Harmony Gold Mining Company Ltd (HMY) 2005 Q2 法說會逐字稿

Good afternoon and welcome to the Harmony Gold fourth 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 very much, Joan. Good afternoon and good morning ladies and gentlemen. I assume most of our colleagues are either traveling to Cape Town or are already enjoying sunny South Africa. We do have some 40 people on the line. So, I have got a pretty lengthy presentation, which I will try and work through in perhaps 35 minutes.

You should have access electronically, some of you will have hard copies of the presentation, it's titled "A Successful Restructuring Plan Results in Higher Cash Operating Profit Margins". It deals with the quarter ended December 2004. And I'll obviously also make a few comments with regards to the Gold Fields -- the Harmony Gold Fields bid.

The first slide is really just a slide for interest's sake. It deals with South Africa's gold production dropping from 575 tons of gold to about 375 tons of gold of last year. This was a series of 10 years of consolidation. On the slide I indicate certainly what I thought was a significant event, the shareholder revolt of 1994, a process which started at Randgold. Harmony got its independence from Randgold a few years later. We had the big mergers of Gold Fields/Gengold and all the assets into what is today Gold Fields. The AngloGold/Minorco grouping together of their gold assets into what is today AngloGold Ashanti -- excuse me.

And really I want to make a few points on the last 10 years. The 1 significant point is I think that Harmony was clearly the growth story in this mature and declining South African industry. We're the only company to do significantly more gold from South Africa now than what we did certainly 10 years ago. We do about 5 times as much.

There's no doubt that our role and that consolidation factor significantly reduced the decline. It's -- even the Unions acknowledge in their submission to the Competition Commission that Harmony's specific role in the industry in the last 10 years has been to significantly reduce the rate of decline.

It's also interesting that all of us have from time to time believed in consolidation. And again, most of the stakeholders right now believe that there's a need for further consolidation in South Africa. There are various processes, net lag processes, interactions between Government, the Unions and the Company, where we are dealing with those issues right now. And once such meeting actually took place this morning. So, I think the external environment, the strong Rand, the low Rand gold price environment, really is just the driver behind the further consolidation that is inevitable in South Africa, I believe.

My next slide deals with our proposed merger. Our offer, despite the various rumors that you may have heard and the 1 or 2 retractions we had to do. Our offer is priced as it was originally, at 1.275 Harmony shares for every Gold Fields share. We continue to believe that that represents an upfront control premium of 29%. The only outstanding issues now, subsequent to us waiving the 50% requirement, is the approval from the South African Competition Authorities. That is 40 days after filing. Gold Fields finally filed their submission on December 15. So by February 11, the Competition Commission has to make their findings available, send it up to the Tribunal. The Tribunal then has to set a hearing date within 10 days -- 10 working days, that is.

There are various suggestions carried in the press, claiming that Ian Cockerill indicates that they will try and frustrate and delay the process. We think there's limited scope for that, certainly up to the point when it gets to the Tribunal. And then the Tribunal process will take its normal route. We actually believe this process is reasonably in hand and will proceed according to schedule.

My next slide is titled "A Merged Harmony and Gold Fields". I continue to believe that a proper analysis of the 2 companies shows that both companies have got a combination of diverse assets. Certainly, there's the international assets, of which Gold Fields have got more than what we have as Harmony. There's certainly international growth prospects, of which I argue Harmony has got significantly more than Gold Fields, and I will come back to that later. We each -- each one of us have got quality low cash cost ounces in South Africa. And each one of us has got orebody optionality, which comes from the high cash cost ounces, mainly in South Africa and certainly in Gold Fields' case also in Australia.

So, merging the 2 companies we believe will create the world's largest international gold producer, with significant exposure to South Africa but also with a low cash cost profile. We at Harmony unashamedly retain a -- retain some of the higher cash cost ounces for exposure to future currency weakness and, of course, gold price increases. [Cartel] doesn't want that and we believe shareholders in both Harmony and Gold Fields have in the past shown an appetite for such exposure. We continue to believe, and we believe this presentation contains proof, of our ability to extract value during the various cycles.

My next slide is dealing with what we have achieved to date. Sorry, I'm just losing myself here. I've got papers and copy slides in front of me and it's -- I hope exactly the same as what you've got in front of you. The slide should be titled "What We Have Achieved to Date".

So far in the 4 months since the launch of the bid, we of course crossed the first hurdle with a very strong mandate from our shareholders approving us to proceed with the offer, increasing our share capital in order to facilitate the offer. I will remind you that some 84% of our shareholders, excluding the ADRs, voted for this transaction. We took ownership of 11.5% of Gold Fields. That certainly was below our expectation of taking 15 to 18%. We were well on track to get 15% when we got that really rough ruling early on the day of the final acceptances. We did have some withdrawals people, who thought that if we can't vote the shares it may actually swing the IAMGold voting.

The IAMGold transaction was overwhelming rejected by Gold Fields shareholders. Only some 23% of Gold Fields shareholders who voted in their own right voted for the IAMGold transaction. There are no conditions precedent left except Competition Authorities' approval. The Norilsk's irrevocable, which we regularly held, it is no longer in place, so that can be waived, continued to be honored and in place, certainly from Norilsk's perspective. And all the claims by Gold Fields that their legal advice says that Norilsk can walk away. Well, perhaps that then confirms that Norilsk doesn't intend to walk away. And certainly, they've put out a press statement to the effect that they continue to support the objectives of Harmony's proposal. So we believe we remain en route to take control of Gold Fields.

I'm going to spend a minute on -- and I'm going to work up to the point of value destruction. Almost exactly 4 years ago, there were rumors about Anglogold and Barrick making a bid for Gold Fields. Chris Thompson at the time was quoted as saying "Gold Fields has momentum now". Now I know it's quite sarcastic, but this is exactly what every Gold Fields press release over the last 4 months are saying now. We have momentum now. He continues to say "It would be unfortunate to break it up, not in a spirit of consolidation but simply to feed other companies". So, I've distilled from that he was against breaking up the company.

Well, a mere 3.5 years later, he attempted to break the company up in the IAMGold transaction and the shareholders had to stop that. He certainly sounds to be in support of consolidation, and that was 4 years ago. However, he does add that the interest of both shareholders and stakeholders come long before those of management. I would really question whether the painful, drawn out defense cycle, which he continues to be quoted on. If Anglogold were to make a move, he pledges that there would not be a long and value-destroying cycle of defense. It really is amazing to find this quote and to think that 3 or 4 years later hundreds of millions of South African Rands have been spent in a value-destroying cycle of defense.

If one thinks about the process that is underway, whereas Harmony through our actions and through our positioning, we say "we actually believe the Gold Fields assets are potentially worth enough for us to justify making this offer". Contrary to that, the other side ends up spending all their money trying to convince investors that Harmony is a pile of rubbish not worth owning and all the money goes into trying to destroy the value which sits in Harmony. So I think really the blame for value destruction, if there is such destruction, is clearly on the side who is trying to destroy value.

The value destruction argument is -- certainly in the South African press it's just taken for granted that because Gold Fields says the share prices are down, therefore there is value destruction.

The next slide, which just shows the various share prices of the 3 South African stocks, Gold Fields, Harmony, Anglogold Ashanti, versus the exchange rate. This shows you 2 snapshots, 1 in July 2004 pre the bid, 1 in January 2005. In both instances the Rand dropped below ZAR6. In both those instances, the Anglogold share price was more or less the same. The Harmony share price was in the low to mid 50's and is back in that sort of range. However, the only anomaly is Gold Fields, which seems to at a 30% premium to where it was the previous time, when the Rand was as strong as it is now.

I continue to argue that the anomaly is the premium in Gold Fields. And if the Rand alone was the driver of South African gold shares, which of course it isn't, then you could easily explain the current share price performances fully through Harmony's share price through the strength of the Rand and the Gold Fields share price, through the upfront premium offer of Harmony.

My next slide, which hopefully doesn't get too cute, is just a combination of Harmony and Gold Fields, a pro forma market cap analysis. Really, we've just added the 2 market caps together. Then we plot that against Anglogold Ashanti. Except for the anomaly pre and post the bid, we can see a period of roughly about 7 months now. We really can't see the famous value destruction of the bid in the share prices. That happens to coincide with the period where the Rand has basically reverted from about ZAR6 back to about ZAR6 as well.

A lot has been made about the CPR that Harmony had to submit, as if a CPR is anything more than a specific snapshot view of independent competent outsiders on the Company. I want to look a little bit at the Gold Fields CPR, which was made available as part of the IAMGold transaction, and just make the point that Gold Fields' current plan is so far removed from the CPR plan, and yet that's basically a 3 months or 2 months ago version.

Now, as we know, the independent competent persons basically just take a view on what is -- well, what is effectively a management plan. So the Gold Fields CPR versus the quarterly results for Tarkwa. In the CPR the promise is that the head grade for this financial year at Tarkwa would be 1,3 grams per ton. The fact, however, is that in the last quarter the head grade was at 1,45. And at the same time in the presentation and in the material, it was indicated that this head grade would steadily increase to 1,8 grams per ton. So the CPR says 1,3, the high grading plan, which is in public domain now, says 1,8. This is clearly not the same plan.

Gold produced, the promise for the year is 720 or 717,000 ounces. So far, a lot less than half of that has been produced. Of course, there can be a steep build up, especially on the back of high grading in the second half of the year. More concerning, for the year the average cash cost was meant to be $208 an ounce. So far the cash cost sits at $234, and you can see that the cash costs are going to have to drop dramatically in order to get to these promised numbers.

The CapEx number's even worse. For the whole year Tarkwa was going to consume only $40m. In the first 6 months of that year, it's already consumed $50m.

Gentlemen, ladies, I'm making 1 single point. And that is that if you want to live and die by CPRs then surely you should just get your own house in order first. This is a 3-month-old CPR. This was put into public domain to get Gold Fields shareholders to vote for the IAMGold deal. It is amazing how the current performance of Tarkwa, as 1 example, just doesn't live up to their CPR.

My next slide is a tongue in the cheek at many of my slides, so don't drown in your coffee yet. Harmony is and continues to be the only mining company in South Africa which has successfully converted old order mining rights into new order mining rights. Now, I can also having a little comic character which jumps up and down and says "so where are the Gold Fields applications to secure their mining rights?"

This concept of audited reserves is a cute one, but you can have all the audited reserves in the world, if you don't have a license they are worth nothing. Our process of getting our CPR out, it's in the final stages and will then go to the SRP in South Africa, which has to or is supposed to clear it in a week or 2, and then it gets sent to shareholders as Federal Regional Undertaking. But there already is a part of it, which is the starting or one of the building blocks. Obviously, as resulted and as firstly heeding the advice of the people from 18 months ago that our Life of Mine Plan should actually be extended, that we've been too conservative in how we've treated some of the first ounces into the indicated category.

We have done that and the only outstanding debates between us and our -- the SRK surrounds about 2m ounces, which we have incorporated into our Life of Mine Plans, and which they are categorizing as inferred category. We always include ramping tons, that's about 1m ounces, simply because if you look at that every year we produce quite a significant number of ounces from ramping. SRK has consistently said that they -- it's impossible for them to verify those ounces because they can hardly go into old working places and count the rocks there. So, that's the constant difference between us and SRK in approach.

And then in the cleaning up of the numbers or the preparation for us to get the audit done on our reserves, we did find an incorrect declaration on one of our below infrastructure projects at [Rawlscote] in Uganda of about 2.5m ounces. That correction has been made by us and therefore will reflect in the final numbers. The -- those blocks were done before acquisition; obviously our geologists have subsequently looked at it and worked with it. But it is true to say that that's a missed declaration, which was only picked up during this process and that's also in the below infrastructure category. So, it really just reduces the below infrastructure reserve ounces.

The final numbers really, guys, I've been embarrassed enough by suggesting it's a week away. We are definitely in the final stages and then there's the clearance process, submission to SAMREC and other institutions. I promise you that you will have that document as soon as it is available.

I want to move on if for no other reason that we've got a lot of slides to cover. The CPR or competent persons report that came out with regard to the IAMGold transaction, obviously -- and makes some interesting promises in terms of Gold Fields' international portfolio's potential. The implied promise during the transaction was that there would be 1.5m ounces of extra growth in the next 5 years, some 300,000 ounces of that is already on the table. So at least 1.2m ounces is from projects and exploration.

The fact, however, is that certainly in the last financial year the $73m worth of exploration, that's resulted in zero ounces of reserves. That is because we suspect that not a lot of that money goes into the ground in terms of exploration. But we are commissioning experts in the field to analyze the public domain information for us, and to see to what extent there is really just cost being allocated to exploration. And it obviously goes into infrastructure and offices and so on, but not necessarily into the ground.

There's also a promise, and this was already a restatement of a promise that the Palladium project feasibility would be completed by the end of 2004. Of course, we now know that it wasn't. Certainly, the palladium players we talk with indicate that it needs a completely different palladium price before that project can realistically be expected to proceed. It's a fact from our perspective that the Cerro Corona is not viable and the long-term copper prices are being used by copper companies. It certainly -- at best it's a low to medium grade small gold project.

And another fact, looking through the numbers and having it analyzed by people who think they are experts in the field, is that we don't see any of the extensive exploration portfolio's projects near enough to a development stage to deliver into that 5-year promise of 1.2m ounces.

If we look at the next slide, where we deal with Harmony's PNG projects. Harmony has the realistic near-term expansion ounces missing from the expensively assembled Gold Fields' portfolio. We are taking a number of analysts to Papua New Guinea in the next few weeks. There's no doubt that they will see that the money is going into the ground, drill holes are being drilled, the feasibility study has been done, the permitting process is underway, and there will be ounces coming from there. I truly believe our promises have got a little bit more substance behind it.

I want to move on to the next slide, which is just a disclosure of the costs associated with the Gold Fields bid. Now, I have to tell you that these costs all go against the investment that we've made so far, the ZAR4b. So, it doesn't come through our P&L or income statement, that's the accounting rules. We however thought it prudent to disclose it in totality so that you can see what the cost is, but you don't feel that we are hiding something from you.

We have categorized it into 3 levels of acceptances, the way we are now at just over 11.5%, then the point of taking control over 50%, and there's a big step change because that's where most of our investors -- investment bankers fees kick in. And then, of course, the ultimate objective of achieving 100%. It's got an incremental cost increase beyond that.

You can see that the area of significant over expenditure for us has been legal fees. We obviously didn't initiate the spurious legal claims. We could hardly not defend ourselves, and try and support that, whether it was in a U.S. court, a New York or whether it was in a South African court. The rest are really the costs associated. We have certainly pulled our horns back in terms of the other costs, they say this and a big full page ad in a newspaper. We say -- we counter that the next day with our own reply. I think we certainly have realized that that's a waste of money and have stopped doing that.

So all in all, although our balance sheet will only reflect about ZAR90m in the quarter, those were the costs we were invoiced for. We see the costs incurred so far as just over ZAR100m or about 2.5% of the ZAR4b investment that we acquired so far. That cost, of course, goes up as the percentage comes down, as you can see. And if we were to achieve 100%, the cost would be about 1% of the investment value of Harmony in Gold Fields.

Like I say, for those who've had time to look through the detailed booklet, those aren't all fully -- well, you won't pick it up in the P&L. In the case of Gold Fields, of course, it has to go through the income statement because they aren't making an investment. They're just spending the money on activity. In our case, it is part of an investment cost consistent with the International Accounting Standards.

I want to move a little bit on to the quarterly highlights. Our restructuring plan has really delivered the good results. We have emphasized ensuring that our profitable shafts reached optimum profitability level. That is done -- has been done. The process of turning around our leveraged shafts will continue. It's not related to the bid at all. We won't stop it or do it because of the bid. We are doing it because it's the right thing to do.

Our cash operating profit was up a nice 23%. Some contribution from the Rand, a nice figure from the Australian operations. Our working costs of ZAR77,400 a kilogram is consistent with our expectations. In U.S. dollar terms it went up by 5% but that was purely because of the South African exchange rate. The balance sheet restructuring, obviously bringing ZAR4b worth of Gold Fields shares into the near cash category has strengthened our balance sheet.

I will also briefly talk about the proposed transaction we announced today in South Africa, where Nedbank, one of the local South African banks, brought us a fully funded transaction. We will be disposing of the 20% shares in ARM, the cross holding we have in ARM. It will be put into an empowerment vehicle. We will probably accumulate some empowerment credits for that. But we are firstly doing this because it's the logical thing. We will be crystallizing the value we have in ARM. We will be converting it into cash. We will be redeploying that money into Gold division. That's our core business. The transaction doesn't have -- all of the detail hasn't been agreed. ARMI, the controlling shareholder of ARM, will play a leading role in this consortium. It is fully funded and therefore we don't expect huge challenges facing us there.

The second transaction we announced today was the disposal of the rights to some of our uranium, which is lying in our surface dumps. Mainly we've, in the last 6 months, had one of our executives basically full time on the uranium potential. We have decided that we are best off putting our uranium into Afrikaaner leases, which as you all know, is busy repositioning themselves to [expand] uranium exposure. That will give us ZAR200m plus a net smelter royalty, which has a uranium price of about $25 to a pound. That's got a value of probably about $130m -- Rands, my apologies, I wish it was dollars.

So all in all, we have crystallized something which obviously we've owned and which has got a value now because already uranium market [had switched] to a zero value in our books, into something with a value of in the order of about ZAR300 to ZAR350m. Payment is in Aflease's shares, at a price significantly lower than today's price, but these -- with these Aflease's shares, which is the currency.

So, I'm back on the slide with the quarterly highlights. I'm sorry, but those 2 slides were not a part of the pack, they simply were processes which were finalized in the last few days. I'll come back to the delivery of our growth projects, which we plan to be on track with.

I'll move on to the fatality injury rate. This, of course, is the harshest but the most truthful measurement of mine safety. You can see that we've had a consistent improvement. The last 2 quarters were two of the best quarters we've had in Harmony's history in terms of safety. It continues to be an area where it really has Senior Executive energy and input into it and the line continues to be held responsible for improvement.

I'll move on to the slide titled "Exchange Rate Impacts on the U.S. Dollar Cash Costs". It is completely self-explanatory. You can see that the cash costs came down in South Africa in terms -- it will end up in U.S. dollar terms because of the currency translation.

We are on track with our delivery on working costs. Some 6 months ago now, I made promises for the next 12 months, as dangerous as that is. We certainly have reduced our costs in the last 6 months from ZAR83,000 a kilogram to below ZAR77,500, on target. I deliberately did not make promises for the March quarter at the time, because it's an unbelievably difficult quarter to predict, with all the Christmas break disruptions in South Africa. But we are certainly on target for the June 2005 target.

Last year for the financial year our costs were under ZAR80,000. That means that right now, some 9 months or 12 months on, we've effectively achieved a 3% reduction in nominal terms. And obviously, with our inflation it's at least at 6% in real terms. I'm very softly making the point that the promises we made in terms of cost reductions, we typically deliver. I may remind you that these cost reductions came out of what is arguably one of the most cost efficient mining companies or certainly gold mining companies in South Africa.

I'll turn the page to the 33% improvement in cash operating profit margin. You can see for yourself, the margin has gone up from 6 to 8%. Cash earnings per share's up and of course, loss per share at EPS level is significantly down as well.

I want to talk a little bit about our portfolio of assets. Like last quarter, some 58% falls into the below ZAR70,000 a kilogram category. 79% is profitable. Loss making the balance, Elandsrand and Doornkop, the 2 new mines that we are building at the bottom of the old mines, make up about 8% of those loss-making ounces. Obviously, it's the right financial business decision to keep the infrastructure running, to use the mining to offset some of the costs, overhead costs, etc., associated with those projects. That's why we're doing it. And it leaves us with that 13% of loss-making production in the Free State, which is currently getting attention and we continue to believe can be sorted out over the next 6 months, as we've already earlier indicated.

The next slide deals with the quarter-on-quarter cash operating profit variance analysis. The bottom quote, this is the makings of a successful restructuring program. Obviously, what we had to do in terms of the falling gold prices, we had to up our cut-offs. That means you have to mine less, at a higher grade and a lower cost. And that's exactly what we achieved.

So, there's a negative variance in terms of tons. There's a positive variance in terms of cost and in terms of recovery grade. Although the Rand gold price was virtually flat, it made a ZAR24m difference and overall variance of ZAR30m. It really -- it's the second quarter in a row where we've demonstrated that despite the fact that this is a huge operational readjustment that is taking place in Harmony, we have managed it extremely well through our flat management structures, where each management team takes responsibility for their small part of the Company.

When you look at the reconciliation of the headline earnings, we just show you our cash earnings at 47 cents basic loss, headline loss, fully diluted loss, all those numbers that improve quarter-on-quarter because of the improvement in cash earnings mainly.

The next 2 slides should help with the normal financial reconciliation, which we get many questions on always. The cash operating profit of ZAR163m should be reduced by the corporate overheads to ZAR41m, net sundries revenue, interest paid, foreign exchange gains, financial instruments. The financial instrument, that negative ZAR29m, really it's the Rand hedged component of the [AshGold] lease that we acquired with Target. So you can see a strong Rand obviously hurts us on that line. So that leaves us then with a number of ZAR14m.

The next slide takes it further, we bring into it play, the non cash and non-recurring expenditure, the depreciation, the restructuring costs, exploration costs, rehab provision, which is not a cash outflow neither is depreciation.

Now last quarter there was a huge amount of noise around the treatment of the restructuring costs. We certainly have verified that our treatment is consistent with the rules, regardless of what Nick Holland said. It also is consistent with how companies like AngloGold does it. To make sure there is no concerns or inconsistencies, we are disclosing here that over the last 24 months of significant restructuring, that amount came to ZAR510m or some 3% of total working cost. Our treatment of it, however, for accounting purposes is acceptable and correct.

When we look at the interpretation of our financial position, the net debt situation is, as you can see, well within acceptable ranges. Near cash and cash equivalent shows an increase, so we brought a good ZAR4m worth of Gold Fields shares onto the balance sheet. The solvency ratios, of course, all improved our debt asset ratio by 10% and debt equity ratio by some 20%. Our balance sheet is significantly healthier than even a quarter ago.

Operational highlights, the Target Mine just had a stunning quarter. Tshepong did really well inclusive of CONOPS. So far this quarter, CONOPS has been withheld because some of their commission has been withheld. It's difficult to quantify the impact, but Tshepong certainly is a good company with or without CONOPS. Evander did very well. As we indicated, the grades will come down from the unsustainable levels of last quarter. It's still a world-class mine and of course, I can't help myself to remind you that we bought this as a loss-making mine, [the closure] note from Gold Fields. Elandsrand, one of our projects where we are building the new mine at the bottom of the current old loss-making mine, improved dramatically. Our open pit operations performed well and our Australian operations performed well. Our growth projects are on track.

Quarter-on-quarter operational performances, in line with our announcements of how we've structured our management for the right focus and the right assets. Our quality ounces had a great turnaround last quarter, and certainly had a good quarter, improving a little bit.

The growth projects had a dramatically better quarter, mainly Elandsrand, the Doornkop project went backwards a little bit. Overall, a ZAR70m positive variance. The leveraged ounces is where we are now seeing less tons through the restructuring, as we haven't yet managed to shed all of the costs and the trade that has gone up a little bit hasn't made that before. So, they are at a fateful stage. We have got reasonable expectations to improve that significantly in the next 6 months.

Surface operations, mainly on the back of the Kalgold open pit mine, improved. And the Australasian operations really gave us a good quarter. We made money in Australia.

The next slide shows how the promises we've made, the target now looks conservative. We promised 15% cost reduction. That sounds a lot like what we are promising at Gold Fields I know, a bit of coincidence. We have achieved a 30% cost reduction at Target and we believe it's sustainable. Target actually had a tough quarter in terms of tons. Equipment availability means we had about 10% less tons from [milling]. And you can see the red bars shows Rand per ton plummeting from over ZAR450 at the time of acquisition to what would certainly have been ZAR300 if we had a decent quarter. That's a stunning achievement.

You can see that we make already our costs in Rand per kilogram. It's right back where it was at the time when they needed to mine at ZAR11 a ton in order to have the cost per kilograms that we are getting at ZAR6,7 per ton. The greater this potential that you can see, often we did -- told that we are high grading mines and therefore our approach is not sustainable. We continue to argue that we do exactly the opposite.

We'll reduce costs in all ways possible in whatever sustainable way we can. That cost reduction means we can then mine the orebody at a sustainable optimum grade that typically is lower than what it was in mine head, if it was high grade, that's not in the case of Target, but the grades typically come down the life of mine extend. And we create jobs that way. Really, I think Target just is the most recent example of how the Harmony ways can actually work. I will remind you that Target's supposedly a very different, much more complex mechanized mine of different depths and we've always thought that those are just excuses for many just not to have reduced the cost.

Elandsrand 102 level, it's just a trial mining phase of Elandsrand. Really there's a lot of detail for those who love detail, but it shows that we are building a high-grade low-cost mine for the next 20 years. The kilograms, our position in the quarter still constitute at less than 10% of the kilograms coming from Elandsrand. But these are early days and this is really just an opportunity for us to test the whole body and to see that it lives up to expectation.

Capital expenditure and despite all the scrutiny on our cash flow, we have been able, firstly through responsible balance sheet management and secondly through commitment, to keep up our capital investment in our growth projects. Quite a few of those projects have -- we've managed to get through the hump of some of those capital.

And then obviously in Papua New Guinea there's been a slight delay in the licensing process and hence the capital forecast is lower than what it was about 6 months ago. All in all, the bulk of our money goes into growth and it's affordable and we've got the ability to fund it, and we don't really therefore intend to change anything dramatically there.

My last slide, and I know you are as grateful as I am that we are at the end of this presentation. Trying to predict the future, of course, is hazardous, dangerous and not something I claim to be good at. We don't expect the gold price to behave or to spike dramatically. For the moment, the dollar, the U.S. dollar drives both the gold price and to some extent the South African Rand. And so, we expect our price to trade in a pretty narrow range similar to where we've been in the last few months.

We have certainly re-energized Harmony in terms of focus on our cost structure. We'll continue to work on that. The restructuring of the leverage shafts is currently underway. It is a very complex and time consuming process, but each one of the managers is currently engaging his Union representatives to come up with workable solutions to reduce the losses on those shafts.

There will be an Analysts' visit to our PNG operations. I suspect that this will, I think, for the first time shine a bit of a spotlight on our international growth prospects. It's probably overdue, but we've always perhaps suffered a little bit from trying to deliver before we show. We certainly are now at the stage of starting to build the mine, and I think it's a good time for people to go and kick some rocks on site there. So we continue to believe that we are on track to our targeted cash cost of ZAR75,000 per kilogram by June 2005.

We've got, unfortunately, only 15 minutes for questions. I'm going to ask Joan to facilitate that. I'm going to ask you to please try and ask a question at a time to give as many as possible people a chance. And I'll try to, for a change, be brief in my replies as well. Joan, do you want to facilitate questions please?

Thank you Mr. Swanepoel. [OPERATOR INSTRUCTIONS]. Our first question comes from Lee Dunlop of Cargo Investment Services. Please go ahead.

Good afternoon. Could you give us an update on your discussions with Norilsk and Gold Fields regarding the progress of the offer?

Thank you, Lee. I must say we all went to Moscow for what was effectively a meeting between the Executive Management of Gold Fields and its 2 biggest shareholders, Norilsk and Harmony. We agreed that we will look at whether there are alternatives to perhaps speed up the process, etc., etc. And it was always understood then that it would be difficult because firstly at Harmony we have no intentions to walk away from our bid. And secondly, you just legally walk away from a bid.

So, our offer was on the table and was always going to stay on the table. And secondly, most of the other alternatives which would have included breaking up Gold Fields into parts, well that was, of course, going to not necessarily sit comfortable with Gold Fields shareholders who just a week or 2 weeks before that voted down the breaking up of Gold Fields into effectively 2 parts.

I must say and this is my own personal perception that I don't think there was serious intent to do a friendly transaction, because the number of conditions that Gold Fields continues to put on the table before any conversation can take place, probably means that we will have closure of the deal before we get to all of those conditions. So, there's no real progress that I'm aware of. There's no active conversation taking place at this point in time.

Okay. Just quickly, do you expect to close and settle when you get the Competition Tribunal clearance?

Yes, that is obviously a condition. We first have to meet. The timing of that is out of our control, but it should be on 11 or by the latest 11, the Competition Commission should make their recommendation. The Tribunal has to call the first hearing within 10 working days. And then once the Tribunal has given approval, assuming that they give approval, then there's a 3 to 4 week period till closure. So, you can see we're talking somewhere in mid March or thereabouts for closure.

Thank you very much.

[OPERATOR INSTRUCTIONS]. Our next question comes from Russell Fryer (ph), Deutsche Bank. Please go ahead Mr. Fryer.

Good afternoon Bernard. Can you give me the cash balance and net cash balance on -- as of the end of September for the quarter, and then your net cash balance as of now please?

The cash balance was just over ZAR1b at the end of September. It was just under ZAR300m end of December. This was simply because we used the cash on hand to pay back the Anglogold loan, which was the single biggest item of cash outflow. That's purely cash that's not access to cash drawn down or undrawn facilities for anything of the sorts. That's just the numbers that you've asked for cash at hand. So, we dropped --

Okay.

From ZAR1. -- just over ZAR1b to just under ZAR300m all South African Rand were the ZAR400m payment of Anglogold for the [3 Gold] loan as the biggest contributor today. Thanks for that, Russell.

Thank you.

[OPERATOR INSTRUCTIONS]. Our next question comes from Brenton Saunders of Deutsche Bank.

Hello Bernard, it's Brenton here.

Brenton, how are you?

I'm fine and you? I'm sorry you missed you this morning, I was down quite an interesting gold mine just [indiscernible] that. I just wanted to chat to you about your order -- or the -- apologies I missed this earlier, but this is still going round and round in the market as to why you haven't really released audited results. Could you just run through that with me again?

Well, the main reason for the process taking so long is that it is a process which I think involves [Parternand] like 40 or 45 shafts and lots of plants and so on. 1 of the delays was obviously that quite a few key people got absorbed into a legal defense in the U.S. So, those are the delays on our side, none of them other than practical. You can't sit in a court case in the U.S. and be in a South African operation at the same time.

The number crunching part is effectively done. I'm told the report is certainly in a very advanced draft stage. Brenton, I briefly summarized some of the issues that is currently still under discussion between [Isoky] and Harmony. I just am not in a position to tell you we're 24 hours or 36 hours away from submitting it to the SRP, because I don't know.

Do you think --

[Indiscernible] no -- sorry.

Do you think it's going to be a pretty non-event?

Yes, Brenton I think so. I think obviously for once a CRP will be read. That will be good value for our money because historically these documents don't get a lot of attention. I've indicated that in terms of the reserves there was a reclassification, actually a correction of ZAR2.4 to [ex-volsroyt] and that's a project that we acquired from unknown sources, as you know.

And then we put 1m ounces in for our reclamation ounces, ramping -- sorry it's the correct term, the independent guys always say we can't audit, we can't verify that. And then from their advice 18 months ago, as I've said, so far as to reclassify through mine planning from inferred to indicated at the last time there was really only about a 2m to 2.5m ounce unfinished sort of discussion between the 2 parties.

Now, each 1 of these discussions obviously involves these independent experts and the mine management team. So, I wish I could promise you anything other than a proper good product soon. But it's going to be a proper good product as soon as possible, and I think it's into days now not weeks [now] Brenton.

Okay, thank you Bernard.

Welcome.

Our next question comes from Heather Douglas of BMO Nesbitt Burns. Please go ahead Miss Douglas.

Hello, I just have a quick question about your balance sheet. Can you break up the current liabilities, the payables and accrued liabilities? How much of that is net -- is that a current debt?

Heather, I wish you were on a plane to Cape Town then you couldn't ask me this difficult question. Are you not coming to Cape Town I take it?

I'm sorry, I won't be.

Yes, it's sunny, it's beautiful, it's warm and I'm also not going to Cape Town, so that's okay. Heather, I'm just turning to the balance sheet page. Okay, I'm finally there, can I ask you to quickly repeat your question for me?

Just the break out of -- for current liabilities, how much of it is current debt?

Current liabilities, what is current debt?

Yes, you have a long-term debt of ZAR2.9b?

Yes.

But I was just wondering in the ZAR1.8b under payables and accrued liabilities, how much of that is debt? What debt payments do you have in the next 12 months?

Let me just --

I can wait, if you want to send it to me.

Yes. Listen -- sorry, I don't quite -- I promise to get them from the -- to be in contact with you. Okay? She will email you that, [Ifti], she will e-mail you. Sorry, this unprepared balance sheet questions always embarrass me a little bit, so. Any other questions, Heather?

Does that mean I can ask another question?

I think you could. I failed you on this 1, so ask another will you?

The -- and I'm sorry I came to the call late, have you given a production guidance for Q3 and Q4, and are many closures of shafts in the works with the -- given the current land environment?

I'm so tempted to take the way out by saying I dealt with that extensively. But that would be a lie, so let me rather answer your question.

No, I didn't. We are at the sort of point where some shafts are actually restructuring, especially in the Free State marginal shaft. So we would expect a reduction in ounces -- tons and ounces from there. But then, of course, we are at the stage where CONOPS have been implemented in -- at Evander. And the CONOPS implementation seems to be going pretty smooth at [Rand] from [pain]. And that, of course, has the potential for a marginal increase in ounces.

The big unknown for me in this quarter, and that's why I'm so careful to give guidances, this is a historically weak quarter in South Africa for all gold mining company, because of this bad practice of the Christmas break etc., etc., where we just have less production days.

We've also had the suspension of CONOPS and some of our shafts in the Free State and this is a bit of a sort of technical game between the Union and the management in that they are withholding their support for our annual application for permission to work on Sundays. I know this is 2005, but we still need permission to work on Sundays in mines in South Africa. And, of course, in the absence of the Union support, you just don't get it and it takes long to get it, if you ever get it. So, that would be a negative impact on tons from that part of the business.

I think if I had to summarize it, I think in terms of tons and therefore ounces it's more likely to be down than to be up. And obviously, we do whatever we can to minimize the cost. If you don't produce you try to not spend. But this is just historically not the best of quarters. The next quarter's much easier because that's a normalized quarter. We certainly stick with our forecast that we believe that we will be getting to the ZAR75,000 per kilogram. And we certainly, by then, by that quarter will have the readjusted, restructured Harmony at the production levels, which we will then be able to take forward.

So, that's a bit of a sort of a round about answer, Heather. But I --

Sorry, would you expect Q4 to be like Q2 then, falling in Q3 and then --

Yes, yes. Like that or marginally better, but Q3 is really going to have to let me off the hook whatever I predict is likely to be wrong.

Okay, thank you.

Okay, Heather [Nofunda] will be e-mailing you with cost of your details. So, we will get back to you on that. Okay, thank you.

[OPERATOR INSTRUCTIONS]. Our next question comes from Rick Buller of Bac Eye (ph) Capital Partners. Please go ahead.

Hello, thank you very much. Once the Tribunal gives you permission to go ahead with your offer, know that you're clear your competition issues. My [estimation] is you have now made -- there is no longer a 50% condition?

Correct.

Then once you've received the permission from the Competition people, how -- or when -- how long will your offer be open till?

It has to be at least 3 weeks, that's a legal requirement. So, once you jump the last hurdle then at least 3 weeks. And that's a legal requirement.

What's the most it could be open?

There isn't last date. I'm not too au fait with the rules. There's a point that -- I don't whether it's 6 months but it can be much longer than that but I think obviously this is a process that we at Harmony have got all the intention in the world to bring to a conclusion, and especially a successful conclusion. So, I suggest it will be something closer to 3 weeks than to 3 months quite honestly.

So, some short period of time after you get approval to go forward you will close your offer and then take in whatever number of shares you have at that point.

That's correct.

Okay, thank you very much.

Thanks, Rick.

Mr. Swanepoel, there are no further questions --

Brilliant timing.

[I will pass the conference over for any] closing last comments.

Thank you, Joan. Thank you everybody. Thanks for cooperating timing wise. I know I took up most of the time. I really appreciate your time and attendance. Cheers then.

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