Harmony Gold Mining Company Ltd (HMY) 2004 Q4 法說會逐字稿

Good afternoon and welcome to the Harmony Gold conference call. [OPERATOR INSTRUCTIONS]. I would now like to turn the conference over to Mr. Bernard Swanepoel. Please go ahead sir.

Thank you. Good afternoon and good morning ladies and gentlemen and thank you for dialing into the conference call. I am going to try and talk you through the set of results, which-although they are only four weeks old-they are actually very difficult to explain in the context of how the company has adjusted and moved on.

Subsequently, the results of course, as you know deal with the last quarter of our financial year that is April to June and where we are today in early August of course as I have indicated we have continued with the re-structuring. We have continued implementing the cost saving measures and to a large extent therefore and may perhaps some a little bit more confident and a little bit more up beat than what you might have expected just simply looking at the financial numbers.

I want to also make also make a few general comments up front and that is that firstly one of the few advantages of having been at Harmony for nine years now I think it is that my team and my (inaudible) complained that this is as difficult as we ever remember external circumstances to be, but that would probably reflect us, sort of the tendency-all of us-to remember the most recent sort of tough times as more difficult than the previous ones.

Harmony-certainly mining is a cyclical business-and I think you know just sort of cycle that we are in now, we are certainly catching up with adjusting and I think hopefully finally getting ahead of the curve in terms of cost reduction and so on. That's enough of it, sort of a general introduction and there will be time at the end for questions and answers. So I am going to move at quite a pace if you don't mind through the various slides.

The highlights for the quarter, the first slide after the title slide of course completely obscured by the quarterly results the fact that we again for the eighth or ninth year in a row achieved record production up another 11%, it's 3.3 million ounces. This is the quarter we derived a kilogram gold price that is impacted and the results is also very visible in the results year-on-year. We are far down the track and not quite complete with restructuring for profitability and gold prices, certainly a few thousand Rand secured under level and what we are receiving today. I think today we must be getting about 79,000 Rand a kilogram and as I said instead of being three months, three months behind the ever-strengthening Rand (inaudible) we are finally catching up with it, perhaps, getting ahead of it, which will give me a lot of comfort as well.

CONOPS, continuos operations and arrangement through which we increased the number of shift available in the flight is beginning to show good results for us, about half of the operations on CONOPS, the other half and those in mine level detail discussions and negotiations are proceeding.

Our growth projects the fast South African growth projects as well as the expansion projects of Papua New Guinea are all on track. Our reserves, restatement towards the end of the presentation really shows how we have been able to maintain our reserve position, increase it marginally through the acquisitions of AVGOLD and ABELLE on the one end and through depletion mining 3.3 million ounces as well as restating some reserves back into the resource category as a result of the South African re-structuring process. We are declaring a significantly reduced channel dividend of $0.13 South African currency for a total of $0.70 for the year and this is an attempt to balance the interest of various stake holders and shareholders but obviously at this stage it could easily be seen as irresponsible and not sustainable if we were to pay a significantly bigger final dividend.

My next slide just shows our Fatality Injury Rate per million hours worked first 5 or above (ph) annualized averages and you can see that especially since 2002 when we started including quite a few very big and very deep mines, we have made huge progress as we always do after acquisition on improving and the safety of the mines we operate and the green line indicates the industry average and although we mine on average to the same depth as the industry, we have got shallow mines, we have got deep mines, we have got plasmic active mines and we have got material mines. Although we mine on average what the industry average, we are performing significantly better than industry average and that something that we continue to value as well.

On then turning to the next slide, we, of course, after many years the company is decided the volumes growth to traditional guiding as well and I upfront talk about this the centrical nature of mining and gold mining and especially in South Africa, but you can see despite whether the dollar gold prices is going up or down, despite whatever Rands weakening or strengthening, the one thing that we have achieved year-on-year-on-year in Harmony is growth in output and this year 3,3 million Ounces and is it a record high and assuming the gold price more or less where we are now, going forward for the next 12 months, assuming no acquisitions we still see ourselves producing in the order of 3.6 million Ounces of which just under 3.3 million Ounces will be coming from South Africa. So, I am pretty comfortable that we are heading for another year of record production. To sum it off we could able to decently say that we got record production and yet people ask you questions about survival, etc and then of course many measures of success and continued growth in volume is one, obviously this about profitability and profitable growth and times we have margins squeezed and depressed or the times when our competitors and peers find themselves in the similar position and historically during these times we have been really spoilt for choice in terms of acquisition opportunities.

On next slide, it got a very slight (inaudible) 11% year-on-year growth in production but in a precedes to give you a lot of sort of numbers, detail production, the ounces up to 3,3 million, revenue really in the kilograms terms, down 12%, of course the gold price is up year-on-year price in dollar terms and while some 17%. And so dollar gold price was up nicely, the strengthening of the Rand more than negated that into a negative 12% overall for us. Our working costs end up at 12% and really I think last quarter already I gave notice that I do not intend to make that excuses for something, which was just not an acceptable performance over the last 12 months. The process of rectifying that did start last quarter and you are already seeing that quarter-on-quarter, this quarter we achieved flat cost increases despite the fact the we are up with you a significant restructuring and the implementation of CONOPS and it's a pretty good early indicator of us regaining control over the cost and we will flow back Nigeria significantly.

Cash operating profits, there we still made some 580 million Rands and if I remember correctly that is at the, well, the next line shows the cash earnings per share of some 229 cents and that really is the measure against which I think one has to see the $0.70 dividend for the year of which $0.50 was declared today. Earnings per share of course all goes to other mark-to-market and amortization charges come in and in each of that making a loss at earnings per share level of 2.6 Rands compare to last years profit of 3,59 Rands.

We now move onto the quarter-on-quarter, now this is - which is 7% increase in production, that's very satisfying. Again on the one hand our restructure shaft showed that a drop of 13%, as would have been expected. We were in the process of shutting down these mines in most instances. So, towards the end of the quarter there was of course very little production coming from them. Now KALGOLD steady stake shaft and these are really just the shafts where we aren't currently busy with major restructuring and it showed a very nice increase of 8%. It has been include target for 2 months and but over and above that there was a real increase, a bounce back from what was a very weak production quarter, the quarter before. Total production, as you can see up to just under 850,000 Ounces. Of course the next line says it all, our revenue per kilogram drop by 8% from 88,000 Rand to a rand kilo to 81.5,000 Rand a kilo and that really again as to sort of over rising feature of the quarter is that the Rand was just strengthened significantly faster than what we could have judged. However, as I am saying to you, as I believe we are have not quarter but might just overtake this sort of over declining Rand per kilogram gold price.

I am turning to the next slide, which start of weaken operate cash cost of below 80,000 Rand a kilogram and I will show you the cash cost on a steady state shaft flatted just under 81,000 Rand a kilogram, the restructure shafts really look like it gone up but it's simply because the shafts are winding down, we are winding down. So, we produce as you saw of 13% low Rand kilograms from there. If we go to cash cost in US dollar terms, that's $380 level but we expect to be coming down quite significantly in the next quarter or two and I will deal with that later.

I want to move on just for those who either both detail models of following the details of the company, give me a feel for the time, for the shafts that we have been down scaling in some instances such as putting on care and maintenance and others, I would just stabilized we free state free shaft, the (inaudible) and Eland, and Nyala (inaudible) and really you can see the whole relatively small shafts, relatively low grade of 3,8 grams a ton and 5 grams a ton and obviously right now unable to make money because of the small production base from low trades. The best option for this shaft is be marked both and to be mined under a different goal based scenario in future.

My next slide deals with the quarter-on-quarter cash operating profit variance analysis and this sort of top line since the last quarter was 134 million, the bottom-line shows you this quarter 43 million loss and if we take the steady state and the restructure shafts together, the variance is made up of a volume increase and this is the bounce back from last quarter's weak Christmas break results and there is volume increases inline with, well the volume increases resulted partially also in the working cost increase. The rest of the working cost increase is the inclusion of the target mine for the first time for two months of the quarter. The recovery rate increases, as you can see offset that the cost increases and in the future of the quarter really as I have indicated the rand gold price that has a negative impact of 170 million out of the 177 million overall impact.

I will turn the page to the slide, which starts at reconciliation of headline earnings and I am really just at the top showing the cash earnings negative $0.15 South African currency, basic earnings 191, head line earnings 131 cent losses and in the bottom is just a tabulation reconciling the 191, and obviously for comparison purposes we didn't further deduct the profit of the sales of mining assets, the sale of Kalplats, the mark-to-market of Arm and I will talk to that in a minute. The Bendigo impairment and both of those transactions are very similar in nature and you can see the headline earnings of loss of 131.

Now both are limited in which we had 34.5% stake and Bendigo significantly changed in accounting during the quarter. In both cases this had to do with dilution of our stake. In the case of ARM through the transaction of which we was, of which we were part and off-take in ARM diluted from 34.5% to just under 20% and re-accounting therefore changed from the way you would account for an associate company to just normal investment and we therefore undertake and to mark that investment to market and a title of some 160 odd million was approved, off setted by some profits we made on other assets that we disposed.

The Bendigo impairment is not traditional, it's a listed Australian company, we decided not to follow our rights in the recent capital raising. The (inaudible) cost came under (inaudible) and we would dilute from below, from above 30% to some 13%. Again we have to market-to-market and took earning impairment on that investment as well based on obviously all month cash items.

I want to move on to the slide just to dues (ph) of the quarter-on-quarter operational performance. You can see our free state growth shop are still making money and although in that portfolio of shop this is Bangoni (ph) mine that is a underperformed significantly and for the last six months and last quarter that indicated we have deployed one of our best managers to that shop and she is definitely beginning to make a difference, let Mericov (ph) take a few months in the world of gold mining.

Our free stage marginal shops are the shops that we truly believe can break-even at this sort of current gold prices of about 80 year old, 77,000 to 80,000 rand a kilogram but these are the shops at which we need to now proceed with a redeploying surplus labor, implementing CONOPS as you can see the nature of these shops are such that a decrease in the gold price as for the year swing impact on the financial numbers.

The rand did bounce back nicely despite receiving much lower gold price and is making what is effectively breaking even. Rand sometime again had a very steady quarter and again more than offset the negative impact of the fall in gold price as well. Kalgold is where we are holding the new mine, at the bottom of the old mine, this is an underperforming asset and is getting the right attention and again we have deployed one of our most senior head office based manager to the mine. I can't promise you immediate turnaround but our objective here has to be to see this mine break even and evolve to using the infrastructure and sharing the cost base to both the new mine at the bottom of it.

All these shops we have shut down and closed down all the shops that became loss making and over this late now has cut their ability to break-even and make small amounts of money at the current gold price. Kalgold decided to open that operation, we disposed it and but it came back on non payment by the buyer and obviously the mine gets old, like that we have got good experience of what it does to morale and mine etc and we are not too surprise to see it initially underperform and we aren't prepared to see it heading down speck to what we knew it could do anyway in our hands.

In the next line shows you the restructured operations and you can see that directly under relative terms that didn't deteriorate as much as for example the free state marginal and this is got to do and in fact some of these shops were obviously shut down earlier in the quarter and therefore we limited its ability to loose us money quite significantly. These shops are whole doubt with now and there is also in the financial of provision of some 160 million rand for adjustments down scaling and dealing with the surplus labor in the organization. Our Australian operations had a steady to good quarter operationally and our operations in Australia certainly now consume less capital than what it is generating cash operating profits and not a bad position and quite a unique position, I would argue in Australia and for Australian operations.

My next slide just really shows you for those who see it in color our the Kalgold operations that once treated was severally impacted upon during November to March when the mine were sort of (inaudible) and in the process of being sold and it was a good bounce back from February onwards or certainly from March onwards (inaudible) regain operational control of the mine.

The following slide just shows the kilograms of the same trend if anything slightly easier to see. The slide that shows the capital expenditure investing in our future, just shows you the split of 100 to 151 million rand per quarter between operational; we continue to capitalize our mines except of course which have been (inaudible).

We are now under investing taking place in our all bodies right now and really that is a level at which we are comfortable, we can sustain ongoing operations. The projects that I have rolled in once the including the (inaudible) at the bottom, really just shows that again we are continuing to spend at these operations and then a few slides from now will show you why simply some of the best projects still around even at 80,000 rand a kilogram.

So, we expect to spend it all of about 200 million rand a quarter in a combination of ongoing and expansion and growth of capital. The (inaudible) shaft project review it is really quite an interesting set of next phase of our corporate development. We are currently busy buildings of high mines finishing of projects inherited from the previous owners.

Obviously, after a year or three, we now internalized the skills required for building mines, our early engineers are beginning to apply some of the logic and things that we do in our operations to a project and this (inaudible) shaft is just a good example of we are revisiting the current practice in the Harmony of extending the labors of our mines through declines or inclined system to access additional layers. We have applied that to the capital project and (inaudible) you know, why don't we stop the vertical shaft two levels short of its final depth or its ideal depth.

You save a huge amount of capital and a significant amount of time and then we use that capital much later in the life of the mine to extend the mine about a two-level that sits in with the buildup that is actually in answer to the buildup that gives us quicker access to the oil reserves. We can open up more reserves before we start building up and overall it enhances the returns.

Really, for the nontechnical people, this will sound extremely boring that this is very much just doing what we do based and applied also to our mine building and capital investment processes. We are running exactly the same logic and exercise passed the Duranco (ph) project now and I expect in three months from now, we will be in a position to also to have reengineered that project. This is a small deviation from how things of always been done in South Africa, but this is a lot more in line with how we have done things lately instead of how things are done, I would argue internationally whether it is still compatible deep level vertical shaft sort of mining environment.

Our next slide is titled excellent project returns at 80,000 rand a kilogram. I really am not going to talk you through numbers, but you can see that the capital cost of these projects particularly are reasonably low and because in many cases they have been pre-capitalized at least partially by previous owners, we come and spend the last few million dollars and they would get the full benefit of these projects and therefore it is pretty robust in terms of gold pricing fertility, you can see those MPVs are certainly worth the sewing (ph) and the internal rates have returned to our all comfortably above our weighted average cost to capital I think these are all (inaudible) and certainly as long as we got the balance sheet and the cash generation capacity, we should continue to build these mines.

One of the interesting phenomenon from my perspective has also been how in tactical businesses people think you stop expansions and spend capital you know, and the gold prices are at all time highs and even when they finish those projects, they mine the all bodies during the factorial where the gold prices maximum level and in many cases never showed the recurrence promised initially.

We are a little bit counter cyclical here partly by design and partly through external circumstances. We are building these mines certainly when in South African terms, we are in a pretty depressed and down turn phase of the cycle and if we can see this through a finish on time and on budget and who knows we may be harvesting when the gold prices in the long-terms may be on the up or even on record territory and make not only those returns but significantly higher returns. I think it would be really justifiable to take a much higher gold price assumption on longer term and then of course all of these return just jump up significantly.

My next slide shows what happens to our oil reserve or resource I mean during the long-term gold price in 92,000 rand a kilogram, we got a resource of over 500 million ounces of which 62.2 (ph) million ounces falling to the reserve category we showed you the sort of reconciliation there on 61. 9 (ph) million ounces we started we depleted 3.3 (ph) million ounces we added through acquisitions mainly and these are the acquisitions of above and of course the acquisition of half (ph) gold target mine, we added 7. 4 (ph) million through the closures and the downscaling and of course those shafts would have been much more source whatever reserves were left reclassified back into resource category and still showed us effectively with a flat year-on-year reserve declaration of 62 million ounces.

In our quarterly booklet which is available on our web site it is well, certainly in my booklet it is page number 6, basis on security analysis where instead of 92,000 rand a kilogram, we used 82,000 rand a kilogram and of course as you would expect reserve that gold price would decrease from 62 to 55 million ounces and average mining rate been as expected of that reserve declaration gold process to go up to 5, 35 grams per rand. I have also done at the other around added to gold price, which got to about 100,000 rand a kilogram to now reserves would jump to just over 65 million ounces. Now, the reserve with a lot less leverage, but I mean if I state that not as a negative but as a positive that this is much more robust reserve than what we have either had and correctly sustained certainly even lower gold prices than what we are currently seeing.

Our next slide just slides to picks Harmony's reserve compared to the sort of the major tier group those are numbers from public domain and so I cant claim they are correct, but you can see at 62 million ounces of reserve we are in the same league as Placidone (ph) and we are quite a bit smaller than gold fields and the gold fields and (inaudible). I then want to move onto the last two slides titled, "What may the future hold?" I am not necessarily of the habit of making wild promises, but because we are towards the end of what was a significant restructuring phase in Harmony's history we have been through this a few times, but this one was a big one and I am trying to give you some feel for what I think could happen in the quarter coming now September 2004.

I am expecting for planning purposes we are using a gold price but that rate is now 78,000 to 80,000 rand a kilogram. We actually expected our operating cost could drop below that, so we thought we could become profitable at operating cost level and we expect further overhead cost reduction of some 20%. Our overhead cost is a small percentage of our total costs so 20% reduction doesn't make a huge difference, but I mean I think whatever our cost can be saved it is time to save that rather than to cutback on capital to high-grade all body to unnecessarily shutdown mines.

We will continue during this quarter to negotiate and implement continuous operations and quite frankly the mines that now need it most were on our regional Harmony mine in the Free state in Elandrand, which as I have indicated before is making significant losses and needs to pull its socks up.

The quarter after that, again, I assume it is sort of a similar range, I have just opened up to the range a little bit from 77,000 to 82,000 rand a kilogram. We believe that the successful implementation embedding the arm of this restructuring plans can see our total operating cost drop to below 75,000 rand a kilogram. These are all things that, hopefully, are already in place and are just being bedded down.

And there is always a further cost reduction and certainly in the case of overage we see another 10% we believe that we can have CONOP (inaudible) implemented company wide this will put us ahead of our competitors for another a year or five and now sort of a current problem from the Elandrand (inaudible) and our Free state leverage operation should at that stage be at a position where they can break even at lower end of that range 77,000 rand a kilogram.

Gentlemen and ladies, I have tried to give you just sort of a broad introduction. I have spoken to the quarterly numbers although they are little bit dated in that kind of we have moved on-and are moving on-as a company. Our shape with you defected, it was actually quite a significant growth year for Harmony in terms of size, volume-it gives us a much healthier platform-and of course perhaps you can think that I feel that you know, the coming quarters are going to begin to show the fruits of the hard work certainly of the last three months, not only for me personally, but for my team as well.

I am not suggesting it is harvest time, but it is certainly a time of seeing the growth flow through to reestablish profitability. The balance sheet is fine and that's always a good position to be in when other people have got the distressed assets certainly in the South African industry. But, I want to hand over back to Joan for Q&A and we have got a good 20 odd minutes for questions and answers today. So back to you, Joan.

Thank you Mr. Swanepoel. [OPERATOR INSTRUCTIONS]. Our first question comes from Jordson King of RBC Capital, please go ahead.

Good afternoon Bernard just a got a couple of questions I will try to keep them brief and maybe I can come back a little bit later. I am just struggling to reconcile your cash flow, you show 564 million negative operating cash flow and yet you got according through the calculations I get about 379 million, I am missing a 185 million and I wonder if you can go through what is the discrepancy between that I take your cash operating loss of 43 million ahead on the interest payments or ahead on G&A costs, exploration it comes up to about 379?

Those yes thank you. And you know, there was nobody else on the line I could have suggested to them you know, with my sixth sense and the (inaudible) and that is the money I managed to siphon off the company this quarter, but that is really just a joke. I think our inbound cash flow from operating activities 564 negative. So, it is the normal year in for the adjustment in gold and that is in near cash flow that hasn't been sold and so is in cash. You know so it really has an increase in the data's if you want to call it that and that is a big swing number, sort of you know, incomplete to the previous quarter that you know the growth is in the refinery involved for more even shipped but not yet in cash form and to that really is a big swing number and as I stated the interest that you can be given the exact numbers that so cash really just set in near cash flow to some extend there.

Was it as high as 185 million or is the?

That was higher than that. It's a 400, that's a 400 million rand number which will swing your question you know to the other side they would be 100-200 million we need to expand on the other side of the equation, which I just turned at my finger tips and can't do often. And that you know I will definite see after (inaudible) to give you call and talk you through the detailed numbers.

is that going to come through the income statement next quarter?

You know, I mean, on a quarterly basis, we can actually account for these things more accurately at year-end there is an accounting definition, which is just too tight to declare gold with such involved form as cash. You know, I mean last quarter-on-quarter you know that really shouldn't show up as a problem. As the year-end phenomenal start it's not a cash outflow as such.

So I understand it was just reconciled in the previous three quarters in the final quarter of the year as opposed to something else is going to come out of the next couple of quarters.

They are, it is normal account and that sounds like a bloody good summing up for me but like I said I will (inaudible) give you the exact numbers on so that you can track those numbers properly.

And when was I have just can't understand the fact that you received gold rice to go for a 384 versus a spot of 394 for the quarter. I can't understand you closed out the target hedges last quarter. Is this a result of currency edges and can you explain what will we expect relative on gold price received relative to spot over the next couple of quarters.

Jordson, no and these no hedging phenomena in there so that can only be actually dispatching dates, you know when we dispatched that is the price at which we work and 94 comes from necessary, you know whether that sits like a median and obviously you know our quarter as you know starts off within April month, which is below average and in May and June, we produce more, but there is no hating phenomenon in there, so I am not sure you know what prices you compared against, but that's really a gold price we get as we disclosed.

And then, this gold (inaudible) comeback later.

Can I quickly interrupt and Ferdy (ph) just of course pointed out to me that those 8 kilograms we spoke about and of course that isn't our form at (inaudible) valued at gold price at quarter, so that's why you know your last few days with the gold price you know gets disproportionately sort of weighted in your average for the quarter. I am sure that goes some way towards explaining that, I cant remember what the gold price was at quarter-end what it was at the start of the quarter, but I certainly experienced sort of a declining dollar gold price over the quarter. So, I think that goes someway towards explaining that.

The last question before I get back. The Capex, I wondered if you can give us an idea, you spoke about breaking even over the next couple of quarters. As I look at that you need of 250 million rand just to stand still as I am looking at the 100 million ongoing Capex of about 100 million in interest payments, 50 million in G&A and exploration. That's before you start spending on your projects and your forecasting basically breaking even next two quarters and you say you want to continue with your capital program especially hidden value which you have given us now a Capex number, I wondered if you could give us an idea of what do you plan to spend on capital programs in 2005.

Jordson, your calculation is not bad I mean our income to 270, I mean our cash operating profit target is to get to 270 million odd for the quarter that deniable first spend for the profile of about 200 million capital. You know that sort of label at which we will be comfortable. And then, of course you know brought in the corporate expenses of about 40 million, which we are now addressing through cost reductions.

We got interest to see interest to in spite if our offset as to I mean I come to a number very similar to your, I am just giving this sort of the company view on the very same numbers. The 200 million for the coming quarter as I have indicated some 70 million odd if I turn to the slide again, you see 77 million if I remember correctly as ongoing capital. During (inaudible), none of them matched yet, but you know ongoing as you know the rand operations should meet continue to declines you know, to add your sort of blocks have drawn to mine from and in of course the Australian operations very much also in that sort of you need to explore you know to covert resources into reserves to stop the you know to mine.

It's really you know, it is the nature of the beast. So the 120 million odd is remaining and that's level at which you know we feel very comfortable. We are further seeing all five of our South African growth projects. The capital approved for P&G is very much dependent on the forecast for the coming year depends a hell of a lot on the actual permitting process.

It is a process, which is very constructively being handled by the government, but quite honestly it is a bit of a capacity challenge the government, which is flooded with applications from various miners you know to mine in that country and we are in a process and in the queue and certainly are working assumption moment if that we went slippings from sort of end of September to November, none of that is slippings because of anything we haven't done, no conflict, so really it is a capacity problem and even if it is in November or December or January, it doesn't really make that huge a difference in our lives.

It is getting full attention Trembings (ph) has been deployed to be our country manager in P&G and we are doing what we are doing in South Africa with regards to licensing and you know find out how to license and both capacity undersigned government at the same time and of course we can only start at the end of November (inaudible) that quite significantly impacts on the capital.

But back to your original question towards our target would be to get ourselves to cash operating profits such that you know at the end of the spending on capital you know servicing out there to et cetera, et cetera, we still got a few dollars left and we believe that it is quite achievable certainly within the next six months. Thanks George.

Thanks, Bernard. I will come back later.

Our next question comes from Victor Flores HSBC. Please go ahead sir Mr. Flores.

Yes, thank you. Good morning. I have two easy questions and one hard one. The two easy questions are: Were there any cash taxes paid during the quarter and if so how much? And could you give us a sense of what the change in working capital was for the quarter?

Victor thank you very much. There were no actual cash taxes being paid during the quarter and the working capital really increased again around sort of from yearend phenomenon. The biggest number was to sort of metals inventory as we describe it here increase of some 430 million, which truly as a yearend phenomenon, it is the rule for how we account for Gold at yearend and that was the only sort of significant one Victor that took place, so why don't you fire away with your difficult question,

But the difficult question goes exactly to that point if there was gold that was produced, but not sold, then you know why was it brought through the income status because presumably it was and secondly if there is an adjustment on the cash flow statement because that inventory was then actually sold and turned to the cash, then why there is corresponding change in inventories on your balance sheet because presumably it is not sold is an asset that would show up on the balance sheet.

It actually did - the counter entry does actually exist, so this is not Chinese or funny set accounting you know I was obviously referring to you know you know what specific question originally from Georges and trying to you know illustrate just under the current assets for example you can see the receivable for the split chains, but a counter entry does exist Victor and unfortunately, if you want to go into the more detail discussion, then you know I think I am going to ask my ST (ph) to give you ring and speak you through the numbers. I mean in the booklet that is on our Web site, I mean and I am pretty sure you might have that in front of you on pages 35, which is well I am in the Rand a currency, you might be in the dollar currency. Really you are searching my accounting abilities a little bit beyond my ability to describe it over a teleconference, but I mean I will get (inaudible) surely to give you call and talk you through this (inaudible). Sorry carry on.

No, no that would be fine. That's basically what I am after is a more detailed statement on cash flows.

Yes, OK. Yes and we can gladly let you have that if you have look at the cash flow statement right towards back internet (ph) if it is not adequate for you then can just give you kind of additional detail.

That would be great. Thank you very much.

Victor, if you don't get the information like in the next 24 hours, you give me a shot, will you?

Excellent, thanks.

Mr. Flores, you have any further question?

No. Thank you very much.

Our next question comes from Mervin Minockinson (ph) of BJN. Please go ahead.

Hi Bernhard. The question really relates to acquisitions potentials, you talk about the strength assets and acquisitions potential and I find it a bit surprising given that as you detailed with Georges question as most of your cash is going to go to Capex. Can you give that more specific on what type of targets you would see and that's not upon intended, what type of acquisition targets you see in South Africa and be a bit more specific on what you are looking to buy and how are you going to fund that because would you issue paper in this market given that your cash flow is going to be very tight?

Mervin thank you. You know and I am not necessarily going to start a whole new round of rumors and speculations about acquisitions et cetera, perhaps you know I will keep it a little bit at a sort of general or generic level and I mean I think we are the third of this sort of three big South African producers and I think the fourth big South African producer's result will show nothing different too. In the South African Rand environment is a very tough environment right now for gold mining.

Now, perhaps I am beginning to show my age that you know being with this company for 9 or 10 years and in that 9 or 10 years, we have been through these sort of depressed market conditions more than once and I did certain and sort of count the tough times but I mean my body tells me it has been at least four times, but in the past it has been three times where everybody in the industry takes strength.

Now, if your previous three times are anything to go by, you know in the case of how many in the past every time, I think we have adapted a little bit quicker, we have taken some bold steps we have made the next sort of breakthrough operationally, cost reduction wise and CONOPS forcing to that categories, so we can keep the sort of you know the danger from the door.

We can sort of get an aid of the falling rent, gold price environment and operationally get set and we are doing that. In the past more than once I want to say 26 times, but not all 26 acquisitions were South African better least 15 of the 26 times, the way in which some of the other companies have dealt with it is to dispose of some of the distressed assets.

Now, I can be willing buyer but still takes a willing seller and that process sometimes takes a lot of times and we have done enough of these deals to know that the worst possible thing is to start rumors and to irritate potential sellers by you know by making public sort of intentions etc., the same capacity I have always had in terms of dealing with these transactions accessed (ph) within Harmony and so I am really comfortable and if they are willing buyers and we can you know get to the right price we may be willing to, sorry if they are willing sellers then we can get to the right price, we may be willing buyers.

Now, the South African transaction by its nature is different, it's unique, it typically is an over-capitalized mine, typically is an old body which depending on the cost structure can either be very marginal and therefore not worth a lot or can be high margin and therefore worth hell of a lot and I would refresh your memory with the price we paid for the Rand, we made back in two years and subsequently made lots of money. The same applies to each one of our South African acquisitions almost without fail and we did free gold right now, you know people say wow you have free gold doesn't look so smart or we just about achieved pay back at free gold and we have got mines that will see Harmony produce gold for the next two year.

So, the unique nature of the South African ore body plus of course if you buy an asset, you buy at small premium to net present value. If you can make that net present value go up a lot, it becomes a very fundable transaction.

Now if you look at our cash flow statement in all the previous sort of questions it's still applicable and now for the cash on the hand was 1.4 million and our near cash was another 400 million odd in the whole sort of gold discussion of the previous sort of people's questions.

So, we sit in a pretty decent sort of cash position, we sit with a balance sheet, which has got some leverage on it to the corporate bond and the convertible bond but certainly isn't leveraged to the whole and quite honestly as we have learnt many times in the past in South Africa the right acquisition correctly priced, you can also take on acquisition financing and of course if you buy very smartly and even though you think your (inaudible) may be completely undervalued, see this is always a currency but is never in nature she had been a currency of choice as far as Harmony.

So, like I said normally we don't mind I want to keep the discussion - that is sort of general because it is important for me to go into detail on other people assets. If the other guys become willing sellers and the price is right, in financing we will look at a sort of very obvious sort of options and see whether any one of those, you know if we finance in that way still leaves value creation for our shareholders.

I don't want to overemphasize the track record but I think we have over the last five, six, seven, eight years you know used these sort of tough times to increase the platform from which we board (ph) the next time. Acquisitions will continue to be something we look at especially in South Africa, you know and that is about as much as I can say at this stage.

OK fair enough. Thanks Bernard.

Mr. Minockinson, do you have any further questions?

No questions.

Our next question comes from Erica Acsumi (ph) of JP Morgan Stanley Asset Management, please go ahead.

Hi. I apologize in advance for a politically sensitive question. Could you help me understand the breakdown of the employees' termination cost of 184 million Rands for this quarter and 230 million for the year? If I assume roughly 40,000 Rand per person for termination, this implies employee cuts of about 5000 people? Is this correct and what can be assumed going forward?

And that is not a bad estimate. We ourselves use about 40,000 Rand per employee as an estimation and that sort of the laborers sort of workforce level and of course the number goes up quite significantly as you get to your managerial and senior management levels and so the average will be higher and therefore your 5000 number you know which looks a lot more like 4,000 you know if you - if you sort of use the mix of senior management to management to work force, that of course partly deals with those the people that volunteered during the quarter and as well as those who on the shops that we are closing down has volunteered result but simply would not proceed with such.

It is correct to assume that our number of direct employees through this level restructuring process has shrunk by some 4000. It is also correct. Well it is also true that before we got to reducing our own employees through so for only voluntary retirement. We have also of course replaced a significant number of contractors with own employees and so that's why we have prevented another 2000 of our own employees to be retained.

So, if we look at the last 9 months then the employment renewals in Harmony has probably dropped by some 6000 people. And these are - the other one I said politically sensitive numbers, but these all the same set of numbers that you know I mean I don't start my presentation with claiming how successfully we have destroyed jobs but at the same time these are all within the good legal framework and agreements reached with the unions and CONOPS of course have off setted further job losses quite significantly and my estimation is that so far we have saved some 3000 jobs through the successful implementation of CONOPS and that we can save most of the remaining 3000 jobs currently under threat through the steady (ph) implementation of CONOPS. So, I wouldn't necessarily expect much further provisions for restructuring and retirement costs going forward.

Thank you.

Ms. Acsumi do you have any further questions?

No. That is it, thank you.

Our next question comes from Conrad Skeatricle (ph) of UBS. Please go ahead.

Bernard hi. Just a quick question on the six shops that were closed previously, just doing a very good average Rand per kilo cost number since it ran around 130,000 Rand per kilo. That's quite a distance away from where the gold price is currently and I am a bit surprised to hear that you say that you don't think about further provisioning on further shop closures. Is that correct? Are you actually not looking at further shop closures? That's the first question. And then the second one away from that, you mention 92,000 Rand per kilo in calculating your reserve from resource numbers. Can you indicate what parameters you have used to calculate the 92,000 rand per kilo and in this environment shouldn't prudent accounting force us to use perhaps a more conservative number?

Thank you very much Conrad. Yes, let me try and deal with this sort of issues those six shop costs in last three months were in order of 137 rand a kilogram. But remember there is and that's why I left them (ph) separately, they were already severely impacted upon by restructuring. You know so you at some stage stop mining on this shop but still incur cost and so it's such a misrepresentation of any ongoing shop and hence my need to show them separately.

Of course in the coming quarter the shops to the extent that they are multiple, I mean they no longer exist as profit/loss centers and to the extent that they were down scaled in some cases to mere sections of other shops you know they will be incorporated in that.

For the closures, Conrad we truly believe that in the last six months we have correctly identified the shops that simply can't make money and at this sort of prevailing gold price. We have dealt with those, we have put in place the necessary agreements with the union and of course through reaching agreement to allow voluntary retrenchment we have had significant as we have indicated in the previous question, we have had significant number reductions in employees and believe that we have provided quite significantly for that.

If the voluntary retrenchments sort of continue for many more months, then obviously at some stage we either have to close voluntary retrenchment or we will incur additional sort of cost and we are not or near that point. Then in your question on 92,000 rand a kilogram, really I am not going defend that and that's why every year we make an annual report, I think we do some of the best disclosures so that you can pick your own gold price, make your own assumptions about the cost and then determine for yourself what you think our reserves are.

Annually, we are requested to make a declaration, our reserves have been walked over by many times because of our inquisitive (ph) nature by independent third parties and the dollar gold price that went into the reserve declaration was $380 and the rand was the balancing number which Conrad, I am embarrassed to say that I can't remember, where it was 6.80 Rand or 6.90 Rand or thereabouts, It would have been in the 7 rand a dollar exchange rate.

Remember this is meant to be a snapshot of a long-term view. I am no need to change my long-term view of the gold price of 92,000 rand a kilogram and I don't know if you listened into the actual presentation that indicates what would the reserves be right now at 80,000 but to re-declare reserves at 80,000, quite honestly we can't make daily or weekly or even quarterly with this reserve declarations and we give you a sensitivity on those reserves and I think it wipes out some 5 or 6 million (inaudible) it we reduced the gold price to 81 odd thousand rand a kilogram and you can see you know that significant but not that significant and it's the 92,000 in the context of a long-term South African gold price expectation Conrad I am quite comfortable with and I think we have got the chance for one more question and then I have to wrap it up on this site.

Can I go ahead?

Yes sure Conrad.

Thank you. You mentioned earlier on the call, yes and I got the number earlier, the lower reserve number, you mentioned earlier politically sensitive on a few occasions talking about job losses and yes this is perhaps a type of sensitive question but I think it is important to sort of get a feel for what's the, clearly you sit with a dichotomy between adding shareholder value on the one hand and job losses on the other. Can you perhaps talk us through that a little bit?

Yes and I think in any labor intensive company that is taking strain through a falling price received for the commodity that is as you put it dichotomy but this is not new. I mean I think Harmony used to employ 12,000 people, we sometime ago employed 58,000 people, we now employ about 50,000 and I think the constant quite honestly I think things come together through value creation. I think it is through creating value for shareholders in a sustainable long-term sort of approach that you create real jobs, sustainable jobs, etc, etc.

I don't want to make light of the fact that shedding jobs-in our case adds up to thousands-and that's a big thing and it makes front page news but ultimately this is not a job creation endeavor, this is not a - you know as we say in South Africa RDP project. We are here to exploit the resources and the reserves of this company to the benefit of all stake holders and our - we did - there is no conflict, from time to time the balancing becomes quite challenging and certainly we aren't keeping jobs for the sake of keeping jobs at the expense of shareholder value.

We, Conrad as I have indicated earlier, we battled like hell to catch up with the rand and that we may be guilty of but I think we are more caught with the rand than most of our peer group. We really battled to you know we have a plan, negotiate agreements with the unions and get permissions legally, proceed with retrenchment, implement the plan and when we get to our 85,000 rand a kilogram plan, the gold price is at 80,000, then we catch up with 80,000 but the gold price is at 77,000 or whatever and that's why you know from where I sit, I am very comfortable that we are now implementing a plan that puts us right back into a equilibrium, you know a point where we make real money, we you know can continue to build the company and at the same time we haven't just, nilly willy, destroyed jobs and that we can never be expected to do not only you know because of the South African environment but quite honestly I don't think that is, the sort of typical triple bottom line approach to value creation.

I hope that answers the question, I am going to have wrap this up. We have as always extended one hour by at least five minutes. So, Joan I don't know if you need to wrap up or if I could just perhaps say goodbye and thank you very much to everybody for listening in. Claudius as always available, he doesn't sleep at night and so if there are questions that got left unanswered, please give him a shot. Thank you very much everybody and good morning.

Thank you very much. On behalf of Harmony Gold, that completes this afternoon's conference. Thank you for joining us.