Harmony Gold Mining Company Ltd (HMY) 2004 Q3 法說會逐字稿

Good afternoon and welcome to the Harmony Gold Conference Call. All participants will be in listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. An operator will give instructions on how to ask your questions at that time. If you should need assistance, during the conference, please signal an operator by pressing "*" and then "0" on your touchtone phone. This conference is being recorded. I would now like to turn over the conference to Mr. Bernard Swanepoel. Please go ahead, sir.

Thank you, operator. Good morning and good afternoon, ladies and gentlemen. This is quite a long presentation. So I'll rush through at the displays, and ultimately leave enough time for questions and answers. As always, we've got exactly one hour, in which to conduct our business, because, unfortunately, other press interviews and, I think, will keep you busy after that.

This presentation is the part of restructuring for short-term profitability and long-term sustainability and it's time to get to the fact that the low gold price -- per kilogram gold price environment, of course, the strong Rand therefore -- and that the impact that has on our profitability necessitated significant adjustments in the restructuring; but we are trying to do that without negatively impacting on our long-term sustainability.

Now, "first slide" just shows you the upward trends in the US gold price. And really this is just a background to show you that we believe that we are also in a boom market for gold and that we could see further gains in the dollar gold price. And, of course, in our South African operations, as in the past two and half years, we've seen steep change in our gold price. We were receiving well in excess of 100,000 Rand a kilogram. And the next slide shows how that steep change down to about 85,000 Rand a kilogram has now been with us for at least 12 months.

So moving steady to next slide, where I'll show you the gold price in US dollar sense; on the same slide, I'll show you the strengthening of the rand, and I'll show you the net impact of that on the gold price in Rand per kilogram terms. And I made the point that, obviously, there are all gold prices in the declining mode. To some extent, I think, as I said, it is the contributions of left out on what is called a good gold boom market. I am not crying; I am just giving you the content of the external environment, in which we have little choice but to adjust operationally and strategically.

If we just look at the nine months so far and just some intro here compared to the previous nine months, you will see that the company is still growing significantly. And I'll give you this, before I go to the quarter news, because obviously, we've had our weakest set of quarter news, as we always do at this time of the year, due to bad season and the impact of the number of public holidays in South Africa resulted in reduction in volumes and added loss sometimes in this sort of deter. Our year-to-date volumes are up 18% ounces produced that is gold prices down in Rand per kilogram terms, up in US dollars per ounce terms.

Our working cost is up at really unsatisfactory 11%, compared to the same period last year, the nine months ended. Again, that's just one of the contributing factors to the need for us to restructure and conduct that in time. And due to which our strengthening of the South African Rand, of course, our US dollar cost per ounce is up roughly 51% and cost (inaudible) you can see the 10% increase again, that's higher than the approximate 7% inflation environment over the period that there we need we need to address that. Cash operating profit you can see for yourself is done 66% and then cash profit margin is done 68%. And I really think that's the context in which we have to see the announcements, which we are contemplating the closures and start the restructuring of other parts of operation, the continued reduction of over rate and all that cost containing measurement that we've announced.

The slide that shows you how our share price -- and for those who are looking on the electronic version and see it in color, the share prices indicated in red, The gold price in Rand per kilogram terms indicated is in blue. And you can see that although our share price, of course, checks the Rand per kilogram gold price. You can also clearly see the seasonal weakness of the share price and that's of course has got to do with the seasonal weak performance of a gold mining company in South Africa because of issues like the Christmas break, which shortens our quarter quite significantly and substantially.

I want to move on and deal with the highlights and lowlights for the quarter. We spoke about the Christmas break, I suspect the demand that would explain about the 9% reduction in volume if we have seen on the results of the South African operations. Certainly that 9% seem to hold through for Harmony operations and also for those of (inaudible) gold the target mine, which we announced the results today.

And we'll talk about the restructuring phases, which is underway at the loss making shop. And those shops, which is about half of our operations where we have or are currently implementing continuous operations. (inaudible) the benefits are beginning to show and we're during the quarter announced the convertible bond issue to raise 1.7 billion offshore, which is a five year bond. And this will simply bring the tenure of date in line with gold usage of funds and this money is put towards continuing to expand the company through project and we're very comfortable that the five tenure is right timeframe for the debt.

And I'll will show you few slides on how our projects are progressing and show you our looking budget. We have acquired further 32% of ascot bringing our total -- the stake in ascot to a controlling 53% and we have a received all the approvals, so that's current process of taking on the remaining minority. So, making an offer to them is underway. In the beginning - during the -- at thee at the start of the quarter, we announced the restructuring of our Australian hedge book and we took another 365,000 ounces out of the next 18-months. And it really gives us - well, obviously now 15-months remaining of virtually unhedged production or completely unhedged production from Australia.

Our next slide is total cash operating profit variance. This is a company wide variance analysis and this (inaudible) misleading. It shows you how the cash operating profit of 271 million of the December quarter was reduced to about 50% to 144 million for this quarter. And the detail is shown already volume decrease is shown not only 5% and but actual volume decreased from the underground operations with our cooperation's was actually 12% and I'll deal that within a minute. Working costs decreased with a very satisfactory 8% at least what it shows here is that, if we do not work, if we work 8 days, we do not incur costs, it shows a hard percentage of availability in the costs from other areas has been one of the good things in Harmony's.

Our ability to reduce cost when volumes are down and the recovery grade decrease of 11% it's bit of a misrepresentation. The underground operations again -- it saw a reduction of only 4, 6% or 7% less than 5%. And when we do a little bit here that to give you the comfort that this is not a great crisis and two or three of our shops, two or three of our mines certainly have got great issues and we're dealing with those, but I will quite a few our shops actually perform satisfactory in terms of growth. And neither end gold price actually was marginally high ended added some 76 million Rands to our bottom line. But it need to where at -- various I has indicated that.

The next type of start is the impact of the Christmas break is not always well understood and I don't blame anybody for that is extremely difficult to make stand for the quarter. In which you've got sometimes as many as seven or eight or nine shifts rate. Our production once this is down 16% quarter-and-quarter. And we believe that at least staying in that 16% is seasonal and we will recover -- in the coming quarter. The revenue result was on the cash costs of course and such significantly lower ounces despite this fairly work in terms of cost containment the cost per kilogram is still up, that's also seasonal and should recover just cost to ounce is $282 an ounce.

The next slide is slightly miss out of corporate bond to support that (inaudible) profile and our deal of lot of more with the earnings are the various definitions of earnings and but I think it is fair to say that the balance sheet of Harmony's quite strong on the convertible bond of course, we'll support the capital expenditure on the growth targets quite comfortably for the next five years. And our cash earnings and our basic earnings and our fully diluted earnings are all down significantly and remember that is stronger for the quarter's headline earnings.

But it is a headline loss of 16 cents per share these are South African cents compared to 66 cents for the previous quarter and I give you the breakdown and which goes along the way toward explaining the other three as well and on the bottom of that slide and the basic earnings shows a loss as compared to a profit of the previous quarter. But in the previous quarter, it was included a profit on the disposal of the Russian investment of 173 South African cents per share and you can see -- that headline earnings level, we actually have a significantly enhanced the quarter.

And if you stop for a moment and this is a very difficult teleconference but in the detailed booklet, which is also available on our Web site to quarterly review. On page 26 of that I don't really expect anybody to try and catch up with the document now, but in there we give a detail analysis of our quarterly results and I think from they expect clear as I have said before that the underground grade reduced on 4, 6% from 5,4 grams a ton to 5, 1 grams a ton and really there were two or three contributers to that.

The one that is you run the area with a two higher grade shops are under performed and then secondly behind the seven shop which was an attempt by the management team to negate the impact of the Christmas break. That fixed volumes obviously pushed it from areas of lower grade -- not fallen all are very smart business decision. So, although, the volumes were flat "that the grade was down by great was down by 11%" and obviously, they didn't have the flexibility nobody to increase volumes they way they did, and we saw a problems, which are easy to rectify and we believe have been rectified in the mean time.

You know, as gold operation especially we got on John Mines (ph) significant recovery in the grade as we predicted last quarter, had something (ph) operations increased that operations to grades that steady nothing to be concerned about. And three gold -- three of operations we've -- three of our shops in (inaudible) complex and have than lower planned recovery grades.

Unfortunately, it includes the two big shop Don Banami (ph) addressing the mining mix problem, and which spends from a flexibility problem, which really I didn't it's related to management focus and that is the fixed and Don Banami also unfortunately, had a fire during the quarter, and of course the fire impacted significantly on those volumes and grade and but actually behind us now. And it's the Pen (ph) mines which is our flagship and although we're mining especially to grades of the previous quarter, our recoveries were down by as much as gram a ton from over 8 grams of tons to 7 grams of ton and that really is a combination of problems including pipeline problems, we hope to have those behind us that of course shows us that mines gold factor for those who understand that level of detail.

The gold mine also had slightly lower than the plan -- grade and but its not a significant contributor. I'll now finish after my detail discussion on the operations, but just dealing with our OC (ph) outcome operations, it's ongoing shop and we had try to lease those shop as part of the weight (ph) negotiation both his left in four, five days and that impacted on volumes, the grades also came down inline with expectation than were high grade filler (ph) on the one shop is finished and they are now adjusting to a lower grade environment. This shops are cheap at 50% reduction in costs, so they have done extremely well in adjusting to the lower grade environment.

And -- but it's true and this is also visible and despite 26 of the quarterly and booklet as we call with respect the great impact or the volume impact from underground was offsetting through standing just to increase the surface (inaudible) but obviously, not good grade runs and overall they hard times elected margin lower and gold production from surface and the results of this is and it is might the great underperformance look significantly waste in one of these in reality.

Our costs reduction, we reduced on the underground operations in South Africa cost base by 171 million Rands for the quarter. So the 9% reduction in cost, really, closely matches with the 9% reduction in volume because of the Christmas break. All in all, it is still seasonally a tough quarter but I think, we are at least getting the cost structure to adjust as bad rise, as much as the volume should be yielded back to them. Back on the slides, and my next item is got to be cash operating profit per region.

Free Gold, although demand is not the best, and because these are high grade profitable shafts that we have already indicated that the performance of Free Gold was certainly -- and the way it's stealing our time at Free Gold and, Craig as I said was down 9%, volume down 12%, the spent costing was down 11% it's still (inaudible) to significant reduction of 45 million rands in upgrading profit. And the Free State, I mean, despite making losses it's actually been reasonably all these are lower grade old buddies and one or two of these shafts have been earmarked for closure and also includes to maximum growth areas, which are making money and I'll get to that in the next 5%.

The Evander Gold, we've added quickly the growth was down 11% and so there the volumes were good and therefore the cost reflect and (inaudible) the volume was obviously was the benefit of (inaudible) that simply didn't have the flexibility nor anybody to push volumes greater. And I'm going to add a lot to those lines, I think, it speaks for itself, what was the line which was historically reflected the gripping of shafts, Free Gold and both are mean to be showed like that. But on the next slide and this is quite an important one; I want to spent two or three minutes. The next slide have really gripped the shafts, you know, logically and this is closer to how we're managing them as management units now. You'll see I'm gripped the Free State growth, shafts together. And you can now see that those Free Gold plus the maximum find shaft, the one's that are absolutely long life and growth shaft.

You can see that there are a lot of production comes from the -- and it was a major profit contributor during the quarter. The shorter life and lower grade, lower margin shaft, which I just call the Free State delivery shaft, you can see actually a major loss for the quarter. I split Elandsrand and Deelkraal, which we typically report to get us at Elandskraal and you can see that Elandsrand referring to a very satisfactory profitable level for the grades about 6 grants a ton, while Deelkraal, which would agree to the unions to put in intensive care and some 45 days ago will agree to a 90 days intensive care period. You can see that obviously we need more, you know, more turnaround that Deelkraal will otherwise would face no closure. The welcome shafts are very low grade marginal shafts making losses and obviously the open shafts will be at -- high grade shaft seller is gone and it is still very profitable shaft. Randfontein is the same grouping as is Evander as is Kalgold. The surface operations are still making million profits from Australia contributed 26 million as well. And what comes -- what is quite clear from this flight.

We talk it about, it is, of our production, can have some shaft that are loss making. Not all of those operations are loss making but they can have some shaft, which are loss making. And that's why the process which are currently on the revenues of the unions, which I guess is basically seven shaft. And that seven shaft produce about 6% of our ideal production. And those shaft have contributed a bulk of these losses. And by the bulk I mean some 54 million out of the 64 million that going from the loss making shafts. So, what I'm thinking -- what I am thinking is that in how many -- two-third of our (ph) comes from profitable shafts and obviously we will continue to -- structure into December range in diamonds. The total of our shaft it is 30% of our production, 34% of our production comes from loss making shafts while some cash in of losses, I mean, in six shafts and as the whole smaller shafts making smaller contribution and are now currently in a process.

Let me move to the projects, the future without the course and nine months -- how Elandsrand new mine project at the bottom of the old mine is continuing development problems. We picked up at the 109 level convince as to this labor actually intersect the (inaudible) a longer to cut through this dikes (ph) and so we've started 140 million a year ahead of schedule and then it will give us more than enough time to make sure that we intersect this difficult mining area sizably and still featuring on time.

And those results from 102 level at 200 -- 2004 an let me give you the current percent on the 34 rest log there is certainly higher than what we're expecting but we're in the high grade base of the Elandsrand mine and so its pretty and that I just put the results concerning a good high grade everybody. And the capital project profile the next log, you can just see that we're in site, where we're spending a bit that's what to middle (ph) and we're impressed, we shooting and setting best and this will continue to remember and 27 quarters -- 27 months and 9 quarters and until that very best takes place.

Your next slide gives very briefly that we've got quarterly results. We took operational control on the 15th of April. We will start to implement our cost optimization program. We think, we can reduce the cost structure significantly. Those results are almost non-cyclical and the volumes were down dramatically, there were a lots of operational problems where there is a mine -- mining mechanize, in the mechanized way from both (inaudible) and from domestic old (inaudible) that mines of few state. So any problem like they have in this school model of remote control LSD being closed with run away growing point induction significantly in the quarterly results.

To make things worse, the reflected gold price for the quarter gold price received that 67,000 rands per kilogram as opposed to the previous quarter 70,000 as opposed to the 88,000 but we have finally received. And this is just the way in which they deal with their hedge book and of course the due with the hedge book not as speaking of an instrument, and if so they just take it under revenue line. And our financial directors were mandated by the Avgold group and to now the gold hedge book and that found (inaudible) announces will be key but not of huge corp and is the only the Rand currency hedge position and that will come through below the line of an adjustment as we do referred by hedging between inherit from time to time.

We don't start of pretending the decision with anything other than speculative, we treated it such and we go to move the gold hedges and I say in over this nine (inaudible) and that would impact significantly on the cut of the operational flexibility and need to high on grow would be (inaudible) and managing it more and underline commodity of philosophy.

The next slides which continues with Avgold (ph) quarterly production summary, we can see that ounces was down from 2% and the revenue - I already gave to the members was down 4% (ph) but significantly below, we believe that it should be 8. You can see this effective gold price is at $8 an ounce which of course is what we need to undue and cash cut of with Q1 contains going up only 11% under the circumstances we have to speak well in top 50000 Rand per kilogram (ph) sustaining cash level and $232 and less subscribed to improve from the old -- some is going to improve from the -- this time we're now coming to our results and hopefully from the end of May onward on 100% basis and it will make a significant difference to Harmony sale results.

The remainder process is product on the next slide and we can read through that the key meeting takes place in the 3rd of May, subject to - although through those required. We expect this phases to the concluded and by the 17th of May and new Harmony's trading from 24th of May.

Restructuring and assets portfolio, and we discussed that the Canadian and multiple operation to seek mine and for the combination of cash and (inaudible) and the credit value of those operation and our books were really 10 million Canadian dollar and so we can see the space which is under 8 million Canadian dollars. I think it go through IT publicize that the US so gold disposal in South Africa so through because of the potential buyers not being able to provide us appropriate financing when they pretend - have to do that several trends as we move on the impact on operation were mainly one of the moral and shorten and we very comfortable that Calog (ph) returned to profitability that in our hands and our management and can continue to make contribution.

And to my another of our limited and as you know in public demand and it will cost us $620 million. It is a share offer so this is not cash required and we currently have the combination of (inaudible) and with that option giving us effect of 75% of the company. We basically trying to remove the money 25% of our production efforts strategic. And because I have expect to do with the prudential that we see there and so a (inaudible) standalone small junior companies. It would be extremely difficult to finance the project for the beginning and you believe that the best way for register Harmony to take it on read the news our balance sheet in financing ability.

And the sounds preview with a -- Dr Mugeouls (ph), he told -- I'm just in a briefly touch them on the even value. Our feasibility study shows that a mines with the online order upto 8% to maximum capital advantages 77 million all be in dollars will give us a month and with seven years, you giving price of mining of 200,000 ounces per year, that's lovely silver (ph) created just well. And of course, more ounces is expected to be converted from resource to reserve as we mind it.

The second subject the s gold project and might we state previously. But I believe there's nobody would be join to more than 10 million ounces of resource, though we may get to a lot quick it on what I thought. And since the previous declaration in since three months supporter the another 6%, and added is not 6. 3 million ounces and at the cap record bet, one that it cuts back off on going up on another 2 million low grade ounces already prescribe us and gold deposits at over 8 million ounces with only 25% of the prospect of private area having been growth.

The gold got a couple of projects and we couldn't hear - on have one come of 4 kilometers North east of the reci-project the one we just discussed will continues in the precise ability. There's a lovely least oxidize - oxide -- oxidize gold check175 ounces and some of these ounces to event 14 millimeters of this surroundings is similar science in many of ounces. That's not true and then this really get facilitate we restart at you know, we're to chief gold stop, the precise as this is left in goods you go get into the future and also the mine copper sits today in both companies and those companies would significant copper traders even pricing probably at a premium to both the companies. Its difficult to predict what a you know, what metrics - we add the matrix to treat a couple of gold mines two or three or four years from now. But certainly for the amount main international press, if you add value, you saw those (inaudible) 57CC ability will come on this population.

I'm going to trying to read my presentation in the next two minutes next few minutes, so that we got good twenty minutes for questions. The capital expenditure you can see that the on going capital, the operational capital, we are spending and at the right level and make 24 costumes display in the similar note on the depending quarter. The (ph) started are incurring capital of the optimum range derives retail as though the work is scheduled and the sip on decline to its more increase that capital and that next tie decrease of the (inaudible) shop because it will items to both last quarter from (inaudible) to show it in fabrics to open up a stock collection mining in a old shop. De-capitalize as many blind debt and all the more with a reduction in capital, but I do simply because of low you earned and thank you

On next slide we pin a trying marginal and support the group margin, I mean at the profitability level not at and this is no reflection in the productivity of asset. We're restructuring for profitability by the internal significant free cash flow typically by about two and half or three years in South Africa is what we've achieved. That cash of course convert to a dividend as we've done and we've reinvested and continued to reinvest in the enhancement of quality of our asset base. The current progress on the construction at once that we spoke about and their profit and the investigation including the fact of no project, which, we now own 52% or 53% of them and hopefully a 100%. And then we still have projects, which under a different better, stronger growth type environment (inaudible) our topline.

Resource base continues to be the biggest in the world at 418 million ounces and now resource base certainly sits comfortable amongst the biggest in the worlds and the patent Harmony reserve base of 61 or 62 million ounces of course were deplete nine months. (inaudible) has added 3,9. He did a really successful drilling and feasibility study that added 1.7 million for the total of 67.5 million ounces.

My last thought to conclude with deals with our project and acquisition profile, the production profile and hopefully if you've got a (inaudible) in front of you, you can read. -- the block mostly derived (inaudible) from ATHMR (ph). Target (ph) is the acquisition we're busy with and in the matrimony which are barely two projects that aren't yet approved and you can (inaudible) this will happen. That really does shows that the Metrican Organicle (ph).

I'm even assuming that some 1.2 million of these ounces get toward replacement. We'll see still face this from about 4 million ounces producer to an about 5 million ounces produce over the next five, six or seven years, and of course this is just showing you our topline of organic growth project, this excludes any assumptions on further acquisitions. And may I remind you that this tough environment, especially in South Africa right now, mini mines in to low mines in the loss-making environment. These are exactly the circumstances under which we've grown Harmony in the past through very smart and relevant hunting (ph) acquisitions. I need to conclude, I don't know and back together and to facilitate questions and answers and I really unfortunately have to limit this up to an hour and that leaves just only 20 minutes for Q&A. Thank you very much, sir.

Thank you very much. At this time, if you'd like to ask a question, please press "*" and then "1" on your touchtone phone. I repeat, to ask a question please dial "*","1" on your phone. If you decide, you wish to withdraw your question at any time, please press "*" and then "2" to remove yourself from the list, just another quick reminder "*", "1" to ask a question. We don't have any question here in South Africa. I (inaudible) poll line to check if we've got any in America. We're done. Is there any think else that you'd like to add press "*" we will wait for question to come soon at this (inaudible).

No, I think at the South African press conference, we also announced that following the set of transactions, which involve the acquisition of control of our men through control structure consisting of Harmony and ARM, the renaming of it into ARM. There're also some consequences, in terms of both structures and so that are few of the people which have been Harmony Directors resign from Harmony due to make of the ARM board. This is very much in line with our longer term plan to reduce board from what was quite a big 19 people board to a smaller 13 people board and that announcement, you know, I think has been in public demand because of the circular that are being sent out that we confirmed.

And its also with some new regret that with our blessing and support that we have to announce today that Frank Abbott, our Financial Director for the last seven years has decided to take up the position as the Financial Director of the newly formed ARM that completes the management team of ARM and joint Patrice Motsepe as the Executive Chairman, and other in ARM and of course we are hoping that the process of identifying the successor would be finished by now.

But that may take another two or three weeks when we make an announcement. Frank has made a huge contribution to Harmony over the last seven years, deserves a lot more credit that what he was able to receive and he is -- I think so everybody had to MG.AG (ph) and certainly looks good we're virtually on F gold if it goes well. And as I say, (inaudible) as a friend to me as a collogue with after seven years he got to take up the new challenge and, you know, it's always sad to lose a good guy if you got good replacements in line for you. And if there are any questions now Gary (ph) we can try to take them now.

We do have two questions in America. The first comes from Bernard Kauresher (ph) from HBK. Please go ahead. Bernard, are you there.

Hello, hello.

Yes, you can ask your question. Go ahead.

Yeah. Hi. My question is basically with respect to CONOPS if you could quantify its benefit on cash flow that it might have, I mean with cash have come down 5%, 10% just to get an idea?

Thank you very much, Bernard. I just got a faint line but the question is nearly on CONOPS and can we quantify the cash cut impact. yeah, we certainly expect CONOPS to make a marginal difference that makes you marginal in the conflicts of currently our margin is lower than 10% and therefore a 5% reduction in cash cut has significant benefit to the bottom line. That is exactly what we expect CONOPS to do. We expect CONOPS to bring down cost of to at cash cut level done by 5%. The grades will come down marginally but that not been locked, and therefore the overall impact will be in that order 4.5% to 5% on cash cuts. Bernie, thank you very much for the question.

Thank you.

Just a quick reminder, if you wish to ask questions please press "*" and then "1" on your phone. We do have two questions from the States. The first comes from Conrad Sharekliffer (ph) from BJN. Please go ahead, sir.

Happy to have the quarter behind us. Was it difficult to earn good luck ahead, just on your -- the production profile from 2012 onwards you show target North (ph) to kick in. Obviously, with that you need the shop to be seen when will the decision be made on that and yeah can you provide us with detail?

Conrad thank you. I certainly am very willing in the next quarter and therefore I think today the quarterly price I think people were not surprised to see me so you know so update and feeling the charge and the season that really helps us of course is in December and early January and so we really lift that data environment then the one that we report on. With regards to your question on private note and thank you for giving me the opportunity to clarify. We've basically assume another 12 months for us to make a decision, and so that tells us that we are pretty late is very much sort of the project that the pervious owners have sort of publicized and put in public domain.

We haven't reengineered it, we haven't reworked it and we basically say that if we start on 12 month during the first onset you know, from a decent size shop will come as you see them and twenty trough (ph). That is we'll on rating done this way and I mean perhaps should have indicated it. Of course we believe in our project, we are excited about that project and we certainly think Harmony has got the capital financing ability to hold that mine and that there is certainly under all those right assumption as I have indicated. Thank you, Conrad (ph).

Thank you.

Our next question comes from Mark DeFranco from Jennison Associates. Please go ahead sir.

Hi Bernard (ph), it's Mark DeFranco. I was kind of surprise to see that some of operational problems you had, you mentioned that they went for volume instead of growth. It sounded like, you mentioned that you'd fix that problem. I was still surprised I mean was there an oversight mess up here or how do you fix it, can you give us little more detail on that instead we don't have to worry about that in the future?

Yeah. Mark I hope my answer gives you confidence and then of course you are concerned. But you know, we do run Harmony in that pretty decent class and we'd love to believe that type of environment and of course that can be very existing and very dangerous depending on your old difference for this since then we also empowered our guys with skill, I always said management skill had been, do you know what is the level, the grade as which they will optimize to everybody tells the every mining grade should be.

I mentioned it's a really useful to help to know what the grade blending of the margin re-profitable answers for that I get answers to some. And yeah, we allow them to a lot of freedom and that's why I think the most major build up performance is significantly better than our peer group and I mean checking you about efficiency and cost (inaudible) that net environment of course -- if a team decides to really put in extra effort to get volume -- did I speak with the rules of the OEs of management system -- those volumes will come at average grade and I would say it's not business decision. Obviously, as first indicated regarding the seven as I indicated and in the case that there is no need and the rules of OEJ (ph) management system was neglected and in some cases even tainted and action has been taken.

You know I don't think this requires a revisit of the policies or the principles for which we stand. I think the advantages of entire managements that are close to the action and can take the right decisions far outstrip the disadvantages. I mean one of the reasons why our costs could come down by 9% during the quarter in line with the 9 or 10%, 11% reduction in volume, has got to do with exactly this flexibility we allow our management. But, yeah, I mean the entire sometimes you will issue all, you know, no control on but we still believe them in the management staff as a style and we therefore deal with the non-performance issues. Over that decisions and this was a bad decision taken in the best interest of company then it's a coaching situation. So this was a bad decision taken by somebody who should have known better while then you knew the on-couching into the December (inaudible).

And then we done all of that and that's why I say, you know, I mean the philosophy the management approach I believe in and guys make mistakes and been they should how to comparable for that. So that maybe we should be examining this (inaudible) I guess. So now, Scott (ph), as I said I hope you are comfort -- actually you are comfortable, you know that we would be reducing 5 to 6 cents, but we have it's not a three-fold environment at all but mistakes do happened and invested maintenance from time to time. Thanks.

Second question in terms of your growth track there, yeah, you got some projects that could actually really bring a lot of production growth in that, you know, post '05 to '08 period, what would be -- what is the number looks like on your existing operations, turns of depletion relative to that would up that I mean as you mentioned you're going from you can add over 2 million ounces is here but what would the net number be?

The net number and making -- all the assumptions that are made there in the target becomes 100% wholly owned and a ball becomes 100% wholly owned. Although I mean those aren't big assumptions but including those assumption and we basically grow from the base way also direct position of our growth with the formal ounce with the (inaudible) ounce producer. So the next replacement that takes place is just over 1 million that 1.2 million of the current ounces gets replace over a period of time by these growth ounces and of course in there is a major readjustment of the company not because the current ounces in some cases reasonably marginal lower grade and in all cases are being replaced with long life and higher margin or higher grade, but if they start a significant adjustment although the net organic growth so far is one of 4 million going to 5 million over the five or six year period, that's quite satisfactory and certainly only second to the baric (ph) organic growth profile, I think and that is there is a quality upgrade and you know, was involves the 2 ounce -- 2.4 million ounces.

Yeah, no question. That's one of the reasons why I just stated it. Last question, in terms of those seven shafts that you're going to do some negotiation or restructuring on. What can we expect to achieve kind of can you break it for us in terms of what your expectations in terms of timing, when we could see any benefit from that restructure?

We are certainly going to -- most of the implementation of whether is it a final outcome is giving this coming quarter and South African leather market is, could you regulate it? And therefore -- especially for, I think, from an American context, you know, it seem as not very flexible. I actually think we've got this flexibility in South Africa but it is painful process to implement it. And it is our right and our decision to shut down the shop that could no longer make the profit. And that being the use of 60 days proceeds prescribed by the low involving -- prescribing involvement from unions and government departments and so on, but it's a pretty well regulated process.

That process is underway. It's actually very constructively underway despite the opinion we made from if you only go by the pace, what I mean, and I'm not blaming anybody but obviously union -- and they have version of the story, which is double offset and, you know, all those sort of entity stuff, sales (ph) will update us from the company wage. You know, but we are making lots of enmity, we're minimizing, reducing (inaudible). And we've been through that a few times in the past and, you know, once you move beyond the resale, we need to shut shop from the union (inaudible). We will deploy more nominees.

Once you get perplexed for the propaganda, I don't know what to call that, actually it's nonsense and the process is quite constructive and we already did. And we're company of -- I've been in the last two years to put under table various means of obtaining the negative of (inaudible) to positive to create new jobs synchronous to one of the means of being back. And the reduction -- the closure of those shops will see us reduce productions by as little as 6%, that it will face 55 million lines of loss at our corporate, if we just think of the last quarter, and you can see -- we can remake a significant bottom line difference by just giving these few problematic shops and we are and so far, it's early days to propose this involving the unions and the government departments. It's a very constructive one and, you know, the time I speak to you in three months time, I think, we will talk about what we've done, not what we plan to do certainly in the next 50 days, if we can just distinguish, we'll come to a constructive conclusion, I believe, there.

Thanks very much.

Thank you.

Just a quick reminder, if you wish to ask a question, please dial "*" and then "1" on your touchtone phone. We have two questions waiting. The next one comes from Russell Fire (ph) from Deutsche Bank. Please go ahead, sir.

Bernard, Its Russell from Deutsche, New York, speaking. Just two quick questions. First of all, we're starting to see the reemergence of the pyramid structures in South Africa during the 90s. I don't want a great length to just mention this and now that optim rainbows (ph) are obviously on -- in part of Harmony and you're seeing some of the competitors, we trade this pyramid structure, are you seeing or are you hearing from international investors that the South African discounts now reentering the markets and are you seeing a reluctance of the international investors (inaudible) South Africa because of this and the second question or a follow-on question is, kind of like where do you see yourself in three years in this whole big picture? Thank you.

Thank you very much, Russell. I think the sort of cross holding and share and pyramid structures, well, I think certainly those of our systems are a major part of that senior managerial life, just managing them. I'm just going to maybe willing that robust to them and I'm just laid out that the pyramid structure over the period of time, that take several form of discount. And having said that of course, we're also faced with other challenges in unblock economical empowerment with just one of those, I think 18 new capital for the previously disadvantage are left out in those days.

Internet (ph) is ultimate becoming creative now you can do that by just giving away the percentage to the company or you can do that slightly more creatively with some small percentage of engineering structures. And that balanced the market will keep us strongest, I mean, you know, the market will tell us, listen, you've gone too far on the pyramid structure when you turn back and of course the legal requirements, we'll see that we need to find ways of means for funding the environmental conversion, which I'm just giving away value and money. I personally think than a structure, we see how many having say the control structure is a contagious to how many and through that structure we keep the (inaudible) a credentials a firm impact and therefore, how many adequately (inaudible) for licensing purposes.

And does that still existing in five years from now that's why I was extremely surprised. Because I think that deals with the figures needs, which are now and near that, will move beyond that and going forward. If then talks about where we accepting in the bigger picture, in a few years from now, then I think how many certainly and most probably be a most exposed to South Africa gold that we've produces. That's the reality and remains and turn it into a competitive advantage. While continuing to do small acquisitions and continuing to grow in South Africa, but we don't confine, it's up to South African, we've never done that, until there will be such less major produces. I think, there maybe sort of consolidation because very few produces have got, then any growth (inaudible) and everybody needs to replace mineral mines growth. I think on, there is unique in position and it's a net basis that I continue to convince now both that the 20% is taken on all they(inaudible) .

So, this unique reposition to full that is quite a significant depth in the South African market fully diversified player. You know that diversified South Africans of the past have all re-identified and PHP (ph) benefit. And for the next few quarters, certainly there is no opportunity, there will be good value tracing opportunities through they need to do further empowerment to the major of information may add. and there is always place for in this player a diversified these player on the full all those needs of mix. So it's just as an investor in on, I think during the next quarter(inaudible) , company we have so many I think we can continue to grow we can -- with today only 35% of South Africa's coal production with a net of 65% we don't(inaudible) .

And, now I've said that talking (inaudible) that we know we confirm (inaudible) putting a South African production to 35% and certainly, you know, the wins is just behind us and the tough time right now makes the small acquisition opportunity. And we think, that South Africa makes money both let me only take over (inaudible) within the foreseeable future that's when we're going to merge with Target but we do run Harmony as a takeover Target. We run Harmony to create value and we see more value. And I just ask (inaudible) to conclude with one more question if you don't mind?

(inaudible) we do have any one question left -- sorry we actually do have more. No -- sorry we've actually finished. Sorry, there was a follow up question but they've decided not to ask. So, we are now finished with the phone. If you'd like to make a few concluding remarks, we can end the conference.

Gary, all that remains for me to say is thank you very much for everybody who has participated. There is an opportunity to email us additional questions and certainly by tomorrow South Africa time we'll get all of those questions if there are more. Thank you all for attending this teleconference. Good day.

Thank you very much Mr. (inaudible) on behalf of Harmony Gold. That concludes this afternoon's conference. Thank you for joining us. You may now disconnect your lines.