Harmony Gold Mining Company Ltd (HMY) 2018 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Harmony Gold Mining Company Limited Half Year FY '18 Results Conference. (Operator Instructions) .

Please also note that this call is being recorded. I would now like to turn the conference over to Max Manoeli on behalf of the Investor Relations team. Please go ahead.

Thank you very much, Chris, and good day to everyone. Welcome to Harmony's interim result presentation for the 6 months ended 31st December 2017. Our (inaudible) today see that our SA operations production has increased by 6%, and our headline earnings per share by an impressive 49%. To tell you more about this, we have Harmony's executive management team, led by our CEO, Peter Steenkamp, and our Financial Director, Frank Abbott.

I will now hand over to Peter to take you through the presentation.

Good day, everybody, and the presentation that we're going to follow is the presentation that was put on our website this morning, the results for the 6-month ended 31st of December, 2017.

Please take note of the Safe Harbor statement on Slide #2, everything.

If you go on then, and just talk about on Slide #4. We are very pleased to have a very solid half year performance, and it's on the back of a 6% increase in South African gold production, a increase in underground recovered grade of 4%, and it's a continuous performance for many years now, and then also, 2% decrease in all-in sustaining cost on the back of we had to absorb quite a few inflationary increases at the beginning of the 6 months. All of that then resulted in a 49% increase in our headline earnings as Max has said.

If we move now to Slide #5. We're on track to be a quality 1.5 million-ounce producer. Our South African operations really now at a stable and predictable production performance of around about 1 million ounces per year, and over the last couple of years, we've done a lot of work to make ourselves much more predictable, get more flexibility in operations and ensuring that we can constantly deliver this performance. We've also in the 6 months have announced the transaction of Moab Khotsong, which will be more than 250,000 ounces added to our production, which gives a significant cash generation from Day 1 and a very low-cost operation.

And in these 6 months, we also completed a project of the recapitalization of Hidden Valley, which will add another more than 180,000 ounces per year to our portfolio. All of this growth has come at an all-in sustaining cost of less than $950 an ounce. So we believe that, as we've done in the past, we will comfortably get to 1.5 million ounces as soon as all of these operations are part of our portfolio.

In South Africa we have generated the free cash flow. Our foundation's asset are set and delivering as we expect. We reiterate our focus on operational excellence, cash certainty and effective capital allocation, we've been able to make the South African operations much better and focusing on much more predictable production.

So we did focus on safety and also achieving our plans. We believe that we've got a very experienced, energetic and driven team with a right mix between youth and also experience, and a very energetic team that operates our mines. And they still continue to be very disciplined as far as grade's concerned and our cost containment.

If you go to Slide #7, we talk about the Moab Khotsong, which is a high grade low-cost operation. As I said, it's more than 250,000 ounces, with all-in sustaining cost of less than $950 an ounce, and it really enhances our position as a higher-grade, cash-generative gold producer, and we still have a lot of upside in extending the life of mine by [grading] some of the resource converted into reserve.

And we're making huge progress as far as the conclusion of the transaction is concerned. This morning, we announced the Section 11 transfer or approval that we had from the Department of Mineral Resources. So 3 of the 5 commission precedents has been met. We've got the Reserve Bank approval, we've got shareholder approval, we've got now the government stamp of approval on the transaction, but we still need this Competition Commission, and then also to transfer the water directive from AngloGold to us. Both of those, with the Section 11 in place, will be just something to be done as soon as possible.

On Slide #8, Hidden Valley. We were very pleased with the project. 91% of the capital

spend is behind us. Just to remind everybody, this will be over 180,000 ounces at an average all-in sustaining cost of between $850 and $950 an ounce.

We believe it will be on commercial levels of production in the fourth quarter, which is the March to June quarter, and for this half year, we guide that we'll do about 70,000 ounces out of Hidden Valley. This project is done ahead of schedule, it was in budget and it was also done very, very safely. And we were very -- we were pleased with the performance of the project team that recapitalized Hidden Valley.

On Slide #9. We just want to give you a taste of what is to come. Really, what was new? These new acquisitions improved production. What will that do to Harmony? If one looked at the underground recovered grade, you see that we improved our underground grade from 5.26 to 5.7. So that is the adjusted figure on the right-hand side that shows, what we believe it will be performing at when we have Moab Khotsong also in the underground portfolio.

On the production, we believe this performance of 17.4 tonnes will go to 23.4 tonnes of gold in the 6 months. The all-in sustaining cost, which is currently just over ZAR 500,000 a kilogram, believe we'll get it down to ZAR 471,000 a kilogram going forward with these 2 operations now also as part of our portfolio. And our free cash flow generated will go from ZAR 1.4 billion to ZAR 2.1 billion going forward. So this is just to show us, we know -- how -- what are the game changes these 2 transaction actually worked for us, that we've done in the last 2 years. So we're very, obviously, very keen to have both of them as part of our production going forward.

I'll now hand over to Frank, just to talk about the financial results.

Thank you, if you look at Slide 11. I also want to show you what the improvement will be with the acquisition of Moab Khotsong and the recapitalization of Hidden Valley. The black column there, is the ZAR 2.5 billion, is our earnings EBITDA for the first half of the year. You can see it's stronger than the EBITDA for the first half of 2017, and that was based on higher production and lower cost.

If we look at the column on the right-hand side, what we've done is we've adjusted the first half of year '18's EBITDA with the result of Moab Khotsong for the previous year, and also with our guidance on Hidden Valley. You can see -- we look at the EBITDA, which will improve with more than ZAR 1.2 billion.

If we move to Slide 12. We're positioned to fund quality growth. You can see since years '16, '17, we had a very low net debt-to-EBITDA that enabled us to recapitalize Hidden Valley. We spent $180 million for Hidden Valley, to do the cutback 5 and 6. If we look at the first half of financial year '18, that went up to 0.4, and that is because of the capital expenditure during this period on Hidden Valley. The black column at 0.9, a net debt-to-EBITDA to 0.9, is where we see just after the acquisition and assuming that we do a ZAR 100 million equity raise. And just after that, we can -- we showed you our medium-term target, which should be -- by the end of this calendar year, we should be down to 0.6, and that's net debt-to-EBITDA. Just below that, we showed you our available debt facilities. And our syndicated facility of $350 million, the bridging loan of $200 million and our rand facility of ZAR 1 billion.

When we pay for Moab, we would be drawing from the syndicated facility, $100 million, and on the bridging loan, $200 million.

If we turn to Slide 13. The successful hedging programs topped up. During the period we've been able to top up our hedging programs. And you can see there, the gray column is the current rand gold price or the stock price; the yellow is our gold hedge, and on top of that is our currency hedge. So it shows you what the prices will be, that we would be receiving. I'm assuming that the current prevailing gold prices stay like that for the next period. So you can see for the next 6 months our gold price is going to be about ZAR 570,000 a kilogram, then it's going to be ZAR 550,000 per kilogram, and in next year it will be still about ZAR 520,000 a kilogram.

Thank you. Peter?

Thank you. And then looking forward, on page -- Slide #15. Our outlook is on track to meet our production guidance; we're driving down our unit costs through quality acquisitions, and also focusing on cost containment in our current operations; we're delivering our strategy to increase our margins, and our cash flow improved by the growth opportunities that we -- in the process of bringing it to fore.

So just to look at some other quality growth opportunities that we have in the short to medium term, the project pipeline that we have. First of all, we have the Moab Khotsong, Great Noligwa life-of-mine extension. And that is, obviously, a resource above infrastructure, which is a 5 million ounces at a grade of 18.5 grams a tonne. And that's just, really, areas that we're at home, we feel very comfortable to operate in. As pillar mining specialists, we've been doing it for many, many years, and we believe that we can bring quite a lot of that resource into reserve, and actually extend the life of mine of Moab Khotsong and Great Noligwa.

The other option of short- to medium-term opportunity is, obviously, Golpu, which is a Tier 1 copper-gold deposit. And here we are really spoiled for choices in terms of what we want to do with this particular asset. I'll just remind everybody that's a very big resource. 4.3 million tonnes of copper, 9.3 tonnes of gold. That's 50% of Golpu. We're currently in the process of completing the updated feasibility study. We plan to bring that to the board in the middle of March, and then after the both boards have approved it, we actually, also talk to the market in terms of what the new feasibility study will look like. Certainly, it is a very, very valuable asset, and something that we believe is going to start to [send Harmony shares in good state].

We also have a lot of tailings retreatment opportunities, both in the Free State and also in Mispah, the resource of 3 million ounces. The Free State, we've done a lot of feasibilities and prefeasibility studies on different projects. So that is certainly in a position to take it forward. And in most part, we are still in concept study phase, but in the Mispah, obviously, we have the advantage that we have extra plant capacity available in [Ok Tedi] when we take a little of Moab Khotsong. And that's certainly our -- a project that we'd like to do the feasibility study on, and see if it's possible for us to take it forward.

In the medium to long-term, the first one is Kalgold. We've been doing to a lot of drilling at Kalgold to see if there is other possibility of a bigger mine, and we were very surprised or very, very pleased with the outcome of some of the drilling there. And we certainly believe that there's maybe a much bigger ore body there that can actually enhance Kalgold, make it a bigger mine, a mine that's absolutely much more profitable than the current Kalgold is.

The Hidden Valley stage 7 exploration is still ongoing, and that is also something that'll bring through in the next year's of this calendar year, want to look at Hidden Valley stage number 7, if it's possible to do that.

And then we, obviously, a lot of PNG. We've got exploration targets there. Kili Teke is the biggest one of that. At the moment, we're not doing anything at Kili Teke. We certainly are -- it's something that we can take forward in the longer term. The Zaaiplaats extension is the extension of the Moab Khotsong mine, which is a deepening of that mine. That's also in prefeasibility stage. When we take over the Moab Khotsong, we would like to take it -- do the -- redo the pre-feasibility study and feasibility study to see that we can progress that project.

And then in Target North, we had some good news during the last 6 months. We even got the prospecting right to be part of the mining right. So we now have -- got security of tenure on Target North. And we will be drilling -- do some surface drilling to build up on the orebody there going forward.

And so we believe that we've got a compelling investment case, as we are a safe, profitable 1.5 million-ounce producer. We are financially strong. We've got real growth opportunities, and we certainly believe that we offer a share price upliftment in the Harmony share.

So we'll take any questions, if there is any questions?

(Operator Instructions) Our first question is from Patrick Mann of Deutsche Bank.

I just wanted to ask on the grades. You guys are getting kind of positive reconciliations on your guidance for the grade. So I think you're ahead of guidance for 2018. What's causing that? Is that kind of you're ahead of plan? Or are you mining better-than-expected? Is it a function of a lower rand gold price? And do you expect -- is there any element of seasonality to it? So I know, typically volumes come down in this first quarter. Would you expect that grades come down as well as you kind of process more surface material or more? I'm just trying to get my model correct for this year, and wondering whether the grades stick this high or whether they kind of wind down into the second half of the year?

Patrick, we had a very good 6 months as far as grade is concerned. We -- obviously, there we had better-than-expected grades at a few places, like for instance at Masimong. We actually got grades that are better-than-expected. And -- but we still -- our guidance for the year is still the 5.18 for the total year. So we've made -- I think we'll stick to that grade guidance. We -- we're all mining into better areas and, specifically, that strong operations where we are mining more from the lower levels, which is high-grade areas. But I'll stick to the 5.18 for -- as a guidance.

(Operator Instructions) Our next question is from Dominic O'Kane of JP Morgan.

Just a quick question on all-in sustaining cost guidance. I see you've reiterated the production guidance for 2018, but there isn't the same level of reiteration on the all-in sustaining costs. So am I right in reading between the lines that you're sort of -- you're a bit concerned about the previous all-in sustaining cost guidance, and if you can maybe just talk about some of the cost pressures that you're facing at the moment?

Dominic, we're not concerned about the cost pressures that we had. Obviously, for this -- for the rest of the year, we will -- one of the big things that we'll have this year is, obviously, the wage negotiations. But that will only kickoff around about June -- May, June-end, and probably won't have any effect on our operations this year. So that, obviously, is something that we are looking at. But at the moment, we've -- we're not concerned about our costs. As a matter of fact, we've done quite well in terms of containing some of the cost in the last 6 months and that process is still continuing. And you talk about, both in terms of getting the value for the money in terms of capital project and also in terms of -- [normal things]. We've got a lot of initiatives that are currently running in as far as costs are concerned, like reclamation and all other kind of things that at the moment will help it. The other thing is, obviously, one of our low-cost mines will now really start performing, and that is Hidden Valley. So given the course of things. So as far as cost is concerned, we are feeling quite comfortable with -- this current figures will continue going forward.

(Operator Instructions) Sir, it would appear that we have no further questions. Do you have any closing comments?

No, and thank you very much for being -- for joining us today. Again, I'd just to reiterate that we had a very, very busy 6 months. On the performance side, we are quite pleased with our performance, and specifically with our South African operations performance. Really good -- pleased with the project recapitalization of Hidden Valley, and in also the acquisition that we had with Moab Khotsong and the progress that we've made there. We certainly believe that going forward this company will be a different company, with much lower cost volumes and, certainly, put us in a much better positioned to be able to take ups and downs in the gold price going forward. Thank you very much for joining us.

Thank you very much, sir. Ladies and gentlemen, that concludes this conference call, and you may now disconnect your lines.