q3 to Q4 to a large extent has been driven by the increased volumes that we’ve seen coming out at the mine as Graham Creek, the first open block at Graham Creek has started to ramp up production. Again, we are pleased with the direction that we are moving. We feel that there is still much work to be done in this area and we think that there is a lot of potential still to further reduce our costs. Moving to Slide ten, all-in sustaining cost, this is a measure that we introduced last year, so that investors, shareholders could really try and sort of get a good handle on how the business is tracking in terms of the spend that we need to spend to keep the business running over a long period of time. Our all-in sustaining cost is our cash cost, we back up the recycling credit. We add on the corporate G&A and then we also add on our sustaining capital for the mines necessary to keep the mines running over a long period of time and we arrive at an all-in sustaining cost number. We saw during the course of last year a gradual reduction in Q3. We had a few one-off items where development got significantly ahead of budget and you can see as well some higher SG&A cost there as that’s more normalized in Q4 we’ve said a very good result in the quarter of $725. Again directionally, over the course of the quarter, we saw cost coming down month-by-month and it’s a pleasing result we had indicated to the market last year that we’d like to see we had a goal that was in the guidance, but we had a goal of getting our cost into the low 700s and we said we’d like to do that by the end of 2015. And I think by the end of 2014, we’ve made very good progress on that. We will be vigilant on costs and we need to continue to drive those costs down. Going to Slide 11 on the operational improvements, some of the things that we have done at the mine during the course of last year, which were accomplished with a lot of very hard work from out sites has been – we’ve obviously reduced the headcount quite significantly. We also had some stoping blocks that were being produced either at a loss or less profitably than they could be if we got the infrastructure in place. We took the difficult decision last year, in the middle of the year to take some of those stoping blocks offline. I have to quote some people of guide in terms of us electing to our take our guidance range down from production. We felt that that was important because those ounces, if we wait for those infrastructure projects to be completed, those ounces can be reduced to the significantly high margin to what we were producing than that before. That has had a significant impact in terms of our productivity at the mine site and our productivity has increased quite significantly. The headcount as we’ve taken that down, we stood at 1619 people company-wide at the end of the year. We’ve achieved that through voluntary and involuntary programs as well as through natural attrition. It has had minimal impact on mine production. We are continuing to evaluate at optimum staffing levels to make sure that we are right-sized and I will say that attrition is at historically low levels. What we are seeing is the downturn in other commodities has impacted the job market. So, we think that there is more work to do in this area. We are really very keen to invest in technology and invest in infrastructure to make sure that we produce the ounces at the cheapest possible cost and that we empower our workforce to be as productive as they possibly can. Moving on to Slide 12, I might hand over to Chris Bateman again just to discuss our cash.

Thanks, Mick. We generated $22.4 million in cash and liquid investments and I’ll remind you that’s in light of the $101 reduction in the basket price. We finished the year with $531.5 million in cash and liquid investments. Operations generated the cash and the main uses of cash came with a big tax payment in the fourth quarter as long as – as well as finishing up with our planned capital program for the year. You’ll also see, we released cash from working capital in the area of recycling. Moving on to Slide 13, EBITDA, you’ll see from Slide 13 that we’ve had a generally improving trend over the last three years. In terms of 2014, we finished the year with EBITDA of $179 million, $42 million of which occurred in the fourth quarter.

If we move to Slide 14 now, we’ll just touch on the metallurgical complex in our recycling business. We still expect to grow this business. What we have seen in the recent past has been the scrap steel prices have been relatively low which had impacted on the volume of material available. We still like the business very much. It’s a very hilarious business technology is proven with a long track record in it. We hedge all of our positions there. So we’ve taken our risk in it. We have a lot of excess capacity in the business. We are starting to take trial shipments of other types of products, but not hold our cap to try and increase our utilization. We’d like to have a bigger push into this business in the course of 2015, I think 2014, our focus as a company was very much on the mines and corporate and foreign operations. For 2015, our focus is increasingly turning to this business. What we are finding is that customers are very much starting to regard recycled ounces as an attractive lower risk long-term supply than mine ounces, particularly given geopolitical risk at many of our mine competitors. We are starting to transition this business from a base of short-term contracts to long-term supply agreements. We have signed some five year supply agreements and we also have a mix of one and two year agreements signed and they have a combination of anything from fixed tonnage that people to have to deliver through exclusivity to a range of durations, but we feel that moving this business to a more traditional off-take stall really will allow us to plan better for the business and will also underpin the value of the business as we go forward. So, as I said, 2015, there is much work to do in this area and it is getting a lot more interesting as we go forward. Going to Slide 15, on our projects in Montana. Graham Creek was an 8800 foot development to the west of the East Boulder mine. We completed that during 2014 and again, we came in ahead of guidance there. We guided the market to having production out of that in Q3. We started in Q2 of last year. That extra production out of that area has allowed us to add an extra shift to the East Boulder mill. So last year, the early part of the last year, the mill was running four days a week, it now runs five days a week. And that’s added approximately 2000 ounces a month of production for us. We’ve advanced the drill-up of the next stoping block at Graham Creek the first stoping block at 758 has gone very well for us. So, well, in fact that we have dragged forward the drill out of that next starting area and we’d like to really see if we can get into that faster. Blitz project is our mining project. It’s a circa $200 million spend to do this and we are part of the way through that. We did some surface drilling to intersect the J-M Reef to really more to guide the tunnel boring machine. These things take a long way to turn. We have progressed by year end to about 7300 feet in the TBM drives and then we have a parallel conventional drive above it, which is a bit further at just under 9,000 feet. We added a second crew to that TBM in October, a third crew is planned to be added in the second quarter of this year. We feel advancing this project as quickly as we can is quite important for us as a company and importantly we expect to be in a position for underground definitional drilling of that mineralized reef by the3q of this year. We would like to drill that out as much as we can and as fast as we can, because that provides additional certainty for shareholders as we go forward. Coming on to Slide 16, our portfolio of assets. So we have the Marathon PGM copper asset in Canada. We have spent a lot of time and efforts looking at different alternatives for this project. I will say that the fall in the Canadian dollar and the fuel price has improved the outlook for the project, but it still does not give me an adequate return that would justify us developing it at this time. We have significantly reduced our activity up there. We’ve scaled back our headcount quite a bit. We are doing some limited success-based exploration work going forward. We spent in the order of $4 million in 2014 on the project of which $800,000 was exploration. We expect to spend in the range of $1 million to $3 million going forward on this project at this time. Our Altar copper-gold asset down in Argentina, it is a non-core asset, we are doing a minimal level of spend on that at the moment. We are also looking at alternatives to realize value from that project. We have spent a lot of time and effort during the quarter of last year on looking at different alternatives for development. We did quite a bit of work on concentrate treatment methods. We’ve had some success in that area. We spent approximately $2.5 million on the project in 2014 and we expect to spend in the order of $3 million to $5 million going forward on the project. Again, we believe that that asset is – as a copper asset, very large asset is a non-core asset for us being a PGM company. But we do believe that the thing does have significant value. It is a very large copper-gold asset that we think has reasonable value. So we’ll turn to Slide 17 here on the guidance for 2015. The guidance that we are putting out for production is a range of 520,000 to 535,000 PGM ounces. Again, combined palladium and platinum in a ratio of approximately 3.4 palladium to 1 platinum. Our total cash costs, we are guiding to a range of $480 $520 an ounce. And all-in sustaining costs, we are guiding to a range of $730 to $780. G&A, we are now splitting up exploration separate to G&A. So our G&A, we are guiding to a range of $30 million to $40 million and our exploration, we are guiding to a range of $4 million to $6 million. I’ll turn over to Chris to discuss our capital guidance, because we are doing something new as we go forward here.

Thanks. Historically, we’ve provided capital guidance that included non-cash items, particularly capitalized interest and capitalized depreciation largely due – largely in the Blitz project. What we’d like to do going forward is to provide capital guidance on a cash basis specifically excluding the capitalized interest and capitalized depreciation. So, in total, we are expecting capital expenditures of $125 million to $135 million in 2015, of which $42 million to $47 million will be in project capital expenditures and $83 million to $88 million in sustaining capital expenditures.

Thanks, Chris. So just coming on to the summary, the fourth quarter of last year demonstrated continued momentum in both operation and financial performance. We had strong cash generation profitability and our liquidity position improved. We think those results came from a continued focus on controlling costs. We’ve improved the state of our Montana bonds through investment and increased proven and probable reserves to 22.2 million ounces combined palladium and platinum during the course of the year. We’ve made very good progress on strengthening the health of the business. We’ve enhanced our capacity to withstand market volatility of which we’ve seen quite a lot over the last four to five months. We see ongoing favorable long-term PGM fundamentals, particularly for palladium perhaps less so for platinum. But we think we are very well positioned going forward. We will continue to focus absolutely on cost first and we would like to get us into a position where we have a very strong bullet-proof balance sheet to be able to withstand all eventualities that may come in our way. That concludes my talk. I will just like to say as a final hand off to Greg Wing that we are very appreciative of Greg’s efforts over the ten or eleven years that he has been with the company. He has provided a lot of insight into the historical nature of the business and has also been a very professional manager over the course of the extended hand over period we’ve had and that’s provided valuable help for both myself and Chris Bateman as we’ve done the hand over. So, I just like to say as a close, thanks very much, Greg. And that’s the end of everything that I’ve got. I’d be happy to take questions from anybody if they have them.

[Operator Instructions] Our first question today comes from the line of Sam Dubinsk with Wells Fargo. Go ahead with your question please.

Great, thanks for taking my questions guys and congrats on the cost guidance. How should we think about the linearity of cost reductions going forward? Are there any contractual pay hikes or any mining moves should be modeling in?

Well, I think the last contractual pay rises we had for our union workforce was a 4% pay rise at the East Boulder Mine which came into effect at the end of last year. And so, the Stillwater Mine got their pay rise in the middle of last year and that’s the end of the full year contract, both of those contracts are up for renewal in the course of this year. And it’s probably not appropriate for me to comment at this stage on what that may or may not hold.

But a potential pay hike is in the numbers?

Well, I think if you look at our Q4 numbers, versus our guidance, we obviously have come in below that. And there was a contractual pay rise for the East Boulder operations that did come into effect at the end of last year.

Great, and then is there any chance you monetize your copper and gold assets in 2015 or does it make more sense to develop them or and maybe wait for commodity prices come back a little bit?

Well, look as you see, I’m always open to all options that would deliver shareholder value. And, I will say for our Argentinean asset, we did a lot of work last year which I think would be – is very beneficial in terms of actually having addition plan for the asset now. Clearly, the copper price having fallen, it’s probably not the right environment. We are not clearly, we have a very strong balance sheet. So I wouldn’t say that we are in a rush to do anything on any assets. That asset well it’s not for us as a development asset, is a very substantial copper-gold asset and I think that at some stage we’ll have real value. I don’t think it’s the right thing for shareholders for us to rush to try and do something with it just for the sake of moving it on. So, again, we are open to all options that create shareholder value. But, we are not – we haven’t set a firm date when we have to do something one way or the other.

Okay, and then in terms of capital allocation, I am not sure if you are allowed to, but is there any chance you can maybe slug away some of that convertible debt on your balance sheet?

Well, there are ways you could do that. It does have an embedded equity component to it and because of the long-term before the first call date, it does trade at a reasonably healthy premium at this stage. But again, you can see what we did with the $30 million of a debt that we had. If we see opportunities where, we would always be open to whatever we felt it was the best thing for shareholders.

Okay, and then just my last question, could you just give competitive dynamics with more detail on the recycling business? I know BASF just announced, I think they are doubling capacity at one of their facilities for recycling and how that impacts your business on the market?

That’s in the UK. They would soon lead to smelt that material some way. What we probably see is that, it is a fairly competitive market out there, probably the bigger impact we are seeing at this particular time is the lowest scrap steel price is negatively impacting volumes that are just available for everyone. So, that’s probably the biggest challenge we have at this stage. But there is not a doubt that people are starting to realize that recycling was not a very high margin business, it can be, it can be a very low risk business. We do know some people who thought it was a low risk business and didn’t have the appropriate controls in place and then turn that to be quite a high risk business. We’ve been in the business for very long period of time. We are very comfortable in it. So I think, it’s probably the bigger issue for us not so much as new competition, but it’s just the material that’s available.

Okay, great. Thank you very much. Good luck.

Thanks, Sam.

Our next question comes from the line of Sam Crittenden with RBC Capital Markets. Go ahead with your question please.

Thanks very much. Good afternoon everyone. A question on Blitz, I just wonder if you could remind us the timeframe that you think you could be mining in that deposit and then do you expect that to be generally similar to what’s in the Stillwater mine now and would you plan to do a reserve update here at some point which you are able to drill it?

Sure, and I think your point about one – I want to drill it, the key point here is that, we need to push that 56 incline out, so that we can get a drill platform underground and drill of that, because drilling in from surface will not get you a play and pay reserve. I think in the third quarter of this year we expect to be out there and be able to drill that out. Our goal is to drill as much as we can during the course of 2015 subject to those drill results, we would like to update the end of 2015 reserve update which would be early 2016 with any positive outcome of that. And at that side we could give the market a lot more guidance in terms of production levels. At this stage, the first production we would see out of that area would be 2018. We do have a small reserve block, it’s called block 10, which is there, it’s about approximately 300,000 ounces and the grading that is approximately 0.7 of an ounce to the ton. So, we can’t really give answers as to what’s after that because we need to do the drilling. But that’s what the first reserve part of Blitz looks like. So, reasonably good, really the key for us with Blitz is the way it’s being set up with the infrastructure and the rail haul which whatever we mine out of it should come at a lower cost per ton because it’s being set up very similar to the way East Boulder mine has been set up.

And then, in the past you’ve talked about market tightness in the PGM market, I’m just curious what kind of situation you are seeing at the moment?

I would say that the platinum is market is not tight at this stage and you are seeing that in the price. We are predominantly palladium, but platinum does affect us obviously. A year ago, platinum was circa 40% of our revenue, today it maybe 30%, possibly even less. Palladium, I wouldn’t say it’s overly tight, but the underlying dynamics still look very, very strong for palladium. The moves that we are seeing in Europe now, with some cities London and Paris being two of them to move away from diesel cost is not very good for platinum demand, but excellent for palladium demand. As you know, Europe has, for a long period of time, really been a diesel and therefore platinum story. I think it’s going to become increasingly a petrol, gasoline engine therefore palladium story. So, I think we are going to see quite a bit more divergence between the two metals. Even more so than what we see today. So, platinum not very tight, palladium moderately tight, but getting tighter.

Okay, thanks very much, Mick.

Our next question comes from the line of John Bridges with JPMorgan. Go ahead with your question please.

Morning, Mick, everybody. I’d like to first say – add to your thanks for Greg Wing has been a great partner over the years. We appreciate your help over the time. And then, just wanted – after you’ve got the expansions at Grahams Creek and Blitz in place, would the bigger footprint mean that you’d have a bigger sustaining capital number that we should factor into our numbers over the longer-term?

Not materially, I don’t think at this stage, not giving guidance past the end of 2015, but now, I think broadly what we’ve said is what we – by definition if it’s sustaining CapEx it should be pretty similar year-in, year-out. So, I think the numbers that we put forward are about correct on a go-forward basis broadly.

Okay. You mentioned you did poke a couple of holes into the J-M Reef when you were over there in Blitz. Do you happen to assay those things?

We certainly do assay them. We don’t put the results out. They are more – because they are not close enough space to be truly representative of the reef. They are more to determine where the reef is and therefore where we see that TBM is showing because it has not a very small turning, right.

You are disappointed?

Well, all I can say is that we are pushing on as hard as we can.

Okay. You mentioned, you spoke about making long-term contracts for the supply of the recycled material interesting development. How do you manage long-term commitments under a supply contract against the – it seems to be quite volatile of supply of those materials to your smelter?

Well, and that’s exactly what we are trying to move towards long-term contracts. Historically, the business we’ve had relationships with people, but, from a truck load to truck load basis, you never really knew what was coming. What we find to do is move the business towards more like – say a smelter that was treating copper or zinc or nickel concentrate would have, which is a book of off takes which would have a variety of durations, a variety of customers, tonnages, product types and it’s early days in that at this stage, but we’ve had some reasonable success in that. And that’s what we are trying to build and we’ll hopefully get more progress on it in 2015 is to build the business that would – we can – if not give formal guidance on, but at least give some broad range of what we expect the business to-date at the market because at this stage, we give no indication on a forward-looking basis what that business will look like because we haven’t been able to.

Okay, okay. Well done with the results guys.

Thank you.

Our next question comes from the line of Andrew Quail with Goldman Sachs. Go ahead with your question please.

Hi Mick. Hi Chris. Congratulations on a very strong quarter. I thought it looks like it’s going in the right way in the money front. Just wanted to come back, I think, to touch on earlier, Mick, 2015 the focus is on, obviously the recycling segment. Can you maybe just give us some color about what you would think would be a fair run rate going forward? And, I mean, the fourth quarter was obviously lower than the year average. Is it something, I think you’ve got some initiatives obviously, but, maybe not give out the secrets but, can you just elaborate on what you are actually doing and what you guys expect out of this sector?

Well, it’s a bit hard to give data at this stage, I think given where we are. So, I think, the fourth quarter, if you look at where that is, that’s probably where the market has been in the fourth quarter and probably where it is now. I think that we will need to deliver on a few of these things before we can start giving any sort of market idea. We do expect depending on what happens to the scrap steel price that we do expect metal out of recycling to probably grow at the order of 8% to 10% a year. And I would like to think that we can at least maintain our market share in that.

Good. And I think, you guys touched on obviously, some byproduct credits, I don’t know there is more stock, but, you think that pretty violent moves in some of these commodities. If you do see copper price about three bucks, is that sort of knock-off, how many dollars you think that could knock-off your cash costs?

It’s not huge to be honest with you, but, if you look at Slide nine in the deck, you can see our byproduct credits, that is on a per ton basis. So you’ll have to convert it to per ounce, but, on a per ton basis, we’ve probably lost two – we got a sort of timing of sales not an issue, but there was a lot of sales from Q1 that ended up in Q2, but if you average earlier in the year, we were probably running $25 maybe $26 a ton of byproduct credits and now down to $20 a ton byproduct credit. So, $6 a ton is in the context of things or $5 a ton is a reasonable proportion of our cost per ounce. I’d like to think it’s going to go back up. I am not so sure I see a catalyst in the very short-term that’s going to drive that copper and nickel price back up.

Okay.

I’d like it to go back up, it doesn’t, we are not going to change that business plan around what happens, but I am just pointing out that the cost reductions on a per ton basis, we’ve seen over the last year have come in spite of that falling byproduct credit.

Exactly. Now, thanks very much guys.

[Operator Instructions] Our next question comes from the line of Matthew Griffiths with Bank of America. Go ahead with your question please.

Hi, thanks guys. Thanks for taking the question. I am just wondering if you could maybe give a better detail on kind of what’s driving the mining cost reductions at Stillwater and East Boulder? I mean, obviously, I am assuming headcount is a big part of it, maybe it’s possible to split that out and talk about some of the other drivers and whether or not the Q4 numbers are sustainable? And finally, whether or not, is this something that is preventing you from achieving the same cost at Stillwater as you see at East Boulder over the course of time?

Sure. Yes, obviously headcount was a fairly substantial part. Moving the people that we did in the middle of last year out of some of these high cost stoping blocks has also been a fairly important part and we moved them into much more productive areas of the mine. So, on a ton per man per hour basis, just broadly, some of those stops that we turned off, we were getting one ton per man per hour, maybe 0.8 sometimes and some of the stoping blocks we put those same people into and now getting three tons per man per hour. Admittedly, lower grade stops and that’s why you’ve seen our head grade come down slightly during the course of the year. But when you are getting three times a tonnage out per person and labor is, at that mine, 60% of your costs, it makes in all those difference to your cost per ounce. We’ve seen some small benefits from a cheaper fuel price for instance, but to be honest with you, labor when it’s 60% of your cost is the main driver of everything you do. So headcount reduction, better productivity per person has been a significant driver. We’ve invested quite a bit of money on infrastructure which hasn’t really started to payoff just it because we won’t go back into those stoping areas until the third quarter, probably like in the third quarter, I’d guess. In terms of can we get the cost down as low as we can on a per ton basis as East Boulder, the answer is, potentially yes, and again this is not what’s built into our guidance. But potentially we can get close to that once we’ve spent the money on infrastructure, these mines are very large, I mean, it’s all about logistics and if we get the logistics right, which is the set up of the logistics at the East Boulder mine is significantly better. Then, we can hopefully get our workforce to be more productive because we can move men and materials around much easier. I think I’ve said in the past that anywhere we are hauling ore on rail is significantly cheaper. Track haul and some of those stops that we turned of was running at between $40 and $60 a ton, if we wait to that rail gets out there later this year, it’s a maximum of $2 a ton. So there is a significant difference in cost between having to haul with tracks versus get on rail with underground. And so that’s what we are waiting for and that’s the advantage that East Boulder has is that, all of its ore hole which is on rail.

Right. And just one other question on Blitz. You talked about adding I guess, two extra crews, does that have an impact on the timing of the projects?

Not at this stage. We are just seeing how we go getting out there. There is still a fair few unknowns in terms of – obviously the drill up that has to happen. It has the potential to help, but, at this stage, 2018 is the number we are sticking with.

All right. Thanks a lot.

I would like to get – we’ve only put that, the second crew on not that long ago, I’d like to get the third crew on then we see how things go and at that stage we can update the market in terms of tons.

All right. That’s great. Thanks a lot.

Our next question comes from the line of John Tumazos with John T Independent Research. Go ahead with your question please.

Thank you very much. You probably touched on the platinum prices been a little soft, I think today it’s $41 or $42 under gold and after the Americana tragedy several years ago surged just around $200 over gold. Do you see industrial demand being strong with world auto sales and the dip in gasoline probably benefiting with January did for auto sales in China and the US for sure? And is it investment demand that is soft, it looks like people are selling platinum to buy something else, but if you talk a little more about the sectors in the market that would be very helpful?

Sure. I did touch on it briefly earlier. So, yes, auto sales in Asia and North America are been very strong. Unfortunately, for platinum, most of those vehicles are gasoline engines which predominantly palladium and a bit rhodium for their catalyst. So, the fundamentals for gasoline engines look great which is great for palladium. Platinum is predominantly used in diesel engine catalysts which is Europe, to a large extent. Europe has got some issues in terms of deflationary pressures and cars out have been relatively muted in terms of an increase, and on top of that you are now seeing some cities actually looking to either ban or further tax diesel cars, because that turned out to be perhaps not quite so environmentally friendly is first thought. So that’s one of the big issues for platinum, the other big issue is the platinum is used a significant portion of it is used in jewelry. It has a highly graded substitution with gold in the jewelry market. And therefore you see a high degree of correlation between gold and platinum. The recent platinum traded above gold. Last year you had a five month long strike in South Africa, which did had some spec long jump into the middle that pushed price up relative to gold, but it’s now come back down and it trades, I think the last thing I saw at a 0.8 time correlation with gold, if gold goes down it will drag platinum down for sure. So, they are two quite different metals. Platinum is a part industrial metal based on auto demand, but also has a high degree of correlation with gold, palladium on the other hand, approximately, 75% of demand is auto. And it really is driven by the auto market for gasoline engines.

Thank you very much.

Our next question comes from the line of Garrett Nelson with BB&T Capital Markets. Go ahead with your question please.

Hi, thanks. Congrats on the results. It’s good to see the story play out with the cost reductions. It looks like higher mill throughput was the primary driver of the production increases at the Stillwater Mine in Q4. Was that sort of a one-time increase or do you expect throughput to continue at that high level here in 2015?

Well, the increased production did come from higher mill throughput and in order to do that, we had to mine more tons. And grade didn’t really improve usually, so that wasn’t the driver. That increase in ore mined and ore milled came about really as a direct result of us getting the productivity improvements at the mine. We think that they are not one-offs. We believe that they are sustainable. But, I think that the numbers that we have for our guidance for 2015 really, we got 15,000 ounce range. We feel pretty confident in that range. So, we won’t sit back and not look for further improvements. But I think you should use the range that we are using – that we’ve given in the numbers that we are comfortable with this stage.

Okay, and then, on Graham Creek, would you say that production is fully ramped at this point from that project?

No, because we develop it in stoping blocks that are approximately 2000, 2200 feet long and we can in theory fit about four of those into Graham Creek and we’ve got one running at the moment. And so, the next one is being drilled out now and as I said that first block went very well and so we advanced the drill out of that. We need to drill that out. We need to understand where we can put the infrastructure internally and work on some things like vent and then at that site, we can see whether we can ramp that up further, but the short answer is, it’s not ramped up fully.

Got it. Okay, thanks a lot.

[Operator Instructions] There are no more questions. I’d like to turn the call back over to Mr. McMullen for closing comments.

Okay, thank you and thanks everybody for taking the time to dial in and we look forward to talking to you on the next conference call. Thank you.