Harmony Gold Mining Company Ltd (HMY) 2007 Q3 法說會逐字稿

Good afternoon and welcome to the Harmony Gold Third Quarter Earnings Results Conference Call. (Operator Instructions) Please note that this conference is being recorded. I would now like to turn the conference over to Bernard Swanepoel. Please go ahead.

Thank you, Henri, and good afternoon, good morning ladies and gentlemen. I also have with me my IR team and also the Chief Financial Officer of the Company for question purposes at the end.

I am going to move straight into the presentation and our first slide, therefore, is the slide type of quarterly highlights. I think by now most of you have caught up with the numbers but I'll speak you through them. Headline earnings up to R0.58 per share. This is South African cents. Net profit of 247 and rand per kilogram cost down on the South African operations by 2.1%. The South African grade up by 4% to 5 grams per ton, I think very much in line with the guidance we've given earlier, and this was really mainly driven by solid performance from our so called quality and leverage operations, which of course is the bulk of our South African operations.

If we look at our safety performance we continue to show improvement. We have got mines that are really doing excellent and year-on-year we continue to make small headway but this will continue to be a major focus area for us as long as they're also unacceptable incidents.

Development, I'll show you the last five quarters to just put the drop in the March quarter in context. This is where you do see the impact of the reduced working shifts due to the end of the year holiday but overall development is still significantly up from a year ago and we continue to be in a phase of over developing in order to reestablish acceptable levels of flexibility in our mines.

If I move on the quarter review and the first slide I wanted to speak to you there is the Group operating results. I could talk to you on the rand metric one; the next slide, which I will then just skip over, is also U.S. dollar imperial slide. Gold produce down by 3.8%, 2 of that 3.8% was from South Africa where we really had a reasonable March quarter, which is historically the weak quarter in South Africa but it is down marginally only because the December quarter was not a particularly good quarter and in Australia contributed significantly to the drop; 1.8 or almost half of the drop came from Australia.

Gold price, a little bit higher and exchange rate a little bit against that. Overall cash cost came down at a fraction. I indicated to you earlier it's down 2% in South Africa. That's quite pleasing. Operating profit up by 15% and, again, in U.S. dollar terms on the next slide you'll see that's up by 16%. Operating margin is beginning to look healthier in the low 30s and cash earnings R2.18 per share or in U.S. dollar terms $0.30 per share. I have then dealt with the U.S. dollar imperial slide. I'm just going to move on.

If we look at the working profit by segment, quality showed a very pleasing 38% or 39% improvement and it is upper low basin that are capable of even better performance. The growth projects, of course, is a bit of a misnomer in that you saw really the results from the two old sections and two of the mines we are building new mines at the bottom of the old mines so we are reflecting here mainly the results from the old Gillans Run mine and then, of course, the Kimberly Reef Six and at [Durham Cross] we're busy building the new mine at the bottom of that and both of these operations had much significantly lower grades and this will continue to be variable grade performance from these operations until we are really in the new mines over the next year or three.

The leveraged assets as a third success of improvement and is now doing quite well, another 15% up despite the fact that volumes were quite significantly down quarter-on-quarter. Surface operations, I apologize that variant should have brackets around it. It is a negative variant, 29%, and I'll talk to the detail of that. It's a completely different blank as we build up our plant retreatment and our Kalgold open pit mine had a very bad quarter due to a lack of water.

Overall, South Africa up by 18%, as I've indicated, very pleasing result for what is historically our worst quarter but is it of a low re a comparative base for the December quarter. Australian operations will be a little bit with the under performance but we certainly expect those operations to bounce right back in the coming quarter.

The next slide is just a graphic depiction of the working profit by segment and you can just visually see that the quality assets, although it's only a million of the 2.4 million ounces we've produced currently by classification, it's the single largest contributor to our profits.

If I do a quarter-on-quarter cash operating profit variance analysis, last quarter we had 753 million. The volume, lower volumes, standing just in other words had a negative effect of 150 million. Two-thirds of that just 100 million is from South Africa. The 50 odd million is from Australia. The working cost saving, however, is substantially from South Africa so you can see we really had a-- although we had late days and therefore less tonnages, we also had less costs associated with that. The grade, as I saw in one of the analyst's reports, of course grade is king and when your grade goes up you make more money. And we demonstrated that quite successfully in this quarter as well. Gold price still is significant driver and for once the bulk of the gold price benefits really float straight through to the cash operating profit line.

Earnings per share analysis on the next slide, we are just taking you through from cash earnings, which is marginally up. Basic earnings we will talk in another slide to why that is down and headline earnings up and I think quite pleasingly also in line with the expectations for the change.

Operational review, I'm going to talk to you briefly about the quality assets and operational results there. You can see underground tons mowed down 4%. I think if you were to look at the Christmas break impact typically on South African operations, the impact seems to be somewhere between 8 and 10% so the 4% really has to be seen in that context. Nice recovery grade for grade recovery from Tshepong, our flagship mine, Target, high grade mechanized mine and even our Evander operations were better so more kilograms, lower catch costs and even cost per ton was fractionally down as well.

During the March quarter, as I have indicated-- my apologies, that was just me sneezing in the background. Hopefully you can't get it on the other side of the ocean. And during the March quarter the Target mine performed much better. Randfontein was really the under performer and quite a significant drop in grade and then especially also the numerous fatalities we had there during the last week of January resulted in significant production eruptions, as you would expect. And for the June quarter we do expect Randfontein's grade to improve quite a bit and Target we are comfortable, can actually repeat its most recent sort of rate of performance.

I'll move on to the leverage operations and although this shows a significant impact of 9% of volume, quite a bit of that-- I think it's actually almost 3% of that-- is due to the closing of the [Wishoff]. Wishoff was a small high cost shaft adjacent to the Bambanani mine and some 50,000 tons a quarter has been taken out of our production profile on a permanent basis. Underground recovery grades came up nicely and really the main problem here for us was the fact that at Omni we'll forfeit significantly lower grades and [Four shaft] high grade shaft for us coming to the end as anticipated and planned and the reopening up of some other fuller areas has been delayed over the last couple of months and, therefore, is a little bit behind schedule. But Omni will do significantly better and we anticipate for this quarter and it's also likely as you have seen from the announcement that this should be the last quarter during which we incorporate Omni into our results.

I just want to talk briefly to the [Dole] Mine. During the quarter, the March quarter, we decided to upgrade and reconstruct our Dole Mine's north shaft. We released some 18 months ago so put a temporary hoisting facility in place in order to access those blocks of ground. They've lived up to our expectations. They've actually knew that the grades we had hoped and anticipated but somewhere we now need to catch up with ourselves, start reconstruct the bottom of the shaft and for more permanent hoisting purposes and that's going to impact quite significantly on this June quarter as well, the quarter we're living with right now. I expect that all the grades that will improve and that from the coming quarters gold mine will be producing significantly less gold. It's not one of our bigger mines but it does made a difference in our line.

The growth projects, again the point being that these are really reporting on the old sections where lack of flexibility is just a part of our lives and, of course, we aren't spending a huge amount of money on these old fixtures because we really committed to closing and the new mines, and those mines are continuing to progress on track.

Elandsrand suffered quite badly during December and early January from power supply interruptions and it is a common feature on this mine especially during electric storms or thunderstorms but in this mine especially when there is a trip in power we have to withdraw workers because until the mine is finally fully commissioned we just don't have the flexibility to continue working the mine without electricity for [hour or three] and it's shorter term problems that will disappear as we commission all of the installations in the mine. There will be a decent recovery in grades, mainly at Elandsrand, which will flow through to the combination of these two as well.

I am moving on to the slide, which is titled South African Surface Operations, the operational results. You've got the numbers in front of you. As I have indicated earlier, this is a completely different blend quarter-on-quarter. The project Phoenix in the free state, we are treating more slime on an ongoing basis there and we will step it up even further in the coming quarter. And then in parallel with that Kalgold was severely constrained from producing through simply the lack of water. We have got an extensive well drilling program there but it is quite a dry area of the Country and the absence of rain in the last few seasons has really resulted in us being constrained for the time being.

Australia didn't cover themselves in glory this quarter and numerous sort of smaller problems. Most of those have been good behind us. This is really just timing issues in terms of when a new orebody is available to bring on stream and a lot of this has got to do with this sort of timing and scheduling but we would expect perhaps a quarter more similar in gold output to December than the March quarter for the coming quarter.

Financial review, the income statement I think is quite straightforward and we show you in the first column the most recent quarter, the previous quarter and then also the comparable quarter from a year ago. And it's really when you look March 2006 to March 2007 that you begin to see the significant changes in Harmony thanks to mainly the gold price drop, the gold price more so than anything else. So year-on-year there has been cost increased but revenue has gone up dramatically and that is now flowing through to cash operating profit and the amortization and depreciation is incrementally up because we are now in the sort of steady state where the capitalized development is coming back through as a higher amortization charge and I will drop a few lines, talk to you about operating profit, 500 million as opposed to 35 million a year ago, exploration expenditure 68 million, up from 21 million a year ago and last year at this time.

And 28 of that 68 is going into Papua New Guinea and I think you have with us over the last year seen how we are getting very excited about what you know the prospectivity of our area there. The other numbers we're pointing out probably is just on the mark to market of the Australian hedge book that is incorporated in the large gain on the financial instruments. And then the profit on the sale of investments and in associated last quarter, the 236 million, and the December column, that was when we converted our [Western] areas into gold fields at the time and it was at the good profit. It was the once off brought to book there. If I then take those two numbers that we worked down to, the net profit of 247. Last quarter it looked like 468 but if you strip away the sale and the Western areas here and we also sold the number shaft at Randfontein and then you can see we sort of compare apples with apples. Then at headline profit level 233 same compared to 175 and significantly up again from a year ago for headline earnings of R0.38 per share.

The balance sheet in a sort of conventional way of showing it doesn't really show much movement quarter-on-quarter. If I show you the slide, which is an extra extract from the balance sheet, then it's easier for me to just point out that on the third line there "Investment in Financial Assets," that's where the 2 billion odd rand's worth of gold field shares is reflected and during the quarter we sold just over a million gold field shares more or less at the book value we carry it at and so it is some R14.5 million's worth of gold field shares included in that sort of line. And if you go further down, you'll see the real movement happen on the two lines under "Share Capital Over Reserve," long term loans have gone up and then further down under "Current Liabilities" the long term loans drop off. This is really all associated with us converting our short-term one-year date from R&B for the Western areas that we bought. We've converted it into a free facility now and so it just gets reflected that it will be where it's exactly the same exposure and so this is just trying to sort of show the effect of how we've dealt with the financing of that exposure.

I want to move on the cash reconciliation for the period. I think, again, the numbers are nice and simple enough to understand. If you look at the two lines under operational CapEx net less development cost capitalized, you should get to about 710 million, which is the same as the sort of capital expenditure number we show elsewhere. Care and maintenance cost is nicely down but we still own some shafts, which we closed down and have cost us money and we will continue to look at ways and means of either reducing it or unselling those shafts.

There is nothing else there I really want to speak to and nice increase in our cash balance quarter-on-quarter. There's a slide, which is only type of current progress to have added uranium to it as well. Uranium, the current progress I did make the point today that my team, my project team, is finally beginning to excite me as much with uranium as they have been for the last year and we are beginning to understand our uranium resources through an extensive drilling program. We are at this point in time expecting that there will be a significant resource declaration in line with the [Cambreck], which is the South African version of (inaudible) sort of [convergence]. We are doing this overseen by an independent third party just for purposes of independence and so on and at really from the estimated 56-- no, we don't estimate it. We own 56 tailing [ramps]. We know we own 56 tailing ramps but we estimated 5 of them in the Randfontein area and 6 of them in the free state area would be the areas of real interest and where we would find most of our uranium exposure. The drilling is really progressing well, probably about 70 odd percent completed, and therefore on track for us to in June declare resources there.

The next slide, which speaks to the Cooke dump specifically, this is a dump, which a lot of people talk about. Other companies indicated they either had bought it, will buy it and I can confirm that we actually still own this dump and it does contain a lot of uranium, some 25 million tons of uranium, which we do believe at least half of that is commercially extractable. If you look at the table that we have tried to generate for you and we will get into the assumptions that have gone in there in terms of cost and capital cost especially, it looks like this project if we were to kick it off and receive a uranium price of say $65 a pound then this project could have an NPV at 10% of R886 million. And you can see the leverage if you go to recent spot prices, this is beginning to look like a R4 billion NPV.

Gold, and we'll talk about the ratio of uranium to gold-- gold is clearly a byproduct of this specific dump sort of future and you can see again that our sort of reserve grades at our reserve gold price of 115,000 earned a kilogram it contributes about 100 million range or 99 million range to NPV and at more recent gold prices some 200 million range, nice leverage as well. Those IRRs, of course, completely silly and I think that one, 1,757 is actually 175,7 but these are silly numbers. They are high numbers because for not too big a quantum of capital we actually get lots of cash flow quickly and, therefore, very short payback.

I think uranium just to continue sharing with you where our thinking is, the pre visibility thinking is around that dump 40 is the tailings there so where you see on the next slide the facts and assumptions where we talk about tailings, this is the retreating of this dump. That's what we refer to when we do wet tailings. That tailings gets added to with water pumped to a uranium plant. After we've extracted the uranium or 50 odd percent of the uranium, we then put this 500,000 tons a month through a float plant. In 10% of the mass-- in other words in 50,000 tons if you concentrate 50% of your gold and at 50,000 tons with half of your gold in at obviously enhanced grade, that's what you then send on to your gold plant. So all in all you would recover about half, 15 for 4% of your uranium and 70% of that half of your gold, which is in concentrate.

I tabulated all of that for you on the last slide in uranium, the one titled "Facts and Assumptions." These are the numbers we are playing around with in the pre feasibility. There is 60 million tons of slimes in this dump. The [heat] grade for the gold content is 0.24 grams per ton, 188 grams per ton of uranium. Recovery is at 35% or 70% of 50% for gold, 54% of uranium. If you start with 500,000 tons the rest flows from there. You've got a sort of 10 odd year life project. CapEx for a flotation plant at 100 million for a uranium plant and those are really crude estimates, 750 million and operating expenses as indicated there. We have done quite a bit of work and we are very confident that we will do a little bit better than the 188 range and 188 grams a ton for the uranium content. As I've indicated some 70% of the drilling is completed and we are doing quite a bit better than that from this specific dump.

I want to move on to our capital expenditure and the increase quarter-on-quarter is due to the fact that we're obviously getting to that stage or phase of these projects where we're now getting much closer to delivery of bringing it in production and now is that more clearly evident than underlying and the project CapEx P&G. You can see how we went from 59 to 150, now forecasted to go to 264 and really for the coming quarter and the four quarters of the new financial here that is then the sort of level that we need to spend. That's to be expected because by November next year we want to pull our first gold from the mine, Hidden Valley, in Papua New Guinea. So all our capital projects continue nicely on track.

I want to briefly stop for questions. I'll briefly touch on the disposal of our Omni shaft that was announced in the press. I feel there are quite a few questions on that in South Africa. I also did share with the audience in South Africa that the Board has mandated the executives to look at a South African rand denominated corporate bond, a typical sort of vanilla 5 year bond with no fancy things attached, probably in the range of R1.5 billion to R2 billion range, and that's really just to put our sort of lazy balance sheet to good work and to put us in the position where we can't overly afford the current suite of growth projects but we also could for some of the other exciting projects that we are working on like [Omega dumps] project and uranium projects etcetera. And I'll also announce the fact that a well known South African executive, [Cassie Marcus], until recently-- I think until the 8th of this month was in [Paula] is going to join us with effect the first of May as a non-executive Director and if that's not that big an impact in your lifes as we will fall in line with our peer group in South Africa and only do the six monthly full presentation starting in June so there won't be a normal September type sort of presentation in Johannesburg, just a teleconference call as our peer group is doing.

So that's all the information that I have shared back in Johannesburg this morning and perhaps with that then I can hand over to Henri to facilitate the question session.

(Operator Instructions) Our first question is from Justin Brown of Business Report.

I just wanted to ask during about the [Jobec] the presentation you mentioned that Harmony also looked to grow by acquisition. I just wondered where you might seek to make acquisitions?

Justin, I thought you were checking up to see that I say the same to our other shareholders as I said to the [Jobec] presentation. We are, as I think it's sort of public knowledge, we are in a sort of cooperation agreement with Renova, which really means they are looking at our progress on the uranium side as we move along and they've also given us access to some of the gold assets that they either own or have access to in Russia so obviously the current sort of capacity in Harmony has and continues to look in Russia. And with absolutely no chance of me narrowing it down for you I can also tell you that we are quite actively looking at opportunities in Africa. There are really perspective areas and real opportunities where we feel we can bring significant value and, of course, we are beginning to get quite confident in our ability to go to quite a remote area like Papua New Guinea and build the roads and the dams and the bridges and get to the mine sites and build the mine. And so, therefore, our sort of confidence in our ability to get involved in Africa has grown quite significantly in the last 12 or 24 months.

We also believe there is a good scope for sort of consolidation of some of the surface slimes retreatments and retreatment operations in South Africa, now not necessarily from a uranium point of view, purely from a gold point of view, and as we do work on our mega dumps project you know every mine we own has got a neighboring mine and so for every slime stand or sand dump we own somebody else owns another one next door and so we certainly see some opportunities for acquisition of some surface resources and/or reserves as well. So ultimately in the last three years we didn't do a hell of a lot of acquisitions after a period of many acquisitions and the last three years the problem as really was the challenge of finding value. I can't say all of a sudden in the next two or three years we're going to find assets that are priced at a level that we think it's worth buying but we continue to look and if we were to do something in the next 12 or 24 months, Justin, I would expect that it's more likely than not to come from these sort of areas to give you a sort of a broad idea.

But the point is really-- and I know I dealt with it extensively at the South African presentation this morning. In the last year we continuously spoke about rebalancing our portfolio and it's fair to say people immediately think that is just another way of saying we're going to sell some assets like we've now done with Omni but no doubt rebalancing portfolio is also about the million ounces of quality production that we are bringing on stream through our projects and rebalancing our portfolio will also have a component of growth through acquisitions in some way in the future and yes, of course, disposing of Omni also forcing to that sort of broad heading.

Perhaps the next question from somebody else?

Victor Flores of HSBC.

Could you address in a bit more detail the performance of Elandsrand and some of the milestones that you expect as the new shaft is completed?

Yes, Victor, I'm slightly embarrassed that I don't have the Elandsrand full production data at my fingertips. I will page to that in the quarterly booklet and to give you a sense at Elandsrand our in the last quarter our tonnage that came from the new mine was some 29-- no that's unfortunately not correct. It was some 11 or 12% of the tonnage came from the new mine. Sorry, it was a paper booklet, our corporate booklet in front of me but it is wrong so let me just give you the sort of numbers. Of the 260,000 tons we produce at Elandsrand only 28,000 actually came from the new mine so you can see that's 12% but when you look at kilograms then you can immediately see that some 33% of our kilograms came from the new mine.

So that's the context in which I say really what we are presenting in this point in time is the old section and that will continue to be the case. Of course, in the last quarter the power interruptions, which resulted into pumping delays etcetera, etcetera, did impact and so we could have had more tons from the new mine but we didn't have more tons from the new mine. So let's say we should have been at 15 to 20%, then that bolts up quite significantly up to June 2010. Now June 2010 the South African soccer team should be the world champions here in Cape Town or Johannesburg and this mine should be in full production. That should now be a quarter-on-quarter phenomena. Every quarter we should have more tons from the new mine and they replace much lower grade tons from the old mine. The old mine also, Victor, suffers severely from lack of flexibility, you know? We-- you can imagine we're mining way beyond the original grade contours of this old body. Part of the reason AngloGold sold it to us in 2001 was because it was way past the optimum sort of high grade zone and we try and optimize and where the bad quarter grade was next quarter will be better but this-- there will be more variability at Elandsrand from the old mine than what we would like to have to tolerate from the new mine in two or three years from now.

I am not sure whether I a gave you enough substance in the answer. I was a little bit confused because the document in front of me unfortunately had a calculation mistake in it but I think I sort of conveyed the message I was trying to convey in the end.

That's good, Bernard. Do you have at your fingertips what the grade difference was between the old section and the new section?

Well, I can tell you that like I say now I'll have to work it out but it's significant. You know it's like we struggle to get to 5 grams a ton in the old section and the new section is confirming our 7 to 7.5 grams a ton so it's a quantum difference. It's really a significance difference. The old mine has from time to time, Victor, been able to give us 6 grams a ton but the old mine hovers between 5 and 6 and the new mine should really be a 7 to 7.5 gram a ton mine, which is-- it is really significantly different. Of course, the new mine also is going to have the advantages of brand new infrastructure, your mine as close as you're ever going to be to the shelf in the early stages and the old mine is really now the extremities of the ore body. So there's significant differences between the two mines but for the moment two-thirds of our gold comes from almost 90% of the tons, which comes from the old mine.

Great thanks. Just a follow-up with respect to the operations overall, do you expect to continue to see this trend of declining tonnage and increasing grades?

Victor, the last quarter's drop in tons was really-- you know I'm almost glad that we don't have to talk a lot about the famous South African year end negative impact on volumes but I think if you look at any of the South African gold producers and the South African assets, I mean you know we over the last few years have demonstrated that the March quarter typically shows drops in volume of 7, 8 to 10% for the South African assets. Now assets at Harmony, of course, we are mainly South African so it shows up so the 4 odd percent has to be seen in the context of it is significantly better than a typical March quarter partly because we didn't have such a stunning December quarter. The typical grade profile then on a mine in South Africa is June is incrementally better than March. September is incrementally better than June. December is our best quarter. We shoot the lights out, go home and start afresh the new year so it's really an expectation that the June quarter should have on a sort of a standalone mine basis most of our mines should have higher volumes in the June quarter.

Quite a few of our mines, as I have tried to indicate, will have improved grades and then Company wide there is really just the impact of a mine like Joel where we are sort of reconstructing the shaft installations and that's a sort of an impact that will come through. So my expectation if I were to sum it all up is I really think we've got the ability to have incrementally a bit more tons from South Africa underground at incrementally higher grades. Now is it 2% more tons and 2% a higher grade or 4% more gold or are we going 3, 1? I mean but it's that sort of scope for further improvement that I feel we are capable of in the June quarter. Australia will show a nice improvement because they dropped 15% in gold and I expect at least 10% of that back in the sort of June quarter so overall I'm quite optimistic on the June quarter. To remind everybody, June is the quarter where we always complain about the sort of high electricity consumption associated with the WICTA tariffs but that's just a cost that comes in our life every year at that time. I am not using it as a warning or a profit warning. I would expect at June quarter we really have good ability to in June do a little bit better in March like we did a little bit better in March than what we did in December.

Heather Douglas of BMO Capital Markets.

I have just a quick question following up on Victor's. Target, the grade went up nicely to I think 5.9 if I'm reading it correctly. What do you think is a sustainable grade at the Target Mine?

We think that that grade is sustainable for the sort of foreseeable future and we are sort of midway through a process to really have a proper relook at Target because at Target you've got your classic trade of the sort of there's a lack of flexibility. You really trade tons and grade are vary directly and we can easily get to 6 grams a ton but we pay for it in terms of sort of tonnages so we're comfortable that at 70,000 ton a month sort of in the order of 6 gram a ton sort of mine is what we have right now. The project I referred to, which we're sort of halfway through, is looking at-- well, we call it that we go through always the sort of block three access development etcetera where over the next 18 months basically for the price of a decent fleet of new equipment some you know I'm talking-- whatever I'm talking, you know 17 to 100 million rands. For that sort of quantum you can really put Target in the position where we can not only get to 100,000 tons but keep it at 100,000 tons. So Target the moment we get decent grades even at these sort of less than optimum sort of volumes it's quite a nice mine and but I continue to believe it's the one asset in our portfolio that is valued less than what we even paid for it and that will continue to be the case until we've done what it takes to make it also a 100,000 ton a month mine. So grade is not our shorter term sort of-- it's not our shorter term challenge at Target. We're comfortable we should be able to keep it there, Heather.

Okay great and then the other, my other question is about some news flow with some scooping studies that I think we are expecting sometime in the next year at both the mega dumps in South Africa and then at Wafi Golpu. When we will see the scooping into these if there is feasibility?

That's all on track. In the world of scales, skills, we have outsourced a lot of this work to third parties and we are making good progress. We are with regards to the mega dump we do continue to see ourselves having finished our feasibility studies by June so certainly we will have numbers on which we can make investment decisions at Board level by the time we have our August Board meeting. We also now approved a whole uranium discussion of which I showed you the four slides but at the pre feasibility level and then the Wafi Golpu continues to be on track. I think on dates I saw as they've always been in July we will have the standalone Golpu project and Golpu being the copper blockading mine. And then by September and that is the tight deadline so perhaps it is early October but by September we should have the integrated optimized sort of Golpu Wafi, Golpu mine together. We should have that done as well. So there's no significant slippage. There's a challenge getting the A team of the consultants on site at all sort of times but it all seems to be nicely on track and, of course, even if one closes your ears to the sort of commodity prices, the technical challenges or the technical issues, the grades and so on are all standing up to expectations so far so I'm really-- I'm three months more bullish on both of those projects than three months ago, Heather.

(Operator Instructions). [Isuru Senova] from Equinox Partners.

The question I have is on BEE. While on the current scale up months and how are you in compliance and what are the repercussions now that you've sold some of the mines that were put aside as BEE operations?

Thank you for the question. It's a rule. We are compliant and have been and effectively were probably compliant even before there was a concept like the mining charter and that's got to do with our own history and how we facilitate black interests into the mining industry and then, of course, we merged with [On Gold] and so depending on by what formula you calculate we are comfortably compliant with all the requirements. I can also remind you that we were the first Company in South Africa that converted an old order mining right to a new order mining right and obviously for that we had to be compliant. So in this transaction where we sell our Omni shafts to a black owned company we effectively get more BEE credits, more. We already more than what we need and that's why the transaction first and foremost stands on its feet as a commercial transaction. It's not a transaction we did in order to get BEE credits but by having done a commercial transaction with a black owned company we do get some BEE credits and we sell some 150,000 ounces or 12, 13% or our sort of annual production and this company is black owned so we will get anything up to 100% credit for each one of those ounces. But you can see we haven't really done the numbers because the deal isn't driven by that. it is just another BEE credit in Harmony's sort of list of credits.

But going forward I'm not sure how-- can you just explain a bit more on what you'd have to do say in the next four or five years and what your broader strategy with respect to compliance then?

Well, I mean compliance is an ongoing challenge so you make commitments to the government as you would do in any country under the environmental legislation under the indiginization programs that typically exist in developing countries and so obviously your initial compliances I have met the criteria I've laid down and I have satisfied the government that my plans to procure more and more from local firms are acceptable but they are plans. And then, of course, you would need to have a regular report back to the government. In the South African environment it is typically annual reports that you need to submit and then obviously if you were to not make-- you know, if you were to become non-compliant then obviously government would expect of you to do what it takes to get compliant again. So the things that are once off like you must have 15% BEE ownership and in ten years up to 26%, those are the ones we are permanently compliant with. We have complied so we are there. We've done that. The other ones are progressive. You need to progress from point A to point B over a period of time and, therefore, there would be the annual sort of review intervals there but I must tell you also operating in a country like Papua New Guinea and seeing their sort of environment and some other countries, I think the South African rules are much clearer and certainly as a South African Company we find it reasonably comfortable to operate within those sort of guidelines there.

I have another question that's unrelated. Can you give a sense of the one of the biggest assets that you will do on the board in the next few years is Evander. What kind of CapEx would you spend there over the next 30 years? I was looking at the results estimate and that looked like a huge number.

Yes, you know Evander there are huge resources and quite significant reserves and the two biggest portions of the Evander reserves, the underground reserves, would be the projects that are known in South Africa as [roll spread] which is really the depth extension of the existing 8 shaft operation and because it's a depth extension you can either go in both a complete brand new mine to access the deeper ore body. Then you probably talk in order of R5 billion to R6 billion over a 15 year period or you can continue to access it incrementally where you spend a couple of hundred million rands a year to continuously access it like we've been doing for the last 15 years or so at Evander and I actually worked there as a very young mining engineer 15 years ago so I know that ore body quite well.

The other one, the out of big sort of reserve for the Evander area is know as Poplar and Poplar is a shallow mine. At its deepest point it is less than 1 kilometer deep and we're doing significant exploration there now on the sub outcrop, which is just the point where it comes closest to surface and if we find what we hope to find that it comes all the way let's say down to 300 or 350 meters below surface with a reef sub outcrop, then really this project changes completely in nature because then we can access the upper point of the reef, the shallowest point of the reef with a decline, and then you talk about significantly reduced capital. Now we probably talk about a billion or R1.5 billion instead of perhaps R2 billion or R2.5 billion but more importantly you cut your lead time from 7 or 8 years to perhaps 3 or 4 years so quite honestly we are very, very excited about Evander as a prospective are and with the gold price where it is now in South African rand Evander is really a world class asset for us to have.

Of course, it also demonstrates how times have changed because we bought all of that including the current mines and all of these reserves for a mere R450 million a couple of years ago so it just demonstrates how the world has changed favorable from a gold valuation point of view. But at Evander we also continue to own the surface lime stands, which contain gold and certainly the third of our three significant retreatment facilities that we would do as part of the project called mega dump. The third one would be at Evander and so all the old slimes tailings there disposition dams or facilities could all be retreated profitably and we could extract more gold. So Evander is great and yes it will take some capital but the nature of building a deep level gold mine in South Africa is that you need to spend that capital in some cases over 15 years. We are quite excited and quite a few of these projects now seem to be quicker projects, cheaper and quicker to bring to fruition. I think we probably need to hand over to a next person for questions now.

Mr. Swanepoel, there are no further questions. Would you like to make any concluding remarks?

No. Thank you very much, everybody, for listening in and we will then speak to you probably in mid August after the end result. Thank you very much.

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