Harmony Gold Mining Company Ltd (HMY) 2015 Q3 法說會逐字稿

(Operator Instructions). I would now like to turn the conference over to Graham Briggs.

Thank you very much and good morning, or good afternoon, depending on where you are, to all the listeners. And it gives me great pleasure in presenting these quarterly results.

I'm certainly hoping that you have seen the documentation, the press release and the quarterly booklet, as well as the presentation which I'm going to take you through now. So thank you very much for dialing in.

Slide 2 is the Safe Harbor statement.

Slide 3 a bit of the agenda as to what we're going to discuss; firstly, about what sort of action we've been taking; restructuring for profitability; Frank will take us through the quarterly results; and then I'll conclude by talking about crystallizing value.

So if we go to slide number 5, talking a little bit on the gold environment that we're in, of course you're all acutely aware of what's happening to commodity prices, not just gold.

But generally in rand terms of course our gold price has been fairly static for the last four years, somewhere between ZAR430,000 and ZAR460,000 a kilogram. At the same time a rapid increase in costs and escalating input costs, as I've got here on the page.

Wage increases have been substantial, but the wage and salaries are more than 50% of our costs. Electricity of course is another big issue. Not only have we been exposed to electricity curtailment, as it's called in the industry, but there's also higher than inflation increases.

So in April we were given a 12.5% increase in labor tariff, so it's certainly expensive, but then the load shedding certainly takes its toll on our organization because we have to switch off things and try and reschedule and catch up in other hours.

And then there's the issue around policy and regulatory challenges. We can talk a little bit about that if there are any questions. But in that pie chart basically we subdivide all the costs so you can see salaries and wages and electricity totaling nearly 70% of our costs.

Slide number 6 talking about our labor force; you can see the numbers there. 36,200 to 36,900 in the three years financial 2011, 2012 and 2013. Since then we've been reducing labor numbers. We're down to about 31,800 right now. There may be further decrease in the labor numbers going forward, so that's a decrease of about 11%.

Despite that you can see what's happened to salaries and wages. So those numbers are in billions of rands, from financial-year 2011 at ZAR5.4b, to a forecast this year of ZAR6.7b. This is before any wage increases. And those are to be negotiated, normally implemented by July 1 this year.

So we're not including that because obviously it's into our next financial year. So despite reducing labor numbers, of course, with the wage increases there's still quite a substantial increase in cost.

If we talk about our values, on Slide 7, this has really come into high gear, if you like, post-2012, the whole Marikana issue and so on, really looking about communication and making sure we keep our employees up to speed with what we're doing, and assisting them in various programs as well.

A lot of employees owe a lot of money, so we've had programs around that. We've had programs around housing, as you know. We can talk more about that if there are any questions on it. That really is -- the core of this is really our five values, starting with safety, of course.

On the gold wage demands I've been putting it fairly bluntly this afternoon. I had meetings with the unions, giving them exactly this presentation and informing them of our stance.

So we're saying that Harmony won't survive higher wage increases. And when I talk about higher wage increases I'm talking about the current union demands. [That] there would be massive retrenchments if we did give these increases and therefore it's a lose-lose situation.

At present we are not replacing employees. We're not employing new employees. There's a moratorium on new recruits. Where we have vacancies, people leaving or retiring, or whatever the case may be, we find other people in other operations maybe that are trying to reduce numbers and we've been replacing them. I'll talk a little bit more about restructuring and so on in the next section.

But really in the wage demand situation we're going to have to end up with a win-win situation. And obviously we'll have lots of discussions about job retention with the unions as opposed to retrenchments, hopefully.

Electricity consumption and the cost thereof, Slide 9, a graph, which has got gigawatt hours on the left-hand scale, millions of rands on the right-hand scale. And you can see that we've reduced our consumption by 13% over the last few years, will continue having to work on that, so at the moment 2,600 gigawatts. And that's the prediction for financial-year 2015, so we're 75% through it.

If you were to look at the cost increase that we've just got, of 12.7%, then that number of ZAR2b will go up to ZAR2.2b. Hopefully, we'll get our electricity consumption down a little bit more and that won't be quite so high, but it's still a high cost of electricity.

Slide 10 gives a little bit of information about our total costs, and this slide is in rands billions, so in financial-year 2011 ZAR10.3b. You can see the increases in financial-year 2012, 2013, and then 2014 and 2015, where we really started looking at controlling our costs.

These are our total operating costs including capital, and so during the last two years we've been subjected to about ZAR0.3b, or ZAR300m, and then this last year we've got about ZAR400m, giving us a grand total of ZAR13.7b as a total cost. So you can see that obviously if you look at electricity I've just been talking about ZAR200m going up there.

Talk about restructuring, we've got a graph here which you may not have seen before. It's really a graph which -- sorry, Slide 12. Yes. [High] grade on the left-hand scale, at the bottom rand per kilogram, and so we're just looking at South African underground operations here.

The current gold price around about the ZAR460,000 a kilogram, so that's the yellow dashed line that goes vertically. Everything on the right loss-making, everything on the left profits, and then of course there's some right on the line there, Unisel, Tshepong, Masimong.

I'm going to talk a little bit in detail about Masimong, Doornkop, Kusasalethu. Phakisa is because -- it's on that line really because of capital and capital expenditure during this year. It has been doing a lot of development. It's improving its grades and it should in the next year move over to the left-hand side of that dashed line.

Slide 13, just to recap, Kusasalethu restructured. Those levels, 78 down to 95, all closed. All those people are out of those levels. We're now focusing on the new mine, which is that depth of levels 98 to 113.

And on Slide 14 we give a little bit of information on section 189a process, which is the retrenchment process. It basically is giving notice to all interested parties, takes you through a 60-day notice period, after which you can then do what you have to do of either go for retrenchments or whatever's been concluded during that period.

So a reduction of the employees of about 1,300 people at that mine and a new plan in financial-year 2016. I've given some indication of what it looks like. There's obviously still work to be done. It would be nice if we could get closer to this during this quarter.

But it is a quarter which was only just after the retrenchments, which finished in February so -- at the end of February, so everyone -- we've got to build up a bit or morale and get some steam going in that operation.

If you go to Slide 15 I'll talk about the other assets I promised to talk about, which is Masimong and Doornkop. Added Hidden Valley in there because it's also -- it wasn't on that chart we've seen, but it's also in a loss-making situation.

Masimong is a very low-grade operation. We've done some substantial changes to that plan, probably reduced the mine life to around about two years. We haven't completed the life-of-mine plan as such. Approximately 400 employees will be impacted.

About 154 of them have already been transferred and taken off, but we will probably end up in a section 189a process there. And we'll continue to focus on the higher grades. The grades are very low on this operation, below the 4 grams a ton mark and it's difficult to make any money out of an orebody with less than 4 grams a ton underground in South Africa.

Doornkop, this was one that I'm giving notice of what we're doing here, but we've still got to engage with unions and so on. Really a new focus on the plan here. This will probably also end up in a 189a process during this quarter. Focusing on the higher-grade areas we've done some good developments of late and we need to get into those areas, so it's likely to be a restructuring.

Total number of employees at that operation about 3,400 people. And I can't tell you how many may be impacted or not, but that's going to be some of the work that we're going to be doing during this quarter that we're in.

Hidden Valley has had a tough two quarters. It's done well in reducing its costs and so on, but it's not making money if you look at what stripping is required. So there are some reduction -- cost-reduction initiatives.

We need to look closely at the plan as to what we're focusing on and how much stripping we're going to do. As you know, that's part of the joint venture, so we will be looking at that with our partners.

I'm going to hand over to Frank now to deal with the quarterly results.

Thank you, Graham. If we turn to Slide 17 we've got our operational results quarter on quarter and you'll see that our gold produced for the quarter was 10% lower, at 245,000 ounces. We didn't have a very good March quarter with production and this is largely due to the Christmas break.

Our gold price was slightly higher, at $1,220 per ounce. Our cash operating cost was very much the same as the previous quarter. And our production profit was in fact, in dollar terms, the same as the previous quarter, at $55m. Our all-in sustaining costs, because of the weakness in the rand, was in fact slightly lower than the previous quarter, at $1,258 an ounce.

If we page to the extract from our income statement in dollar terms, and this is Slide 19, and we start at the top with the revenue, we see the revenue was lower. We had 13% less gold sold within the quarter. That was slightly offset by a better gold price.

Our production cost, fortunately, was lower, and that was partially because of the restructuring and on the savings on consumables and also on labor. And it's also partially because of the weaker rand versus the dollar.

Our inventory movements; we locked up some gold during the quarter and that had a [also] effect on our production cost. So our production profit was in line with the previous quarter, at $55m.

If we move down to the net loss figure you see the net loss for the quarter was $22m versus $79m the previous quarter. Fortunately, we already provided for employment termination in the previous quarter and we didn't expense anything during this quarter. That's the $16m.

But also the previous quarter had a loss on scrapping of property, plot and equipment of $38m which wasn't repeated in this quarter. If we look at our headline loss after we've added back the loss in scrapping we have a quarter with a loss of $22m versus $47m in the previous quarter.

If we turn to our cash flow summary, which are also extracts from our cash flow, and this is Slide 21, in dollar terms if we add the $32m cash flow from operations in this quarter our capital expenditure was $60m.

And so the difference between the $32m and the $60m was about $30m. And our debt was increased from $151m to $177m, which was our net debt, so that increased from $26m and which is really the difference between the cash flow from operations and the capital that we spend during the quarter.

Our cash balance is reduced from $119m to $58m. You could see we paid back some of our debt during the quarter, and the debt reduced with $35m, from $270m to $235m.

Thank you, Graham.

Thanks a lot, Frank. So on Slide 22 we stack all the assets here, so not just the underground assets, rand per kilogram on the left-hand axis and the bottom in percentages.

Bambanani is doing well. And then you can see on the extreme right Kusasalethu. This is year-to-date figures. Kusasalethu has certainly improved quite dramatically quarter on quarter, but the focus is really on that one getting below the line -- below the gold price line there.

A lot of focus, I've spoken about on Doornkop and Hidden Valley and Masimong, and I've spoken a little bit about Phakisa, so I've tried to deal with all the ones above the gold price line.

The same figure, of course, whether it's on Slide 22 or Slide 23, simply the gold price there. And here we're not talking -- sorry, we're not talking all-in sustaining costs. We're using cash operating and capital, so it just takes away the -- I don't know, the ZAR15,000 a kilogram or so from that.

If we look at crystallizing value, and this is really getting into the conclusion now, we have a section again which you've seen before on Slide 24 of -- 25, sorry, of Golpu. It still remains a spectacular orebody. Stage one is in the process of a feasibility study.

We hope to start earthworks in September of this year. We're making good progress on the negotiation with the government for pre-mine development, so that's still on schedule. Stage two is going to pre-feasibility, so that again is -- should be done by the end of the year, in line with our plans.

It's a fantastic orebody. It deserves to be built. It's one of those orebodies and mines that, when built, will withstand all sorts of lower commodity prices.

Slide 26, looking at actions to unlock the value here, obviously, one of them is very operational focus. We need to achieve the plans that we're putting in place and if we don't achieve them to the extent that we don't we need to restructure those assets for product -- for profitability.

That's what we're doing with Doornkop, Masimong. That's what we've done with Kusasalethu, by basically taking more than 20% or 21% of the costs out, and only 13% of the gold, so taking more costs out per kilogram.

And Golpu certainly needs to be kept on time and on budget, so there's quite an emphasis there. It's in a joint venture. It's not wholly in our control, but the emphasis is there.

And then the second action is realizing shareholder value for the assets we have, remembering that Golpu is around about 50% of our reserves. And funding of Golpu is obviously quite important and therefore Frank and I have to spend some time on looking at all the strategic options on going forward as to how we unlock the shareholder value in that asset.

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

(Operator Instructions).

Well, it sounds like we haven't got any questions.

No. I think your presentation was quite [firm].

Okay, let me quickly sum up and say, ladies and gents, we had quite a difficult quarter, but at the same time we've made some progress with the restructuring. We're still going to continue with that during this quarter and so there's a real emphasis on the operations achieving their business plans.

Thank you very much. If there are any questions which you want to send through please send them (multiple speakers).

Sorry, Mr. Briggs?

Yes.

Sorry to interrupt. We do have a question from Business Day. Are you willing to take it?

yes, I can take it.

All right, please go ahead.

Hi. Graham, hi. Sorry about that. Do you have any idea when you could conclude the work on the strategic study into Golpu? Do you have a time by which you have to present that work to the Board?

[Alan], thanks. Yes, so Golpu in the near term has fairly small financial requirements. As the shareholders will know, and the market knows, the first couple of years are fairly small financial commitments and after that it starts becoming bigger.

The financial commitment continues up till 2020, so it's for a further five years, so whatever the solution is we need to think of a longer-term solution for it and also be able to fund that period. So this is not just going out for a bank loan which typically only has a three-year life.

So we've certainly got time on our side and we're in the position now where I think it is right for us to actually talk about these things while we study the various options. We haven't landed on any option yet, but we've got a bit of time on our side still to be able to do something like this.

So no decision for a year or two then?

It would be sooner than that I would say, Alan. It would be probably within the next 12 months we'd have to land on some sort of plan going forward.

Brilliant. Thanks, Graham.

Thank you.

Thank you. There are now no questions left.

Okay. Well, thank you very much, ladies and gentlemen. I hope you have a great day.