Harmony Gold Mining Company Ltd (HMY) 2012 Q3 法說會逐字稿

Good afternoon and welcome to the Harmony Gold Mining Company Limited third quarter financial year 2013 conference. All participants will be in listen only mode and they are an opportunity for you to ask questions at the end of today's presentation.

(Operator Instructions). Please also note that this conference is being recorded.

I would now like to turn the conference over to Mr. Graham Briggs, CEO of Harmony Gold. Please go ahead Sir.

Thank you very much. And good morning or good afternoon, depending on where you are, ladies and gentlemen. It gives me pleasure in talking about the quarter three results. With me, I've got Frank Abbott, Mashego Mashego, and also have Henrika and Marian with me so if you have questions that you can't get through maybe you can get them through to her and we can answer them that way, Either Marian or Henrika.

I'll be going through the presentation. Certainly hoping that you got the presentation and you've got it somehow via email or webmail. And let's start on slide number two which is a safe harbor statement. Obviously talks about future production and forecasts and the like.

Slide three is the agenda. I'm going to talk about the gold price and then all go into the quarter three results. Frank will take us through the financial results and that's on what's called the financial stability, then go to Papau New Guinea and talk a little bit about mainly Wafi-Golpu and the projects. Talk about mining communities, how we add value is there and then a conclusion.

On the gold price reality, slide five the table at the top gives you an idea of the nine-month period to March 2013 and March 2012. You can see rand per kilogram the gold price has gone up. One dollar per ounce, the gold price came down a bit over that period. And the exchange rate has changed. It's improved or benefited us from a rand per kilogram terms as the brand has weakened.

First quarter however gold price dropped dramatically and to a level of around $1,400 an ounce and that prompted us to implement quite a few actions to reduce costs and I will go through those in subsequent slides. However we made the decision to apply a fairly conservative gold price assumption going forward over around ZAR400,000 per kilogram. And obviously, depending on know what exchange rate how that converts through into a dollar per ounce, but let's call it $1,400 an ounce for this.

Codename Project 400 and that's because there's quite a lot of 400s in it, not only the gold price but if we turn over to slide six, curbing costs in South Africa we believe for 2014 we can reduce our capital in South Africa by about ZAR400 million, a further ZAR400 million we can save from reducing services, corporate costs, looking at external consultants, contractors, supply contracts, and have various labor initiatives and so those are the two numbers from South Africa. We don't envisage any shaft or mine closures as such going forward.

Slide seven, improvement initiatives in PNG. Hidden Valley is been getting quite a lot of focus really three areas are being focused on. The crusher there, the plants, that's the metallurgical plants and mobile equipment, as well as looking at restructuring operations.

The big issue on the crusher, the previous crushers, allowed slabs to get into the overland conveyor, that is ripped the belts and therefore the overland conveyors and been performing the new crusher will not allow that to happen and therefore would be able to use that overlaying conveyor to its full extent and stop the calling of all down that five kilometers from the pit to the plant and all of the equipment going back. It's been very expensive.

Improvement in the plants with better throughputs and more consistent production the plant will improve but there are also some improvements that we are looking at their and the mobile equipment is really looking at the maintenance contract which we took over some eight or nine months ago.

Restructuring operations, the operations haven't been achieving what they set out to do so we are restructuring to really fit the production profile that we see in the future.

On Wafi-Golpu, than most of the capital is coming out of there. There is some of the capital coming out of hidden Valley, but the capital number of about ZAR1 billion and that's explained more about Wafi-Golpu going forward, but that's the PNG initiatives.

Slide eight talking about capital. We've been able to manage our capital fairly tightly in the past and this year has been no exception. We are looking at the rand slide here. There's one other page in dollars. If you look at the dollars, please look at the exchange rate at the bottom and that's on slide nine but it's safe to say that we been controlling and managing our capital very well especially when our production has been down slightly. So you can see a prediction at the beginning of the year, ZAR4.1 billion. We believe this year we'll have about ZAR3.8 billion. It is three quarters of actual and one quarter in the quarter in the forecast.

Slide 10, trying to give you some revised guidance on capital. In August 2012 we gave you a plan or what our capital would be going forward so we gave you 2013, 2014, 2013 and the numbers in gray here is on the left in Rands or on the right in dollars. With the estimates we gave you. We have refocused those numbers and this is now the red line. Again, I'll take you through Wafi-Golpu which is where you see the dominant effect in 2014. So you can see that we are really looking at our capital fairly tightly and making sure that we get full value for every dollar we spend.

On the quarterly results, slide 12, safety. Regrettably, we did have two fatals in the quarter. And it's always difficult talking about the fatals but also talking about a good results when we talk about fata's. So it's a bit of a moral dilemma that we have however we are getting fantastic results when you look at LTI's and you look at the numbers that we are getting on these deep South African gold mines are now becoming very comparable internationally with underground operations. So we can be very proud of all of the work that we are doing on safety.

Slide 13 deals with the key features of the quarter. I've talked about safety. A vendor transaction was completed. There's a 6% decrease in underground grade and that's after having three consecutive quarters increase gold production decreased mainly by the Kusasalethu issue.

Kusasalethu didn't produce any significant gold it during the quarter. It is now busy ramping up in production but that's with a massive decrease happened. There were some seasonal effects. We will take you through those as well.

Headline loss per share, Frank will take you through the financials and also the next bullet point talking about the operational profits.

The agreement of Kusasalethu was a watershed. It's initiated a process of coming back to work at Kusasalethu. It also initiated a process in the mining industry on some agreements and those agreements have been rolled out to all employees at Kusasalethu and it's also our intention to roll them out to the rest of Harmony.

Slide 14, given idea of the seasonality of the March quarter and what happens so we are looking at March 11, 12, and 13 and you can see that the festive season certainly has some seasonality to it. We've taken out Kusasalethu from these numbers really to just compare apples to apples because obviously this March quarter is down mainly a lot due to Kusasalethu but there is a seasonality to our operations.

The bullet points on the metallurgical plants is related to underground tonnage. We tried to run with a lot more surface tonnage so if you look at the total tonnage for the quarter, you'll probably see it close to a normal quarter.

Slide 15, the grade, we've had some good increases in the grade. This quarter, a little bit poorer. There are some effects of Kusasalethu coming through obviously but there are some other operations which had a slight down in the grade. It's not a concern to us. All bodies have been performing quite well. If you look at slide 16, we try to give some indication there.

This is in centimeters grams per ton basically width of the reef multiplied by the content of the reef, the grams per ton of the reef. And the red line is the O reserve grade. That you could pick up and look at in the back of the document under the appendices. We talk about the reserve grade but you can see that the development grades have been higher than the reserve grade which is good news of for future production.

Group operating results comparing quarter on quarter comparing the March with December on slide 17 you can see the 15% drop in production. I will take you through some figures on a nine-month basis. You can see the rand per kilogram slightly off during this quarter down in this quarter and of course it's dropped further than that since the end of the quarter.

Costs not a good comparison because again, more than the total cost of Kusasalethu really in and no production from Kusasalethu. And the grade at [4.5%]. If you correct it for the nine-month you can see on the next slide, slide 18, you can see the grade at [4.6%] for the nine-month period at [4.28%].

So slide 16 really talks about the nine-month period. You can see that gold produced 1% down, Rands per kilogram is a 10% improvement in dollar terms 2% negative. In operating costs, Rands per kilogram -- 17. I will show you with the next slide what the effect of Kusasalethu there. But basically, you can see all the numbers there and Frank will take you through some of these numbers for instance the operating profits as well.

Slide 19, what we've done here is we've stripped Kusasalethu out of the nine-month period to March '13 and then a nine-month period, March '12. You can see the rest of the operations actually doing better, producing better gold, 8% more gold. At the rand per kilogram is the same as in the previous slide. Costs, operating costs, Rands per kilogram negative but 10% and not 17%. And then underground recovery grade at 4.66, but better, but again, this is the Kusasalethu affect.

So there are some pleasing numbers there if you look at the rest of the operations excluding Kusasalethu. Unfortunately, Kusasalethu is a reality in the quarter and on slide 20, we try to take you through some of those features. About 90% of the workforce is back. We are now sitting at about 50% of our daily protection in tons. We will see what that means in kilograms but we believe we will get about 50% of the production in kilograms for this quarter.

Of the total of about 2.5 tons of gold in these two quarters, so the second quarter in the third quarter and obviously we are going to lose some in this quarter because of only getting off half the production. This obviously means that you can actually calculate the cost of this labor action and the various measures that we take because we have had most of the costs and we didn't have the revenue. Code of conduct was signed in this was really making sure that everyone is safe and we have compliance with procedures and so on. Reestablished the whole relationship with labor.

AMCU is now representing about 60% of the Kusasalethu workers and that in turn means about 10% of total harmony employees.

Slide 21, talk a bit about Phakisa. We have been talking about this in the last few quarters. Freddie's three shaft is one of the ventilation shafts. It draws out the air at the ventilation shaft. There was some major collapse in that shaft and we are busy repairing it. We believe that we should be able to get the shaft back into the ventilation somewhere close to December but it's still being rehabilitated as we speak. So that really is a bit of a guest on the timing because we will have to see how the repairs go.

Slide 22, as per usual, this is basically our total cost us so we are looking at cash costs including capital costs and growth capital and you can see that the margin is dramatically reduce mainly again due to Kusasalethu. On 23, in dollars, the previous one, 22 is in rand per kilogram.

I'm going to hand over to Frank to talk about financials.

Thanks, Graham.

We turn to slide 25. At this is net cash net debt position of harmony and its peers. Its net cash net debt in the US dollar million as of the end of December 2012. You can see the first two bar charts are companies that have more cash than debt. Harmony is the second one there with the surplus cash of $16 million. Now that position has improved by the end of March to $62 million.

In the green bar or South African companies, yellow is Australian company and then the blue is the North American companies. So as you can see on this slide it we've got a really strong balance sheet and we've got more cash on that than our debt gearing.

If we turn over we see that cash flow quarter on quarter in rand, if we turn over to the next slide, 27, we show cash flow summary quarter on quarter in US dollars. Our cash flow from operations in the quarter were much lower at $41 million and this is largely because of the lower operating profit because of Kusasalethu.

Exploration expenditures are very much in line with previous quarter. Income and mining taxes are lower because of a lower profitability. We received $142 million on the sale from Evander. Also in February, we received a dividend from Evander of $24 million. And we've received all proceeds of Evander to the full amount.

Our capital expenditure was in $96 million and lower than the previous quarter. [Divide] the dividend of $24 million during the quarter and you can see our cash surplus of that date was $62 million and our total cash balance at the end of March is $336 million.

We page over to slide 29 we have the income statement quarter on quarter, US dollars. UCR revenue was down for the quarter. 22% of that reduction was because of lower gold sold. Our gold production was lower and this was -- our production cost was lower by 12%. And this is mainly due to the fact that in the end of March our gold inventory increased by 200 kilograms compared to December quarter our gold inventory in fact it decreased by 500 kilograms.

Operating profits were down $90 million, amortization and depreciation really (inaudible) in line with the previous quarter. Exploration expenditure also, taxation lower because of lower profitability and then profit from discontinued operations of $16 million. This is profits from Evander for the months of January and February and also $11 million on the Evander transaction. We [may need] the loss of $30 million headline and especially a loss in (inaudible).

We page over to slide 31. We have our income statement nine-month year to date. This is the previous nine months ending March 2012. UCR revenue is putting much in line with the previous nine months. Our gold production was in line with the previous nine months. A production costs went up by 5%. Operating profit came down to $449 million.

Amortization or depreciation have a slightly lower than the previous nine months. Exploration expenditure increased as we spend more money in Papua New Guinea, a taxation in the previous nine months we had the reversal of deferred tax which might (inaudible) normal, profit from discontinued up your actions which are from the Evander operations and also the Evander transactions. We made a net profit of $132 million and headline (inaudible) of $0.27 for the nine months.

Thank you, Graham.

Thanks, Frank.

Going to Papua New Guinea and a lot of action happening in Papua New Guinea. I am still streamlining excited about the prospects there and so let me start with slide 23. This is a plan view of the Golpu-Wafi area. It includes Nambonga and the various other significant drawing in sections that we have in this area. Focusing here on what's called of the Eastern margin and that's that you turn margin to the Diatreme.

There is a significant value there which we've got. This is all that is akin to Wafi type style of mineralization so there is still quite a lot of the stitching up of and bore holes to be done in that area really to try and see what exactly we have in that. On slide 34, the focus of the slide is on lift one or what's called of the lift one area. A leapfrog session through this ore body.

I need to take you through a little bit of the colors. The copper color is really gauge grade shelves. The orange color the orange color is 1.5% or more and this was based on the 2012 results model and then the pink color is the current one which is really a leapfrog. It's also the same grade.

You can see that this is obviously much larger than previous predictions. It comes mainly from the boreholes and you can see some of the boreholes in that section there so really trying to stitch together the continuity of the ore bodies and the various bits and pieces of geology and structure.

So a bit of continuity of the high-grade area and the upper levels in this one area. There's a positive impact on metal content and there's also a positive impact on the metallurgical recoveries. The argillic zone which is the blue zone, that's the area where there is (inaudible). That seems to be less than we previously had so that's all good news. In effect, the left one area is looking much better than we had from the pre-feasibility study.

You can see diagrammatically there is the infrastructure and that the shading area of lift one. Lift one could obviously look a bit bigger than previously. We will give you some details on the draw results there as well.

So good drilling from the whole of Golpu -- nearly 15,000 meters, 14,664 meters. So a lot of meters drilled it during the quarter.

Turning over to slide 35, talking about lift to hear, drill results continue to firm up the model with some very encouraging intercepts. We give you an example there you can actually see the visible gold in the section. Any grade spiking up 110 grams a ton is very good news. So good work is coming from here as well with respect to drilling, stitching up the ore body and also the metallurgical work is happening.

So what does all this mean? On slide 36 we've got an attempt to explain ourselves here. We really are looking at improved ore body in the top sound and this is now focusing us on looking at some optimization work probably looking at a more modular or staged approach to delivery in a sense of that probably means that we start smaller and grow it into the big mind that it should be and that also means of that lower capital intensity, and other words capital coming in at a low, not just a big bang affect as we planned in the pre-feasibility study.

This is all happening as we speak and planning the so there's more optimization. Extraction work is likely to continue in financial year 14 and we will have expenditure which better understands exactly what this project is going to look like with their drill program, the studies, and so on. I'm not quite sure what that means to underground access but we will see that in the forthcoming few months with all of the planning.

Gold recovery improvement test work is really looking much better both on gold and in copper. So there's some new work that has to be included in this optimization study as well.

In general, project schedule and first production will revisit those numbers and guide forward but it's safe to say that this project is really looking like it's going to be scalable in stage now as opposed to big bang approach.

Slide 37, PNG exploration. I a lot of expiration activities happening in the joint venture area. And that's the blue area on the map and then in the red areas we have three areas. The one that we spent a fair amount of money on but that's (inaudible) ore bodies but really haven't found anything economic at the Mount Hagen and our attention is to withdraw from that area.

This is moved a lot more of the focus on Tari and Amanab. Slide 38, Tari project photo there. You can see the drill rig in the foreground, Lake Kopiago in the middle grounds, there's some good mountains. This is up in the Highlands of PNG. So we have started drilling there and there is some interesting results we are getting so far. We wouldn't expect anything dramatically economic until we actually understand what exactly the geology looks like.

Slide 39, there's a photograph of the [Masimob] project. This is a project which was, is now completed. I believe it's something that like about 80% occupied and basically apartments. It's an old hospital that we converted into something which is really fantastic accommodations, these apartments.

You can see that the solar heaters on the roof for instance. This conception about some of these housing projects, we do -- this is not just for mining employees. We did manage to get 25% occupancy for mining employees, but really made as rental units and the intent is that municipality runs these units eventually. At the moment, we are obviously helping in that.

Slide 40 talks about multipurpose sports courts. These actually work very well in various schools and it really is the best. You can see them why they call them multipurpose, with all the nets and so on.

Plan for Merriespruit 3, a similar project to the Masimob 4 projects where we put the land in Merriespruit 3, the old hostile into the local counsel. We believe that although there is some planning around that which is still to go that there will be about 500 rental units. Again, the green theme borehole and dance garden, recycling of waste, solar power and so on and the complex will basically be a complete complex with sports and [pictures] and churches and clinics and so on.

The total value of the project somewhere around estimated value of ZAR350 million. That 350 includes the value of the land, the money that will get contributed by provincial governments and harmony will contribute some of that money but a very small proportion of it. This is all going in agreement with the government, the municipality and ourselves and we will be managing the project.

Slide 43, working towards meeting these expectations, improved safety. A very important because if are not safe we can't work. We have disposed of non-core assets. We disposed of Evander and Rand Uranium. Frank pointed out the net cash. We are also talking about capital expenditure over the last years we've been funding our phone capital expenditure.

This is all done by cash flow from operations. We talked a bit about the austerity measures that we've implemented, cost savings, capital savings, and also being committed to our social responsibilities. A company that has obviously leveraged the gold price.

Slide 44 is the strategy slide. This is really trying to get all of our results of that we've been talking about on operational delivery side on growth in growth production and profits not just growth for growth's sake and the sharing our rewards with stakeholders which of course includes a dividends to shareholders.

Ladies and gentlemen, thank you very much. If I could ask you if you have any questions for us.

Thank you very much. (Operator Instructions)

We have a question from Patrick Chidley from HSBC. Please go ahead, Sir.

Good morning Graham and everyone.

Good morning Patrick.

A just question going back to what you said is that you're not looking at mine closures but with a $1,400 gold price and given that it's not just cash cost but total cost including sustaining capital that we should be looking at here as sustainable going forward, there surely must be a few operations of that are looking at risk here and can you outline of the ones that are most at risk and short plans in terms of maybe increasing grades or changing the mine plan you can actually implement to prevent mine closure?

Sure, Patrick. We really have to look at operation by operation and you've actually got the information in the quarterly report but if you look at the underperforming assets the value of the assets which have got the most growth potential. So let's put Kusasalethu aside, Pharkisa growth potential, Bambanani it's just getting into the pillar. We will see much improved there. Target three improvements expected there.

The assets at most risk potentially Unisol, fairly downgrade ore body, an ore body with not really any upside potential in the way of grade or increase production. I think it's got a life of somewhere around five years. So that's probably the ore body that's probably at most risk.

Yet in the last year or so Unisol has actually produced some nice handsome profits. And it doesn't consume very much capital expenditure so we've really looked at our assets and said we have to be profitable at a total cost of the ZAR400,000 a kilogram and we look at every asset that way. So that our intent Patrick. Obviously I think again if you look at the gold price and what's happening to it although it went down a lot and there's been a lot of buying of gold that would give me the sense that the buyers of gold are sensing that this is near the bottom and it's not going to drop any further.

Be that as it may, our line in the sand has been ZAR400,000 a kilogram and we intend to have all of the operations profitable at that cost. Total cost of talking about, not just cash costs.

Right. And things like Cal Gold and hidden Valley obviously hidden Valley as a turnaround story this year?

I think I've talked a little bit about hidden Valley and the measures that we are doing there. At the intent is to get hidden Valley profitable during 2014. Cal Gold, yes, Cal Gold is a asset which we have been upgrading the [mole on]. So it's been costing us a little bit in capital. It's an asset that produces nice profits.

It's one gram per ton or 0.9 grams a ton. It's obviously very sensitive to the gold price. If the gold price does go down further it can easily be put on (inaudible). It's not an underground operation so it's the safest operation. It's one of those that will be easy to deal with. There's also not many people that work there.

Right. Okay. And then just moving quickly to a different topic you are obviously highlighting potential for a significant increase in the resource at Golpu, what proportion of the current resources is, you got this argillic over-pin with arsenic involved in the mineralization?

Patrick, there will be very little of it. None of the argillic stuff would have been included in the mining plan so in the reserve classification somewhat have been included in the resource classification. I can't tell you how much it is but it's relatively small.

Small? And then the resource?

Yes, in the resource.

Right. And most of the potential increases that you are highlighting with the pink area on the slide is there which would be basically infill I guess. What sort of timing would you anticipate to get those into a resource category?

Fairly quickly. Those are the things that we could do in the next couple of months. In fact I had an idea that the guys are going to try and finish some work by the end of May in the resource category, whether it actually gets fully declared or not, I'm not sure when, but the timing for that would also be the end of June. That's when we do our resource statements. So if there's any increase, if we declare any increases and then that's when we declare that.

It looks as if on that slide that that areas that you're adding resources are filling in gaps in the previous resource shape at least. Does that have positive implications of for the mine layout?

Yes it does. It certainly means that most of the infill is about changing geologists. In other words that there's more pore free and less sediment and that pore free has better recoveries and normally higher grade so it does imply more continuity in this deposit and certainly the focus has been on the upper parts of the ore body and that's really why we've managed to do what we've done because that was quite important or seen as one of the important conclusions out of the prefeasibility study you'll remember.

Thanks very much, Graham. I'll pass it to someone else.

Thank you very much, sir.

Our next question comes from David Lettall from Deutsche Bank. Please go ahead.

Hello, Graham. I have a couple of questions. You talk about getting all of your operations below ZAR400,000 per kilogram total cost. It looks like your costs have been higher than that certainly in the last quarter. When do you expect to get back to that target of under ZAR400,000 cash cost?

David, were not talking cash costs, we are talking total costs and it's certainly our intent to get all of these operations there. They come in different stages. Those that are at steady beats like [Masimong], Target 1, [Cho], Unisol, those should be performing below that at the present. And then the buildup one is obviously take a while to get there; Pharkis, to target three. Target three might already be in that category and Bamanani, are really the guys that are building up and they are taking it as the buildup comes, but that's looking at the potential of the ore body that determines that rate.

Okay, so that's not a target we should expect to see in the September quarterly. That's a longer-term objective for all assets as opposed to what we will actually see produced by the company?

Yes, you won't be able to take every operation off on that basis immediately but in time you will be able to see it.

Okay.

David, if you'd like to refer, let me take you there to slide 22 where we are talking about rand per kilogram. So you can see that the previous quarter, the December quarter we were below [ZAR400] and this quarter we were obviously quite a bit above ZAR400. So that line there that we are talking about is really the capital plus the operating, that's the number that we want below ZAR400.

Yes, I understand. I guess another matter costs related to how is the labor respondent? Have there been any additional acts of violence or intimidation of any employees subsequent to the work restarting in March?

David, the agreement that we got was the unions was such that any outstanding issues during the first quarter, sorry, the second quarter, in other words the December quarter were attached to a 12 month written warning so if employees step out of line there's obviously a fairly harsh discipline and that is really that after the final warning you have to leave the mine.

Having said that, we've got a monitoring committee at that mind so that any issues that that arise, and obviously there have been a few small issues, they immediately get resolved and sorted out. So that monitoring committee is working very well. No, we haven't had any serious issues at all since the guys have started coming back toward the end of February.

Okay. And one other labor question, I guess other minds where AMCU has not been recognized, has there been any hostilities between AMCU and employees -- some of your other minors in South Africa experienced recently.

No, we haven't had any of those issues, David.

Okay. Thanks so much, Graham. Good luck.

Thank you very much. (Operator Instructions)

Our next question comes from David Haughton from BMO. Please go ahead.

Yes, good morning Graham and Frank. It's good that the Evander sale has gone through. I can see that you've got the proceeds, but there's a tale isn't there of continued payments? Can you just refresh our minds as to what to expect as far as the cash flow goes question Mark as far as the deferred payments of it?

David, no. You remember that we entered into a new transaction in May of last year. In the first transaction which was with Pan Africa and with [Sgold] they were sort tightly depending on gold price in the future but the final transaction we entered into in rand value ZAR1.5 million and we have now received the full ZAR1.5 million.

Okay, good. That clarifies that. Having a look at the restructuring that you got of the [Marobi] joint venture, what benefits do you expect to flow from that as far as focusing on firstly the hidden Valley issues and secondly the development plans you may have a for going forward Golpu?

David, the hidden Valley issues that I've alluded to, cost savings and so on, that's happening immediately as we speak so between Newcrest aand ourselves, we've dispatch some senior people there and we are really trying to deal with it as quickly and as speedily as possible.

At the new management structure is really to help both the owners in not getting confused messages it down to the operations and also making sure that the persons involved in the projects or minds or exploration are really focused on working for the joint venture. So people will now be seconded into the joint venture. If the secondments -- and they will be working for the joint venture not for either Harmony or Newcrest so it brings about a new focus.

The other area that were working hard on is really to try and get a change in the schedules and labor models of that we used and our preference for Golpu is not to have people flying in and flying out from different parts of the country or from overseas but really establish a residential type of structure.

The CEO would live in country, work for the joint venture and he would report into the joint venture committee. Employees at that work in the joint venture will in turn report up through that CEO and not to the different companies and such. So it creates a much better focus.

It will also enable us to get the synergies of the various parts of the organization so that we can get synergies to hidden Valley and Golpu project as an example. We can get the synergies through on the services and supply line from hidden Valley and make use of that in Golpu.

So really trying to get synergies and focus and that's how we believe it will be a much better organization. It's not any different from a lot of how the joint venture operate in the world today. So it's a can to that structure. It's nothing that is brought about by the owners and completely new thinking. It's really the implementation of it.

All right. You spent a bit of time looking at the Golpu section. The mine plan looks to have quite a bit of upside based on what you presented today. Where are you act as far as the permits go with the government to be able to advance this further and what permits are outstanding?

David it (inaudible) expiration license. It's been renewed recently. The government is in full support of the project. We have presented the findings of the pre-feasibility study. They continue to get updated with the current work that's happening on the ground and this optimization study that we are talking about we need to get a little bit more clarity because we believe that both the schedule, the cash flow, the capital flow is going to be different to what was in the pre-feasibility study and we need to get better definition around everything there to be able to sit down and have conclusive discussions with the government.

So those discussions are ongoing but likely not to conclude until we have really completed some of these optimization studies. Meanwhile there's continuing work on the ground with respect to environmental issues, understanding that infrastructure that needs to be developed and so on.

Thank you, Graham.

Thank you very much Sir. Our next question comes from Larry Tedeschi from STRS Ohio. These go ahead.

Thank you. Do I understand right that that all CapEx going forward will be funded out of operating cash flow and you'd have no plans to take on more debt?

That's our plan Larry. We've done that in the past few years. We can aim to continue to do that and if you go back to some of our facts sheets we actually present a graph and we have demonstrated that generally going forward we can pay for all of our capital in those projects even as it was in the pre-feasibility study knowing that 50% of the capital is for our account. That's notwithstanding of course whether the government gets involved or not.

And once one goes through a feasibility study you are always been able to look at other options like project borrowing or borrowing from banks and so on. But our intention is certainly to pay for this out of operational cash flow.

Okay, thank you.

Thank you very much. (Operator Instructions). We have a follow-up question from Patrick Chidley from HSBC. Please go ahead.

Hello again. Just one follow-up please. I wanted to ask if, Graham, if you could explain the process of a labor dispute, a protective strike and an unprotected strike that might result for example if you do have a disagreement with the unions of this year over wages and what -- how long can a protected strike go on for and what are the rules governing that?

Not an easy answer there. Mashego, don't you want to try and handle this. I'm sorry, I'm popping him in here. He's probably better qualified.

One important thing is that a strike for us with unprotected or protected really means that we have no work no pay. But carry on.

Patrick, the protected strike comes after all of the channels have been exhausted. What would happen is we would go into negotiating process and if we come up to a deadlock the unions might declare a dispute and that dispute is then taken over by what we call this CCMA which is the Council for Conciliation, Mediation, and Arbitration.

Those guys try to conciliate after conciliating they then go into mediation. Sometimes they can do that at the same time and then if they fail to do the two then they will go into arbitration whereby the person that is in charge of that process can make a ruling. If the ruling is not in favor of the company and the company doesn't agree with that than the unions might give the company notice of a strike.

That strike is then perceived to be a protected one because it came through the normal procedure of mediation. That strike would then be on for as long as the company and the unions or do not find each other. Experience has taught us that normally that kind of a strike would go for anything between three days to at most, six days because once you get to a stage of six days of a strike, then you will see fatigue coming in and the unions it is normally not in the favor of the union to take a strike that would bring in fatigue because you will then start being disjointed in terms of the effort.

If you're talking about the (inaudible) strike, then it's something else because then the company might even lock them out and a lot of litigation that will go on with an unprotected strike. But with this said there is negotiations what the possible rule that might come up is the one of a protected strike which I don't see the unions having appetite to drag it longer.

(Inaudible) -- people are expecting this to happen pretty much consensus I guess. People are saying that rather than no work no pay, you are expected to pay them during a protected strike. Is that right?

That's not right Patrick.

No, that's not right. If they are on strike, we don't pay them Patrick. If they are on strike they don't get paid with a protected or unprotected. The unprotected it just means that we can then take them to court if they have gone unprotected then they have gone to court to get permission to go on strike.

But it's their jobs that are protected.

Yes. So yes, Patrick, I disagree with the consensus. If you're taking a short poll on the newspapers, the newspapers like to report a lot on that these things and there's a lot of union stance happening from what I read in the newspaper. I don't believe that there's consensus on a strike.

Great. Thanks very much. That's very useful.

Thank you very much. We have a follow-up question from David Lettall from Deutsche Bank. Please go ahead.

Just listening to that answer, can and on recognized the union declare a dispute at one of your minds? I'm wondering if AMCU is not recognizing the Free State and they declare a dispute.

David, let's go back to the whole issue of recognition. Recognition there is a process. The union might have some existence in the mine but it needs to meet a particular threshold for it to be recognized in that particular mine. In this case, AMCU, though it's not having a significant existence in our minds in the free states, but with the other minds they do have an existence and as such, they would be in the central bargaining forum whereby will be bargaining for the wages.

Coming back to the second part of your question, that of an unrecognized reunion. An unrecognized union cannot declare a dispute because the dispute has to be declared through the recognized established structures of [which] negotiation.

So could AMCU declare a dispute and then ask is employees with centralized bargaining have it there employees in the free state go on strike?

David, let me try and work through this.

I'm just trying to understand because clearly AMCU has its own agenda and it's not recognized in many minds. I'm just wondering what their rights are through centralized bargaining.

Yes, if AMCU would for instance go out on strike, then they would probably take Kusasalethu out on that but in the Free State they wouldn't have any following because of the following is numb. I think it would really be very threatening for a union to jump in on strike in that situation. I think it is extremely unlikely and the numbers of AMCU members in the Free State is negligible. I don't know what they are. 300 or 500, something like that, so it's really negligible.

I'm just trying to understand what the events on April 21st at one of your competitors' minds. That's essentially what happened with 500 people.

You are talking around the [Cottonville or Rosenberg] areas. You want talking about the Free State. I think the dynamics in the Free State are somewhat different and in fact, the dynamics that for a mind like (inaudible) are completely different to what they were at Conntonville. We saw during the strike last year that if you again want to look at the newspapers that they were demonstrating to take (inaudible) out. It never went out on strike. That was the fact of the matter. So because it happened in one place I don't believe it's necessarily going to happen elsewhere.

Okay. I was just trying to understand what the logistics of the F1 union it declares a dispute and the other one doesn't, how this process actually works across the industry.

And remember that you've got a situation where for instance in Kusasalethu, people weren't paid for a month. They haven't had bonuses which is probably 50% of their take-home pay for three months, four months. The appetite for going out on strike (inaudible) is extremely low.

Okay, thanks grand. Good luck.

Thank you very much. Gentlemen, we have no further questions. Do you have any final comments?

Thank you very much. Ladies and gentlemen, thank you for dialing in. It's certainly an interesting quarter but some seasonality to it. Kusasalethu affecting the quarterly results quite dramatically. In total, two quarters we have lost 2.5 tons from that operation. Not often that you can actually see the cost of various LIBOR actions like you can at Kusasalethu because it will get back to full production soon.

We continue to fund our capital. We continue to fund the exploration results and pay dividends and yes we are quite optimistic on the gold prices despite what we are preparing for. Thank you very much, ladies and gentlemen.

Thank you very much, sir. Ladies and gentlemen, on behalf of Harmony Gold Mining Company Limited, this concludes this afternoon's conference. Thank you for joining us and you may now disconnect your lines.