Harmony Gold Mining Company Ltd (HMY) 2007 Q1 法說會逐字稿

Good afternoon and welcome to the Harmony Gold conference. All participants are now in listen-only mode. There will be an opportunity for you to ask your questions at the end of today's announcements. (OPERATOR INSTRUCTIONS). Please note that this conference is being recorded. At this time, I would like to turn the conference over to Bernard Swanepoel. Please go ahead, sir.

Thank you, Dylan. Good afternoon and good morning, ladies and gentlemen and thank you for giving us some of your time. I would like to proceed with the presentation of our quarterly results. I know most of you have seen it in some form or another and probably have seen some of the write-ups from the analysts on it as well. So I will briefly go through what is quite a number of slides and try and leave ample time at the end for questions.

If I assume that you have had a chance to look at the necessary disclosures on slide number 2, I will move on to slide number 3, which deals with the quarterly highlights. I'm particularly pleased with further improvements in development, up 7% on top of last quarter's 10% or 11%. In line with that also significant improvement in underground [pants] from South Africa, up by 7%. An indicated increase in grade has resulted in gold production up by 13% despite an increase in working costs in South Africa. (indiscernible) operating profit was up by a pleasing 38% to 891 million rand. That leaves us with a cash operating profit margin of some 32%.

The next slide continues with net profit up 277 million rand. Headline earnings of $0.66 per share. We closed out another 55,000 ounces of our Australian hedged for a net cost of 54 million. Our cost per kilogram did increase by 4% quarter-on-quarter and certainly that would I think be seen as the one negative in what is otherwise a really pleasing set of results. We are rolling out our improvement process that is mainly aimed at containing cost and regaining our cost competitiveness on a cost per tonne basis.

Slide number five is titled Investing in the Future. Obviously the next year or three is to regain our emphasis and focus on cost containment. Our project pipeline will see us grow production quite significantly. Our estimation is still that we should be producing 3.5 million ounces, up from 2.4 million ounces, over the next four years.

We are continuing to make inward investments. I will deal with that on later slides. I spoke about what we are doing in terms of rolling out an improvement process, which is targeting quite significant cost reductions in South Africa over the next 18 months or so.

The slide that reflects our fatality rate and shows that our long-term improvement trend seems to be back on track after last year's deterioration and there is still nothing to crow about. We do have safety results in South Africa of the underground gold mines, but we should because we on average mine slightly shallower than our peer group. Our safety results did improve on a lost time basis, but unfortunately we still had a number of fatal incidents during the quarter.

Slide number 7 just gives you an update on how we are doing with regard to the other mining charter requirements. We have demonstrated our ability to relicense, but the other challenges are also well in hand. We today have some 7.9% women in mining. The target in terms of the mining charter is 10%. The employment equity targets of 14% certainly is well within our reach. As you can see at the bottom of the pyramid, the challenging professional categories, we are as high as 87%. Senior management also comfortably on track to 40% target and even at the executive level, no problems for senior (technical difficulty).

The next slide also briefly deals with the other issues we are busy with, the number of employees in adult basic education and training classes. Those are the high-levels of cost that we are incurring right now in order to have a completely literate workforce by 2015.

We have also made great strides forward with reducing the number of people in our hospitals through assisting them in acquiring houses near our mines and more than 40% of our workforce now lives outside the single-sex hostels. Procurement, again, we are already compliant with more than 40% of our buying taking place from black economic empowered suppliers.

I then move on to the review of the quarterly results. The first slide is the one in South African rand terms. You can see gold production up by a pleasing 13%, albeit up a very, very low base. We received 9% more per kilogram of gold, mainly thanks to of course the weakening of the rand, which we can buy 10% quarter-on-quarter.

Cash costs I spoke about went up by 4% from 94,000 rand a kilogram to 97,500 rand a kilogram. That resulted in a 38% improvement in cash operating profit. Margin of course has gone up fractionally and cash earnings also up by 38% seeing that we have got just about the same number of shares at issue.

On the next slide, which is slide number 11, we look at the same numbers just in U.S. dollar terms. The only line worth looking at is how, despite the increase in cash costs in rand per kilogram terms, of course the weakening of the currency has resulted in cash cost coming down 6% in U.S. dollar terms.

And then turning the page to move to the quarter-on-quarter performance comparison slide, slide number 12. We break it down as per our normal groupings of assets. Quality assets, we are really doing extremely well, basically performing on target in terms of volume and a little bit below target still in terms of grade, but you can see making 580 million rands for the quarter.

The growth projects had a really good improvement, but this is really especially off a low base. So this would be one of the areas we would be looking for further improvements in the next few quarters. Leveraged assets are demonstrating why you bother to own these assets for periods of higher gold price and weaker currency. Almost 60% leverage shown in the numbers there.

Service operations is really material. We [fold] the [molesworth] effectively and as we had lower milling capacity due to higher underground tonnages reporting to the mills, we had less tonnes at a better grade and therefore we made the same sort of profits from surface operations.

South African assets contributed to 36% improvement. The Australian operations did well and then there was also the translation benefits through the rand, which made it 55% or contributing 55% more.

If we look at the cash operating profit variance analysis on slide 13, one can see that the volume improvements contributed 125 million. Working cost was a negative 279 million. The growth recovery was positive 168 million. Gold price made a 250 million rands positive contribution for a net positive variance of 245.

One can see that most of the benefits of volume and grade was offsetted by cost and really the gold price at least flowed through to the bottom line for a cash operating profit of 891 million.

On the next slide, we just look at the earnings. Cash earnings we reported earlier 225, basic earnings of 70 South African cents per share and headline earnings of 66.

Slide 15, I'll just give you some sense of the continued improvements in development. The June quarter, 36 kilometers of development was already 10% or 11% up on the March quarter. September, we achieved another 7.2% improvement and on the little graph, you can actually see that a significant percentage, some 35 odd percent, is now finally beginning to be [on route] development and obviously the sequence is that you first have to have your off route tunnels so that you can get to the [reefer rise] so that you can see a build up in on route meters so that you can track all body flexibility. That is really an investment in future flexibility.

The next slide we need to talk about is number 17. It is looking at our quality assets, the operational results. As I said, these assets are doing quite well. Very, very close to on targets in terms of tonnes milled. Grades we still think can improve going forward, not necessary immediately in a step, but certainly over the next three or four quarters and that would be the main driver of the results going forward. Even the cost per tonne numbers at this grouping of (indiscernible) is in line with our budget and so what we really would be looking for over the next year or so is some improvement of 5% to 7% in the grade.

These are the shafts where we have concentrated our efforts to implement Conops and as you can see, we are obviously getting the tonnages and the volumes thanks to the implementation of Conops.

The slide, which is referring to the quality assets highlights, you can see a target. We increased our development meters by 14%. We hope to do even better during the December quarter. We have brought in a new drill rig to assist us in further increasing development. Conops, as we have indicated, is now delivering about breakeven point at Masimong reef tonnes. This is the last shaft we will be implementing Conops in six or nine months ago. Reef tonnes was now up another 17% and at Tshepong, we have really shot the lights out. This shaft has now broken all previous records and are performing better even at the level higher than what is sustainable going forward, but quarter-on-quarter, this mine has really just done extremely well.

If we move on to the growth projects and I talk you through the operational results on slide 19, you can see that the tonnes look like it is the same and yet the grade looks like it is much higher. That is really because a lot more tonnes came from the Elandsrand operation, which is like a 6 gram a tonne operation and it replaced tonnages from the Doornkop operation where the old mine is currently mining at 3.3 grams or 3.4 grams a ton. So the net result is significantly higher kilograms. A pleasing improvement, but this is also the grouping of assets where we are furthest away from our own plans and the grades need to improve quite significantly as we mine more and more tons, especially at Elandsrand from the new mine and replace some of the lower grade ounces from the old mine.

To give you a sense of where we are, at Elandsrand, the new mine is contributing 22% of the tonnages for 32% of the gold. So you can immediately get a sense for as we gravitate our mining operations down to the new mine, we should see significantly higher grades coming through.

Elandsrand, on the next slide, you can see improved development by 73%. At Doornkop, we were doing a unique thing in the world of gold mining or mining for the moment and that was the dual sink where we actually sank one shaft from two attacking points. The top section did hold, so the dual sink as we refer to it is old and we had some two weeks ago (indiscernible) had some 29 meters of the final [line] sink to get to sharp bottom.

The Tshepong is up 66 decline, has made good progress, but are currently stuck in difficult ground conditions. That doesn't really make a difference to either the bolt up for the maximum full production point.

At Phakisa, we have been quite creative in finding a good solution to claim rock from one shaft to another in what we call a rail-veyor. We will talk a lot more about that in future. A very innovative way of handling significant tonnages in a low-cost sort of way. The Wafi Golpu project (indiscernible) to gold ore bodies was investigated and the investment committee approved that we could continue with prefeasibility work because really the two gold ore bodies of Wafi needs to be developed in parallel with Golpu, the copper ore body and I will talk about that a bit later.

If you have access to the slides on the electronic form, you'll see some of the pictures firstly of Elandsrand, the mine, and then a picture of the stunning quality work that was done during the Doornkop shaft sinking. Very safe and good quality work that was done there by our contractors.

I want to talk a little bit to the slides of the geological prospectivity of our PNG assets. The first slide, number 23, shows you the project location. That is the right-hand half of that, that big island. That is of course Papua New Guinea. You can actually see on the neighboring part of the island, the [grasp] of ore body. You can see [Porgera], Ok Tedi and some of the other well-known sort of mines. One could also see the little dotted block, which is the Harmony sort of project area and going forward, I will talk to that little block and share with you some of the detail like geology from that area as well.

So on page 24, you can read through the detail, but really that is just a detailed geology or the local geology of that Wafi Golpu. If you just remember pictures from the past, this is really two sides of one hill or one little mountain and the copper ore body contains significant quantities of copper. Some of it associated with arsenic and gold will always be a byproduct and in Wafi, the gold ore body is really a significant ore body. All in all, the contained gold in these two ore bodies sits at just over 9,000,000 ounces so far.

Slide 25, which is quite a natural presentation. It is a bold slide. But on the left-hand side, I would just show you the copper and the right-hand side, I show you the same slide with the gold information. Golpu itself was discovered using stream sediment responses of values of some 3.1 grams a tonne of gold and 226 parts per million of copper. You can see the attitude projects we are indicating there. Although they indicate lower or the stream sediment, responses show lower gold. In both incidences, they show significantly higher copper, especially in the case of the Biamena prospect where the copper values are really promising. This is really why my exploration guys are really insisting on spending more and more and more on exploration.

With Golpu, we probably have caught a gorilla or an elephant by its tail and quite frankly see this potential for more significant ore body discoveries right next to. That is our prospect area that is indicated in those colors. So those are areas we already have the rights to explore. That was slide 25.

The slide that is unnumbered but would have been number 26 is just [benefiction] showing you where the Link Zone ore bodies are, the NRGs, known as the non-refracted gold zone. You can see the Golpu or free ore body and that is really just a section showing you a little bit more detail.

The next slide just gives you a very simplified mining concept where we sink a decline down past the link zone probably do some sublevel caving, mining out most of the link zone, whilst we are doing the open foot to mine the gold cap and once we are done with that, then one can do block caving under Golpu, all three ore body. The next slide, slide 28, is just a 3-D depiction of the same thing.

I am moving back onto the results to talk to the leverage assets operational results. This is not a bad set of results if you keep in mind that one of our higher grade leveraged ore bodies at Harmony II shaft had an underground fire in the shaft pillar. That basically cost us about 90,000 tons, somewhere between 4.5 grams and 5 grams a tonne or probably about 400 kilograms to 450 kilograms of gold. We did manage to get back into that mine in a safe way towards the end of September. We lost virtually a full quarter during the September quarter. We do expect a significant improvement from that one shaft in its own right during the next quarter.

These are shafts which are still significantly below the plans we have got for them. These are the shafts that were affected by the restructuring. This is where we laid off thousands of people and of course the nature of restructuring plans is that these are probably the plans which also got the most stretch in them. We do however believe that we can do better at these shafts going forward and again as the increased development results (technical difficulty) higher flexibility, they should not only do better at these shafts, they should actually present more sustainable results going forward.

Leverage assets highlight slide number 30. You can see that with the completion of the North shaft equipment, Joel is now in a position to benefit from our development there. So tonnes was up significantly and the recovery grade also improved. Unisel was really a recovery from a shaft bottom incident of a quarter or two ago. That is really just back up to normal.

I spoke to the Harmony II shaft fire, which is now behind us and this in its own right should make a contribution to seeing these assets do a little bit better in the coming quarter.

Surface operations is really full of material. We fill our mills where we have got spare capacity with the exception of Kalgold, which is of course our small open pit operation. We are, albeit six weeks late, very close to completion of the fourth and final cutback. We will aim towards the end of this quarter that we are in now. We will start to mine fresh ore from that at significantly higher grade. So we've got something to look forward to. Albeit not a lot of that coming into this coming quarter. Certainly in the March quarter, we will see significant improvement.

As we had lower capacity available for surface tonnages, we obviously optimized the grade and this is significantly above our original plan and we did build our plan at an assumption of 105,000 landed kilograms and for the moment higher gold prices enabling us to harvest surface sources which otherwise would have been unprofitable. Very easy to run that turn on/turn off type sort of operations on the surface sources.

The highlight slide for surface sources, number 32, really just shows that lower tonnages at higher grades left us basically making the same sort of money. The little slimes pre-treatment project we started in the Free State, the pilot plant for what we would later call Project Phoenix has done extremely well again.

I want to deal a little bit with some of the inward investment decisions that the Board took at target plant and we approved the mill extension. Although the number isn't reflected, I can tell you there is some 19.8 million rand. We are moving at SAG mill from Virginia, a plant we closed down some time ago, to install it at target mine. That does give us potentially increased capacity, but more significantly it means that we can mill there without the addition of steel balls and which reduces the cost per tonne quite significantly and therefore results in about 1 million rand a month, cost savings on 150,000 tons.

We also and I will talk in more detail about the [Kuplant] where we spent 6.1 million and we can perhaps move on to the next slide, slide number 34, where you can see that that plant will be available for surface treatment by February 2007. We will start off with rotating sand dumps. This is actually a picture of that on the next slide. This is a mere 6.0 million rands we need to spend and we think we can build it up to about 150,000 tonnes that will yield about 88 kilograms of gold.

If you look at the detail, you will see that the treatment costs are very high, 50 rands a ton. That is because the sand is best handled via rail and taken to the plant. That is quite expensive and there is limited milling involved, which is also an added cost and this will certainly be a pre-runner to what in future we hope will be called the Randump pilot where we will retreat with a mega plant all the [slimes bands] of the Randfontein area.

The picture just shows you the sand dump. That was obviously not a windy day. This is also our singled biggest environmental irritation and embarrassment, irritation to the people living downwind and embarrassment in that -- although we have only owned it for the last five odd years, it really is a dam that needs pretreatment or a dump that needs to be retreated and rehabilitated.

My next slide, slide 36, I just point out that the Board approved some 5.5 million rand of CapEx to do some pre-work on the mega dump in all three areas; Evander, Randfontein and Welkom. We need to establish what level of availability of water resources there is for us to retreat the [slimes band]. Crude rule of thumb would be that you need about three tonnes of water to retreat one tonne of slime and the second biggest challenge for us will be the permitting of new disposal sites.

At Evander, the so-called Project Libra, we currently -- our value proposition was that we would retreat three dams of about 200 million tonnes at 1.5 million tonnes a month. At Randfontein, the first of the best four dams we think can be treated at about 3 million tonnes a month and at Welkom, Project Phoenix, the best five dams we think can be treated at about 2 million tonnes a month. This is early stage work. We will keep you posted as we progress to prefeasibility and feasibility if it does make sense.

The Board also approved a significant exploration project at the capital cost of 42.3 million rand. That will involve 48 shallow to medium depth holds in our Evander area. We basically are doing a couple of things there. On the one hand, we want to drill the shallow uplift side of our Project Poplar. Those ounces are in reserves and we suspect that there may be shallow ounces, which of course will be great from a project feasibility and viability perspective. We also recently acquired a new exploration right in the area between what was previously known as Evander South and Poplar and there is quite a bit of infill drilling that needs to be done there as well.

This expenditure will start in some six months and then if we do secure the six drills we hope to secure, it will take us some six months to drill all of those holes.

I'm at slide 38 and I speak to the Australian assets, the operational results. You can see and you will read in the details that it was mainly our underground mines, which put the problems of the previous quarter behind them. So that we had more tonnages mainly coming from underground and that of course results in a higher average recovery grade. Therefore we had 11% more kilograms and that converted into South African rand per kilogram terms. Cost was fractionally down; although it was a little bit up in rand per tonne terms as you would expect from the fact that the additional tonnes mainly came from underground.

Production, as I said, was up by 11% on slide 39. Working profit was up -- I am very pleasing -- 55% and you can read through the other highlights. One of my own personal highlights was that we are two months into the 26-month construction period at the Hidden Valley Project in Papua New Guinea.

I will show you two slides or two pictures. One if it is clear enough for you to make out just demonstrates that (indiscernible) was involved in establishing a campsite at Hidden Valley. The second one, which looks like I am showing you a container ship, those containers are actually our generator sets. I think recent experiences in the world have shown that it's not a bad idea to actually own generation capacity. We will add [90] gen sets capable of producing enough electricity or power for us running at full capacity.

We do however also plan to link up with PNG Power and this gen set will really offset of generators will purely be standby seeing that diesel costs are so high.

We can then jump to slide 43, which is just a quick calculation to show you if the royalties as recently announced were in place in the financial year 2006, on our turnover, we would have liable for royalties of 108 million because during restructuring, we incurred losses. We would have had the so-called marginal relief of 37 million. Net royalty payable therefore would have been 71 million, call it 72 million. Because it is tax-deductible, one can crudely assume that we would have saved about 29% of that for a net effect of 51 million rand. That of course is just indicative. I think the market was quite pleased with the government's announcement. It's a lot better than what we all anticipated and can I remind you that this only comes into play from May 2009. So this is in the future.

The income statement doesn't really need a lot of discussion. You can see revenue up significantly quarter-on-quarter and up a lot compared to a year ago. Cash operating costs also up significantly quarter-on-quarter and not quite so bad year-on-year, but still a significant increase in costs compared to the same quarter a year ago. The net result of that of course is cash operating profit up quite significantly.

I want to perhaps not spend a lot of time here. It is worth noting that the loss from associates of course is dare I say crazy accounting we do for our 28% stake in western areas and the fact that they got a significant refund from the insurers and sort of smooth their numbers a bit and therefore, we were beneficiaries to the extent of some 57 million rands, better numbers on that line loss from associates. The net result is a net profit of 277, dramatically improved on the year ago and certainly on a quarter ago.

The balance sheet again really doesn't deserve much discussion. I think the numbers are quite clear. They were for once no dramatic changes anywhere. I think we can perhaps spend a little bit of time on the cash reconciliation quarter-on-quarter slide, slide number 46. I just want to point out to you that what looks like a slightly deteriorated cash position can all be explained in the context of the movement in working capital, the rand refinery at a closer -- a cleaner or maintenance closing period over the quarter-end for us from 120 odd million rands was a few days late. Therefore it showed in working capital as opposed to the revenue line. If it wasn't for that, we really could have been very close to 1 billion rand cash and equivalents at quarter-end.

Capital expenditure, you can see that our current expenditure rate is where we have been for some time. The only significant change of late has been Papua New Guinea where we recently increased to the 73 million. We think we will be spending about 80 million for the next quarter and perhaps even the quarter after that. During next year, we will see significant increases there, but for the moment, it seems to be the rate at which we are spending.

The South African operations, operational CapEx, that small increase is really just a forecast of further improvements in development, which, as we all are now doing, is capitalized and that is really just buying future flexibility.

Briefly, the last two slides is just a reminder on our beautiful, stunning project pipeline in the world certainly from my perspective. We are building, as I summarize it there for you on slide 48, we are building five new mines that will exploit over 19 million ounces at about 1.5 million ounces per year at an average cash cost of call it $260 an ounce. Most importantly, all of these are coming on stream between now and June 2010. Again, not a bad position to be in at all.

The bottom slide, which is we have got a quality future, is the new ones. So maybe a little bit different to ones you have seen in the past. What is new there is some indicative sort of numbers with regards to the mega dumps. We actually think that we can start to bring this into gold prices still at the current sort of level from 2010 onwards. You can see these are a significant contributor -- could potentially be a significant contributor. But even without that, I think you can see that that slide makes the point that our growth assets is really where the growth is coming from between now and 2010.

That brings to an end the formal presentation. It was a lot of slides and I thank you for bearing with me speaking you through all of that. We seem to have some 15 odd minutes for questions and answers. So I will now hand back for that to be facilitated. Thank you very much.

(OPERATOR INSTRUCTIONS). Victor Flores, HSBC.

A few questions about some of the issues that came up in the last quarter, which you haven't mentioned this quarter, which was some of the issues with sweeping out the stopes and then some lockup issues in the plant. Since you didn't mention them, I would assume it is all fixed or is that something you are still working on?

No, thank you. I tried quite hard last quarter to say that in a buildup phase, although there is a little bit of accumulation sweeping backlock in the stopes, what really presented itself as a great problem loss quarter was the fact that at quarter-end when you have to take the snapshot view, we had significantly higher tonnages put into the mills and not all of the gold was coming out at a higher rate and hence what looked like a great problem was really a temporary for an increasing in gold process and I therefore with some confidence predicted that as we continue to mine at these higher rates, you know more gold will come out and therefore we divide more kilograms by the same number of tonnages or more tonnes(indiscernible) and the grade will look fine.

That is why I almost want to say I told you so, but that is unnecessary arrogance. I am extremely pleased that we do have the more kilograms, which is in line with the grade at which we have been blasting.

It is probably fair to say that somewhere around 2% of the goal that we are reflecting this quarter may actually have been broken and have been put into the pipeline in the previous quarter. So it is possible that this quarter's grade is not quite 5 grams a ton, but say 4.9 grams a ton. In the big scheme of things, it is not really -- firstly, we don't have exact numbers for that and secondly, that really just confirms that for the moment the higher volumes we are blasting are being blasted at the current rates we are at and we can actually know, I have indicated before, I think we are at some 5% to 8% below the grades we can be mining right now.

Development and all the good stuff we are doing on that front we will see as increased grade by I hope over the next three, four, five quarters and not only increase grade, but also make it more sustainable. So that is the context in which I am not going back last quarter. I tried, dare I say quite unsuccessfully, to make the point that I wasn't too worried about the grade because it wasn't a great problem. It was the effect of higher tonnages without the gold being there yet.

You can see this quarter, because the gold is there, the great problem is no longer a grade problem. But thanks for the question.

Just a follow up on target. Grades were down; tonnage was up slightly, but you showed a quite significant improvement in your rand per tonne cost. Can you comment on how that was achieved?

I must say the numbers we put out originally on target was numbers which I am extremely embarrassed to say was taken from a completely incorrect file. I am not making -- well, I am making a bad excuse, but we have got brand new people in our investor relations team and we just made the bugger up. I do not know, as I said here, I am very embarrassed to say what exactly the right numbers for target is. I will see if Nomfundo can bring it to me in the next three minutes.

I just want to make sure I speak to the right numbers of target. What we put out earlier today was simply wrong and I apologize for that. So can we just hold back on the target answer until I sit with the correct numbers in front of me? They have fixed it as we speak in the last half hour on the website, but I haven't seen those numbers. I am slightly blindsided by the question. I do apologize for that.

Fair enough. We will get the right number and then comment.

Thank you very much.

Paul Durham, HSBC.

You obviously have fingers on the button here. Bernard, just a bit more amplification on the grade pickup. You have obviously indicated that the quality assets you think you can squeeze another 5% to 7%, which would by implication take the recover grade up to around 6%. Can you just give us a bit more of the timetable of the growth grade buildup? You mentioned Elandsrand coming in, but have you got any -- I have got the graph on the slide 49. But have you got any sort of more individual numbers for those things for us?

Yes, asset growth [sharp] fall. We are actually significantly behind our own plans. And obviously if you are like 15% behind your own plans, there is a lot of upside that you would be stupid to go out and tell people you think you can make all 15% up in the next quarter. But Elandsrand has really had a stunning improvement quarter off a very, very low base and significant further improvement potential.

I indicated that some 22% of the tonnages that we hoisted at Elandsrand comes from the new mine. We were hoping to be at 30% and at 22%, it is already contributing almost one third of the gold. So you can see a quarter of the ton, a third of the goal, that is what we need to get right. So all the emphasis and all the good work that that team is doing to ship crews down to the new mine levels, to the higher grade areas, I am quite bullish that we will see a couple of hundred kilograms more by the end of this financial year.

We're three months into it. There is not a way in the world the guys can get themselves back on plan in three months, but they certainly still believe they can come very close to back on plan over nine months. I wouldn't like to overpromise on their behalf because they are making good progress. The good stuff, the increase in development meters, which is now beginning to be an increase in panels available for mining, that is -- I have high confidence in our ability to improve off a low base. Sorry that I am deliberately vague, but you know I come after like six or eight or ten quarters of overpromises and underdelivery. So I want to be a bit cautious on the part of the rand from the Board before I talk about them. But I have to tell you that Elandsrand has got significant potential for further improvements.

And one final question, then I will move to somebody else. Just you ramp a tonne at the [Groshaft], 571 rand a ton. Do you see that stabilizing at that higher level or somewhere between the 440 that you had previously and this 571 going forward for the next four quarters?

Yes, the 440 of course had a lot of cheap low grade tonnes from Doornkop and the 570 of course has got a lot higher grade, but more expensive tonnes from the deeper Elandsrand mine. We really if we had the perfect link, which would have been even more tonnes from Elandsrand, our cost per tonne could have been at about 600 rands a ton, but our grade should have been at 5.5 grams a ton. So it is a bit of a semi-blending of two extremes sort of (indiscernible) some numbers into an average.

I think our key focus would be to keep cost in this range of 570 to 600, but the grade is a matter of some urgency to well about 5 grams a ton.

Paul, I just want to quickly ask whether you got a satisfactory answer on your question around the issues of the material issues that came out in our F-20. Did you get adequate answers?

When I spoke with [LaSala] at the beginning of the call, I just basically copied the headlines and said was there any official comment on those and today, I haven't actually looked at my e-mail to see if she did respond to me or not.

If you don't mind, let me quickly answer and obviously we do not yet need to be Sarbanes-Oxley compliant. We need to be there by the end of this year and so that is another nine months in the future. Obviously, we have had a good 18 months of preparing for Sarbanes-Oxley compliance. Two things that is relevant and therefore we disclosed it in our F-20 filing is we are right in the midst of the changeover in our ELP, our software computer system, our accounting system. We disclosed that. It is not a -- it's a material issue because obviously if you implement a new system and it doesn't work well then you've got a problem. But there is no reason to believe that it won't work.

Secondly, there was a recent change where historically until very recent, we could use our auditors to be our U.S. [carb] experts. Recently a ruling was made that a company like us have to have an internal expertise. We have identified the individual. He is being trained up and he will be trained up by year end. So the F-20 filing takes place now. Therefore, we highlighted that the Company has those two issues. We think both of those issues will be adequately managed before we need to be compliant. But thank you for raising the question and I just wanted to give you the answer. It is well in hand we believe at this stage.

Thank you for the explanation. That is all for me.

George Lequime, RBC Capital Markets.

I just have a question on costs as well. I was going to ask what Victor asked about the target cost because that was strained 65 down to 45. But Elandsrand and Randfontein, I mean Elands was up 29% in nominal cost quarter-on-quarter. Randfontein, up 57% quarter-on-quarter. Big moves without a change in the tonnes milled. Was it a glitch before? I'm not getting a sense for what is the real cost, but last quarter's costs were this quarter's costs (technical difficulty) tremendous champion in nominal cost.

There are two issues we can briefly talk around and hopefully give you some sense of where that comes from. The one is obviously the previous quarter being the last quarter of the year. You end up with over-provisions, under-provisions and that gets squared off as you have to do for accounting purposes. Typically you tend to have slight over-provisions and therefore you tend to have some sort of level of write-back. It is not that dramatic and it varies between jobs depending on the extent to which people spend according to what was provided.

Then of course you move into your new year and so you start with new provisions. Now provisions you would use -- for example, you know that during the year you need to make a replacement of [Winderups] and you don't wait until the day somewhere midyear when you replace it. You actually provide for it, split it over sort of the 12 years -- 12 months. So provisions would be the one explanation that typically would result in a level of write-back in the previous quarter and a level of over-provision because it is the start of the new year and it is not a major thing.

The only other significant cost that I think has been adequately covered by the other South African producers of course are the wage increases, the electricity costs. Something which is relevant in our life and again on a shop by shop level, we will have to have a much more specific discussion is in this built-up phase where we have brought in significant additional capacity to increase development, once you develop -- once a guy stops drilling and blasting, once you have got meters to declare, you can capitalize the cost. But as you will appreciate, you don't bring in people, train them, buy equipment and start all in one day. So there is a significant amount of cost that actually gets incurred in the build-up phase, which you have to expense as working cost and that goes some way towards explaining some of the costs.

I am giving you a bit of a generic answer because as I say to my embarrassment, those two pages, pages 9 and 10 in the booklet, contained numerous wrong numbers, which I will correct. Once I have corrected it, I undertake to let, not only you and Victor, let everybody have it and then we can talk about the variances on the corrected numbers and so apologies for the generic answer.

At the company level, the truth on (indiscernible) level, I just need to first have the right numbers in front of me before I can give you the explanation.

So this quarter's costs are more representative of the cost of running the business on a shelf-by-shelf than what was published last quarter? Although there is probably a certain degree of over-provision and there might be a little bit of electricity cost, which is the winter period, which is coming to an end?

I have to agree with your assessment and I think we tried even last quarter to (indiscernible) people that we are probably in that sort of 92,000 to 100,000 rand a kilogram range. Obviously we had to absorb the cost increases that is typical of this time of year for South African producers. We had the advantage of higher kilograms. Probably as I indicated earlier, that's 1% or 2% kilograms from the previous quarter. That partially offset that and hence our 4% increase quarter-on-quarter margin is better than perhaps some of the other South African producers. That is the context in which we have to see it.

I think the main driver for our cost over the next four, five, six quarters will be the extent to which we successfully implement our improvement process and there is some scope to fight inflation on that front and then of course if we can get the grades to creep up 4%, 5%, 6%, 7% over the next four or five quarters, that will assist us to dare I say try and beat South African inflation and there is no quantum jump down in cost. It's possible unfortunately. It's the incremental stuff. It is the sorting out the basics and obviously as we go forward, the crews that we brought in to do more development is now capitalized and the expenses are capitalized. So like I say, I am reasonably bullish on our ability to contain costs, but to the extent that we improve grade, would be the extent that we perhaps improve costs per kilogram.

Just one quick question. I had a couple more, but I will keep them back. The conversion to new order mineral rights, you touched on it during your presentation. It seems like Anglogold and Gold Fields have secured. You were first out of the block as I recall putting submissions, but it is taking a long time in order to finalize the process. What is going on behind the scenes and when do you anticipate getting completion on the process?

I think government obviously has tried to deal with the bigger companies in a way where they have put three days aside. So we went in and had some of the first applications, even got them approve, which is still I think very comforting in that you know we have picked the boxes and we are able to convert and then government quite correctly I think decided to try and deal with the bigger companies in some sort of scheduled sort of way.

Anglogold had this issue, got their licenses, subsequently (indiscernible). I wasn't aware that (indiscernible) was converted. I know they had the three-day session and had to do more work on their social plans. We were actually scheduled or government requested that we meet with them last week, Tuesday, Wednesday, Thursday and it was just crazy from a practicality point of view because, as you know, in the three or four days before your board meeting is when all your committees took place and so by mutual agreement, we didn't agree to move to three days. The government sits and works through each and every of the I don't know 30 odd applications in total that have for Harmony for mining licenses and prospecting rights that we work through that.

That (indiscernible) to it. We take the right people through it and that is now scheduled for early in the new year. I am not sure whether the date has been firmed up. I hope it is in January, but we -- like I say, I think we are in good shape. It has ultimately been government's call. They did bigger guys first. Then they have demonstrated that the (indiscernible) guys can also be converted. We are next in line, but unfortunately couldn't do it last week simply because it was physically and practically impossible.

There is no issue that I am aware of that is blocking us and sort of trickling through individual applications. Just really keeps on confirming that we seem to be able to convert.

Thanks, Bernard. I'll let somebody else have a go.

(OPERATOR INSTRUCTIONS). Mr. Swanepoel, we have no further questions. Would you like to make some closing comments?

Thank you. I know that you do have extra questions. We will take it up later. It is five o'clock and therefore time for us to wrap it up. I really want to just thank everybody and I do apologize that I have put in front of you two pages of information, which was factually incorrect. We are correcting it. We will let you have that and then we can take up those detailed questions around that again. Thank you very much for your time and goodbye.

On behalf of Harmony Gold, that concludes this afternoon's conference. Thank you for joining us. You may now disconnect your line.