Harmony Gold Mining Company Ltd (HMY) 2011 Q3 法說會逐字稿

Good day and welcome to the Harmony Gold Mining Company Limited third-quarter results for the financial year 2012. (Operator Instructions). I would now like to hand the conference over to Graham Briggs. Please go ahead, sir.

Thank you very much and good afternoon or good morning if you're on the other side of the world from South Africa. Great to have you here and for me to be able to present these third-quarter results. I have with me Frank Abbott and Mashego Mashego. Also with me is Marian and Henrika. And obviously if there are questions which we can't answer, they'll be only too pleased to try and get back on email for those.

I am going to be working through the booklet, and hopefully you've either got it via your email or on the website. Of note is of course the Safe Harbor Statement, slide two. Slide three is really what we're going to be talking about, the overview. We'll talk a little bit about operational results, and Frank will take us through the financial results. I'll talk a little bit on exploration and projects, of course including Wafi-Golpu, and then we'll conclude.

On slide five, key features for the quarter. Safety is still a number-one priority, with extensive information in the quarterly booklet on safety. And I'll talk on the slide on safety just now.

Golpu pre-feasibility study is still on track, on track for the completion of end of June with the results of that pre-feasibility study probably shared with you in the September quarter but probably during some time in mid August.

Operating profit of ZAR1.1b or $145m. Headline earnings decreasing slightly 3% to $130m. Operational results weren't in line with our plan. The gold production is down by 18%, and we'll talk a little bit about the grade. And then the cash operating cost increased, the unit cost increased, but not because of increase in costs but because of the lower gold production.

Talking on safety on slide seven. Five fatalities in the quarter. We've done a lot of work on safety, external work and had external parties helping us in auditing and doing gap analysis and setting basically a bit of a safety framework. We've also done some high-level internal stuff and we are in a much better space as to what we have been in the past. Our lost-time incidents have decreased and have been single digits for the last few quarters, as you see on this slide seven.

I'm confident that really it's an area that we've done a lot of work with Alwyn, who's leading it up, and I think we will see the improvement going forward. So a little bit disappointing for this quarter, but I think it's going to happen -- it's going to be much better going forward.

Going to operational results, slide nine. We've got the operational results there in grams as well as ounces. So you can see the 18% drop in the ounces. Gold price much of a muchness in dollar terms, slightly down in rand terms. And that's because of the exchange rate that's on the bottom line there. Grade slightly down as well. And you can see the rest of the figures there.

Paging over and we'll go to slide 11. On 11 we've got the production measuring quarter on quarter. You will of course remember that last quarter was a very good quarter for us. There's a few stoppages on Doornkop, safety stoppages. And then we closed the shaft down for South Reef mining for 17 days, basically to fix up infrastructure. We'd got to a point where we really had to improve the infrastructure. With building up production, we'd got to the level where we had to do some things in order to carry on building up production.

On the Joel, that was a guide rope in the shaft which we had a failure on, premature failure. It took some time to repair it. Section 54 stoppages, stoppages in the Free State. The fatals were mostly in the northern part and only one fatal in the south. So those Section 54s are not all related to -- in fact very few of them are related to fatals.

We had a one-day strike. And then talk a little bit about the underground grade,; I'll talk more about the grade. And then Hidden Valley had a very poor quarter, mainly because of rain January, February, in fact December, January, February, really very high rainfall. So we had a slip in the pit and that prevented us from mining the higher-grade material in the pit. And then we had all sorts of issues on getting supplies up to mine site, mainly because of the road access from [Lay] to get to the mine property. That's not on the mine roads but on the provincial roads.

Slide 12, a little bit of talk on the ore bodies, I know there are lots of questions being asked on our ore bodies. We're really in quite a good space with our ore bodies. The face grades are all in line with the geo-stat models and we also are generally looking good on the developments. So from an ore reserve point of view, our grades are fine.

From a quarter-on-quarter view, I think we dropped the ball a little bit on the grades. The stoppages obviously don't help in getting the mining mix right. And so there's a renewed focus on the higher-grade [panels] from each operation. And we've also standardized a lot of the issues around grade sheets and so on. And we're doing a lot more of this monitoring. So I guess we've learned a little bit in this last quarter from our mistakes.

I now want to hand over to Frank Abbott to talk on the financial results.

Thank you, Graham. If we page to page 16 of the slides, we've got the income statement quarter on quarter in US dollar terms. If I extract from the income statement, our revenue is $417m for the quarter. This is 24% lower than the previous quarter. And this is because of 24% less gold sold during the quarter.

Our production cost came down with $22m. A portion of that is because of a buildup of gold inventory at the mine, and then also savings in costs because of lower production. Our operating profit for the quarter was $123m. Exploration expenditure $18m. We increased the exploration expenditure in Papua Guinea on the Wafi-Golpu project.

Taxation, deferred tax, $84m credit or reduction. With the introduction of dividend tax, the higher mining tax rate will reduce from 43% to 34%. This means that we're paying less tax at the lower rate and our future tax will also be lower, and therefore we had to adjust the deferred tax liability balances that we provided in the past.

Our profit from discontinued operations $18m. This is profit -- net profit of Evander Gold Mine. And as our intention is to sell Evander and we've actually got a signed agreement, we have reallocated and reclassified the Evander result and we call it discontinued operations.

The net profit for the quarter was $132m and our headline earnings per share $0.30.

If we page to the next slide, 17. This is our income statement nine months year to date versus the nine months -- the corresponding period the previous year. The revenue is $1,469m for these nine months, which is up substantially from the previous nine months. The reason for that is the increase in gold price. The gold price was $1,324 in that nine months and the average gold price over these nine months was $1,703.

Our operating profit was $519m for the nine months. Exploration expenditure $44m, and 95% of this expenditure is in Papua New Guinea and this is on the Wafi and Golpu projects.

We've discussed deferred tax credit. For the nine months it was $57m. Profit from discontinued operations, Evander operations, you can see we've made $53m profit in this nine months of Evander. The previous year we were making losses. There was a big turnaround after we reengineered the mine and it is now making profits. The net profit for the nine months was $332m, and that gives you headline earnings per share in US cents of $0.75.

If we go to slide 18 we've got our profit margins there. This is our cash operating profit margin. You can see we're on the right trend. The current quarter was lower but we're on the right trend. The net profit margin is also on that planned trend and that's very positive.

If we page to page 20, this is our headline earnings in US dollars. You can see that after the December and March quarters we had headline earnings of $130m.

Thank you. I'll hand over to Graham.

Thanks very much, Frank. Slide 21 gives a great aerial shot of a drilling rig up at the -- in PNG near Golpu.

Slide 22, let's just talk about that particular project. We've had eight rigs on site. Two of those are involved in collecting geotechnical information and six on further definition of the ore body. There's a lot of work happening that's not just related to drilling and collecting geological information, construction upgrade of road and camp. We've just approved the capital for a 500-man camp. This will be situated near the portal so we can start with underground work as well as the various bits of work that need to happen there.

The prefeasibility is on track. We should be finished by the end of June. And we'll have those results out in the September quarter, probably somewhere around middle of August, if all goes well. That should work out and hopefully correspond to our results with respect to resources and reserves.

Slide 23, a plan view of it. It appears that we're probably closing off now that particular ore body to the north, but it seems to be tending out a little bit to the left, around the diatreme there. So we'll have to see. There's obviously a bit more drilling. It's still open at depth. We won't be able to close that off at depth. It just doesn't make sense to try and close anything off which is going to only be mined 50 years into the future. But certainly we're getting some great information and everything is playing together with respect to the prefeasibility study.

Slide 24, talking about the transfer zone. It's obviously an expensive zone. The little rectangle there is the rectangle from the previous slide, but you can see that Zimake and Kesiago, as pointed out before, we've just started drilling on those two deposits.

Slide 25 is a long section right from the south in Mount Tonn, up into the north, Zimake, drills working on Zimake and Kesiago. I'm sure that with the great geochemistry, great magnetics that we will find something else here. We just need to -- the geologists are working hard at it. It's a very exciting part of our geological terrain.

Slide 26, PNG 100% exploration. As you know, the areas that we have got with the three areas outside of the joint venture. The joint venture in a light purple color. Those are the tenements and Hidden Valley and Wafi-Golpu shown there. Mount Hagen, we've been doing a bit of drilling around there. We're getting sniffs but we haven't anything economic as yet. The guys continue to work that one up.

On Tari those granted tenements there. We are planning a mag survey and hopefully we'll be able to do it towards the end of this quarter. Really it all depends on the consultants and contractors who do the flying work whether we can do it this quarter. But it's certainly another exciting area.

I'd like to conclude now and start on slide 28. You've seen this slide many times before. Our intent, creating a sustainable Company, generating earnings that fund dividends and growth. And several issues mentioned below there.

Just to indicate this, I'd like us to go to slide 30, and we talk about the nine-month period. So cash generated from operating activities in the last nine months, $500m. We've rewarded some of our shareholders with some dividends. We're not a big dividend payer but we certainly aim to continue to try and pay dividends. We've obviously paid the Receiver of Revenue his dues.

We do spend some money on corporate social investments and various projects around our mines on local communities. Capital expenditure has been quite -- we've been spending a bit on the capital expenditure. We're probably below our estimate for the year on capital expenditure, but it's probably in line with our slightly lower production for the year. And then, as Frank pointed out, spending more on exploration expenditure.

So that gives you a bit of a view of where we're spending our money and securing our future. What is also pleasing and you don't see on this particular page is the cash balance which is somewhat better than it was a year ago and to the tune of something like $100m a year ago, as Frank has mentioned.

Additional.

Additional, yes additional. On slide -- and we'll skip slide 31 and go to slide 32, just to show you what our cash flow looks like. Of course the red bars being cash operating costs and the other bars the various categories of capital. So still a nice gap between the gold price and our quarter. And this quarter is not what it was planned to be. It was -- it's a disappointing quarter for us.

In conclusion, we did lose production during this quarter. And that 70,000 ounces or thereabouts we won't be able to regain for this financial year, mainly due to various things, but certainly grade and production discipline we've jacked up a lot more. I'm sure that at the beginning of this quarter it looks like much improved safety and we certainly hope that will continue through the quarter and that will also give rise to improved production.

And then of course the gold price, despite exactly what's happening today, down at $1,580 or thereabouts, we still believe that it's strong. And in rand terms, the rand exchange rate is weakening a little bit so our gold price in rand terms is still above ZAR800,000 a kilogram.

So with that I'd like to open ourselves up for any questions.

(Operator Instructions). Gentlemen, it appears we have no questions. Do you have any closing comments?

Thank you very much. Ladies and gentlemen, thank you very much for listening to our conference call. It has been a difficult quarter. We are setting ourselves up for the long term. We have taken some fairly harsh decisions during the quarter in order to make sure that we do have sustainable production. It would be nice to be able to give you slightly better results from the operational point of view, but so far this quarter we are certainly doing better than we were last quarter.

Thank you very much.

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