Harmony Gold Mining Company Ltd (HMY) 2002 Q4 法說會逐字稿

Good morning ladies and gentlemen, good afternoon if my timing is correct. Welcome once again to the presentation of Harmony's results for the quarter and also the results for the first six months of the new year. I suppose, in a time when everything in our lives are changing, the Rand, the dollar gold price, and the Company profile is changing significantly, it is unfair to point out to you that the forward-looking statements we make are very likely to be wrong as they tend to be, aren't they? At least we make them with honest intentions. You all have seen this and never has it been more true. [Frodo] has failed as the caption says. He does drive the gold price, doesn't he?

Let me move on to a slide, which you unfortunately don't have in your pack, but we will talk through all of these items under various other slides. Now, earnings per share in Rand terms and in Dollar terms are up. And that does enable the Board to declare an interim dividend of 125 cents that is up in South African Rand currency terms by 67%, and our offshore investors will probably see the interim dividend up by about 100% depending on the exchange rate at the time. The cash operating profit, of course, the story of the quarter for a Rand hedged stock like Harmony has been the Rand. So 80% of the variants have been the South African currency. Some 151m or so was purely due to the currency. I will talk you through our quarter, and I think you will see nice volume increases, excellent cost control, the 38m reduction in the Company's cost structure includes a new charts of some 24m for the first time for [inaudible], of Free Gold operations. So, our cost reductions have been significant with volume increases. We have announced one and we will talk about two other excellent organic growth projects, both of them at Free Gold. It now feels like a long time ago, but it was quite a significant and spectacular moment for Harmony to move its listing to the New York Stock Exchange, and I think obviously now places us right there with our peer group on the main board. It continues -- the U.S. market continues to be significant in our lives despite the fact that we actually had a very pleasing increase in South African shareholding in Harmony over the last few months.

We have signed off on an agreement with the two main unions in our lives, the National Union of Mineworkers as well as UASA on how to deal with HIV/AIDS. We are also in the final negotiations to role out the workable and sustainable antiretroviral program, and obviously we will do that with the local communities, the provincial governments, and everybody involved as well. I think we are finally at a stage now where we as business can make business decisions around the issue, the political debates, and fight can cease, and there is no doubt [this is a] business case for supplying the right medicine at the right states to our employees. One of the key components in the application for the new order rights or the new licenses is going to be the social plan, and again the social plan, I think if you strip away all the sort of unnecessary stuff, it really helps all the stakeholders to deal with the issue of a mine has got to finite life. Of course, as a mining company, you could have an indefinite life, but there will still be shaft closures, downscaling in specific regions, and we are well advanced and certainly believe that we will be one of the first companies to have a socially plan in place. If you got the necessary [like] economic [empowerment credits] and you have got your social plan in place, you are extremely well positioned we believe to have your new order mining licenses issued. I think you guys can read the detail -- for us as Harmony, I think, the good work we've done in the last nine months are really putting us in a position to soon start to apply for mining licenses. With soon, I would probably say, we are talking a 12-month, sort of period not a 2 or 3-year time [inaudible].

This is a slide you all know; this is Harmony's performance relative to our peer group in South Africa. Of course, our continued out performance for 2002 was severely challenged by [Ingla Gold's] most recent performance. They are still the main component of the [JSE] gold index.

This slide, which again I am sure a lot of you've seen, just takes a few days in December and it shows how gold in yellow overlays the Euro. And what I am saying with this, well all I am saying is, I think in the last few days, I don't know what to say about the gold price, but if you strip away the last few days, certainly gold strength may have lot more to do with the dollar weakness. Gold has behaved on many day's exactly like the euro. Stronger currencies compared to the US dollars, which has been an extremely weak currency. This is such perfect match, that one doesn't even need to calculate what the correlation is.

I don't know what to make of the Rand either, I am so glad we run [un-aides] company, we can leave all these decisions to you guys, the investors. What I do know is all the people, who last year this time predicted the Rand to be at 20R [inaudible] are now predicting it to go back to 6R or 7R. So, what I can safely predict is, that I will be wrong; and how far I will be wrong, over what time period; I don't know. But the economists don't know either. Our effort to [delaying], which is not necessary -- even the correct [fit] either. But I think we've all got a sense that Rand has strengthened quite a lot and if one takes a 12-month view -- I think there is probably quite a bit of upside for a Rand [Aids] company like Harmony in that the Rand is unlikely to strengthen indefinitely.

The six-month snap shot is a worthwhile one because it does show how the lives of gold produces in South Africa have changed over the six-month period. Lets not forget that Harmony is a growth story, and we are the growth story through acquisitions and through organic growth projects, and if we go back 12-months you can see that our volume growth has been a spectacular 30%. Very few other mining companies or gold companies in the world achieved that. Cash operating cost -- [inaudible] incidence that it works out in dollar terms to be the same. The gold price is of course is significantly different. This is six months compared to six-months, 103 happens to be more or less where we are know, but I don't see us averaging that for the coming quarter.

Our cash Operating profit, spectacular 157% increase; earnings per share of course significantly up for the first six months of this year compared to the last year. And remember, last year it was the second six months, which really made the whole year. If you look at dividends, that's obviously just a early indicator, and the dividends per share, in [US sense] it depends on what conversion rate you use, here we have used 10 Rand to a share, so to be consistent. We've converted a dividend at that rate as well.

A completely different company to a year ago. Completely, different company, absolutely no doubt about that. I want to show you two projects, and I want to argue that as South Africans we keep on suffering a little bit from the North American Cash cost obsession. I would challenge you to find projects in the hands of North Americans, which give you these numbers. So, we look at Doornkop South Reef, and look at our 74%, we sold 26% [inaudible], the equivalent about 26m, the construction cost is about $134m, total capital 108. [Four] 3.75m ounces, and if you divide the one into the other, you see that our total capital cost, acquisition plus building the mine, is a low $20 an ounce. So, our cash cost of $190 an ounce on the current conservative assumptions gives us a total [all in] cost of $219 an ounce. We will make money out of this project if the ore body is what we expect and the technical risk is managed properly. This is a spectacular mine. [inaudible] has announced projects [we have] spent 400m and, off course, that means that the acquisition and capital cost by ounce 100 -- 120, and off course they need cash cost of $100 an ounce in order to have a viable project. Please, I think it's really time that for once and all we look at project returns as investors are not only at the cash cost game that we have all been sucked into. Free Gold North that's upon [soft again. They approved project, which I am sure you guys would have seen and you will see a bit more in my slides. The construction cost is $280m or $30m. We will recover over a 1m ounces of high grade reserves, cash cost of 160 -- a real profit margin, if the gold price is at 350 or 47%. These are spectacular organic growth projects by any measurement, I would argue. I think the main point to be made, and the point that I think was made clearly by actually having the loans of Doornkop South Reef Project underground, is that a lot of work has already been done by our previous set of managers and the money has been paid by previous set of investors. I mean, we [stood] a under bank loans in this new project with all the infrastructure that we saw underway down, already in place. That's why these projects are significantly lower in risk and significantly better in returns, is because so much money has already been spent in the [past]. We don't particularly mind finishing-off projects that other guys have stopped as long as the returns in our hands are good, and we believe this is not a bad project. Off course on top of that, as I have said before, we operate with the [Tech-shield], the [RandfonteinTech-Shield], which will enhance the returns as we have indicated before. I am not going to spend a lot a time on this. I think this was widely covered. We have spoken about the 3.7m ounces that can be recovered from there. We spoke about the capital expenditure. The net cash outflow in Harmony's hands will be $500m or $360m, if you net off the $140 cash we should receive from the African [Vanguard ] resources. And those returns at the bottom are obviously Harmony's returns in Harmony's hands. This structure, I think, is simple enough and clear enough and clearly deals with the issues at hand itself, has taken the [mineral] rights, and it also facilitates new entrant into the mining industry to get financing, which otherwise would have been quite difficult. We actually have enhanced the returns for our shareholders, and we feel we can face our investors and say this is smart deal and you can see all in all for us is Harmony. This makes this project even more viable and we comply with the requirements of government. [Chepong] North decline was approved by both the Free Gold Board and subsequently Harmony's board has approved our half of the investment that involves extending decline at the bottom of [inaudible] by two levels. It actually gives spectacular returns again because of the incremental nature of the project. It does create some new jobs, and it's got a really good return even at a pretty severe discount rate -- real discount rate of 10%. Half of all the numbers you see on the screen is attributable to Harmony -- capital end ounces. [Chepong South Shaft] is a project which we are working on. We have obviously privatized the projects and put North [Shaft] first, and again it's a shaft which has been suspended a few times by its previous owners. Unfortunately mine sinking was stopped 120 meters short of final shaft bottom level. I think any engineer -- mining engineer here will have the same sense of its incremental offence to stop the inner deep shaft, 120 meters short. But that obviously make sense at a time for the [den-owners] and we are pretty confident that this project will be viable at a 95,000 Rand gold price, which is our current assumption. And -- but it's another three months or so away from being put to the Free Gold boat. We are beginning to get a field for [Johh.]. You know, we mine the drakes of the orebody at [Johh.]. We are recovering 4 gm/ton at an orebody which is the -- I suppose the worse half of the [Betrick's] orebody and so it's not a 6 gm/ton orebody, but it certainly doesn't need to be a 4 gm/ton orebody. The issue is we are making money out of 4 gm/ton. Now, if we can make money out of 4 gm/ton; after we are investing a lot of additional money into working cost development [inaudible], we are beginning to get very confident that finishing of the shaft which wouldn't be a lot of money and perhaps also a 200-300m range that we could really have viable job, smaller, different, none of the raw, raw without mechanised mining and all the nonsense that have ever been spoken there. The basic stuff we do best -- simple mining, mining at low cost, and making profits out of these mines. So, [Johh.] is not completely dead and we are taking our time about it because, I think, every other mining company in the country have got some scars with the [Johh.]. So we would like to be the ones who finally get it right, if we do. The Nyala shaft incurs a care and maintenance] cost over the life of the rest of the Free Gold operations of about 165m range. That is the cost associated with keeping the shaft intact, a pumping from day, etc. And I think the Free Gold management team has touched some spectacular work to look at converting this cost center into a profit centre. And extracting the high grade shaft [pillar] of course is just [offer] the course for both [Arm] gold and Harmony. We both today own companies, run companies which was built on shaft [pillar] extraction. So, it's something we are very comfortable with. And we believe that for net investment of 67m, we can actually extract over a half a million ounces from there and as you would expect again, this is pretty decent return. This does not only extract the shaft [pillar], but also then gives us access to some significant white block un-mined areas, which we continue to assess -- not a bad situation at all. This is a shaft, which again -- we have made sure that we understand what we are getting into and of course we have also positioned it such that we can start it under the continuous operation conditions, which we have now agreed with the unions to roll out to all the Free Gold operations. And this is pretty small money for quite exciting returns and growth. I know every portfolio manager has invested in gold today, looks very smart. So I just want a measure my team up against you. All our gold investments of course on paper is significantly in the money, so is everybody's. But I think it is just fair to look at a company like Harmony from time-to-time choose to make strategic investments in other entities rather than plunging into a brand new country all on their own -- Russia being a good point in case -- case in point. So, if we look at how our investments have done. At a time when we made the original investment in gold fields of Australia, we did say that there is a scenario where that share price could run so far ahead of us that we would not be able to build up our stake, but at least we would have made a smart investment. So, the worse case scenario in our assessment was always one of us making money. I suppose to a real intention to establish a foothold in Australia. That of course is now crystallized through gold fields, as you guys may remember we actually invested a little bit more in some states to protect our stake. Gold fields [then] are taken over by Delta or merges of Delta and they got taken over by [Placederm]. And we have made quite a decent, almost 400%, return on that investment. I think [Bendigo] again, we are finally beginning to mine those orebodies and the results are definitely confirming the existence of robust but highly variable ore bodies, as we have always predicted. We have structured that deal such that we can, for a pre-agreed amount of money, effectively established control, plus 50% of the company. And, of course, as you would expect again because of the movement in the share price, our regional investment is in the money. This is still a mine, which we would love to live up to expectations and we will then gladly build it and own plus 50% of it, if the ore body lives up to expectations.

Now, we get to the wild numbers. I mean investment of 24.6m in Highland is valued at something north of 130m. This is paper profit; we are not bringing it into our income statement, it's a strategic investment, but that is the reality, it is [worth] a lot more than what we have investment in here. High River, again, was fairly opportunistically, but was in a strategic framework, which made a lot of sense to us. We bought 21% stake in the High River at a 16% discount. Of course, the gold price and arguably our involvement has seen that share price up dramatically, and again we sit with an investment, which is significantly in the money as well. The last two investments, of course, both giving Harmony exposure to the very exciting rush in mining industry.

Lets get to the stuff, where we actually think we add most values, the mines. [Warne ] forced me to speak about his platinum discovery. If the platinum price is where it is now, then the platinum mine is worth more than the water reserves he's discovered for us. We have spent money as we indicated on the box cut and I'll show a few pictures just to show you how we are enhancing the Kalahari with our mining activities. We have collected the bulk samples; we are actually busy right now. The bottleneck is where we are in the queue in the Mintek pilot plant. And, if we do start to send our stuff into the end of January, we are still hopeful to get metallurgical test results done by end of March, and that's really what all of this is about. As we have said many times before, if this orebody can be treated at the recovery grade of 75% then it's a viable mine, that's the crux of everything, and that is why we are spending the money there on that aspect right now. Just to remind you it's about the one-to-one platinum-palladium, so you know the platinum price is gone up dramatically and the palladium price has gone dramatically. But the average price is still comfortably above what we have used in the past for the modeling purposes. So, we are taking project forward, and we will still and at the right price, of course, be sellers as a lot of smart businessmen in the minerals industry have said before, and anything is for sale for the right price. But at the same time, the mining of this is straightforward as you will see and the metallurgy of course is the area where the unknowns are and we are busy testing that right now. I promised you some pictures; this is sampling, gentlemen and ladies. It looks a hell of a lot like mining but this is still spending money to get to the samples. I also promised to show you that we are enhancing the features of the Kalahari and quite significantly there was nothing there before we made this big haul. I am sure the water was -- perhaps we can use this as a water trap ultimately, if the platinum price doesn't hold up.

Operational highlights, cash operating of profit of 763 that's down 187m; the bulk of that as we have said before sits in the [Rand]. Obviously, the [placidomes ] swings and rounds about were significantly positive in our favor and that's why at earnings per share level is up. We will talk a little bit about the higher volumes and the thing I am most proud of the team is the lower cost. And, we'll talk about how the grades have offset to that, the net impact of that combination was 37m, and although it's a fairly sizeable monetary amount you'll see in the grades, it is marginal grade changes in most instances. It's no coincidence [it distracts] the performance of the line significantly. We are effectively a Rand [head] stock; we are exposed to the effect of the Rand and even the Free State operations are fully back to 100% exposure to the strengthening or weakening of the Rand. It still very difficult for me not to be happy, [chirpy]. If you would think where we were a year ago and where Harmony is today, it's a completely different company.

The summary of the quarterly performance, of course, covers up exceptional performance and quite bad performance because we average everything out. Our ounces were down in kilograms down by 3%, revenues really the feature of the quarter down by 6%, all thanks to the Rand. I think our dollar gold price received was up 2% all in all. Ah, there it the next point -- I apologize. Cash cost, despite the significantly -- despite the lower grades cash cost was effectively flat. In dollar terms up because of the currency and you can see the currency really is, as I've said, the feature of the quarter. [Inaudible] perhaps, want us to deal a little bit with this slide and perhaps if you take the little booklet you have and turn to page 22, we can just look at the results in the right level of detail, if you don't mind. To build a slide per region, perhaps, would have been bit unnecessary.

Our Free State operations, as you can see had marginally lower volumes. Are we all on page 22? And, as you can see the first column there is Free State underground. And, I'm going to be focusing on the underground operations. I mean, the surface operations are [cute] profit centers but that's not our core business. So please just allow me to talk you through the underground numbers. You can see marginally lower volumes and really marginally lower grades, obviously, resulted and showed up the Free State for what it is, and that's a highly leveraged operation. And, we still had about R18 million worth of [rent] hedged profit in there, and so you'll see the Free State got a slightly higher gold price or a significantly higher gold price then the rest of the operations. And absolutely nothing in the Free State that concerns us. Remember, we are mining probably the lowest grade and most variable orebody in the country and deviation around that [4,3 grams] at time -- that's truly statistically and absolutely insignificant.

I want go to Evander, where I think the team effort there has been spectacular. The volume increase of 10% was offset by a drop in grade to some extent, but if you look at the cost per tonne down from 395-369, you can see that as the volume recovered Evander following the seismic event and the unit cost are really coming down dramatically. And Bob Atkinson is available, and you guys can speak in detail to him, we are again quite comfortable with where Evander is, the nature of Evander 7 and 8 shaft is that of extending the mine continuously through new declines, and of course, as you mine out the previous level you have to have your timing perfect to start the new level, and we are busy [ledging] in the higher grade rises of the newer levels; so Evander, not overdoing the impact of the seismic event. Really in absence of that, we are pretty comfortable that -- and this grade variance could have been prevented. As it is the seismic event haven't effected [HL] dramatically, but we are now back to where we want to be in terms of flexibility. So Evander, we are comfortable with -- with the results all in all.

Now if I move on to Randfontein underground, again, the grade variance you guys will remember it's always between sort of [5 and 5,4], so absolutely expected in the type of orebody we mine. If you look at the cost reduction -- a significant cost reduction, cash operating cost down from 236-219 and unit cost also, therefore, spectacularly down. Elandskraal, the same thing., The flexibility there is an issue, but Phillip is very confident that we are going to see the grades higher in the coming quarters. You can see how marginally higher volumes have resulted in significantly lower unit costs as well. So, everywhere you will -- since my satisfaction was our cost control, [not new]. [inaudible], we had a step change in our cost structure, when Rand collapsed and the inflation started heating us and wedge wage increases came through. But we are quickly regaining a lot of dead losts ground. All in all, cost came down by 2% this quarter, not bad in a 12%- inflation environment.

I want to move on -- I think we spoke about Elandskraal. If we go to Free Gold, these are results which you guys have had for, but it's easy to misinterpret. In Free Gold's total cost, if we go right to the bottom, $230m going up to $244m., This is Harmony's half of [inaudible] it of course, [indeed sets St. Eliana] for 2 months for the first time., And that is about 24m. So, you have to just take that out. You will then see that the underground cost of free gold has gone up by a mere $7m quarter and on quarter, and $7m for volume improvements., 50,000 tones of the volume improvement is [St. Eliana]. If you deduct that, you still sit with a decent volume improvement increase at only $7m. So, really Free Gold, a pretty good quarter and we'll talk a little bit about the detail. The 7,04 grams, the per ton grade of Free Gold, again, is masksed by [St. Eliana's] inclusion. If you strip [St. Eliana] out, you will get to 7.25. And we will load it although that's down, that's down perfectly in line with what we've always hadsaid, will happen there as [inaudible] Bambanani comes to sustainable levels. Free gold will come to that 7,2-7,4 gram a [ton] range. It's very difficult not to be very pleased with how Free Gold is doing. [St. Eliana] [inaudible] [platters] the numbers a little bit the way in which we represent it. So if you go to Australia, again the drop-off in production has got a lot to do, was with the mix between underground and surfaces well. Very much in line with our expectations, and most importantly, you can see the cost reduction was proportionate to the volume. I am sorry for those who don't have an appetite for detail, to go to the detail, but [on no] I know there are deal still enough analyst lift left in its this audience to understand the detail. Very importantly everywhere, ay especially at the two operations that have been struggling in the previous quarter, there has been significant improvement. The grade issues of Free Gold well that isn't a great issue. That grade is now very comfortably where we want it to be. Actually as we speak, [inaudible] Bambanani is seeing a bit of a higher grade to gain. But this is now not delivered at deliberate high grading. This is just, you know, you go through phrases phases, we had a great desire where the grade is higher. . If you talk about a Free State and you talk about the Randfontein does great jobs as marginal as they were, is as purely statistical, I would argue. Evender and Elands -- you are welcome to take it up in detail with Bob and Phillip. We will definitely see higher grades coming from [Day]. there. I did an injustice to a little open cost operation, called Kalgold. Because it will we look like Kalgold really lost a plot, cost wise and [inaudible] [backhand pates] pays to any two cash operating cost going up from 36-44. And really Frank (ph) assures me that's a bit of an accounting gleich glitch and in that, its devaluation of the run of mine [stock [pole]. What it really means is next quarter, when we now bring the accounting up with the practice of having an increased money mulling capacity and, therefore, an inability to treat that stock [pole], the cost adjustment will come through, again as a positive. So that $8m is a bit of a pipe cost and it will look, most of that will come through next quarter as a credit. Sorry for the detail, but I think it's pretty important for us to understand. We, as Harmony, I think -- I haven't counted the cylinders any more, I don't even know how many cylinders [Mckow] have got. But I think the key point is we are really firing on all cylinders. Australian operations are doing okay. Free Gold is doing spectacular. Randfontein is a star performer. Evander and Elandsare going to do better and the Free State is what the Free State is. It's pumping on full cylinder, but it's variable. So really, we are very excited and comfortable about the coming quarter. And you have to take the view on the gold price and the Rand. I want to brag a little bit about Bambanani and I want to suggest that you guys make it to the Free Gold, [ARMgold] presentation, where there will be a lot of bragging about Free Gold, because we've got reason to brag. Bambanani has got a history of being interrupted by fires. I think the technical input from the two teams or the combined team is really changed that mine, we believe, forever. Of course there will be fires again. That achieved 12 months with such improved ventilation conditions that we've had no fires and dramatically better conditions underground where the workers work. Better conditions means higher productivity, and you see that in all the numbers. [Chow mine] as I say or as you can you see, we are really proud of how we took this one over and transformed it and at the same time improved safety dramatically. Worth noting is that we spent R40 a tone extra on working cost development. This is exactly what we do on every acquisition. We reduced overhead cost structure; we actually spend more on the orebody development. And in a year, two or three year later, you get a world class orebody with sustainable production rates and profitability. [Joe], you can this a long shot, but we are investing a lot of money in that orebody, and so far we are not to sorry about that. [inaudible] I do hope Andre (ph) does a lot more justice to this team. This is probably the best management team in the industry. I think what is so pleasing is that the joint venture managed to take a R100 a tone out of the cost structure of [inaudible]. And it was always a [row run] mine. So, you know, the game we play is not only that of taking near the end of day life, low cost mines; I think we've demonstrated an ability to take a world class team to even better performance.

There are many ways of measuring productivity and there is a lot of managing the numbers, instead of perhaps managing the mines in the industry. But I think in the vein which we as Harmony measure productivity, these are world class performance and certainly the best in our company. Surface operations continued to make profits every quarter, and there were spectacular opportunities for us to optimize plant utilization especially now, including [St. Eliana]. And the areas we never talked about, because we are actually a mining company, very, very focused on the mining operations as how we change those other cost [centers] on acquisition. Ernest Oppenheimer Hospital is a world class hospital rendering world class service at half the cost now a year later. Australia, we spoke about and really significant movements in the exchange rate of the Aussie dollar to the US dollar and the Rand to the US dollar. And therefore those numbers have all to be rate in to context of the exchange rate changes.

Oops, I am getting very carried away here. I think if we -- just to bring up to speed to with how we continue to handle our [H book]. Our inherited [H book] continues to be something that I suppose irritates us all. We are delivering a grace [inaudible] to it, some 85% of Australian production was delivered in to the [H book]. And that of course means that our Australian operations aren't seeing the benefits of the highest spot gold price to any extent. The worst part of the [H book] from our perspective, from a risk management point of view, of course sits in the gold lease rate swaps. And we've closed out a significant portion of that. As you can see, some 537,000 ounces to leave us with 1.4m ounce lease rates swap exposure. We will continue to close these out opportunistically as this sort of conditions allows us to do this. This was done at zero cost, so this was really just utilizing the market conditions to do that.

If you guys allow me to just briefly step back, I missed one of my favorite slides. I think Fredi has taken it out permanently. He really has taken it out. You guys will see and I apologize for this. I challenged him before the presentation that it was out, this will affect this annual bonus dramatically. But, if you guys, you will see that we have replaced his favorite Harmony [of does] Evander payback slides and the Randfontein payback slides which was a table, which is in your hardcopy. So the same numbers are still there. I apologize that it wasn't part of the presentation. I could have bragged for another 20 minutes about that. I suppose that 's why he took it out. I want to talk a little bit about capital expenditure. It's really steady state everywhere. The big capital everywhere goes into real growth opportunities. So at Free State, a lot of that goes into Masimong, at Evander it [declines]. Randfontein note the [steep changes]. We may not quite get to this number, but obviously that is the start of Doornkop South. So, it goes from very low to a significant number. [Elans] has really just [where the] project is now and again on the [Elans] project, we will start [ledging] on the first of those raised lines in the new project area, somewhere towards the middle of this year. And right now, it's a 6g a ton mine which should be at 6,4g a ton. It becomes a 7,2g a ton mine once we have moved completely down to the newer levels. So this lovely organic growth in [Elans] once this project is behind us and it continues to go well. The rest of the numbers are all really steady state. But I thought to just give you a feel for where the money goes -- the capital expenditure. Just about two-thirds continues to go into the ore body. Now, for some reason I still sometimes travel [of to] some of my South African peers and I have to defend how Harmony takes over mines and they rape and escape. This doesn't look like rape and escape, just looked like serious reinvestment and re-capitalizing of the ore bodies. And that's exactly where our money goes. Plant infrastructure -- plant and infrastructure, I mean, we have learnt some painful lessons originally in taking over mines, the condition of shafts and plants are things we pay attention to. And we certainly do not apologize taking mines near the end of their lives and giving them infrastructure, which can give them 10 or 20 years again. You can see there are lots of new pieces of legislation and issues affecting our cost structure and it does add up to some 6%, some of that is forced upon us, some of that is obviously the Company being a responsible entity, and other includes a whole host. For the moment, the biggest number under other would be significant renovation program underway in our hostels and so on, but that's all the odds and sorts from IT to hostel renovations etc, etc. I really think as an investor, this is where I would want my capital to be reinvested back in the Company.

Finally and at last, we get to the question section. Thank you very much for your patience. It was quiet and detailed and extensive quarterly presentation. Can we take some questions please?

[Underground]. I am still having difficultly reconciling the 37% reduction in the cash operating profit. When I measured it against the cash operating costs, which remained the same as in the previous quarter, true enough gold produced did come down 7.5%, but it still seems that the 37% drop in cash operating profits requires another input of some sort. Am I missing something here?

No, I think, the [Free State] is just an extremely leveraged. So volume was down by -- look it at 5%]. And grade was down by -- account -- sort of 3%, you know, and therefore you can see the gold production was down by the multiple of that 8%. The gold price was down, despite the fact that we still had a significant portion of [cover] left in the exchange rate. So just part of our operation got a higher gold price but still significantly down. And I can't give you the gold price for the Free State offhand, I mean, it will be easy to calculate, but that's it. This is how leverage to Free State is and the Free State continues to, you know, jump to 200m and drop to 120m and the Free State will keep us honest forever. It is when you get your grades or your tonnage wrong in the Free State your results reflect it immediately. There's nothing else there, [inaudible].

From the balance sheet, the US dollar balance sheet, investments totaled a 165 and the bulk of it is obviously Highland and High River. But it appears to be another 7 to 10m in other investments. If that is correct, what are these other investments?

Please allow me to take us to page 24, because I think if we deal with Rand terms, the [risk] and currency translations either in dollars, or say if we look at the investment of 1.4b, the various unlisted investments; typically associated with gold company, including [inaudible etc, adds to 75m. Now rehab provision sets it 536m, and High islands set at 256, [Banigo] sets at 227, and High River sets at 200. And that should add up to, within a few Rands. The rest is really currency translations, and I wish there was a way in which we could save; all of us the trouble of these translations, but there's none. It's probably likely to get worst rather than better with the continued new rules being published by especially the Americans right now. But that's the South African sort of break down and the rest are truly just, you know, accounted within the rules for currency fluctuations and so on. Any other questions?

Yes James. James, would you mind waiting for the microphone. This is, if you guys don't mind, this is especially for the benefit of those who are watching us on the web cast.

Just on the dividend. Last 6 months you paid almost half your earnings out in dividends. This half it's a lot low. Is this the kind of -- what can we expect going forward now that you got lot more capital projects coming on line?

Mr. [inaudible], you and me have to look at the same numbers together because we are singing of different pages here. Page 3, if you don't mind, we paid out an interim of 75 on earnings of 270 at that time. And interims have never made any point. Interims are just exactly that. It's a tiniest reward for current shareholders and final dividends has always been a, we as Harmony, has a statement about, what sort of dividend policy is. And you will remember that the second half of the last year was a spectacular -- that was really the year and therefore the final payout was significantly higher. And at that time we said that we as a Director's have looking at the projects we have, the opportunities, the cash generation capabilities. We have moved out dividend payout ratio from, where we paid out somewhere between 32-33% to an area where we will be paying out 40-50% of our earnings. That is still exactly what it is. So the final dividend will actually top that up to whatever. And the second half of the year of course going to see a Rand, which is either stronger or weaker and therefore, it really is, I think, just prudent to half way pay out something significantly up but not trying to be at 50%. Our capital numbers, I don't think should at this stage cause much concern for anybody. And if you add them up, within Free Gold there is quite a lot of capacity for capital expenditure and is quite a sizable tax base and, you know, in the foreseeable future. If you look at Randfontein, again, the South Reef Project should not see a cash outflow of more than 500m, net of 140 we are about to receive. The net outflow is 360 of the [many] -- so really our cash generation capacity is quite significant, and we do not think we'll -- should effect our dividends. Now I know of mining executives who previously said [inaudible], we will do this project and continue to pay dividends. I am making no such promises, I mean we are making assumptions about the gold price and the Rand, and as a board we are very comfortable of our ability to continue both being a dividend payer and doing significant organic growth. And I think the second phase of Harmony's growth story will be that of significant organic growth with smart acquisitions from time to time. And it's not an ideal ore for us, as we were acquisitive we still did the smart projects and [inaudible] falls into that category as does [Elandskraal] and Evander declines. I think, it's probably accurate to assume that we do mainly organic growth opportunities for a lot of those, but we will still do the smart acquisition opportunities when they present themselves. You want to ask another. Can we get to microphone to [Brinken], please.

Thanks very much. Bernard just looking at your CAPEX numbers for Australia and I know there is something that you watch very closely. The ongoing CAPEX number in Australia is high and clearly that has cash flow implications and implications [inaudible] [on investment]. Can you just chat about that in broad terms, as to whether you're still happy with the outlook for Australian in terms of -- sort of, return on invested capital there and what CAPEX number will look like going forward?

Yeah. I think I'll make some generic comment and invite Frank [inaudible] who wants to speak. Obviously, the nature of the Australian operations are different, and therefore will always result in a bit of additional explanation. The orebodies there, especially, the open pit orebodies are by nature much shorter life and therefore there is significant sort of conversion of discovered to minable sort of ounces. Pretty quick after you discovered you strip away the access topsoil and you mined the orebody, and in there lies a [in hidden] different, very different to the types of projects we do here. We have also now -- I think finalized our thinking in terms of the capital expenditure on some of the other projects, and I think perhaps, Ted if you don't mind then one minute to give a brief update. Proportionate to your contribution to profits.

[inaudible] as Bernard said, a lot of opportunities, there is a pipeline of projects in Australia, generally, there is a smaller orebodies and so all of those projects need capital expenditure. Probably the -- one of our main strategy is to acquire orebodies with long, longer lives and most certainly they [inaudible] in the [mount magnet area] falls into that category. So, we are trying to work towards projects where the capital that we spend will last for a longer period of time. But it will continue to be a mix between short life projects and longer life projects, but we are trying to work towards having more and more the longer life projects. So, hopefully our capital spend or ratio of capital-to-profits will begin to look a bit more like the South African ones. But remember South African orebodies are unique, there is very few place in the world where you got a hundred years, as -- like we've had here.

[inaudible] one other question. I just was looking at Free Gold numbers; just [wanting] the [inaudible] volumes look quite low to me?

Yeah. They were and associated to that and Peter I don't know if you want add something to that. Associated with that was normal changeover things -- those sort of, how you account for your tonnes in the [inaudible], on surface, and the times coming from underground. [inaudible] didn't have a good two months, as the first two months in our hands at all, and a lot of that has got to do with the typical sort of changeover. We are taking quite a cautious look at [St. Eliana] and we are saying that in six months time, we're pretty comfortable that, you know, the volumes and the grades will be what [seems] volumes and grades can be, and we are going to [inaudible] with a changeover not only in management, philosophy, structures, and all of those things but also continuous operations. So I mean there is a -- there's a mine which is, you know, getting clubbed from a few directions right now, operationally. [Saints] coming with a very small profit contribution and that was on the back of, not only, low volumes but also very low grades. The low grades was a lot more to do with how we account for the gold in the chains over the actual underground trades. The contribution was 100,000 tones in total and it's meant to contribute significantly more than that. But the [saints] number is really has a bit of a, sort of a anomalous set of numbers added into Free Gold. In the booklet also, I have split it -- split it out for you, you know, as Harmony's [half]. So there is quiet a detail sort of split out to show you what Free Gold looks like excluding [saints]. We obviously have paid $120m for free -- for [St. Eliana] We are pretty comfortable that opportunities, both in terms of synergy benefits and real revenue profits, we might get back. But, that's the next three years, I mean right now it's all promise, we still hint it.

Hi Bernard [inaudible]. Can you us an indication of the timing on [roll spread]? What you see is going forward?

In terms of the priorities, I think as Harmony, our priorities probably, right now, sits with one or two more Free Gold projects. And obviously that gets done, you know, into joint venture. But, it does consume a little bit of Harmony's capacity or quite a bit of Harmony's capacity. We do, however, have a team that is finalized to [South rig] project now, is looking at the various options for [roll spread], as well as Popular. So the two Evander projects are getting the right attention within Harmony now. Garry (ph), I would be extremely surprised if we proceed or finalize a decision on either of those Evander projects, you know, before another 9-12 months. The detail engineering project work is probably easy to complete in 6 months. But I think we all gonna need to be very comfortable about what the gold price is, you know. Right now, it's difficult to quote. We use 95,000 rand a kilogram. We thought we were quite conservative in, you know, using $295 an ounce and a rand of 10,50,000. I mean, you know, we were horribly wrong. The rand per kilogram gold price is okay, but the components that make it up was completely different. So I would argue that Harmony would probably not commit to either of those projects, you know, in the next 6-9 months. And we hope to have the detail work done in that time. And then obviously we will all have a bit of a view of what the gold price is going to be, and that will be the key factor for us to take that decision.

The other question was probably for Frank, just in terms of [Highland]. Are we likely to see those being bought through the income statement in the next, say 3-6 months?

No.

Thanks

And that's why I tried to make the point when I showed you that on paper those investments are seriously in the money. None of that has been brought to, you know, through the income statement or is likely to -- what is likely to happen is that we will start to equity account for the gold production and, you know, the profits from Highland and that is just in line with accepted accounting practices. Because of the significant stake that -- we should actually be accounting for that. The listing process, of course, just ran on its own timeline -- and we were not ready to start equity accounting yet. But that is the one change that -- but it will be equity accounting, you know, for revenue cost and ounces in profits. Yes James? I thought you were making my presentation that long that there will be less questions. But didn't work eh?

Just [inaudible] on projects and start out some things. What is the possibility of [beset], getting on newly some life?

It is not at the top of our list of priorities and I think that, [in there] sets a lot our view on the dollar gold price. It's impossible to yet -- we still believe that [beset], you know, the last time we did a proper evaluation we saw that [beset], you know, is worth looking at $325 an ounce. Now we remember, that a few ago, that we saw that for the first time, and I don't know what the gold price is now 370 and that you will call it underway down; I will call it underway up. That depends on your time horizon. I do not, you know, we haven't re-looked that beside at all and we, you know, haven't done enough work to even decide whether -- perhaps, you know, beside fits logically into another entity and we simply, beside its just, you know, fourth or fifth on our list of priority of all things to do. And of which I could give you a more complete answer but its unfortunately the most honest answer. It is not getting a hell of lot of attention from us right now. And, I think, if that concludes the questions then we can break nicely on time 1 o'clock. Please, will you join the team for some snacks and something to drink and thank you very much for your attendance. Thank you.

Your shareholder [backseated] was also listing on the [inaudible]. Is South Africa was part of that change?

No because we had such a successful listing on NASDAQ. And I also remember we had the most liquid ADR in the world, you know, for the regular periods we were either the most active or one of the most active. So, we never thought New York would give us a shift that we already achieved that shift. And, I think as the Rand obviously everything changed, there has actually been a shift as you would expect by South African backing to Rand [inaudible] stock in the gold companies. And so, you know, ...

What is the current South African borrow [inaudible]?

At front manager level it looks like some 70% non-South Africa, a 30% South Africa and...

Total shareholders?

It's very difficult to go beyond that in terms of sort of detail but that would, you know, there is no reason to assume it's across [Africa].

You just mentioned you ...