Harmony Gold Mining Company Ltd (HMY) 2011 Q2 法說會逐字稿

Good day, and welcome to the Harmony Gold Mining Company Limited Q2 FY 2012 quarter earnings results. All participants will be in listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. (Operator Instructions). Please note that this conference is being recorded. I would now like to turn the conference over to the Chief Executive Officer, Mr. Graham Briggs. Please go ahead.

Thank you very much, and good morning or good afternoon, ladies and gentlemen. Hopefully you have the necessary material with you. I'm going to go through the presentation material and -- but other information, of course, is available if you want explanation.

I have Hannes Meyer with me, who will take us through the financial section, but also have other people with me. Frank Abbott is with me, Mashego Mashego, and our two lovely IR ladies.

If we go to slide two, that's really the Safe Harbor statement. Slide three, a little bit of an outline of what we're going to be talking about.

If we go to the overview on slide five, I think this slide captures what we said in the previous quarter and what we're delivering, so profits and cash flow continue to grow. Grade improved. There's cost control and quarter-on-quarter production increases. I think we get a tick for that.

A continued build-up at the growth shafts. My belief is that at growth shafts you can have a somewhat bumpy ride in some quarters, but generally the production is on the increase. More exciting exploration stuff coming out of PNG and Wafi-Golpu. Prefeasibility study really coming together, and still in line to deliver for the end of the June month.

Slide six, record operating profits of ZAR2.1b, record headline earnings of ZAR1b, and that's a 155% increase in headline earnings per share. Gold production is up 5%, recovery grade increased by 13%. Cash operating costs reduced by 6% in rand terms, to ZAR249,000 a kilogram, in dollar terms declined even more to $958 an ounce. And we've declared an interim dividend of ZAR0.40 per share.

Safety, a disappointing record on safety, especially when it comes to the fatals. A lot of hard work still to be done and is progressing on the safety numbers, but you can see from the stats on that slide, seven.

Slide eight, record cash operating profits. That continues from last quarter. The top graph there is a profit margin in 43%. Cash operating profits, either in rand or dollar terms. If you look at the dollar ones on the right-hand page there, you can see quite a nice curve if you look at that graph.

Slide nine, obviously a lot -- most of our gold coming out of South African operations, so the rand is growing gold price, very important. Top graph there, the dollar gold price and then the exchange rate in grey. And you can see that the dollar gold price came down a bit, quarter on quarter. The exchange rate, the rand weakened, and that delivers the bottom graph there at roughly ZAR439,000 a kilogram.

Slide 10 is a bit of history, going back a year, looking at the share prices relative to Anglogold and Goldfields.

Growing our cash flow, on slide 12. You've got the Group operating results there. Just to look at the percentage change, gold produced 5% up, gold sold 11% up; gold price, I've just chatted about that one. Cash operating costs, in rand terms a 6% improvement, in dollar terms a 17% improvement. Underground grade up 14%. I think it was 13% for the total, but 14% for underground. Operating profit at ZAR2.077b; from the previous quarter ZAR1.3b. The exchange rate of course is quite an important factor in these results as well, if you look at the bottom line there.

Slide 13, on the grade. There's the underground and surface grade, surface grade in the top graph. Of course, a lot of that increase is really due to the underground grade, but you can see both those graphs there. And this is more in line with our plan for this year, at around about 4.8, 4.85 grams a tonne.

Slide 14, looking at the build-up operations here for the four build-up operations, Hidden Valley, Phakisa, Doornkop and Kusasalethu. Increasing; on slide 14 we've got the rand per kilogram, and slide 15 has got dollars per ounce.

The operational cash flow, and again looking at rand per kilogram there, in slide 16 you can see that the cash rand per kilogram coming down. Total rand per kilogram, including capital, is coming down. Gold price better, and of course a much better margin.

A similar picture on slide 17. It shows up a little bit more dramatically here, because of the exchange rate movement as well, and of course the gold price movement in dollars. And so you can see that margin is dramatically better in the latest quarter.

Slide 18 has a bit of history as well, and you can see that for consistently five quarters now we are in a profitable situation with the cash flow.

If we look at the global side of things, we've got a couple of slides here, three slides on the global side. So, Wafi transfer, a lot of the focus is still obviously on Golpu and the prefeasibility study. Seven rigs in that area. One is on geotechnical work and the other six are on Golpu, drilling out that deposit. But I'm hoping, certainly in the next few months, that we'll get a rig onto one of the other ore bodies -- well, possible ore bodies that we've demarcated. So there's been a lot of work done on that, but no drilling, so that's really something for the future.

Slide 21 gives you a little bit of detail. These results have been around since Newcrest's results a couple of weeks ago, and WR406 is the hole of note there. Almost a kilometer of drilling, at 1.37% copper and 1.39 gram a tonne gold, including some fairly substantial values for that nearly 200-meter section there.

On slide 22, a bit of work still happening at Mount Hagen, the Harmony 100% area, and one area that we've been drilling. Some good sniffs of mineralization; nothing economic as yet, but still a lot of work happening there.

Now, I'd like to hand over to Hannes, and Hannes will take us through the financial results.

Thank you, Graham.

Looking at the financial results, the increase in gold price, increase in grade resulted in much better operating profit. If we look at the operational cash flow, and it takes into account the capital expenditure, we increased by 145%, quarter on quarter, to ZAR1.3b or $162m. Net profit also increased to over ZAR1b, as did headline earnings, and that's $129m. 155% increase in headline earnings, at ZAR2.42 or $0.30 per share.

If we look at the six months that ended in December 2011 compared to the previous period, December 2010, it shows the big change in Harmony in that period, from a loss after deducting the capital expenditure off the net operating cash flow or outflow of ZAR38m or $5m to a surplus this quarter of $240m. Net profit after tax, significant improvement, ZAR1.5b, and headline earnings also 235% increase.

Turning to slide 25, also looks at a bit of history. September '09, we spent quite a bit of money on restructuring efforts, and we can see that continuing in March 2010, June 2010. And it's really in the last two quarters that you see a significant increase in the headline earnings per share, to over ZAR1b in this quarter. Bottom graph just shows it then per share, the headline earnings.

Turning over to slide 26, it shows EBITDA. EBITDA, the top one in a quarterly format; you can see a bit of variation, quarter on quarter. If I look at the bottom graph there, EBITDA on a six-monthly basis, roughly ZAR1b for every six months and then this last six-month period nearly ZAR3b. What a significant improvement there.

Slide 27, we show where we've come from in terms of net debt; net debt illustrated in the red bar. You see that creeping up 2010 -- September 2010, December to March 2011, and then repayment, quarter on quarter, on that debt or decrease in the net debt position, where we ended up at ZAR109m or $13m net debt at the end of this quarter.

As you also see [up there], the grey bar shows the facilities available. And September 2011 I put in place that $300m debt facility, and that's reflected in that and gives us additional headroom there. So nearly -- if I convert the dollar facilities available, it gives us nearly ZAR3b of facilities available.

Slide 28 contains the rand income statement, quarter on quarter. Maybe the only item there to highlight is the net profit of over ZAR1b.

And then, going to slide 29, discussing the same sheet in dollars. Revenue up by 8%. You see cash operating cost coming down in dollar terms. In rand terms it was pretty stable, but the weakening of the rand had a positive effect on our cash operating cost in dollar terms. Then some costs and restructuring still at Bambanani. Exploration, pretty much in line.

Gain on financial instruments relates to some instruments we have on our environmental rehab trust funds. And the positive movement in the JSE index helped us realize a gain on that particular interest instrument. Taxation up, quarter on quarter, as we increased our profitability. In the net profit and headline earnings we had $129m for the quarter, over 100% improvement, quarter on quarter.

If I page over to slide 31, looks at the year to date US dollars, and this compares again to the six months that ended December 2010. Revenue up by 34%. Cash operating cost up 12%, going down to basically a net profit of $200m for the six months compared to $56m the previous quarter, or headline earnings of $191m compared to $61m in the previous period.

Turn this slide to slide 33, looking at the balance sheet in dollar terms. Third column shows -- at the right at the top shows the net debt position. Where we started at the end of September was $86m. We had cash flows from operations that improved in this quarter. Working capital changes mainly relates to annual insurance premiums, which accounted for about $28m of that movement. And this time of the year we prepay our insurance in for the remainder of the year going forward, or for the 12 months going forward.

Capital expenditure, exploration, corporate cost pretty much in line with the previous quarter. End of the quarter, $13m net debt, a significant improvement in that (inaudible) very low gearing company and a good position financially.

Thank you, Graham.

Thanks very much, Hannes.

Just to conclude now, and slide 35 is obviously a slide everyone has seen before. Creating a sustainable company, earnings that we can fund both growth and our dividends, and so we're very much on line and tracking that.

If we look at slide 36, some of the optimizing that we've done on our asset portfolio. Evander disposal, you've probably read about that one. Some interesting dynamics that we'll obviously look at for the junior gold miners in South Africa. A lot of conditions precedent go through, obviously, in that transaction.

Rand Uranium disposal; that deal finally closed in January. We've received the ZAR193m. The balance -- the $14m has still got to come to us. And it remains in dollars there, because I don't know what the exchange rate will be when that happens.

I think we've delivered and will continue to do so, so we need to continue to look at our assets. And there's always things to be done, things to be improved, but what you have seen is Evander's now been sold. Ore body management is critical in the recovery grade, and trying to achieve our ore reserve grades. We've had consecutive quarters of record-breaking operating profits; we're extremely pleased about that.

2010 production; we've achieved 45% of our production that we were targeting. We've modified that slightly downwards, and that is really because we've decided to restructure Bambanani earlier than we said and that's probably affecting most of this financial year. And we've also made an adjustment for safety stoppages. We've had a lot of safety stoppages, and we don't know quite what the future brings but we've certainly adjusted that.

And paying dividends, well, we've paid -- we are planning -- well, we're paying an interim dividend of, as I said, ZAR0.40 a share.

I'd like to hand over to -- for any questions. I think that if you have any questions, I think the operator will tell you what to do.

Thank you very much. (Operator Instructions). Our first question comes from Anna Mulholland from Deutsche Bank. Please go ahead.

Hi. Good afternoon, everybody. I had just a couple of quick questions. The first is on your dividend policy. Should we expect you to continue paying interim dividends going forward? And what would you like us to model in terms of the split between an interim and a final dividend payment?

And the second question is about your grade improvements. I'd just like a little bit of color, if you can, on how sustainable the improvements are. I see, for example, at Masimong we may see a step backwards in grades if you redevelop the reef ore pass. How sustainable are the improvements that we've seen at the other mines in terms of high grading your mining panels?

Yes. Thank you very much. Some interesting questions there. We have given a little bit of detail on the grades. Let me just talk about that one first. So I think all operations really have contributed or helped in the grades. Two operations still have waste from ore passes and rehabilitation of ore passes, and that's Masimong and Kusasalethu. Masimong, hopefully, is going to be shorter term than Kusasalethu. That's quite a long process. But we are destined to produce a recovery of somewhere close to 6 grams a tonne, so that's where we aimed at. The planning for this year was somewhere around 4.8, 4.85 grams a tonne.

So the grade is probably a little bit exaggerated, because last quarter was not quite as good as it should have been. Having said that, we've made up a bit of, I think, lost ground on the grade. So, very happy that they're sustainable. Obviously, as these operations come onto stream with full production, so we'll achieve more consistent results. So one can expect some fluctuations in the grade, but we're very happy that it's sustainable.

On the dividends, the policy as such is a policy that means that we will debate dividends as and when our situation happens. We don't have a specific dividend policy that guides as to when we should and when we shouldn't and how much we should pay. I think our indication is that we certainly want to pay dividends, and those dividends should definitely be affordable.

And the interim dividend is because we have had two good quarters, and therefore want to share some of that with our shareholders. I think the expectation from everybody is that we will develop a bit of a stockpile of cash for our big project in Papua New Guinea. We have no intention of going to the markets and asking shareholders to stump up some equity for that, so we need to build up a bit of a cash pile for that.

So the dividends get debated in the boardroom, as and when management takes the board a proposal as to the quantity and the regularity of that. So, nothing in stone with respect to another interim dividend, and certainly nothing in stone as to what our final dividend will be. It will be probably an interesting debate on these occasions in the boardroom.

Thank you.

Thank you very much. (Operator Instructions). We will pause a moment, to see if there are any questions.

If there are no questions, then I'll just wrap up.

Yes, there are no more questions on my queue, if you would like to go ahead.

Thank you very much. I think, just in conclusion, a really satisfactory quarter. We're quite pleased with the quarter. Financially, of course, it's great. And my thanks, obviously, to management and all the employees for the results they've produced.

Special thanks to Hannes. This is his last quarterly results with us, so he leaves on a nice high. And a welcome to Frank, who is going to obviously continue to try and deliver on all Hannes' promises.

Thank you very much, ladies and gentlemen. Sorry, that was tongue in cheek. Thank you very much, ladies and gentlemen. Have a great day.

Thank you very much. On behalf of Harmony Gold Mining Company Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.