Harmony Gold Mining Company Ltd (HMY) 2005 Q1 法說會逐字稿

Good afternoon and welcome to the Harmony Gold first quarter results conference call.

[OPERATOR INSTRUCTIONS].

I would now like to turn the conference over to Mr. Bernard Swanepoel. Please go ahead sir.

Thank you Joan (ph), and good afternoon ladies and gentlemen. You are going to have bear with me this afternoon or, this morning for some of you, in that I am -- a bit of a one man show today. So if you trick me with clever questions, I might just have to refer back to you, to get answers to you.

But as long as we stick with the quarterly results, the operational side of things, the turnaround, and basic income, and balance sheet questions, you guys know I can probably handle myself here. I am going to talk through the slides, which we sent out to you, and which is available on our web site as well. It is contract rightsizing and the restructuring program completed, profitability restored, and net revenue is the crux of what I want to share with you today.

As you all know, it is a challenge first to apply our minds to something as boring as stunning set of quarterly results, when is a (inaudible) day for golfing, but if you don't mind, I am going to, you know speak through the quarterly results, try and help you understand why I have for sometime been comfortable that -- the bet we make for gold fields is from a position of strength, from its strong foundation.

My first slide, is titled highlights, and I think those highlights do speak for themselves. Cash operating loss of 73 million of last quarter has been converted into a cash operating profit of 133 million rand. I think most satisfying is the working cost reduction down to 77, 880 rand a kilogram. And from very early on, certainly at last quarter presentation, I indicated at my expectation is, that we will go below 80,000 rand a kilogram, despite factors like the increase in wages that was absorbed this quarter, and so on. And we haven't only done that, we have done better than that. And that is got mainly to do with the success of -- as adjusting to the strong rand environment, and of course on top of that, the successful implementation of CONOPS.

If you look at our cooperation, for many (ph) this is not a new definition that just excludes the shafts we set in the June quarter, were subsequently close, if we in other words compare apples with apples, it was actually a quite a nice increase in production from the ongoing shaft. Implementation of CONOPS on track, we have got 21 shafts, each one with its own implementation profile. I can't give you all of the shaft are finished or, none of our shaft has started. Each shaft is on it's own track, and it is going extremely well, we believe.

Our growth projects continue to proceed. I think we have managed to extent the period of cash outflow out of the company now, and during all of that, we were able to continue to fund not only ongoing capital, not only working cost development, but also the growth projects of which (inaudible) for just one. And I will talk a little bit about the reengineering that we have done there. And then of course, just to round off what was quite a good quarter, I think (ph) public demand now is the offer to gold fields shareholders for a merger of the two companies.

My next slide deals with fatality injury rate, and that's just the rate per million hours worked. I think you can clearly see from the growth, the incorporation of Free Gold and Elandsrand, and two deeper mines with not such glorious safety records in 2002, and we have subsequently observed those mines, implemented our safety systems, and we have really made good progress with turning the mines into mines with safety statistics similar to Harmony.

The first quarter of this year shows very good results safety-wise. We do believe that CONOPS is actually a step towards improved safety. This has got to do with rock engineering considerations, the panel (ph) being blocked every day is much, much safer than the panel drafting (ph) and then resting for the period. This is too early to indicate that this is because of CONOPS, it may be, but at this stage quite honestly we are just very pleased with the continued improvement in our safety results.

I am turning to the next slide, which is titled significant improvements in working cost. I will give you a quarter-on-quarter analysis, showing production in ounces what looks like marginally down, as of indicated before, the comparable ounces for the June quarter would have been 810, and if we take up that 37,000, 38,000 ounces from the shafts that were no longer in operation, out of equation, our revenue went up by about two thousand, I wish, it went up by about two percent or 1500 rand a kilogram.

In dollar terms, of course, we saw a slightly bigger increase. I just speak up a mistake, I apologize for that, sorry. Cash costs down really pleasingly from 83,000 rand a kilogram, to 178,000 rand a kilogram, and even in dollar terms, US dollars bounced with a nice decrease in cost, despite it's strengthening of the rand quarter on quarter.

I am going to do a lot more detailed analysis as we proceed. So in slides that are coming you will see where those results came from. I indicated last quarter that, I expect us to go below 80,000 rand a kilogram. I have consistently stated, I accepted the concerns raised mainly by people who aren't implementing CONOPS, that CONOPS is high risk. That made people cynical and skeptical.

I think we can now demonstrate that the benefits of CONOPS is part of this turnaround story and we have certainly achieved our 80,000 rand a kilogram objective. We are well on track, we believe, to achieve our December objective of 77,500 rand a kilogram. We still believe that all of the measures we've implemented, if the proof - results are in the numbers, then we will get to the 75,000 rand a kilogram.

If you can turn to the next slide, it's titled no increase in rand per tonne unit cost. That is exactly what that slide shows, but underground working cost is exactly the same at 433. Cash operating profit, a significant turnaround. A decent cash margin that certainly not where we want to be. We have indicated that we target something, you know, about 10%, cash earnings per share of $0.41, and then of course all the other charges that comes through in terms of amortization, and some other non-cash and cash items, resulting in an EPS of 106 cents negative.

What is very important here is for me to just stop a moment, and share with you that that cost a tonne is despite us firstly, absorbing 7% rate increase, and I think some of the other chief executives of gold companies have indicated that they expect this quarter to be negatively impacted upon. Of course, we have observed that, so there is a pretty good performance.

As important is that we probably don't have a single crew in Harmony, which has not been affected by the implementation of CONOPS, and or the right sizing exercise, where the head count of the company has now been reduced by some 6000 people volunteering to receive retrenchment packages.

So you can just imagine that every team in Harmony, in the last quarter has seen some level of disruption, as in some cases our crew has been moved, in some cases shops have closed down, in other cases teams were topped up with new players in order to facilitate CONOPS. I really have to take my hats off to the guys, this is a stunning performance, and certainly one of the best set of turnaround numbers I have had the privilege of presenting.

The next slide, I will try and give people feel for what our ounces look like, I chose the terminology, so you may chose to agree or, disagree with me. But -- some 57% of our ounces were produced at cost below 70,000 rand a kilogram. Yes, I do chose 70,000 rand a kilogram, because that is significantly lower than the current cost structure of the gold field South African assets, but really this is just a measure to show you how the bulk of Harmony's assets is actually, I think by anybody's measurement, in a very profitable category now.

Profitability for last quarter was determined at about 83,000 rand a kilogram, you can see some 83% of our ounces now are profitable, which is a long long shot from where we were six to nine months ago, and my key job now is to erase that memory, and put into your minds that Harmony recently (ph) adjusted to the strong land environment.

It is true that some 17% of our ounces are still loss making, and I think you can all be rest assured those ounces are getting attention right now. We have recently, some two weeks ago, again announced the same agreement that we have reached before with the unions, but now applicable to these assets, which are still loss making that are getting attention, and the implementation of CONOPS, plus the adjustments of the capital (ph) the (inaudible) we have done on the other shop will see these return to break even and profitability.

I am moving on to a quarter-on-quarter cash operating cost and variance analysis. I start of with last quarter's cash operating loss of 43 million. You can see the way in which we've implemented CONOPS on lot of our shops (inaudible) move people from the unprofitable panels to more profitable panels. So the volume decrease is just about offsetted by the increase in recovery rate, and of course the impact of CONOPS in lowering cost per tonne, you can see in the overall rand, there is a 82 million rand cost savings.

This is partly CONOPS, partly the integration of on gold and free gold, this is just overall cost reduction exercise in the company. This cost reduction flow through to the bottom line. The rand gold price contributed marginally, 38 million rand contribution, thanks to our higher gold price. So with the swing (ph) around quarter on quarter, 175 million rands, not bad for a company which has really seen itself restructuring and implementing CONOPS in the last few quarters.

My next two slides actually flow together, the first one is titled suspendable earnings before depreciation. I really just take the working profit, I deduct from that overage of 38 million. This is our definition of overage, not to be confused with anybody else's head office cost or anything of this sort. Average mission overage is really most of those costs that get incurred, in order to run the company, and incurred, in other words not on the mine site by the manager of the shaft.

Next on the revenue, it is really interest received. Interest paid, about 70% of that is actually cash, the other thirty odd percent is a book entry, in order to account for the convertible bonds, low interest rates for which these losses is really a, almost zero in number as is adjustment in financial instrument. So if you do the accounting adjustments you see, that a 133 million rands ends up at 32 million, after all of those charges.

If you then now move on to the next slide, and I just bring into apply depreciation and the other non-repaying items. As powered (ph) with the same 32 million rands, investments is just a positive adjustments, depreciation of 239, you all know this is a non-cash item, and non-recurring but cash item of course, is restructuring cost, 154 million was incurred during last quarter. Our expectation of it for this quarter, that number is going to be over a final installment of some 75 million rands.

Exploration cost, of course, that money goes into exploration in areas of Papua New Guinea, and in the quarterly rehabilitation provision of 14 million. For our net loss, an accounting loss of 395. You can see that the bulk of that sits (ph) in depreciation, non-cash and non-recurring items. I will come to the issue of cash burn and something, which a lot of nonsense was spoken about, in the last week.

And I will come back to that point, and just to indicate to you that we are really right on track with what I have indicated, to those of you have seen in the last few months, that the first objective of this quarter was to reestablish operation profitability, and in doing so, we were always going to establish a point of positive cash generation not for the quarter, but certainly by the month of September. Both of those objectives have been achieved. We now need three in September month in the December quarter, and the company will actually generate cash of the CapEx, and all other expenses as well.

I then move on to a slide titled reconciliation of headline earnings. This is all the definitions of earnings you could ever imagine from cash earnings to the basic loss line, all the way to fully diluted loss. and of course. the two numbers people really look at both increase significantly, cash earnings or loss, and of course headline loss, which is substantially down from last quarter.

Please turn roughly to the slide, which is titled quarter-on-quarter operational performance. I am extremely pleased in our approach to tackle all three to one shaft at the same time. Each one of our management teams came up with a proper plan of how to do whatever took to implement both CONOPS and restructuring to the extreme that was necessary, and it is quite clear that with the exception of the free state (ph) marginal assets, we have been -- but - I am strung by lack of agreement with the unions.

Overall, our operations have really done extremely well. I will talk to (inaudible) paper does not look like that, but the free state growth assets, our profit in our gold shops have made more money. So this was not only a late stack (ph) of the loss makers on trying to stay on the bidding, this was as much about further improving the profitable operation.

In a free state growth shops it's target, which especially on a cost to turn basis, had an absolute stunning quarter again, and those costs are now down by over 20% from the sustainable level from which we took it over a mere five months ago, and it is a little bit more in stall (ph) in terms of future prospect. That also includes (inaudible) grades started to recover quite nicely, and of course CONOPS seem to (inaudible) give us a little bit higher volume to gain, this time with higher grades and overall a nice step up.

The free state growth area, also probably -- a sort of high it's a little bit -- one of the best turnaround stories I have seen in my lifetime, and it is what our lady manager at Bambanani has achieved from significant losses to decent profits in the last sort of three months. I think Estelle (ph) and her team really deserves a special mention. It has been an exceptional performance.

So the free state growth is a combination of turnaround, and further improvement. Free state margin, really is the area where we have, as I have said for the third, and hopefully final time, reached the necessary agreements with the unions. Implementation of what we have agreed now, we'll see a significant impact. We know from past experience that it's probably six months of hard work ahead of us to get those operations back in to profitability, that I am optimistic that some of that will show in this quarter.

Uganda just looks like too good to be true, it is not so good to be true. It is true, but it is not necessarily sustainable at these levels, because a significant part of Uganda's turnaround, second grade. It was firstly a good operational turnaround, very successful implementation of CONOPS and on top of that grade, at least a gram a tonne higher than what we believe is the long-term sustainable growth. So in the next quarter Uganda is likely to return to more sustainable levels with a really good performance.

Randfontein has minutes to remain profitable, despite a significant downscaling on some shops, a bit of mix pack of results there. Elandsrand, I actually intended to speak a lot of Elandsrand today, but quite honestly it would be the wrong platform and forum. What we have achieved at Elandsrand is now three months of significant improvements, where August was worse than July, July was worse than August and September was almost break-even. The losses in September was just 100 million rands.

So it is with confidence that we predict that Elandsrand will be the same number for the coming quarter, hopefully absorbing, and offsetting the grades of Uganda returning to normal. Most importantly, we do believe that at Elands the things we have done is now going to see it return to profitability, and remember Elandsrand in the final analysis, it is about holding (ph) the brand new mine at the bottom of the old mine, returning the old mine to profitability is certainly within our reach now.

Of the Kalgold at recent quarters, the variance there are really quite insignificant. Another major swing number for the quarter of course, was that those shops that last quarter were ear marked, and put in to sort of restructuring sort of mode, those shops have now been quick (ph) on care and maintenance. So this quarter could explain that they are (inaudible) private shops that has been absorbed by the other shops, so there is no more chance to restructuring operations.

Australian operations from the back of higher grades from the underground mine as they really (inaudible) quarter again, and for those who follow the Australian operations of all the company, there are many Australian operations we think (inaudible) capital, and still have a few dollars left. We have achieved that for the quarter of three now. So all in all 176 million rand turnaround on the back of success with both the turnaround plans and the implementation of CONOPS.

My next slide is operational highlights. I can read you through the bullets, we are making good progress with CONOPS, we have absorbed 7% rate increase, targets (inaudible) cost improvements I spoke about briefly (inaudible) mentioned, Bambanani is really a very very good achievement. Uganda had a good recovery, but the grades aren't necessary at levels that are sustainable. For those who haven't gone in to the details, the grades of Uganda was 7.5 g/t mainly on a very high grade of (inaudible) historically our high-grade shop and we believe that 6.5 g/t is a more sustainable growth for Uganda. Elandsrand, that is spoke about and Australia as well.

If we turn the page to the capital expenditure, I think the one set of numbers that have certainly distinguished us from what some of our peers in South Africa have been doing, we have not only been keeping up operational CapEx, we have certainly also continued to do working cost development, which of course doesn't show up in that table, but it does show up in the rate of meters developed etc.

(Inaudible) being staffed in order to get to some shop imposed short-term objectives of cash neutrality or, any one of those other dangerous, over emphasizing of short-term numbers. So very comfortable that we have continued to invest in (inaudible). The project CapEx again as you can see, it is very much on track, not a significant change going forward in to the December quarter. The only big difference there really would be a cut back in exploration expenditure and PNG, simply because we are now in feasibility state and the drilling has dropped off a little bit.

I want to move on to Hidden Valley, which is the mine we are about to build in Papa New Guinea. This will be stunning production growth for Harmony in Australasia. If you keep in mind our production base is just over 300,000 ounces verses the first, of what we believe will be more than 300,000 ounce of producing mine, being brought on over the next few years. The paper process is progressing towards the date of the end of November.

It is a very difficult call to make in terms of, you know, government processes. We are very comfortable that the process is very diligent, it is very intense, but we are making good progress. We don't foresee any insurmountable problems. It is not too different to the processes as we have just completed in South Africa where I think the government has been extremely diligent in taking us through the license application and we just today received news that we will be the first South African company to convert old order mining licenses into new order mining licenses.

That great news is not only great for Harmony, I think it is actually great for South Africa to show that the companies that have complied the companies that have played with the, you know, by the new rules will be re-licensed. Those licenses will be both for our Uganda operations and for our Randfontein operations, which includes Elandsrand. So this is a huge step forward for Harmony and quite frankly I believe for the perceptions about the process in South Africa. It is been a very, very detailed process, it was not easy at all, we never said it was going to be easy, but I think we have demonstrated that it can be done.

Those who come late of course, will just walk through the door and find it easier because of the capacity building that has taken place between us, and the Department of Mineral and Energy. And so that's just a bit of great news on the topic of licensing, we are currently very successfully engaging the government of PNG in a similar process.

Hidden Valley construction could start in February, if the licensing is finished by November. We are of course, busy with all the normal steps that will keep us busy with in terms of project optimization. You know, in terms of pit design and infrastructure. The definition (inaudible) continues in order to convert (inaudible) resources into (inaudible) resources.

My next slide, which deals with Wafi, the project a few kilometers away from Hidden Valley. We are progressing towards pre-feasibility, we have completed some 13000 meters of RC drilling, not RD drilling, which I wouldn't know what that means, you know, that is what reflected on my slide, I apologize for that.

That is a hell of a lot of drilling, and really that drilling continues to confirm what we know, and that is that we are reeling at Wafi and (inaudible) setting on a world class ore body of gold and copper together. Those intersections some 25 meters of 3,9 g/t, 71 meters of 5,1 g/t. It is all just further confirmation of what we have known for some time and that this is a big one.

If we move on to the Doornkop South Reef project, you know the team running that is (inaudible) engineer that this was possible because of the reinterpretation to the geological model, as we are now much closer to the reef we can fully now (ph) detailed understanding, it turns out that the southern portion of the whole body contains 75% of the gold for about 207 level.

We previously thought that was only at the dept of 212 level. It is really enables us to cut the shaft by 60 meters. It takes us a lot of time that means waste development, the whole labor waste, so it saves money, and most importantly it seems us proving (ph) the crew production -- that target date earlier by six months.

If you move on with me to the next slide, the Doornkop South Reef project, reduction in capital of course, and bringing forward the stock update of course, has got a very very favorable impact on the overall numbers. The NPV had a 7.5% (inaudible) of 400 million rands, as you would expect this was very high, and really this just reconfirms why this projects are worth spending money on, were worth spending on during the (inaudible) quarters that we have behind us. We are now back in a position where we can certainly afford to capital, but we have continued to spend in the last few quarters.

What might the future hold? I am not a particularly good forecaster. We believe the gold price is likely to range in that 83 to 86,000 rand a kilogram range. I am sure as I say that today it will probably be outside that range. It has so many times my tongue, my hands, and the other body part did forecasting. It is just to try to give you a range for what our working assumption is. Our cash operating cost target is to continue to bring that down and 77,000 rand a kilogram I think now has got more credibility than what my claim of 80,000 last quarter end. We made last quarters targets, I am confident about making this quarter.

CONOPS will hopefully be agreed to, and pretty well advance in terms of implementation through out the company. Elandsrand, I am very confident will show a very significant turnaround with little bit of luck went from behind (inaudible) may even be profitable.

So all in all the much talked about cash burn is a thing of the past. I think I have shared with you before, that was the platform that we knew existed and that was the platform from which we slightly prematurely were put in to a position of having to launch a bit for gold fields. I am not going to spend time on the detail of the bit for gold fields. I think that has been disseminated extensively. I want to try and leave a fair amount of time for questions.

Obviously, I can't constrain you to questions on quarterly results, if I could I would have, I am sure there might be questions with regards to the proposed transaction. I don't have a hell of a lot of new information with regards to the proposed transaction. I think our bet has been put on the table. We are doing our best to get it to, share holders of gold fields in order for them to exercise their democratic right to chose to either accept or reject it, and it is going to be a week or two, the normal delaying frustrating tactics.

I am not worried about any of those, I think that is really just a little legal impediments that may be raised, and that needs to knocked over. In the end, as investors and shareholders, the gold fields investors will get the offer on the table, we will be able to make a value proposition, judgment, and I continue to be confident that our ability to unlock value (ph) they will stand us in good state.

I think I should probably add two or three comments off the slides and after having made the presentations in Johannesburg, I have the advantage of knowing the way the questions might go. I want to share with you what our quarter looked like, the last quarter. We made a 133 million rands profit. In that 133 million rands, more than 100% of that was made in the last month. Let me explain.

In the month of July, we made a loss of 40 million rands. I shared with you that we have turned the company around, that operationally the engine was firing and all six (inaudible), I don't know how many cylinders we've got, lots of cylinders, at least (inaudible), but the gold price also was as low as 78,250 rands I think the average for the month. There was a turnaround from the July month to the August month of 70 million rands.

So the minus 40 million, became plus 30 million. So August was a profitable month and the 70 million turnaround partly, about half of that 70 million came from the gold price, which kicked up to 82,400 rands and the other half, regardless of how you try to look at it at what level of detail you looked, it was operational turnaround, it was success with cost reduction, success with implementation of CONOPS, a very comfortable position and clearly a momentum behind the numbers, which gave me a lot of confidence.

September, it was a further 113 million rands improvement now, from 30 million rands profit to 143 million rands profit. Now if you add those three numbers together, you get back to the 133, and at 143 million rand profit or 113 million rand month from month improvement, only 40 odd million of that was gold price related, because the gold price at some stage shot up. (inaudible) 88,090 kilogram and rest of that was again operational credit, operation improvements coming through.

So, you can imagine within the last week all those sort of insinuation for that operational performance (inaudible) and you know, I can accept (inaudible) makes that comment because there aren't, I mean, (inaudible) know any better, but I certainly has had the confidence of somebody knowing that the turnaround was achieved by our business team.

I think it is quite clear for anybody that the last two or three months most of my time went into the strategy of making the offer, and I think once and for all we can demonstrate that this turnaround was achieved by the management team, the flat structure enabled us to achieve this faster, I would say than, that I have seen from other South African gold mining companies.

I want also take the task (ph) -- discussion if you don't mind, to a logical conclusion and just talk to it even before we get into the questions. There is a cash flow statement in the quarterly booklet, which I think is available in electronic form, and as you know it always gets out sometime in the foreseeable future in hard copy form. Page 33 shows the cash flow statement.

But, let me again take a month, and I shared with you that in the month of September we made a 143 million rand cash operating profit. Of course, I can't put all of that money in the bank ,and that is quite a bit of money to run Harmony, as we plan to be very lean and mean, but some of us still get fat salaries, so there is a 25 million rand a month that goes into the so called sort of G & A overhead etc, head office, all those sort of costs together and inclusive of exploration and so on. That is about 20 million rand to deduct of the 143.

Interest charge of cash that flows out, not accounting interest charge, it is about 50 million rand, that I need to deduct a bit under the 30 odd million, and in our capital expenditure, those as - sustained as ongoing capital plus gross capital, we ran out 75 odd million rand. So, the point I am making is in the quarter -- in the month of September, we generated an over about thirty odd million rand free cash flow after G & A, interest, CapEx expenditure, and so on.

So, I thought I would share that with you again, but expect the question (inaudible) and got the question (inaudible). So, I mean, this is a pre-interest strike, I am just giving it to you before we even have to go there, and you have to queue in a long queue, to get your question through on that. I am going to leave the remaining twenty minutes or so for questions, so I am going to hand back to Joan to the facilitate Q & A session.

Thank you very much Mr. Swanepoel.

[OPERATOR INSTRUCTIONS].

Our first question comes from Thomas (inaudible) Lehman Brothers. Please go ahead sir.

Good morning gentlemen or good afternoon rather. Brief question I have on the action regarding Allan Gray whether there is any progress and perhaps any comments regarding of his filing with the SRP. You have clearance from SRP as I understand. So how do you reckon what are the chances with the filing with the SRP? Thank you very much.

Thank you very much Thomas If you don't mind me calling you on your first name. I must say with regard to Allan Gray obviously, I am in absolutely no position to ever comment on behalf of that specific shareholder. I think after a week of talking to investors, I think it is quite clear that they are different investors with different perspectives. I haven't yet successfully converted (inaudible) shareholder to the point that this is to his advantage, but I wasn't backing myself to - you know to sell (inaudible).

So, I have met a clear (ph) pocket of shareholders who would find it very difficult to be supportive. More typically, I think our value proposition's held extremely well, and two especially people who have made money with us in the past, who supported us in the past either in gold fields and Harmony shareholders for a moment.

And I think in the first (inaudible) there was an interesting phenomenon of people who tend to be gold field shareholders suggesting that this deal could go through, may go through, but Harmony will have to pay a little bit more, and I certainly have heard that some Harmony shareholders indicating that Harmony is paying further a significant premium was a good balancing. So in the end, I need to convince the majority of my shareholders, Harmony shareholders, that this is also value enhancing for them.

I also have to convince the majority of gold field's shareholders that this is a good value proposition for them. That is my challenge. It has never been anything other than that. This is a full month race, not a 100 meters strength, I am very confident about the ability to demonstrate that, especially now that we have taken a lot of issues about how desperate we are, and you know in our bid and so and -- out of the discussion, but quite honestly I can't and wouldn't comment on behalf of a specific shareholder.

I am going to move on to your question on the SRP. Of course, we have got clearances from the regulators both in terms of Johannesburg and the ACC. I think the two regulators, both are to apply their minds because this is not the normal sort of run of the mill structure. We are very comfortable that this is consistent with the clearances we have got. It is easy for us to say these are purely the line tactics. I will say that on the basis of when they exercise their rights to appeal, they got a hearing date of Tuesday, and immediately after a delay to Friday.

So that doesn't sound like somebody who is so confident of that, but typically the process will run into legal course, and you know at some stage I think whoever is trying to delay or, frustrated the process, at some point irritate shareholders, who I think in the final analysis that just wants a right to decide for themselves. So, the SRP process certainly, we believe has - we've had robust (ph) clearances upfront. We can't stop anybody from writing a complaint, and taking upon numerous appeals after that, if that's what they chose to do. Thank you.

Thank you Bernard Swanepoel. May -- I just have a quick follow-up question on the first one. You mentioned it's a four months race, and you have time to convince shareholders. I would have vowed (ph) for the capital increase, which is crucial for the merger to go ahead. There is a 75% vote, and that is on November 12th, is that right?

That is correct, yes, absolutely, and again I think that is why obviously, our first challenge was always going to be to speak with our shareholders, and to put our value propositions to our shareholders, and that is exactly what we are currently busy with. And the 12th of November is quite a critical date, and of course the other milestone date like, you know, the meeting with the (inaudible) transaction is to be approved or disapproved, etc. And I was merely referring to the end date after all the conditions precedent (ph) have been met, and all the approvals have been achieved. But the 12th of November is a reasonably significant date, in order for Harmony to get the necessary approval.

I understand that. Did you ever think about, I guess you did - trying to find an agreement with Allan Gray similar to (inaudible)?

And we certainly haven't had any pre-consultations with other shareholders. I think we made it quite clear upfront, that in both instances we spoke with bigger shareholder of gold fields and found them supportive, and they gave us irrevocable, and we have done exactly the same with Harmony's biggest shareholder. I have to admit that of course, the leaky environment, you know, sort of fast track our whole announcement plan a little, but it is impossible for me to say what would have happened if we didn't announce earlier. In the end, we announced earlier and therefore you know, the interaction with shareholders now takes place post announcement, and a little bit in public domain. Thanks Thomas. We will move on.

Thank you very much.

[OPERATOR INSTRUCTIONS].

Our next question comes from Mr. (inaudible). Please go ahead.

Hi, this is (inaudible). I have two questions. I will ask one, and if you have time for the other, I will ask the other. With respect to your results for this quarter, you obviously had a very high grade, and you already addressed that some of those grades were not sustainable. The question is two fold. Can you give us slightly maybe more precise numerical guidance of what you think realistic grade is going forward? And the second part of that question would be, the impact on earnings for this quarter was 334 million rand. Can you make a comment on what your earnings, again if you could give us some numerical guidance of what you think it could be, what that impact would be for lower grades?

Thank you. When I put this sort of a little bit warning on the grades, I was talking about one specific operation, an operation known as Evanda where the grades went up from six coma two, which was a little bit lower than what it is, you know, an averaged to seven coma four five and subsequently rounded up to seven and a half. So really we would expect some sort of decrease in the grades of Evanda. Now Evanda's contribution in terms of overall kilograms is about 15%, if I do the sums (ph) roughly, so what I am -- perhaps 17%.

So what I am suggesting to is, sort of slightly higher grade than what is sustainable price, you know, only a part of the operation. In the detailed presentation on Johannesburg, I have also indicated that we expect further grade improvement, especially at target, target mine that is, and also -- even more so again (inaudible), another big mine. So, really I think the company's grade is certainly not on the territory that I am cautioning you on the overall grade of the company for all our underground operations, I was very specifically referring to a single mine. And I apologize if I have stated this sort of wrong impression with that.

With regard to the earnings line, again I would hope that our cash operating profit has got the ability to go up quite significantly in the coming quarter. All of this comes with all the health warnings of (inaudible) gold prices (inaudible). At least under a certain set of assumptions, and I certainly just use -- an equivalent gold price scenario to indicate that. I have then also indicated in the slide which for the movement, I can't lie my hands on. Sorry, let me go back to my own notes, which I have made. I have indicated that if we were to make, let us just say we make about a hundred, hundred and twenty million rands a month, then obviously, in order to get down to the earnings level we need to deduct certain G & A cost, interest cost, and were you deduct CapEx to do a cash flow calculation.

We you deduct amortization and depreciation to get you an accounting earnings number. It will be a significant improvement to that level, driven by a significant improvement of cash operating levels, which is all the dangerous territory of forecasting and predicting, but again, you know, we make those statements on the back of the underlying operating improvement that is - I think shown up in the numbers. Thank you very much for those questions.

We have another two question, the first of which comes from (inaudible) of UBS. Please go ahead.

Apologies, I forgot to cancel mine. It was exactly the same question on maintaining the Evanda grade.

Thanks (inaudible).

Our next question comes from Hannah Douglas of the (inaudible).

Hi, good afternoon. I have two questions. The first one is a quick one. I just wanted to confirm did you say you have the license conversion for Evanda and (inaudible) in hand?

Yes, and I am sorry to sneak in the middle of the quarterly presentation. You could see, if I could control government, I would have had this middle of last week or middle of this week, and that is correct, both Evanda because of the structure of how Evanda was acquired is for the Evanda lease area, including our growth areas of (inaudible) very exciting and correct news.

And in the (inaudible) application includes the south reef the (inaudible) south reef joint venture, and it also includes the (inaudible) application which of course, (inaudible) around mine. So, you can also call this as four licenses, but it was two applications, and they have been approved. Again I have been indicating for a few weeks that on the (inaudible) these licenses, well today it has now happened. Yeah. That's correct.

Have you estimated the three (inaudible) applications?

(inaudible) I am embarrassed to say you catch me a little bit. You know we have got a key in working with that. And it is like a pipeline and we have submitted additional applications. And now we are working to a dateline of final submission, the end of January. Account of and tell me, you know, the exact ones, I can let you have that info, that we were always going to, you know, get you one a month. Now the first one of our applications went in sort of mid May (inaudible). So we have been submitting at regular intervals from State. Sorry if that compounds your specific question, I just moved (inaudible) my fingertips (inaudible) we don't want this being submitted to the market.

OK. That is right. So my second question. I am actually seeing on the (inaudible) when to ask. I appreciate if you can give us the details for our 21 shops, about the progress of implementation of continuous operations. But I was wondering if you could give some details, either quantitative or qualitative about some of the key (inaudible), you know making reference today. If volumes are going up, appropriately staffing, and most importantly how is development keeping up?

(inaudible) thank you very much. I, you know, today extended (inaudible) in South Africa two analysts to you know really if they want to see the comments three months further down the line they can nominate the shaft and you know (inaudible) because in some shafts (inaudible) much for example Evanda (inaudible) shaft and for various reasons of which lack of flexibility in the whole body down the deep line is very limited implementation of (inaudible) design. Other shafts like (inaudible) we have implemented CONOPS in almost ideal environment where we first open up the bottlenecks to capital expenditure on shafts and I am keeping a good fifteen months ago. You know, then we spent more on development so that we built up flexibility and then only that we start to harvest all of that through increased volumes, and now finally also increasing rates.

I think that if you were to have the detailed little booklet, a quarterly booklet in front of you, I think it is beginning to manifest or to demonstrate or to share with us, you know, especially in the free state, the gross of it, you know there is an increase in volume, you know, on the back of an increase in rate, and you know, that's the easiest place to see exactly what we have been talking about. So if I quote you the free state (inaudible) shaft, then this would gain unfortunately either the level at which we talk now, it is a combination of shafts.

But in the tonnes have gone up by over a hundred thousand, max about 7%. The grade has gone up marginally, (inaudible) by about 2% and cost is down by about 7%. Now I mean you could imagine what magic happens, and that is why there has been a doubling of contribution of cash operating profit contribution from these shafts, because it is exactly what we (inaudible).

It is a marginal increase in volume, remember this is not the first quarter, so you know we can ask him analyze the twelve month's period to show the full benefit, it is a further marginal increase in (inaudible), despite the fact that target (inaudible) itself in glory you know, was great in the last month, and then on top of that there is a reduction in cost. So I am very comfortable that CONOPS in a way is implemented substantially on giving us (inaudible) results, and you guys know, I am ashamed if you look at tax (inaudible) we were pretended (inaudible), that I think if you get a incremental increase in volume, or some incremental increase in rates, with incremental increase or decrease in cost per tonne, magic happens.

A lot of our shaft of course really (inaudible) into job retention. So let me put exactly, more positively, you know, I am talking to shareholders, not to the union here. What I mean is you know, (inaudible) unprofitable cut off. We will absorb those people in to the teams which are working in the bad cut-off sort of areas and so obviously your volume might look like it stands still, that you actually get the same volume, a slightly better people productivity, a slightly better grade and slightly lower cost per tonne, and you still come up with the sort of the same positive number.

I know you are gonna take us you know, in the next few days into a level of detail that keeps me on my toes, (inaudible) that she needs to make the (inaudible) sharp numbers available, and you know that will be made available. Its when you got those numbers that we will be able to have a, you know, a sharp conversation on the extent of CONOPS implementation, and not. I think I almost am going to say to you that the best indication have come up so (inaudible) than the other shaft if you look at the free state margin of shops where we haven't yet implemented CONOPS, and basically there was no improvement quarter on quarter. Perhaps a bit of a round about answer, please, you know you have to get away, but that's once you have got the detailed numbers in front of you.

Thank you and you anticipated my question about the shaft detail, I have just one quick follow up. Which are the shops that have don't have CONOPS agreements with the unions?

They would be (inaudible) research with this Old Harmony, but that's not really quite of a regional harmony, but it is a (inaudible) shops, all the marginal shops in Virginia and in inclusive of up to two months, maximum four and five, and really they are recent sort of just recently reached that very same agreement we reached three times now.

We have reached it again, (inaudible) unions of these operations and we should now be, there should be no further impediments in implementing it, so it is really guessing, it's a number, it is probably slightly smaller than about 20% of our operations, which still needs to see CONOPS being implemented. It is really the part where we need it most now, you know (inaudible) because everywhere else we have implemented it, and quite a few of the so-called loss making and marginal shops have been turned around. So this combination of moving people to (inaudible) jobs, you know and accepting voluntary retrenchment and implementing CONOPS. This is the last pocket that needs all the attention that it is getting

Ok. Thank you.

Thanks Hannah.

Our next question comes from Jim Richards of (inaudible) Capital. Please go ahead.

Hi, you have indicated that 57% of your production falls into (inaudible) profitable (inaudible), 70,000 rand per kilogram category. Once you have derived all the benefits from your cost reduction programs? and you didn't mention CONOPS throughout the cost of your operations. How can our fixed 7% go?

You know, (inaudible) dangerous new categorization I have just started, because you know any day for example since Evanda which I have just you know told everybody that Evanda is great, it is little bit tired, and what is sustainable and so on. Having said that, I think obviously what we would want to achieve is to get that 83% profitable (inaudible) 10%, of course I am just joking, to 100% profitability you know. And then we will have some sort of normal distribution.

The point I really, firstly tried to make it is that significant, you know, almost critical mess of Harmony's cost, you know, is actually by the very people who are currently pressing our assets is actually pretty good sort of numbers. We don't have specific targets, I really have just taken the existing set of quarterlies, and I will just categorize it for people into those one of three categories, alright if I say it is a new benchmark, we found it though easy, we certainly expect you know, further benefits coming through, on quite a few of our operations you know, quite broadly sort of based. So you have got me, I can't tell you it's coming though (inaudible)

That's fine. Thank you.

Ok.

Mr. Richards, do you have any further questions?

No. That's fine.

We have a follow up question from Mr. (inaudible). Please go ahead sir

Yes, hi. I have a question related to what the gentlemen before me asked. When you were making the presentation, I don't remember the specific wording, but something referred to this cost structure being very competitive versus gold fields, at least that's the way I grasped it. And I just checked a gold fields' previous quarter numbers, and they had 66,200 cash (inaudible) cost per kilogram, and lower (inaudible). You may be go back to that issue and discuss that a bit further please.

yeah, thank you, and I think (inaudible) two things here, or that I just have to clarify the comparison I was making. Of course this goes to the South African underground mines. And we deliberately do not cause the confusion of throwing surface mining, open pit mining, (inaudible) rock re-treatment, ultimately laying the two companies you know, objectively compares these two companies.

I was really just making the comparison of South African underground mines and the 57% of our ounces that this quarter got produced below 70,000 rand a kilogram as compared to the (inaudible) average numbers for the underground mines in South Africa, and that was really just the comparison I was making. You know, I think if you add all the other tones in, then you get a lower yield. I am trying to (inaudible) surface and underground (inaudible) together, but I am sure some (inaudible) numbers I would be able to find the overall tones of an overall yield extremely misleading because it is completely different sort of sources of (inaudible).

So my comparison was purely done on that level. At the same time, I think some two weeks ago it was also equated and rated amongst others, I think that the (inaudible) have indicated that they expect to cross this quarter to probably be negatively impacted upon on the by their wage increases and so on. So I certainly was left to a firm impression that the South African cost per kilogram number, which I think if I have not missed (inaudible) was in order for about 73,000 rand a kilogram, was likely to go up this quarter. But it is really, you know that is up to them to show us later this week when announced that as well. So that comparison I think I was trying to put that in to the context in which I meant it, and trying to make it that answers your question.

Yes it does. Thank you.

Our final question comes from Russell Fryer of Duestche Bank.

This is Russell. I am just still in the line.

We apparently have lost Mr. Fryer, and there are no further questions. Would you like to make some closing comments at this time?

Ladies, gentlemen, as always thank you very much especially allowing me an hour to share with you our results. These are results I am extremely pleased with. These are results, which concern a lot of the things I believe in. Nothing more so than, you know empowering management teams to run mines gives stunning results. This is a good step forward to where we can be, and nothing (inaudible) re gain some credibility for us in terms of having addressed what was - outstanding past performance over the last eighteen months on top of the ever strengthening rand, and I am really happy with where we are. And I am certainly really confident that we can deliver all the promises we have put in to public to make. Thank you so much for you time and attention. Good bye to all.