Harmony Gold Mining Company Ltd (HMY) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the international conference call for Harmony Gold Mining Company Limited first-quarter financial year 2014 results. (Operator Instructions).

I would now like to turn the conference over to the Chief Executive Officer Mr. Graham Briggs. Please go ahead, sir.

Thank you very much and good morning or good afternoon, ladies and gentlemen, depending where you are in the world. A very warm welcome to you for our Q1 financial year 2014's results. A pleasing set of results from my point of view and I'll take you through the presentation. Certainly hoping you've got the presentation downloaded or maybe you're just watching it on your screen.

Number 2 -- slide number 2 is about our Safe Harbor statement and you'll notice there's a bit of a change there from previous ones because we've now got a Form 20-F out and our new integrated annual report, which of course you can also download on our website.

As far as the agenda goes, I'll be talking about measuring up. I'll be talking about the quarterly results. Frank is here to help you with the financial results and then we'll conclude. And if there are further questions of any other nature, I have Mashego with me so we'll be able to answer pretty well any question that you care to throw at us.

Slide number 5, this is our asset portfolio. It consists of mines which are all acquired mines and I'll take you through that in the next slide as well. And our intent is to really get those mines that aren't at steady-state production into steady-state production. Those mines were typically mines we've spent a fair amount of capital on, sinking shafts and the like and getting them into steady-state production.

And of course we will be not talking so much about Wafi-Golpu; there's a little bit of a note in the quarterly. Essentially, what's been happening there is more drilling has been happening on the ore body but also looking at infrastructure; in other words, potential shaft sites and the like. And that's really the drilling activities that have happened on sites.

In the offices, more studies and we're still hoping that by June next year we'll be able to give you a revised estimate of capital expenditure production and the like. So there's still quite a bit of things happening there.

If we look at slide 6, just to let you know, as you well know, of course, mine development at Kusasalethu, this is the new mine where shaft was sunk -- sub shaft sunk and we're now starting to mine that ore body. A small amount of the tonnage still comes out from the old mine. Shaft sinking at Phakisa and Doornkop completed and those are the ramp-up projects. A decline is sunk at Tshepong. We went through a bit of a lull in grade at Tshepong. That's on a path to recovery. And in progress at Joel, which was really an extension to this original seven-year life now taking it to a 14-year life. And at Bambanani the decline there, which will enable us to take out the ore from that pillar, it is starting to ramp up but the decline is being equipped as we speak.

The whole mining industry has really been talking about reducing costs. Our way of tackling this, of course, is not only to reduce costs but improve productivity and increase gold production so those three have really been going all hand in hand.

Most of our capital expenditure has been spent in South Africa. There's still obviously quite a bit of maintenance capital going on, mainly in developments. We do have a strong balance sheet. And I've chatted a little bit about Golpu but it's still one of the fantastic ore bodies of the world.

If we go to slide 8 you can see the ounces and -- increasing 12% quarter on quarter. And also from the previous quarter we've separated out Kusasalethu so that you can see there's actually increase in production in other units and not really just getting Kusasalethu back into operation.

Slide 9. This is a -- it shows, demonstrates a 7% decrease in cash operating costs; you see on the right-hand side there the blue dot and the green dot. And then we've stacked this up in cumulative production versus rand per kilogram.

Better probably to look at slide 10 which is in dollars. Left-hand side is in dollars per ounce, bottom is cumulative production and this, remember, is at a cash cost level. And you see 11% decline in cash cost there on the cash cost basis.

A lot of reporting now is happening in the realm of all-in sustaining costs as a World Gold Council method. The first thing I'd like to bring your attention to on slide 11 is that we're talking about gold sold as opposed to gold produced.

For international purposes let's go to slide 12 which is the same as slide 11 except we're talking about dollars per ounce here. And gold sold again is in the sold category as opposed to produced. The lines there, operating costs; local economic developments; share based remuneration cost; corporate, administration and other costs; rehabilitation, accretion and amort costs; on-site exploration; the capitalized stripping and underground development. Most of our cash -- our money is spent on underground development in South Africa. And in sustaining capital it's really big capital equipment, ropes or hoists and big pumps and the like. So you can see that our all-in sustaining costs, quarter on quarter, have gone from $1,551 an ounce to $1,264; that's a $287 per ounce reduction. That is quite a significant reduction quarter on quarter.

If you go to slide 14, all-in sustaining costs [there's a drop], there's a 19% lower in quarter on quarter. But you can still see that we've got several operations above what the gold price was that we received, and that is really the area that's going to require still a lot more focus. If you were to look at these quarter on quarter, you'd see that Hidden Valley has declined quite a lot and that's good news as a crusher is now in progress and therefore using the conveyer. There's been some modifications in plants, have been looking at restructuring the management and like on that area so there's big progress there. Optimistically, it'll come down further.

Kusasalethu has not yet got down to its former period before the labor issues. That hopefully will happen during this quarter. Phakisa is doing well where it is. There's still quite a bit of capital that's being spent there so that's where the big difference is in Phakisa. More work required in Target 3 getting to the Basal reefs and mining more from the Basal reefs.

Doornkop, a disappointing performance from Doornkop as well as Masimong so there's a lot of focus on those two areas. In Doornkop, of course, there's a bit of a grade issue with the Kimberley reefs. We will be looking and focusing a lot on those areas so all the way down really to Tshepong. I'm expecting better results from Tshepong this coming quarter as well.

Slide 15, just to show you the grade increase. There's obviously detail in the quarterly operation by operation where we are in the grade. And you can see that grade increase with our forecast for the year, as well.

Going into the quarterly, I think the highlights of this quarter was certainly the two-year wage agreement. That was very successful; a lot of cooperation between the mining companies to be able to get to that.

The highlights of the quarter, of course, that significant increase in gold production coming out of the increase in tonne, increase in grade and of course good cost control. And the reduction in quarter-on-quarter costs, I think we've basically covered that.

The final and net result, and Frank will take you through some of the cost figures, but the 55% increase in operating profit in rand terms. In dollar terms, 46% increase and that's mainly due to the slight change in dollar/rand exchange rate.

And that can be seen on slide 18 where we look at the Group operating results. Very pleasing in the changes -- percentage changes, everything is positive except for the gold price in dollar terms and that comes about if you look at the bottom line there, $9.96 versus $9.45 in the previous quarter. But very pleasing that everything else there is in a positive territory.

Slide 19. We have -- between Harmony and Sibanye we've been looking at synergies in the free states that really is the adjoining mines of Joel and Beatrix. There's two areas that Beatrix can mine that we won't be mining and there's two areas that we can mine of theirs that they won't be mining, so that's been a fairly simple swap of ground which makes sense. And then there's further areas which Joel can mine out of Beatrix and for there we have agreed to a 3% royalty on gold revenue. This deal is subject to the Department of Mines, basically a Section 102 approval.

I'd like to hand over to Frank to take us through the financials.

Thank you, Graham. If we look at slide 21, this is extract from our income statement in rand terms. Our revenue increased by 15% and this was based on higher sales on the back of 12% more gold produced in the quarter. Our increase in production costs of 6% was largely due to the increases in electricity of ZAR140m because of the winter tariffs that we have in the September quarter.

Operating profits went up by 55% to ZAR1,037m. Amortization and depreciation increased and that was because of the higher production during the quarter. The exploration expenditure, you can see we've been lowering our exploration expenditure at Wafi-Golpu. We had a net profit of ZAR13m compared to a loss from the previous quarter.

If we look at slide 22, we've got extracts from our income statement in dollars. You can see the revenue went up by 9%. The 15% increase in gold sold was offset by the exchange rate. Our production costs were in line with the previous quarter in dollar terms. Our operating profit went up by 47% to $104m. Amortization was pretty much the same as the previous quarter. Exploration expenditure was $14m, a reduction from the previous quarter because of low exploration expenditure. And you can see that we had a profit compared to the loss from the previous quarter.

If we go over to the next page, in dollar terms our higher production equaled stronger margins. We've got our revenue of $403m, which is 9% higher than the previous quarter. Our cash operating costs of $299m giving us a cash operating profit of $104m. And if we take off all the sustaining costs, including capital of only $1m, we had an all-in sustaining margin of $23m.

Thank you, Graham.

Thanks a lot, Frank. In conclusion, and I'm on slide 26 here, I think our view of the long-term gold price is still very bullish. However, in the short term and short term to medium term, I guess, in the next six months to 12 months, we see a static gold price, in which case we're going to continue focusing on costs, productivity and producing more gold. And we think we're in a good place to meet these challenges so we're certainly quite pleased with that.

I think on our strategic advantages we have an increasing grade. We've been talking about that. As our new assets bring in and bring up the tonnage they will increase the grade. We're still the lowest cost per tonne producer in South Africa. A lot of our capital is spent on our South African operations and so it's a case of bringing those into production. Free cash flow we've got. We certainly don't plan to do any hedging; it's not in our nature to hedge at all, no matter what happens to the gold price. Balance sheet strength. And we're certainly geared to South African currency; you can see that in these results now where probably only 5% of our costs are really South African based; the other -- the balance is really equity with the dollar and if you look at chemicals and maybe steel products and the like. And we've got earnings growth.

Thank you very much, ladies and gentlemen. I'd like to open ourselves for questions.

Thank you, gentlemen. (Operator Instructions). David Leffel, Deutsche Bank.

Good morning, gentlemen. Good morning, Graham. Just going on from your last slide, strategic advantages, you've highlighted in the last couple of periods your being the lowest rand per tonne cost producer in South Africa. How do you take advantage of that strategic advantage, in your view?

David, I think if you look at all our operations being acquired, I think that's -- the trick is that you can acquire somebody's assets which they can't sweat anymore and you can actually sweat them a bit longer and get better life and make a profit out of them where, possibly, a competitor couldn't, so I guess that's where the strategic advantage lies.

But recently, Graham, maybe a follow-up, we've seen you more of a disposer of assets (technical difficulty) regard to Evander and some other assets; do you think there's opportunities out there for you to be become an acquirer?

Yes, the Evander -- really we haven't disposed of much at all, David. Most of them have been closures. Evander was disposed of for particular purposes and that was that it has a 10-year life shaft but, beyond that, it requires big capital. That big capital is going to be -- was seen to be in direct competition with a potential spend on Wafi-Golpu and therefore we didn't want to get in that situation. Our shareholders are really giving us the message that spending more big capital in South Africa at that time was not a good thing and diversification into Golpu was probably a good thing. So we haven't been a seller of many assets but all our assets, as I said, are acquired.

Okay, great. Thank you so much.

Thank you. (Operator Instructions). Davide Barbuscia, Debtwire.

Yes, good afternoon. I would like to ask you about your financing terms. Basically, I understand that you had a revolving credit facility with Nedbank of ZAR850m that is maturing in December. I'd like to know if you plan to renew it or to renegotiate it.

And, in addition to that also, about your term loan with Nedbank and another RCF of $300m; what's the plan? Are you raising additional funds soon or you are waiting until 2017?

Thank you. If I can answer that. The term loan with Nedbank, we are in the process of renegotiating that but we haven't really drawn down on that. I think we owe about ZAR200m. We've drawn down $270m on the dollar loan and that's repayable in two years' time. And we do not see the need to renew that at this stage.

(Multiple speakers).

Sorry, if I could just complete that, as well. The intent of certainly this management team is to have minimal debt but enough facilities that if you need them you can use them. But certainly, as far as the net debt goes, we'd like to have an absolute minimum. There's no reason why we should have a lot of debt because we've paid most of our capital and our capital has come out of our operating profit, so without having a real need to go out on a big borrowing -- we don't have a way that we can spend money. Yes, I guess just on a strategic level we don't like to have a large amount of debt.

I understand, okay. Thank you very much.

Thank you, Mr. Barbuscia. (Operator Instructions). James Hayter, Rossport Investments.

Hi, guys. Thanks for taking my call. Just quickly on Wafi, I know the focus is on the South African operations but is there a timeline to any announcements that we can expect or an update that we can expect on the drilling and the positioning of -- the potential positioning of the shaft? I'm just looking for some details of when we might see some news on what the plan is there.

Yes, James, good question. The plan on the site is actually doing a small drilling and that is including looking at infrastructure and shaft sites and so on. At the same time, we have a team working on looking at the feasibility and information to try and get an update to you on what we plan to spend there, what production levels are going to be like and so on. And that is on the understanding that the previous pre-feasibility study under these market conditions is not going to go ahead, big capital, long payback and so on. The intent is this modular, staged approach where we have much lower capital for a smaller mine building up in later years to a bigger mine; the modular expansion. My hope is that by June next year we'll have a lot of that work done so we'll be able to try and give you an update shortly after that.

Okay so we could expect an updated feasibility study early second half next year, so the July/August time next year --.

Yes.

Okay.

I think it's more likely to be an updated pre-feasibility study.

Sorry, yes.

Yes.

Great. Thanks, Graham. Good luck, guys.

Thank you.

Gentlemen, there are no further questions. Would you like to make some closing comments?

Yes. Thank you very much and thank you, everybody, for dialing in. I think between us management here sitting in the room, pleasing day that we've been able to report these much better results with the higher production, the lower costs and obviously that's gone down to the bottom line of better profits. So I think we are facing the future quite optimistically. There's still work to be done. There's always work to be done and I've given indication of which operations are going to get the highest focus in the next quarter. But we've certainly illustrated in the last two quarters that we can -- well on the way to manage the situation and do better. Thank you very much for phoning in.

On behalf of Harmony Gold Mining Company Limited, that concludes today's call. Thank you for joining us. You may now disconnect your lines.