Harmony Gold Mining Company Ltd (HMY) 2012 Q2 法說會逐字稿

Good day, and welcome to the Harmony Gold Mining Company Limited Q2 FY '13 international analyst conference call. All participants are now in listen-only mode, and there will be an opportunity for you to ask questions after today's presentation. (Operator Instructions). Please also note that this conference is being recorded. I would now like to hand the conference over to Graham Briggs. Please go ahead, sir.

Thank you very much, and good morning or good afternoon, ladies and gentlemen, depending where you, of course. I am certainly hoping that you've got the documentation, probably downloaded or are viewing it on the website. And I'll be taking you through the presentation.

I'd like to go straight to slide number three, to talk a little bit about the agenda. We'll be talking about our business, our strategy, Golpu, a little bit about Golpu, talking about social investment and environmental things. The unhedged, low debt [fab] is for Frank, who is sitting with me. We'll talk dividends and then a conclusion.

In addition to myself, we have Mashego Mashego here; we've got Marian, Henrika and Jaco Boshoff. So quite a nice team, should there be any questions.

Going to slide number five, our strategy; still the same slide that you've seen before, no changes on it. The intent is to achieve the strategy, and we are making good progress on achieving it.

We do talk about some exciting investment proposition, where we are and the various parts of the Company. Of course, dominating that is our assets here in South Africa, being some of the large gold mining company -- large mining assets. Golpu, big, world-class exploration project and getting into feasibility. A little bit about environment, social, unhedged, of course, dividends, and very focused of course on South Africa and therefore very exposed to the South African rand.

Slide number eight gives you a graph of the recovery grade of the last four quarters, so improvement quarter on quarter for three consecutive quarters there. We'll talk a little bit more about grade later on, when we talk about Kusasalethu as well.

Slide number 10. Despite the low point of Kusasalethu in this last quarter, you can see our gold production is near on track from two quarters ago -- sorry, this is a six-monthly graph -- with the December 2011 six-month period. But that, of course, is including the small production of Kusasalethu.

Slide 11, Doornkop production profile. The March 2012 was when we decided to stop that asset for a while, during the January quarter -- the January month of that period, to get really a lot of the backlog equipping done. Since then it's going very well. And this is a quarter -- the first quarter that achieved more than 1 tonne of gold. So improvement there in the grade, improvement in cash costs as well. We have represented on that graph our total costs including the capital.

Phakisa, again, improving trend, flattening out in the last two quarters. And we talked a little bit about the Freddies No. 3 shaft, ventilation shaft that we've had a collapse in, and it's going to take us a while to repair it. We've got to go into that shaft, repair the shaft and also remove the debris from the bottom of the shaft. It is a bit of a negative, because it's going to stop us from growing the production in the next few quarters. However, by the end of calendar year '13 we'll be back into ventilating that area.

Hidden Valley; two of the big issues at Hidden Valley is really the crusher and the OLC, or the overland conveyor, and then the other one is the maintenance regime. The crusher installation and commissioning is scheduled for the June quarter, actually the April month. Meanwhile, we continue to truck haulage and that is very expensive. Once we do have that crusher installed, we'll be able to make full use of the overland conveyor. And that should improve dramatically both the costs as well as getting the right amount of tonnage through to the plant.

We have in the last while taken over the maintenance of -- previously there was a [marked] contract in place, where we had an external party maintaining the fleet. We're really suffering from bad availability of the fleet. We've taken over that contract. And initially we saw some low points, and that was really catching up all the maintenance. That is improving. And while we've had poor tonnage and poor tonnage coming out of the pit, some low-grade stockpiles have also been processed.

So it's not a good quarter for Hidden Valley. However, there is a plan behind all these issues to really resolve them.

Slide 14 is the Group operating results. This is all the continuing operations. You can see that gold is 9% down. This of course is wholly due to Kusasalethu. I'll take you through the other operations, which had a good quarter. Rand per kilogram was up 9% during the quarter. Cash operating costs really went up, and that was because of the low gold produced and because of Kusasalethu. Grade up to 4.77 gram a tonne, and the operating profit at ZAR1.6b or $188m.

On slide 15, I have here the comparison quarter on quarter excluding Kusasalethu, so excluding the September quarter and December quarter. And you can see that production actually went up by 3% on all the other operations. You can also see that there is an improvement in cash operating costs as well, and of course, even better, on the grade. Kasasalethu in itself had a poor grade quarter, mainly because of low tonnage coming out from ore but also all the tonnage came out from development as well, which had a dilution effect.

On the exploration projects, Wafi Golpu. This is Golpu on slide 17. The focus really has been on the Lift 1 area. On that section, you can see Lift 1 is a fairly small area. So the intent here is to do more drilling into Lift 1 and extend it. You can see that the extension is quite large, from the bore that we're drilling there. I will show you on the next slide a plan view of that, where those bore holes are focused. There is also a hole indicated there that we've drilled. It's Lift 3 that's below Lift 2, with a very good intersection of copper grades as well.

Slide 18, a plan view of Lift 1 at the 5,000 meter RL. And you can see the filling in of the data information from the intersection of those two bore holes there. So that's some good news, both in extending it towards the north on this page as well as filling in some of the detail on those high-grade, low-grade areas. So all is looking good there, increasing the drilling and it's continuing in the various studies.

On slide 20, a little bit of a plug here for the industry, especially the gold mining industry. There is a lot been said in the media and so on about mining in South Africa. This just tries to enhance what we are about in South Africa. Mining is employing a lot of people, providing a lot of economic development. Most of our spends is local, obviously a lot of that in wages and electricity, but probably somewhere closer to 89% of our spend is in South Africa, earning foreign exchange. A significant contributor to the infrastructure investment and a substantial contributor to society.

Slide 21, talk about safety. Regrettably, we did have three fatals in the quarter. Having said that, we have had a good achievement on various safety milestones. The sort of events we had which created fatals unfortunately should not have happened. The good news is that certainly from a fall of ground position we are in a very good position. It's quite a long time since we had a fall of ground fatal.

Slide 22 gives a track of the operational free cash flow from Kusasalethu. You can see in the quarters from March '11 it's been a profitable business. That was reversed suddenly in December, this quarter that we are reporting on. And that was the unprotected strike, the violence, the sit-ins we had. And you can see that it was certainly not something that we could continue with going forward, and that's why we have embarked on the process that we have.

Slide 23 puts some numbers to that for the last quarter, 402 kilograms versus the 1,600 kilograms. You see that in ounces, 51,500 kilograms (sic - see presentation "ounces") versus only 13,000 kilograms (sic - see presentation "ounces"). And certainly from a rand per kilogram or dollars per ounce, you can see that this is really unsustainable. We need to draw the line.

We embarked, in slide 24, a 189 process. We also embarked on some bilateral discussions with unions, and we've been continuing to do that since January 7. The two formal consultations with the CCMA, that's the Commission for Conciliation, Mediation and Arbitration, have gone fairly well. We have got into the stage where the unions have accepted the rationale for issuing the Section 189. We have circulated a draft agreement. That draft agreement really contains the 10 points that we distributed to people on January 7.

There is another meeting during this week, and we are certainly hoping that that is fruitful and the unions come back with their comments on the draft agreement and that there is a signing soon of that draft agreement.

Slide 25 is the Sable shaft headgear quartz about to fall over. That's deliberate. We've been doing a lot of rehabilitation and environmental management in the Free State mainly. A few photos there to show you what it looks like after it's been rehabilitated. So some good work happening on the rehabilitation, slide 26.

And slide 27 puts it into a bit of context of numbers of headgears and rands. Probably reduced our liability by somewhere around ZAR125m since we started this program, and that was about two years ago. A lot of demolitions have happened. It does take a while to rehabilitate the areas immediately in and around the headgear, but that will be proceeding. Probably takes about two years to rehabilitate those areas, and sometimes then it depends a lot on the vegetation growth as well. The result of this, of course, can be seen at the bottom of page 27 as to where we sit in the comparison with other companies.

28, a recap on the Masimong housing project. That land has been transferred into local council. There are 461 rental units. So this is not only housing for mine workers; this is housing for the community as well. Total value of that asset is about ZAR350m. This is the value of the land, the old buildings that went into it. The government, in the name of Department of Human Settlement, put about ZAR100m into it, and we probably put in around about ZAR50m or so.

We have launched another three projects, and I'm on slide 29. There are three more areas, Merriespruit 3, Harmony 3, Steyn 2. Those hostels have been identified for further development. Conversion costs of each of those probably around ZAR150m per hostel. We will put some money, but a lot of that money will come in from the Department of Human Settlement.

It follows on agreement between Harmony, the Province, that's the Free State, and the local municipality. And this fits in with all their housing schemes and their extensions to the various municipalities. So it's getting a lot of support and pleased to be able to do that.

I'm going to hand over to Frank now, and starting on slide 31.

Thank you, Graham. On slide 31, we see we've got our headline earnings, and it shows the upward trend over the last number of years.

If you go to slide number 32, we've got the EBITDA in rand and then next to it EBITDA in US dollars. If we look at the EBITDA in dollars, we see we started at $120m in the March quarter, went up to about 130 -- $145m and up to $165m in December quarter. And this is despite the Kusasalethu labor disruption, higher gold price, a better grade and lower cost, a result of this positive EBITDA for December quarter.

If we page over to page 34, or slide 34, we've got our cash flow summary quarter on quarter in US dollars. So cash flow from operations were $179m. Exploration expenditure $18m; 50% of that was at Golpu, $9m, and greenfields work in Papua New Guinea another $8m. Income and mining taxes, those were our first provisional payments. Proceeds from sale, Merriespruit South, which was sold to Wits Gold. Capital expenditure of $123m, and that included capital at Wafi of $40m and at Hidden Valley of $70m. You can see the dividend we paid the previous quarter of $26m. And at the end of December we had surplus cash after debt of $16m. You see our cash balance was $295m and our debt was $279m at the end of December.

If you page over to slide 36, this is our income statement quarter on quarter in US dollars. Our revenue, $532m. It went up by 3%, and this was mostly due to the gold price. Our cash operating costs were lower, and this is because of low electricity tariffs. The previous quarter included winter tariffs. Inventory movements, $185m (sic - see presentation "$18m"), and this is on the gold lock-up or gold inventory.

If we look at our amortization and depreciation, $58m; exploration expenditure $18m, which we explained in the previous slide. Golpu was $9m and greenfields was $8m. Taxation of $25m. Profit from discontinued operations was Evander, $25m (sic - see presentation "$9m"), and profit from -- net profit was $84m. Our headline earnings per share was $0.18, versus $0.15 the previous quarter.

Thank you, Graham.

Thanks, Frank. I've got the good news to talk about now on dividends. On slide 38, you can see our margin here, that we talk the cash costs, the maintenance capital as well as growth capital. December quarter should have been much better had we produced from Kusasalethu, but still a nice margin there, and that's on slide 38.

Slide 39, you can see it in dollars per ounce. Again, the same picture of $607 from a cash cost point of view and $261 from a total cost point of view. So nice margin, prepared to share it with investors.

And on slide 40 we show a bit of a graph on what we've been paying in dividends, in '09 ZAR0.50, '10 ZAR0.50. '11 we paid ZAR0.60, and then last year we paid an interim of ZAR0.40 and a final of ZAR0.50, taking it to ZAR0.90. And now we've just declared a ZAR0.50 dividend. A comparison there with earnings and dividends in South African cents.

In conclusion, a good quarter for us. 28% increase in headline earnings takes us to ZAR1.58 a share. I think consensus is probably closer to ZAR1.00, so we are beating consensus.

Doornkop build-up continues, a tonne of gold for the quarter. A 6% increase in underground grade, and this is the third consecutive quarter of increase. Gold production decreased 9%. That was solely due to Kusasalethu. And if you look at the South African operations excluding Kusasalethu, of course, there was an increase in gold production.

Operating profit 16% higher, at ZAR1.6b or $188m. Operating cost improved. And we've talked about the housing. We are committed to that. And declaring the ZAR0.50 dividend.

Slide 43, Harmony remains undervalued despite being one of the world's largest gold miners, building low-cost, high-grade mines. Our trend of grades is somewhat different to a lot of other companies. World-class exploration projects. We support meaningful corporate social investment. We are doing a lot of work on the environment, that ZAR125m reduction in the environment liability has come out a cost neutral position for us, because we've benefited from selling scrap.

We're unhedged, low debt, gold price is good, and of course we are very exposed to the rand exchange rate. We are paying dividends, and we believe we've got a strong management team, focused on delivering on the strategy.

I'd like to open myself and of course my team for any questions.

Thank you very much, sir. (Operator Instructions). Gentlemen, it would appear we have no questions. Do you have any closing comments?

Yes. Thank you very much, everybody, for dialing in. We have got an appendix to this presentation which covers some more detail on grade, on exploration in Papua New Guinea, also looking at Evander and Hidden Valley in some detail. And obviously the guidance, which is the last slide, on slide 56, which we've guided, that guidance, the full impact at 1.2m ounces which was modified for the Kusasalethu event. We did modify that at the beginning of January.

Thank you very much for listening in. And as I said, we are very pleased with the quarter, and hopefully that we are delivering on the strategy. And if we see you soon, whether it be here in South Africa or in your home town, we hope to see you and discuss these results further.

Thank you very much.

Thank you very much, 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.