Sibanye Stillwater Limited (SBSW) Q2 2016 Earnings Report, Transcript and Summary

Greetings and welcome to the Stillwater Mining Company’s Second Quarter 2016 Results Conference Call. At this time all 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, Mick McMullen, the CEO. Thank you, Mr. McMullen. You may begin.

Thank you very much and I’ve got Chris Bateman, our Chief Financial Officer here with me. And there is a deck that is available online for people to look at which I’ll refer to during the course of this presentation. So, if people want to go to Slide 2 of that deck I’ll just draw your attention to the forward-looking statements, and in particular, those statements that relate to our assumptions and expectations for some of our growth projects. And then we’ll go to Slide 3, where the second quarter highlights are listed here. In summary, I can say it was a very strong quarter for us on many fronts. Of particular importance I think was our very large improvement in safety year-on-year, we’ve seen a 60% reduction in safety incidents rate year-on-year. We saw our sales increase to about 151,000 ounces versus 133,000 for the prior year. Cost of metals sold came down by about 17% year-on-year. And our mine production was up on a year-on-year basis and reasonably consistent with the prior quarter at about 137,000 ounces of platinum and palladium. Again, whenever I talk about a PGM ounce from the mine it’s roughly at a mix of 3.3, palladium to 1 platinum. All-in sustaining cost which is sort of the measure that I typically use to sort of assess how the business is tracking. It came down to a very low $594 PGM ounce. It was a 24% reduction on the prior year and well and truly the lowest that it’s been since opening of the company. We’ve seen the trend AISC continue to come down quarter-on-quarter very consistently. And the June month actually was a very strong month. It was below the low-end of our recent sort of medium-term target of the mid-to-high 500s. Cash and cash equivalents were highly liquid investments so we ended the quarter with $442 million. Recycling had a very strong quarter. We processed 169,000 ounces. And that was the second highest on record for us. So again, we continue to see a very strong growth in that business. Net income to common stockholders was just under $1 million or about $0.01 a share on a diluted basis. We obviously did see year-on-year fairly substantial reduction in the metal price. And that really drove the profit result I think despite the very strong operational results. We have seen since the end of Q2, the price has continued to recover. Yesterday the basket price was about $798. We have seen it go through $800, today it’s currently hovering just over $800 an ounce. So, clearly we’ve seen a fairly substantial increase in prices since the end of the last quarter. Our Blitz project which I’ll talk about later is our main growth project at this point. We had done a lot of work with the teams to accelerate first production there. We’re now expecting production there in late 2017 or early 2018. The project capital spend at Blitz up to the first production, we expect to be in the range of $155 million to $175 million. And we did some drilling down in Altar at our gold-copper Porphyry project which actually discovered some new mineralization there which was quite exciting for us. So, overall I would say it was a very strong quarter for us on many fronts. And it’s good to see that the metal process has started to recover to reflect the underlying fundamentals. And we can get back to being in a position where we can generate some strong cash flow. So, again, the second quarter results on Slide 4, if you look at the table there you can see the percentage changes year-on-year. In general a very strong performance, sustaining capital continues to come down. And I think that we can say very confidently that whilst the dollar spend is coming down, the activities are not coming down. We are actually spending the money on the things that are necessary to sustain this business. Going to Slide 5 of the Stillwater Mining, we’re up on production about 8% year-on-year. We saw a very strong reduction in cost of metal sold are about 19% reduction year-on-year. Cash costs were down 26%. Our workforce is relatively stable at just over 700 people there on the non-project people so that’s people not including Blitz. And importantly our development [indiscernible], so this is sort of our sustaining capital, a large component of our sustaining capital was about 27% ahead of plan. So whilst our, spend on sustaining capital has come down, we’re actually doing more activities for less dollars. And we came in really close on as to ensure that we maintain the developed state of the operations. And it’s very pleasing to know that we are actually doing that very successfully. There was a very large improvement in safety at the Stillwater Mining year-on-year. And that really drove the big improvement in safety performance for the total company. So, I think the management team at the Stillwater Mining need to be congratulated. They’ve actually increased production, increased development; reduced cost and at the same time, they’ve managed to more than half their safety instant rates. So it’s been an excellent performance there. Moving to Slide 6, the East Boulder Mine, so again, many records set during the quarter again. We saw a significant increase in production. We saw a significant reduced cost of metal sold. Cash costs were very low as well. I will talk more about productivity but one of the productivity measures we use is having ounces per employee per month did, we do remind, we set another record in June just slightly eclipsing the previous record 49 PGM ounces per employee per month. June, we saw a record-high milled tons and mined tons. And so again we saw year-to-date best quarter. Safety was very good. So in general the East Boulder Mine continues to go from strength to strength. Going on to Slide 7, on the recycling as I said, we had a very strong quarter in Q2. We’ve seen - we’ve grown our market share in the two main markets which is North America and Europe. We’ve seen a bit of a pick-up in the European market but we’ve seen quite a good pick-up actually in North American scrapping rates. And so, we did see, previously we’ve seen shipped away from purchase material in the toll material, we’ve seen a bit of a move back into purchase material. And we still have excess capacity. We have a lot of excess capacity. So this recycling business provides a very stable cash flow profile for us. We basically take minimal to no pricing risk on this material. The profits we report will lag the volumes by two to three months. And so we continue to see growth in profit in that business. Again, lots of excess capacity in the facility, we are looking to grow this business as much as we can. And I think as you can see from that graph on Slide 7, we’ve been quite successful at growing that business. I’m going to hand over to Mr. Bateman now for the next few slides to discuss the financial matters.

With respect to quarterly net income as Mick said, just under $1 million. We’ve already mentioned the price recovery in the quarter and you can see that on the blue line in the graph. We also as foreshadowed last quarter drove inventories down this quarter with sales exceeding production. We would expect to continue to look at that inventory level and drive it down going forward. The recycling business as Mick said, was a strong contributor this quarter, so, all-in-all, a good quarter given the prices. And the current price hovering around the $800 per PGM ounce should continue to drive performance in the third quarter. Moving on to the next slide on the cash, again, we continue to maintain a very strong balance sheet $442.2 million of cash and highly liquid investments. The increasing volumes that we saw with the shift back to more purchase material in the recycled and the higher price of PGMs, drove working capital up by $20.5 million as volumes strengthened. In addition, we continue to self-fund all of the investments in the business. And the Blitz capital expenditure stepped up in the second quarter on a cash basis, just over $9 million compared to $5 million spent in the first quarter. So, with the increase in working capital and the continued capital expenditure, we saw an overall of around $10 million in our cash and cash equivalents. The convertible remains outstanding but not due until October 2019. So I think this strong liquidity profile gives us a lot of opportunities in the current commodity cycle.

Thanks Chris. And we might just go to Slide 10 now, which is slide we’ve been putting up for several quarters now which, where we just look at our cost a ton. And you can see a couple of highlights on that. We’ve seen the mining cost of the Stillwater Mine which historically has been much higher, down to $119 a ton, which is actually now getting to be relatively close to the East Boulder Mine, there used to be a very large gap between those two costs, it’s closing rapidly. Our milling cost at $13 a ton for each site truly is sort of best-in-class. And I would say that our recoveries in that milling in concentrating area at 92% to 93% are also best-in-class. So, again across the board, we’re just continuing to squeeze the cost down. We’re seeing a little bit of an increase in our byproduct credit process, which is helping us a bit. Those have been depressed for quite some time. So, in general on the cost control side, both sites have had a very well, including the met completes [ph] had a very strong quarter. Going on to Slide 11, I talk a lot about mine productivity. And people sort of say well, why does that matter? Well, in this basic sense, mine productivity has a very strong inverse correlation with our all-in sustaining cost. You can see on that graph there, the green line, the all-in sustaining cost has had a very strong downward trend. The blue line is one our mine productivity metrics which is ounces per employee per month, all those to one-to-one inverse correlation between those two. As I said, June all-in sustaining cost was very low. It was a very strong performance. We would like to continue to push cost down. If you recall, we only at the last quarterly call came out with a new goal to reduce our all-in sustaining cost per ounce down to the mid-to-high 500s. And again, within one quarter, we’ve sort of - we’ve gotten there. So, I think that we still have many opportunities to drive productivity high. And that’s really where we see the ability to continue to drive cost lower. And I think many of the absolute costs that have, that could be taken out of the business have been the cost reductions from here on in, will very much come about through better productivity and high production basically. So, if we go to slide 12, in terms of other productivity metrics we look at. So, this is a subject that I spend much of my time thinking about. So this is that development rates. And we typically look at the 56-inclined [ph] over Blitz because it’s a single heading. It’s very easy to benchmark it. And you can see from this graph here that this year we’ve basically doubled advance rates relative to where we were last year, which also was a bit of an increase over the average of the previous two years. The 56, we spend a lot of effort on because this is the critical path item for first production of Blitz. We need this drive to be able to drill the reserves out. And we need this drive there so that we can access the ore body. We still think we have some room to improve. But again I think the team has done a great job at doubling their advance rates fee. Some of the other metrics we look at on Slide 13, so we look at stoped tons per employee hour. And again, at the Stillwater Mine you can see that since the start of this year, we had a 36% improvement. Again, stoping costs are down by about 20% since the start of the year, it’s another strong inverse correlation between productivity and cost. We see similar trends for capital development productivity and the reduction in unit rates. And so this is how we can reduce our sustaining capital spend but not cutting back on essential activities. And our teams have worked very hard. Again, we think we have some opportunities to continue to improve. But we really have seen a, over the last 12 months a material improvement in productivity across the board. Some of the things that we’re working on if you go to Slide 14, so we’ve achieved a lot. The costs have come down a long way. The productivity has gone up. But we still have a fair runway in front of us in terms of things that we can do. So, at the Stillwater Mine, we’re lining the waste dump so that we can move away from stick powder to different type of explosives called anther [ph], much higher productivity and much lower cost, less risk of strains for our workforce. We are spending $2.6 million in the back half of this year, which will go into as sustaining CapEx. And we see that that will have about a one-year payback. And we think and we’ve done this over the East Boulder and so we know it should work. And we saw a margin improvement in productivity and a significant reduction in cost of development once we did this. Ground support standard review, we’ve gone through a process, looked at our building patterns and we believe that we can still maintain adequate ground support, potentially better ground support and significantly reduce our building time and therefore increase productivity. I think on the technology side, it’s fair to say that at current state we are not at the leading edge of the industry. And we are aiming to get at least somewhere close to the top. There are lot of opportunities with automation and tracking of fleet to increase productivity. We are spending capital on that again as we announced sustaining capital budget for this year and will be in for next year. And we say that this has a lot of opportunities for us. So, if we go to best practice operations, with use of these - some of these, innovation technology, we can explain much of the productivity difference between them and ours. We’re looking at our building and measuring equipment, again we can see some different opportunities there. We had some new rile and power systems going in place, again the sustaining capital in that for the back half of this year. And if people recall when we had the ‘14 eight power system, we shut some stopes down at the end of ‘14. We said we took them offline. We said it would reduce their production a little bit but we would wait until the infrastructure was caught up to mine those ounces. We brought those, back online sort of September/October last year. And again, I think that had a fair bit to do with driving our cost down. We’re doing exactly the same thing with the 32-pass system. Again, we got to spend the money. It will mean that we take some ounces offline in November/December of this year. But by early next year we expect to see this have another positive impact on our cost. I think maintenance and tracking and optimization, maintenance is a large customer having for us. And we have a lot of opportunities here. And I think our blasting practices we made some improvements. We still believe there is some way to go. So, there are several things that we have on the line, which do require to us to spend some money. But we believe that there are some significant opportunities here in order to significantly reduce our cost. So, turning on to Slide 15, with Blitz, this is clearly our main growth development project. We’ve talked about it in the past that those higher advance rates that we’re seeing in the 56 have allowed us to accelerate the expectations for first production to late ‘17 or early ‘18 as I said. We’re actually moving the development crew for all access across there on August 1. So, we are pushing ahead, with actually getting in to mine the first stope. Capital, spend the first production we expect to be in the range of $155 million to $175 million. So this is not the total project budget. This is the amount of money we expect to spend until we get the first production. We expect that production when ramped up fully to be in the range of 150,000 to 200,000 ounces a year. I can say that we are looking at options to increase this production rate and to further define that ramp-up schedule which I would say still needs a bit of work. We are seeing a rapid change in our development rates. And we still think we haven’t planned out a way we can get them to. We believe that Blitz will be our lowest cost ounces due to the expected grade it’s 0.6 to 0.7 of an ounce to the ton and the logistics. This is setup it was available at East Boulder. So, we’re hoping to get sort East Boulder top cost per ton with the original feel with the top grades. When we look at what can we do for shareholders to impact valuation, clearly accelerating Blitz and bringing on more production at a lower cost has really probably the best potential to maximize NPV and therefore value per shareholders. So there is a lot of focus on this group with highly dedicated project managers whose sole job is to accelerate this thing and deliver this thing safely in an environmentally friendly manner. And we are pushing on with this as fast as we can. Going to Slide 16, you can see there the sort of the full scope of the project. That first stope block on the left-hand side in red, the 10,000 east stole block. There is about 60,000 ounces there we expect to mine at just under 0.7 of an ounce to the ton. So, again very good grade, and we’ve put a little scale on the top of the Golden Gate Bridge so that people can understand truly the scale of this operation. It’s equivalent to two on the bid going that bridge’s respect into wind. And we are now starting to do some initial work on how do we then actually start access in mining, the project that, below the rile level called [indiscernible]. We’ve opened up a lot of gantry out there it’s about 23,000 feet long. It’s about 4,000 feet up to surface from the rile level. But in addition we have 3,000 feet below the rile level down to our lowest levels of our working. So again, we’re pretty excited about this. The faster we can develop it, the quicker we can bring it online for people. Slide 17, we’ve talked a little it in the past about the work we’re doing at Lower East Boulder. We thought we’d give a bit more information today. So, we’ve done a scoping study with part the way through pre-feasibility study or PFS. And that PFS is really aimed to --what’s the optimal way to access or develop the next mine below the current rile level. The current rile level is on the 6,500 level, below that we have a large proven and probable reserve base of around about 4 million ounces. You can see the numbers on the graphic. We had this year done some limited deep drilling below those reserves. We have successfully intercepted the reef at [indiscernible] East Boulder drive at the 4,000 level. And so, our PFS is really based on sort of established in the haulage level down around the 4,000 level which would to be actually by twin declines from surface or an internal shaft. That PFS is looking at a range of production scenarios of sort of 150,000 to 200,000 ounces a year for a capital cost of somewhere in the order of $225 million to $275 million. Now that would be a combination of replacement and growth ounces and the preface is not complete yet. But we’re pretty excited about this. We as I said, we have a large prudent and probable reserve in it already. And in fact we are mining lower East Boulder from the top down, not necessarily the most efficient way to do it. And hence we’re doing this pre-feasibility study. So, when you have an ore body that’s 28 miles long by over a mile vertical, you have many opportunities for organic growth when I’m trying to sort of define some of those and look to see when we might bring those on. Slide 18, Altar, as we know it’s a very large Porphyry system. And there is around about 8 million tons of copper and 6 million ounces of gold contained. We did some recent, we spent some money recently on drilling that, really not sort of looking at the known deposits, and looking at some of the other exploration areas there. And I think that the change of government in Argentina has definitely made Argentina more attractive investment destination. Going to Slide 19, you can see the whole QDM 29 was sort of drilled below and adjacent to what we knew in the sort of small QDM gold deposit. And actually had a very large mineralized into safety net. So, it’s quite exciting. I think we’ve added some value to this project, for not a lot, of spend. And we continue to evaluate how we may realize value for shareholders out of that. If you go to Slide 20, we’ve been doing some conceptual plans there. If you look at the line on that slide, you can see clearly that a large blocked cave access from the side of the hill would make a lot of sense and rather than trying to sort of develop an open pit from the top of the hill where you got a lot of waste dripping. And the highest grade material is sitting at the base of the hill. So, this looks quite interesting actually. And I think that we will continue to spend a limited amount of money on this project. But I think the shareholders would provide some good auction value on copper and gold for very little money now. Going to Slide 21, we’ve updated our guidance as we have often done at this time of the year and previous year. You can see that we’re giving guidance for sales of mined ounces now, and cost of metal sold which we have not previously done. In terms of guidance that we have previously given, we’ve now bumped up our guidance range on ounces and lowered the range a little bit. Cash costs were reduced, all-in sustaining costs guidance we’re now targeting in the order $595 to $635 an ounce. Jay [ph] and I are broadly the same as what it’s been in exploration the same as what has been before. Sustaining capital in the $50 million to $60 million range, and project capital in the $40 million to $45 million range, which is where we’ve been. I would say on the sustaining capital, which then drives into our all-in sustaining cost guidance. We do anticipate a bit of a pick-up in sustaining CapEx spend in the second half. I have said previously that the warmer summer months, is typically when we can get in and do all of our bumps groundwork. But also we have these other projects related to for instance the waste dump lining which we’re doing in the back half of this year. Some of the technology-spend not huge amounts of money but collectively they do add up to a bit. And we do expect to see-off our sustaining CapEx spend to pick up in the back half of the year. We will on the other hand continue to look to drive out our underlying cost lower. But I think the guidance range of $595 to $635 for AISC is a reasonable improvement and we feel comfortable in that. So, going to Slide 22, and I think it’s been pretty clear that there has been a particularly in palladium a large market deficit and platinum, some sort of deficit. And Broke [ph] is across the board and typically have been forecasting quite a bit high prices than where we’ve been. And if you go to Slide 23, this just sort of shows where we were yesterday versus where those long-term prices were. And obviously prices have moved up significantly from when we had the call last quarter. We still think that there is some opportunity on the upside for those prices. And it’s pleasing in particular for palladium which I think has been lagging the market and it’s fundamentals for a while that we have seen stopped to move up and down and actually reflect its fundamentals. So, in summary on Slide 24, look, again, safety performance was outstanding. And the all-in sustaining cost was very strong. Productivity continues to improve at both sites and that’s really what’s driving our cost improvement. Recycling continues to grow, and as Chris said, our balance sheet is very, very strong. We did see a slight cash reduction that was very much driven by working capital increases and funding at growth capital. That gives us a lot of optionality in the current market. And as I said, we have seen finally in particular the palladium price stock to reflect its fundamentals. So, again, we’ve seen prices recover across the quarter, that’s been very pleasing and we continue to look to drive improvements within our business. And with that, I’d like to turn it over to any questions that people might have. And I’m happy to take them.

[Operator Instructions]. Our first question comes from the line of Andrew Quail of Goldman Sachs. Please proceed with your question.

Hi Mick, Chris, great quarter, congratulations. I just had a few questions. Firstly on Blitz, I think it’s on Slide 16, you talked about that stope. We’re hoping to do that hopefully in 2017, is that right? And just talk about the cost profile Blitz versus the rest of Stillwater like? Is it because it’s close to surface and from rile, that the cost is low?

Yes, that’s right. So, at the moment we’re looking at late ‘17 or early ‘18 for that first stope block with 10,000 blocks to come online. And the drilling that we’ve done there, we’ve put some, put the results in the deck. The grade is very good, it’s what they call typical sort of off-shop material which is sort of what the mine had originally started on. And so, yes, the grade is higher than what we’re currently mining now. It is much closer to the portal. So in terms of getting people in and material lean, it’s a much quickly drive. And so therefore our productive day is longer. And yes, then we can drop everything on to rile and come straight out at the concentrate a little. So, it’s a factor of all those things. I will say that that ground is more challenging and we will need to do more actually some block field. But even with that we do expect to see Blitz to have much better cost profile than some of the other ounces we mine now.

Nice. Just on recycling, obviously rebound in scraps still has been good for you guys, there is capacity there. But have you got signed any new customers last quarter, I know you’re sort of couple starting in the last quarter?

I wouldn’t say we’ve seen any large major customers come on this quarter. But what I will say is some of the people we saw in the previous quarter have picked up their volumes. So it’s typically these businesses, it’s very much about getting to know the customers and they getting to know us. And over a period of time then you will grow your business with those customers.

And last one. On contract, are you still 100% with Johnson Matthey or is there you had an option to update that? And when is that contract actually come up for renewal?

That’s debt contract, there are two separate contracts, one for sales and one for refining and it’s filed. So, we the sales contract expires in about three years. And we do have the option to opt out of that with a reasonable modest period for a nominal pricing at any time. And so we sell all of our mined ounces to Johnson Matthey except for a reasonable proportion of our platinum mined ounces which goes to Tiffany.

Got it. That’s it from me. Thanks guys.

Thanks Andrew.

Our next question comes from the line of David Gagliano of BMO Capital Markets. Please proceed with your questions.

Thanks for taking my questions. I was wondering if we could just step back for a minute, I appreciate the update on the organic growth opportunities. And obviously things are going very well at Blitz cost savings initiatives progressing well self-funding Blitz based our numbers. And your balance sheet is obviously very strong. So I wanted to ask, as you think about the next three to five years, are you considering acquisitions as part of your growth strategy? And if so, is your preference for upstream PGM related acquisitions for the recycling growth or would you even look to other commodities? That’s my first question.

Well, that’s a fairly broad question Dave. But I think as I say - I would say that we would look at anything that we thought would add value to shareholders. And one part of that would be that you would look at acquisitions now. I think that our criteria for that would be very strict. And what we see is that in the upstream part of the PGM business, there are very, very limited opportunities there I would say. We feel that our shareholders would not want us to diversify into less favorable jurisdictions for instance, which I think given the location of most of your PGMs it would make that very hard. In the downstream, yes, look, we do like the downstream business. And there are downstream assets that in the PGM space that are located in reasonable jurisdictions. So I would say that we would look at them as a general observation I would say that assets appear to be trading at levels that sort of pricing high metal prices, is probably my general observation of this point. So, we would look at everything difficult you’d say never-say-never. Difficult to see that we could find an upstream asset in the PGM space that would satisfy our requirements. On the downstream side there are some potential opportunities I guess. But we need to assess what that return on a risk-adjusted basis would be for shareholders versus funding our own organic growth here as I said we’ve got lots of stuff we can do here. But if we found the right thing that we thought on a risk adjusted basis gave us a better return, you wouldn’t rule it out. And I think a lot by the equation is would we go outside PGMs, again I guess you would say you never-say-never. But obviously the further you get away from your core business the harder it is to put up a narrative around that I guess.

Okay, that’s helpful. Thank you. And then, just one quick one with regards to the commentary on Altar, I just wanted to double-check and make sure. The plan with Altar is still, if there is divestment opportunities to divest that project, is that correct?

Yes, as I’ve been very clear with the non-core assets. So I think there are multiple ways we can realize value from it. But I think it should be fairly clear that we as still would are not envisioning that we would be building a mine there.

Okay, great. And then last question.

Sorry, but I think also on the other side of that equation is that, as I’ve said from day one, I just didn’t think it was in shareholder interest to far side of asset, just for various historical reasons when, large assets in the right market that I think could be worth quite a lot of money with a very large goal credit which in this market, people seem to be interested in. So, we felt that the right thing to do to shareholders has been to spend a nominal smallish amount of money, mine timing and actually adding value to that asset to the point where for shareholders at some point we think we can realize some value.

Okay. I just have one last one real-quick from me. Obviously a lot of talk about cost savings and there has been quite a bit of progress there at the Stillwater Mine. I wanted to reverse it a little bit that last year the two highest cost stopes offline, prices are starting to recover. Would you consider bringing higher cost stopes back online if prices continue to recover and roughly what would that - what would the price - what price will be needed to get to that, to bring those two back on?

Well, it’s prudentially priced. So, we have just, you have an industry cost curve, we have a mine and stope-by-stope cost curve. So there is no one-price that we need to bring all of our stopes back online. It’s really just, if we brought it back online, is that stope making money. And for different stopes there is a variety of different prices. I will say that I spent the first year and half, two years of my tenure very much focused on stripping costs out to get the culture out so that we’re focused on getting the cost right and profitability of stopes. You will notice that we are now pushing ounces. I feel that we have the culture, internal culture right where people, we can push ounces without losing focus on cost. So, the guidance indicates that in the last two quarters that we are starting to push ounces up higher. We have gold now part of the sort of gold to get cost down lower. An integral part of that equation is to produce more ounces.

Okay, great. Thank you.

Our next question comes from the line of John Bridges with JPMorgan. Please proceed with your question.

Hi Mick, everybody. Congratulations again on the results. You sounded quite excited about Altar. What other alternatives are there to monetize that?

Yes, look, well, I am excited. I guess I was a geologist originally. And I think the drilling actually, this is the first time the Company has sort of really done any true exploration apart from sort of just drilling out what was known there. Look, obviously the optimal way to realize value for shareholders is to sell it all for cash to someone. And may or may not happen. But there are other ways where we could look at some alternatives like a joint venture with someone who wants to build something or we could look at potentially listing acceptably. Those plans are not underway as we speak. But as we see the market improve and we’ve done the work to add value to the asset, I think those are all options that we could look at. And the fact that we had such a strong balance sheet and haven’t been forced to act on that asset or have not been able to spend the money that is needed. I think there has been a better value creation strategy for the shareholders than if we just pass out at the bottom of the market for instance.

Right, right. And the cost cuts just seem to continue. How much more potential do you think there is there? How far up the sort of cost cutting learning curve you see yourself? And then you were talking again about technology, what are the technologies are you thinking of bringing in and what do you think their impact would be?

Yes, again, well, again we’ve, as I think I’ve said, we’ve been taking us in mine management touring in minds in Australia and Canada and looking at what other people do. We benchmark our productivity. So, whilst we’ve had a very respectable improvement in productivity. That benchmarking indicates that we’re probably I’m single-heading development for argument sake. We maybe halfway of where we could be potentially. And that has a similarly large impact on your cost, so not only that does two things, one: you can accelerate your projects and two: you can get the cost of doing it down. The technology things, it’s like automated LHDs. It’s allowing you to work from surface on shift chain, so you pick up an extra two-hour as worth a day. The remaining things, one thing that is going to have a massive improvement on its own but the remaining things that we are in the process of implementing that I think had big potential, the tracking of people and equipment, which is underway now. And we’ve done some things like the rapid map which I think I spoke about on one of the calls where for very normal number, $120,000 we put a system in place at one of the mines that allows us to track accurately how much dilution we’re getting. And we’ve seen that dilution in terms of feet of extra over-break path since about November at the Stillwater Mine. So, lots of things. Where can we get to? I’d like to see us as I say at least in the middle of the pack or even leading edge. We’ve still got a long way to go to get there. Now, it’s all about colorful change. We do need to spend some money. It’s not tens of millions of dollars, but it will be $5 million to $10 million over the next 12 months that we will spend in sustaining CapEx which I will have to take on my all-in sustaining cost. But if we do so, it benefits our 12 to 24-month period out of that. So, I know my mine management will not want to give a firm answer of where we think we can get to. But all I can say is when we benchmark ourselves, we still have a long way to go to get to best-practice I would say.

Very impressive. And you mentioned in I think in response to Dave the way you took steps off proactively at the end of last year. So, should we expect the production that you’re forecasting for the rest of the year to be sort of weighted in the Q3 with a bit of a fallback in Q4?

Yes, that’s probably a fair comment actually. I think November/December, we do have to take a couple of our best stopes of line of the Stillwater Mine in order to get that 32-pass system in we’ll arrive on the 2,000. And so therefore we’re working around it. But you could see production in Q4 being, not a lot weaker but a little weaker potentially.

Okay, cool. Many thanks and best of luck.

Our next question comes from the line of Lucas Pipes of FBR & Company. Please proceed with your question.

Hi, good day everybody. I wanted to follow-up a little bit on Dave’s question. With kind of regarding M&A. But it sounded like it’s pretty hard to check all the boxes on the M&A front. And in light of that, Mick, how do you think about allocation of capitals, could you share with us kind of your priority list to what’s the first use and then going down the list from there? Thank you.

So, thanks. And well, yes, look, I would say that on M&A you’re getting, you would never-say-never but we do have a pretty stringent list of things that would need to happen for us to deploy the capital externally. So, then it comes down to, we’re obviously funding Blitz as a growth project. And we’re still funding that out of operating cash flow broadly. We then look at well, do we return some cash to shareholders or do we move on and do say for instance a Lower East Boulder project as a growth. And we find shareholders depending on where they are and who they are, who have got different views on what they would like to see us do. I would say I don’t feel the need, I have to spend the money. But at some point we would like to get to a point where we could give a return to shareholders. And it’s just a balancing act between obviously prices six months ago were lot worse than where they are today. And we want to be very conservative the way we run the balance sheet. I think it’s the best outcome for shareholders to not get forced into something in an emergency, so very solid balance sheet is number one priority for us. But if prices stay at these levels, we clearly will have some surplus cash that we could look to maybe return at some point.

Very interesting. Thank you for that. And then, a follow-up on the recycling business. You mentioned you still have excess capacity there and it’s a priority for you to improve that. And I was looking for maybe a little bit more color about the steps you’re taking there and over what timeframe we could maybe model higher utilization rates? How should we think about that? Thank you.

It very much comes down to what contracts we can sign up. But in general we target that we’d like to grow that business by about 10% CAGR. Now, obviously we’ve done a bit better than that. But however, let’s call it a three to five year horizon. That’s about the sort of CAGR that we look to, we really want to try and get to.

Very interesting. So, and from here on out going forward 10% CAGR over the next three to five years is what we should be looking at?

That’s what I’m hoping for. Now, it might be lumpy as and when contracts come on and come off. But if you average that over that period, yes, that’s about what we’re looking for.

Very good. Thank you very much. And good job.

Thanks.

There are no further questions in the audio portion on the conference. I would now like to turn the conference back over to management for closing remarks.

Thanks everyone for taking the time to dial-in. And we look forward to speaking again at the third quarter results. And I’d just like to thank everyone again.

This concludes today’s teleconference. Thank you for your participation. You may disconnect your lines at this time.