Harmony Gold Mining Company Ltd (HMY) 2013 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Harmony Gold Mining Company Limited third quarter 2014 results ended March 31, 2014 international conference. (Operator Instructions). Please note that this conference is being recorded. At this time I'd like to turn the conference over to the CEO, Mr. Graham Briggs. Please go ahead.

Thank you very much, and good afternoon from South Africa, or good morning if you're in a completely different time zone. Ladies and gentlemen, thank you very much for joining us on this conference call. I have with me Frank Abbott, I've got Mashego with me, so we'll be able to answer a multitude of questions. I also have Henrika, Marian and Herman with me if there's some more detail or some questions that need answering later.

I'd like firstly to go through the presentation. I'm certainly hoping that you have seen the results, either in the booklet form or coming on the website or the presentation, but would like to go through the presentation.

Slide 2 has the Safe Harbor statement. But what I'm going to be talking about today on the agenda, we'll talk a little bit about safety, then we'll talk operational results. Frank will take us through the financials, a very pleasing set of financials. I'll then stop on Wafi-Golpu and talk a little bit about that project and where we are. And then we'll conclude.

On safety, and I'm on slide five, safety has always been part of our strategy. It underpins our strategy. It's something that we have to do; it's an imperative in mining that we have to be safe. We are striving for zero harm. We have over the last while made dramatic improvements to safety. And this quarter certainly was I believe an anomaly.

Having said that, we are looking at our complete safety system. We've got an independent safety review ongoing at the moment. Those people will look at all our operations, not just some of the operations, and really have a look to see if there's something fundamental that we are doing wrong at Harmony. We are working with the DMR on the safety effort. And certainly we will tell them what the safety audit reveals, in review reveals. So it's imperative, executive certainly will involve safety and it goes down into the core of recognition and rewarding public safety. So it was certainly a large concern, especially the Doornkop disaster, and we need to learn from every safety event so that we don't have repeat events.

On the operational results, I'm starting on slide eight, a very pleasing improvement on the grade. We have that graph with the planned grade. You can see that we've overachieved on the planned grade both for last quarter and this quarter. Going forward, our expectation is a quarter with a grade of somewhere around 4.9 grams per tonne, meaning that we will overachieve on our planned grade for the financial year.

Production. We've got on slide nine March quarter 2012, 2013 and 2014. You can see that this March quarter, despite the negatives on Joel, on Doornkop and Kusasalethu, which were three operations that really gets us down, the quarter, March quarter was actually quite a good quarter. We returned from Christmas with good, however, it could have been a substantially better if those three operations been better.

On slide 10, graphing over quite a longer period of all-in sustaining costs and certainly we need to drive that cost down even further. But quite a pleasing graph there.

Graph 11 is indication of the improvement in productivity. So we have a number of people working on the operations, that's employees plus contractors, the production in South Africa in kilograms and then the grams per man per month. And so we've gone from 80 grams to 86 grams, that's 8% improvement. Our plan in targeting for this year was a 10% improvement. This comes after many, many quarters of a downward trend in productivity. We've finally been able to turn it around and improve productivity. And our plan is to continue to improve that productivity and gain some of the losses that we've had over the last years in productivity.

The average age of the workforce, a pleasing decrease in the average age from about 48 years to 43 years. That goes in hand with the productivity, of course, because a slightly younger workforce, more younger and energetic people in your workforce in what can be quite a physically demanding job underground is certainly going to help with productivity.

Now, this goes on the back of course of a declining number. You can see 5% decline in numbers of people there. And that really goes around the strategy of when we have parted company with people, we're really looking at trying to improve this average age of the workforce.

Slide 12 gives some of the Group operating results. Kilograms produced, you can see 12% down from the previous quarter, and you see that in both the ounces and the kilograms, of course. Gold price in kilograms went up by 8%, almost flat in US dollars. Cash costs, underground grade, we talked a little bit about the underground grade. Frank will talk more about profitability and so on. But if you look at the all-in sustaining cost, remember that all-in sustaining costs are about gold sold and not gold produced, and therefore in dollar terms pretty flat, $1,222 versus $1,224 of the March quarter, and in rand terms ZAR426,000 a kilogram. Again there's the exchange rate difference there which explains some of those dollar and rand prices.

Looking at slide 13, this is the Group operating result, nine-monthly, so looking at the nine months ending March 2013 with the nine months ending March 2014. And you can see there's a 3% increase in gold produced. The gold price actually went down, even in rand terms, by 7%, in dollar terms went down 22%. You can see some numbers on cash operating costs there. All-in sustaining costs declined by 2%, improved by 2% and improved by 18% when it comes to dollars per ounce. That's despite this change in exchange rates, of course. I think there's been some very good cash control and cost control in Harmony.

And with that comment, I'd like to hand over to Frank to talk about the financials, starting on slide 16, I think, Frank.

15.

15, good.

Thank you, Graham. On slide 15 we've got the income statement quarter on quarter and despite the fact that we had lower gold production we actually had a net profit for the quarter compared to last, the previous quarter. Our revenue was down by 6% and that was lower gold sold partially offset by a better gold price.

We were able to retain or reduce our production costs with ZAR180m. And again you can see our production profit was ZAR924m for the quarter. Amortization was lower during the quarter. Exploration has been also reduced by ZAR22m because of the completion of certain drilling work that we'd done at Golpu. Our foreign exchange translation loss for the quarter was lower, and this is on the US dollar loan facility. And that leads to our net profit of ZAR31m.

If we look at slide 16, it shows our income statement quarter on quarter in US dollars. You see at the bottom we had turned our loss into a small profit.

If we page over we look at slide 17, which is our net debt slide. We start at the top. We'll see that our cash flow from operations in rand terms improved. We had a bigger cash flow from operations of ZAR845m. There's been less on exploration, less on capital expenditure and this all resulted in a reduction in our net debt to ZAR835m.

During the quarter, we've paid back our South African debt of ZAR460m, so the only outstanding debt we've got is the $270m debt that we've got with the syndicated banks.

If we turn to page 18, the net debt in US terms, we can see there at the bottom that our net debt is now below $80m at $79m.

If we page over to page 19, it shows that our capital, we've been in control and reduced our capital over the last year. If we compare the financial year 2013 with the financial year 2014 plus the forecast for the remaining of this quarter, we can see in rand terms that came down to ZAR2.5b and in dollar terms that came down a whole 41% to $245m for the current year.

On slide 20, we've looked at our all-in sustaining costs for the nine months ending March 2013 versus the nine months ended March 2014. And you see that they in total, that only increased by 1%. That's compared to an inflation which is more than 6% and a mining inflation that's been in the double digits for years.

Over to page 21, you'll see that in unit costs, our all-in sustaining costs in dollar terms came down from $1,509 to $1,234, a full 18%. This is in unit terms but this is also because of a weaker rand but also because we produced more gold in the past nine months than in the nine --comparative nine months ended March 2013.

We turn to slide 22. And these are exploration costs. In rand terms you can see they've come down by 24%, corporate cost has come down by 6%.

Turn over to the next page where we see the same costs in US dollar terms. We can see a major reduction in exploration costs and also in corporate costs.

Thank you, Graham.

Thanks, Frank. Looking at Wafi-Golpu and starting on slide 25. These are the results of the last two bore holes that were drilled. It brings to an end the drilling program of 2014. You can see that there's some fantastic links of well mineralized and great material here, both from a gold perspective as well as a copper perspective. I don't know if there are any results like this anywhere else in the world but simply great results. They are being incorporated in the geological model, resource model. And we continue to update that model with the various information, whether it be faulting or mineralization or grade trends, into that resource model, and we are putting it into the study that we have.

On 26, I remind you of I think where we've come from in the 2012 pre-feasibility outcome, the Big Bang, big mine which is high capital, 2012 situation where we're now looking at a much smaller, much lower capital, nearer term cash flow, something that's scalable, something that can be brought into greater production in the future, and a real sustainable approach but keeping a much closer watch on the capital intensity as well as the profitability of the operation.

Essentially one of the changes there is looking at different mining methods, looking at sub-level caving as opposed to block caving, sub-level caving means that you can be a little bit more selective where you mine and that obviously means that you can be selective as well on the grade.

In conclusion, slide 28, talk about safety and external review. Really have to continue leading from the front here and whatever comes out of these investigations, certainly we will incorporate and be a better company for that.

We have during this quarter had change in operational management. Alwyn Pretorius is our Chief Operating Officer. He's been in the job now for two months. There is an increased focus on reducing the span of the control of some of the individuals, and therefore three general managers as before it was two, and also adding more senior ability and capacity to them so that we don't have some of the infrastructure problems that we've had.

We'll continue to look at our planning process and we're actually redesigning that or have redesigned that looking at bottlenecking, debottlenecking and optimization of the assets.

Slide 29, a graph put together basically taking it from the January 2, 2014 to probably a few days ago, the April 24, showing that there is certainly a benefit in a marginal company where sentiment and gold price increases and Harmony's share price increases dramatically more. So that obviously gives you a better idea of putting your money in Harmony as opposed to the money market would have been the right decision, going back to the beginning of January.

Slide 30, we think there's tremendous upside in Harmony. We've got an increasing grade. We've demonstrated that quarter on quarter for the last while. We certainly have demonstrated that in our objective of getting closer to 5.5 grams per tonne in the longer term. So we've had good success on grade, and we're quite pleased with that grade.

Frank has taken us through the balance sheet and what that means and the low debt. It's very nice to have low debt because it means that you can actually weather all sorts of storms, should they come around, or they can open up opportunities.

Golpu still has to be one of the top gold/copper resources of the world. It may be not fashionable to dig -- build big mines now, but we have a plan to adjust to that, to look at the scalable and modular mine. And one day, I've got no doubt this will be a big mine.

Increase in productivity; for some time now we've been talking about these things. And we've demonstrated this in what I showed you, and that was looking over a nine-month period. If you look quarter on quarter on quarter of course you get greater variations. But I believe we've finally turned the trend there around to improve that.

Good capital discipline again, and Frank took us through the capital graphs, and can see year-on-year capital where we are. Good free cash flow, we've certainly paid our debts. And we geared to the South Africa currency. Again, this is not something that we're going to just rely on. We're going to do what we have to do to reduce costs and improve gold production and that remains essential to where we're going to.

We've got earnings growth, and of course we are not hedged and have no intention of hedging.

With that, I would like to hand over to questions.

(Operator Instructions) James Hayter, Rossport Investments.

Hi, guys. Well done on a strong set of results. I've got a question going to the reduction in capital expenditure. How should we think about this? Is it sustainable at this level or should we expect it to rise back up over time, or is ZAR2.5b per year, is that a sustainable number for us to use in our models going forward?

Thanks, James. Yes, I think that question is very important, because what we've been doing over quite a few years of course has been spending quite a high amount of capital on the various projects we have had, Kusasalethu to Doornkop and so on. And to a great extent we are at the end of both capital projects. Now a lot of the capital is actually in development of the ore body, that's probably where most of the capital goes. There's still some capital on the other areas, but it's smaller capital on decline at Joel, for instance. The occasional fridge plants and so on. So that's the sort of capital level I think we can see going forward.

What isn't in the capital going forward of course is Golpu. We haven't given numbers on that. We're hoping that we'll be able to give better guidance somewhere around August as to what that project may look like, what the capital would be and certainly what the phasing and timing of that capital would be.

Frank, are you happy with that sort of explanation?

Yes.

Thanks, James.

Okay. Good luck, guys, thanks.

Thank you.

(Operator Instructions). Patrick Mann, Deutsche Bank.

Good afternoon, guys, again. Two quick questions, please. Just on the amount received from Wits Gold, or from the sale of Wits Gold. Can you give us a sense of the after-tax amount that you will receive and if there's any other accounting effects? And will this also inform the decision on whether or not to pay a dividend or the quantum of that dividend, or whether it's earmarked for anything else?

And then just very quick question on the RCF that you've paid down. Is that facility still available? Thanks a lot.

Hello, Patrick. It's Frank speaking. I think on the first thing is we received about ZAR50M for those shares. There's no tax on it.

ZAR50m?

ZAR50m. And we only received it in the current quarter. So it wasn't included yet in the fourth quarter in the cash. And when we decide on a dividend, of course we would have to look at all the other factors, if we have a good quarter, and we've got a lot of money in the bank, it would of course affect our decision.

And then, Frank, the other question was on the facilities. What facilities have you got going forward?

Yes, the current facilities we've got are a rand facility of ZAR1.3b which is repaid, but which we can draw on for the next few years. And then we've got a dollar facility of $270m, which we have to repay September next year. We will be speaking to the bank in the next few months to see what we do about that facility. So far the banks have actually indicated to us they would like to extend that facility, and we will be talking to them.

Great. Thanks a lot.

Yes, of course, when you've got money, the bank are keen to lend you money, Frank.

Yes.

(Operator Instructions).

Thank you. Great, it seems like there are no further questions, so let me just sum up. Thank you very much, ladies and gentlemen, for joining us. I think it's been a pleasing quarter despite the production issue that we had on the three operations that I mentioned. We have made various structural changes that have been effective and we'll continue to be looking at what we should do to produce better tonnage, basically. Grade has improved, productivity improved, but we need to continue to produce more gold. And that really is the basic of what we need to go to in the future. We've got excellent cost control and Frank has indicated we've beaten inflation and so on.

So we're looking forward to being able to improve margins and pay dividends in the future. Thank you very much, ladies and gentlemen. Have a good day.

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