Harmony Gold Mining Company Ltd (HMY) 2022 Q4 法說會逐字稿

Good morning, and thank you for joining us today for this financial year '22 results. This is the first in-person results presentation in 3 years. So it's great to put on a suit again, actually come and stand here is fantastic. And I'm delighted to see you and welcome those who have joined us virtually all by phone.

Please take note of our safe harbor statement. Let me start by unpacking the past 12 months and importantly set a stage for where we are heading as a company. As South Africa's largest gold producer by volume, we have a responsibility to extend (inaudible) mining. We are a company dedicated to well-being of our people and our stakeholders. Now (inaudible) more evident than the compassion and care we gave to our employees throughout the COVID pandemic.

By living our values and delivering on each of our 4 strategic pillars, we will continue creating shared value through sustainable mining. Integrating risk-based decision-making underpins all decisions at Harmony. We believe our purpose as a company is to transform the resources we mine in hope, opportunity and prosperity. It is an ongoing creation of shared value, which maintains our social license to operate. We call this mining with purpose.

The events leading up to and including FY '22 has affected all business and people across the globe. Yet despite the various headwinds, we managed to deliver 46 tonnes of gold or approximately 1.5 million ounces, meeting our revised production guidance. Underground grade was close to guidance at 5.37 grams per tonne, while all-in sustaining costs came in slightly above guidance. It was mainly due to the challenges we experienced at Hidden Valley. Considering the levels of disruption, delivering so close to guidance has been a great achievement.

I would like to thank each Harmonie for making this possible. We continue to benefit from the higher gold price received with average just under ZAR 895,000 kilogram for the year. As we progress our projects, we approved capital of ZAR 8 billion in CapEx, of which ZAR 6.2 million was spent in FY '22. This was due to the postponement of capital at Zaaiplaats and Kareerand. At Zaaiplaats, we are yet to finalize the detailed studies. We were yet to finalize this detailed study outcome. And at Kareerand, project was postponed due to regulatory approvals that were delayed, which all have been obtained now.

We also took a tough decision to restructure Tshepong, which we'll discuss in more detail later. Production profit was ZAR 9.5 billion and our operations generated ZAR 2.9 billion in operating free cash. I am pleased to announce that we have declared a final dividend of ZAR 0.22 per share.

Harmony has undergone a remarkable transformation since its growth strategy began in 2016. As we integrated Moab Khotsong and Mponeng and related assets, we are now 1.5 million ounces in our specialized gold producer. Production comes from a diversified and derisked asset mix, namely South African underground, SA Surface and International. Embedded sustainability drives integrated risk-based decision making at Harmony. We have improved the safety of our stoping areas by installing support and permanent steel netting, and we have commenced Phase 1 of our renewable energy program in efforts to decarbonize.

Harmony has maintained a strong balance sheet with ample liquidity for deployment.

Looking at FY '23 and beyond, safety remains nonnegotiable as we focus on successfully executing on our key projects, delivering operational excellence through our S300 program, growing our margins and advancing our copper footprint through our Tier 1 Wafi-Golpu copper gold asset. The strategic decision was taken during the most recent planning cycle to redirect capital to high-grade underground assets and high-margin surface operations. This will help deliver on our strategy of safe profitability ounces and increase the cash conversion from reserves.

Growth and replacement of ounces will be achieved through the ongoing investment in our organic pipeline and progressing of feasibility projects. Inorganic expansion in Africa and Southeast Asia will also be considered provided it meets our investment criteria.

Improving safety, delivering meaningful returns, active cost management and growing our ounces are key focus areas. Today's presentation will focus on these 4 points. A safe mine increases shared value and ensure the safety of our people remains #1 priority. In initiatives such as our Thibakotsi transformation journey and other bottom-up safety interventions have been embraced and are well resourced.

Returns will be driven through the execution excellence, productivity improvements and allocating capital to higher grade and higher margin operations. Harmony has always had a firm grip on cost, and we continue to manage those inputs that are in our control. Inflation is not new to us. An annual 8% inflationary increase was used to prepare our life of mine plans. We are comfortable that the 3-year wage agreement alongside our energy efficiency initiatives will ensure that we remain in control of costs.

Lastly, growth is aimed at increasing margins and replacing and growing our ounces. This will happen through organic growth, exploration and M&A as we progress our copper footprint through the Tier 1 Wafi-Golpu project.

Then move forward. Here we are. Okay, let's start with update on safety. Our various safety initiatives, such as the Thibakotsi cultural transformation, alongside with a robust risk management framework are starting to yield results. Over the past year, we have achieved some extraordinary safety milestones as a company and indeed as an industry. We are seeing an increase in white flag or accident-free days and traditional high-risk agencies, such as fall of ground and rail-bound equipment, both demonstrated significant improvements.

Harmony had a zero fall-of-ground loss-of-life incidents in the second half of the financial year. It's the first time ever. Our lost time injury frequency rate, or LTIFR, as we call it, is standing below the 6 per 1 million hours worked for 3 consecutive quarters, another first for Harmony. The LTIFR for FY '22 ended at 5.9 per million hours worked compared to 6.46 per million hours worked in FY '21.

Given the hard, work which has gone into improving safety, the regression in our year-on-year loss-of-life injury frequency rate was disappointing and unacceptable. We continue to engage all our stakeholders and ensure full commitment to prioritizing safety. Not having a single incident in our mind is possible. We have several days on which each and every person working at our mines returned home safely and unharmed. Every effort is made to turn incident-free days into weeks, weeks into months and months into years.

Sustainability. Sustainability is embedded in all we do. All aspects of E, S and G are considered in decisions that we make. Harmony continues to demonstrate true sustainability and how we care for our people. The pandemic reminded us of how important the family is. We often refer to Harmony as a family, and the pandemic has reinforced the importance of caring for one another. No jobs were lost during the pandemic, and we spent over ZAR 1.2 billion in ensuring our people were vaccinated and kept safe. That is a full run rate.

We have taken significant steps in our decarbonization journey with Phase 1 of our renewable energy program underway. Our goal is to be net carbon 0 by 2045. We have secured a ZAR 1.5 billion green loan to help fund Phase 2 of our renewable program. And our other energy efficiency and demand side management initiatives have resulted in a ZAR 1.4 billion in savings since 2016.

We promote and encourage diversity throughout Harmony, evident in our inclusion in the Bloomberg Gender Equality Index for the fourth consecutive year. FTSE Russell upgraded Harmony's ESG rating from a 3.4 to 4, and we are again included in the FTSE4Good Index. This just now places us in the top 10% of the FTSE industry classification super sector.

Our second focus area is obviously delivering on meaningful returns. Capital is prioritized across safety and production and organic and inorganic growth, return cash to shareholders and maintaining a strong balance sheet. We have clearly defined hurdles, in which we evaluate our current and potential projects. Our pipeline of project exploration and prefeasibility studies aimed all -- aimed at driving growth are listed on the slide. All projects need to be lowered our overall risk profile, including safety and climate change, improve margins and generate returns. Execution excellence will ensure that we clear these hurdles and create value. This, in turn, will create new opportunities to deploy capital and in time, generate highest [year old] returns. High returns will attract new capital and so the cycle continues.

Organic growth is fundamental to delivering long-term value. In 2016, this was our production profile for our portfolio, and the (inaudible) indicates where we are now in FY '22. The orange area is where we were prior to investing in Hidden Valley and acquiring Moab and Mponeng. So this is a production profile as it looks today. A key consideration (technical difficulty)

Ladies and gentleman, please remain online. The call will resume shortly.

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Mponeng mine if we added to that production. And if we agree to the deepening of Mponeng, that is what we will add to that, is that dotted area there, if I can maybe just show it on the slide here, that dotted area there. That has obviously not been approved yet and currently in feasibility study.

This is what Wafi-Golpu will bring to the (inaudible). Obviously, that's a 35% of Wafi-Golpu. And you add all that together, we will be around about 1 million-ounce producer going forward. And that is Kerimenge, it's another project that we look at. This is a satellite ore body close to Hidden Valley, that potentially can come into our portfolio and be added to the Hidden Valley. So that is the kind of profile that we have as far as organic growth.

And based on our FY '23 planning parameters, the potential is that it will be potentially lower ounces, but better quality and higher margins as these high-grade projects actually come online. So that will actually be the all-in sustaining cost. It will be driven down by these actual projects that can come on to (inaudible) obviously, a much better quality than we had before.

Through these acquisitions, we now have a higher quality portfolio than we did in FY 2016. 90% of our operational free cash generated comes from our acquired assets and the SA Surface operations. Only 10% of operation free cash flow in FY '22 came from our older or existing underground assets. These assets will start returning cash once the projects are completed. In that there was quite a big (inaudible) a very good Kusasalethu to obviously a target that didn't perform well because we had -- we're still busy with that recapitalization.

I'd like to spend a bit of time on (technical difficulty)

FY '23 financial year now that these projects are underway. Capital expenditure will remain elevated throughout to the end of FY '22 -- '24, I mean. Development capital, including sustaining capital increased 21% in FY '22, and we made good progress in development across all mines. Capital spend when (inaudible) is demonstrated by this chart. Development grade at all our underground operations have been trending higher and a positive picture of the future in all our underground mines. Sorry, I just want to get back to that slide. As we expected, the higher grades at Moab Khotsong and Mponeng stand out head and shoulders above our other assets. We really are on very good rates at this point in time. Therefore, redirecting our capital to these assets will generate better returns on capital.

As I mentioned in the previous slide, Mponeng and Moab Khotsong are high-grade assets with the reserve grades above 8 grams a tonne. And as part of our capital reallocation strategy, shifting capital from a 5-gram per tonne mine to 8-gram per tonne mine will deliver a significant higher returns, simply because of the higher grades. Our older assets continue to serve us well, but to drive down the all-in sustaining costs and open up margins, it is prudent to prioritize our capital.

The decision to restructure the Tshepong operation was not an easy one, but it was a necessary one. We have split Tshepong operations into Tshepong North and Tshepong South or a Phakisa mine as we used to call it. And due to the various geotechnical and geological complexities affecting volumes and grades, a decision was made to take -- make the mine smaller, but more profitable. We have reduced our geographical footprint and concentrate mining to 3 levels, ensuring improved (inaudible) grade. The Sub-75 project is on hold. We have shifted employees to the Zaaiplaats and [Kareerand] project. The life of mine has decreased from 19 to 7 years, but under the new plants, Tshepong North will generate positive cash in FY '23 and therefore, deliver a higher net present value.

This is a mine planned for the Tshepong North basal reef before the restructuring. Now we have highlighted, and I think that's important that those are the areas that we have an old plan, up there and out there, which is very, very far from the (inaudible) station, which is here. Very difficult. Ore bodies really broken up. And certainly, very difficult mining, a lot of dilution. So the first thing is to stop these mining and stop that and say, because we don't think it's profitable any longer and move those crews to these high-grade pillars that is out there, which we call the [orange] pillars, which is right next to station obviously, higher grade and actually easy to get. And then obviously, the Sub-75 is this area hear, which is currently on hold and potentially can come back into the plan. Now we implemented a similar strategy at Kusasalethu, which happened to be our most profitable mine in FY '22.

Harmony Gold production is now split across a more profitable and derisk portfolio. 27% of production now comes from our high-grade assets, 18% of the production is from our high-margin surface sources, while 8% is from Hidden Valley. The remaining assets accounting for 47% of our production and have a vital role to play in generating returning cash back to Harmony and shareholders. Over the life of mine, all our assets are expecting to deliver positive free cash and an average free cash flow margin of approximately 25%.

Okay. The next focus area is cost management. Harmony has always managed the cost well and investing in grade will drive our all-in sustaining costs lower over time. Our experience in operating high inflation environment allows us to plan at 8% cost inflation. We experienced a below inflation increase of 6% in the fixed wage due to the 3-year wage agreement that is in place, of which we're now in the second year. And our total labor costs were higher at 8% due to incentives and other variables, which we can control.

Total labor has decreased from the 60% to 58% of the total cash cost in South Africa; electricity, which accounts for 80% of our costs increased 13% due to the annual tariff escalations. We are managing this through a renewable energy program and other energy efficiency initiatives, which I mentioned earlier, delivered a ZAR 1.4 billion in savings since 2016. Consumables such as general stores, chemicals, diesel, explosives increased by about 10%, and we are fortunate to have a limited exposure to diesel in South Africa. Our mines affected by the higher diesel prices are Hidden Valley, Kalgold and (inaudible) mine Target 1.

In South Africa, 33% of the increase in our cost was due to the full year in production costs from the Mponeng and related assets compared to the 9 months in FY '21. The COVID-19 cost in FY '22 were ZAR 480 million and we expect this cost to full substantially in this year.

In FY '22, the margins from Mponeng, Moab and the Surface operations insured a production profit of ZAR 9.5 billion. Our Joel mine returned to profitability in quarter 4, while Target 1 recapitalization optimization projects will be completed at the end of this year. Kusasalethu returned over ZAR 800 million in free cash to the business. And we have implemented additional cost controls at Hidden Valley to introduce the risk of another conveyor belt failure, and this will ensure that the mine operates at plan. Production and costs at Hidden Valley normalized in the fourth quarter of FY (technical difficulty)

Looking a little further towards FY '24, many of our projects will be complete. We expect the all-in sustaining cost of margins to improve on all our mines to be profitable. In addition to our investment in grade, investing in our people is vital, delivering meaningful returns. There is a clear link between execution, excellence and productivity.

Our business improvement team is busy with a project called Safe 300 or S300. And the S300 aims to safely increase the average productivity of 300 square meters per crew per month. Now some of our crews are already mining at 700 square meters per month. So there's a significant opportunity to improve overall productivity. This circle represent key S300 initiatives. Combining the Thibakotsi cultural transformation journey with technologically advancements, we will improve the human dimension of safety and productivity. S300 is (inaudible) at work. It's about developing the human part of our business to achieve the art of the possible.

Lastly, I would like to touch on our growth before handing over to our Financial Director, Biopelo, to discuss the financials. Many of you are familiar with the slide illustrating the key margin catalysts over the coming years.

This year, we closed Bambanani. Masimong and Kusasalethu will reach the end of the life at the end of FY '24. Our EBITDA reduction in ounces will not result in increased costs. As productions comes down, we also realized a significant reduction in capital expenditure and costs. The Mine Waste Solutions capital -- major capital project will be completed in FY '25. And at the same time, once the Franco-Nevada streaming agreement ends, there will be an additional 25,000 ounces available at prevailing gold prices. This translates to around ZAR 500 million in additional revenue in real terms. The result of these catalysts is more profitable ounces and improved margins as we position Harmony for the transformational Wafi-Golpu project.

Harmony has significant resources with many opportunities to convert the quality reserves. The year-on-year reduction was mainly due to the life of -- changing of life of mine plans at Kusasalethu and the (inaudible) Kili Teke during the course of the financial year. Many of our studies, such as the deepening of Mponeng will result in a sizable conversion. We are also exploring opportunities to process the free state tailings. These tailings have a resource base of 5.7 million ounces and potential for the treatment of about 60,000 ounces per annum for almost 100 years.

During FY '22, gold and gold equivalent reserves decreased by 6% to [39.8] million. And then apart from that, it was (inaudible) during the year, the Tshepong restructuring resulted in some ounces moving out of reserves to resources. Harmony now has a higher quality ounces that improve conversion to reserves. This, in turn, will drive higher cash conversions and value creation in the long term.

Now over to you, Biopelo. Thank you very much.

Thanks, Peter. Morning, everyone. As Peter mentioned, it's definitely good to be back in person, see everybody else again. Just in terms the geopolitical events rather leading up to and including FY '22 affected almost all businesses, including ours. Harmony benefited from a 5% increase in the average gold price received, while a ZAR 500 million realized hedge gain helped drive the 2% increase in revenue to ZAR 43 billion from ZAR 41 billion.

Operating free cash flow margins declined to 7% for the year due to the lower production, and we recorded a net loss of ZAR 1 billion in FY '22 compared to a net profit of ZAR 5.1 billion and that's mainly due to Hidden Valley and the impairment losses that we recognized. And I'll touch on this in the next slides. Normalized for one-off items, headline earnings per share decreased 49% to ZAR 4.99 from ZAR 9.87. Our balance sheet remains strong with net debt to EBITDA at -- steady at 0.1x, and we've refinanced for funding and have ZAR 8.2 billion in cash and available undrawn facilities. Our new funding lines are now linked to sustainable KPIs, which is the first for Harmony. So we're quite proud of that.

I'd also like to remind our shareholders that we have appointed Ernst & Young as our new external auditors for FY '24, and this is subject to shareholder approval at our next AGM. We again would like to thank PWC for their support over the many years. As Peter mentioned, the decision to restructure the Tshepong operations was necessary to deliver higher returns going forward. Of the total ZAR 4.4 billion impairment, ZAR 3.6 billion was attributable to Tshepong on the back of increased costs and capital and higher discount rates.

There was also reclassification of reserves at Tshepong North. There are additional impairments at Moab Khotsong of ZAR 522 million, and that was due to increased costs and a higher discount rate, ZAR 145 million at Kusasalethu as a result of reduced product or production rather due to safety considerations and Bambanani because of the early closure, but you'll recall that Bambanani, we had written off in our interim results. Of the above impairments, ZAR 333 million was recognized against goodwill.

And it's important just to point out that the ZAR 522 million of Moab, the bulk of that is goodwill. Just lastly, I'm pleased to announce that we'll be paying a final dividend of ZAR 0.22. And this is in addition to the interim dividend of ZAR 0.40 rather per share, and it takes a full year yield to around 1%. The payment of the dividend demonstrates confidence in our plans and our ability to pay a dividend alongside our growth aspirations.

Normalizing cash flow for the operational setback at Hidden Valley, there would have been ample -- or there is rather ample room to reward our shareholders. Thanks, Peter. Back to you, just to conclude.

Conclusion then, thank you, Boipelo and thank you for all our shareholders for the ongoing support which enables Harmony to achieve these goals. The solid platform [on here, have built,] placed Harmony in a strong position to deliver operationally, but our journey is not yet complete as we progress our copper story and grow our margins. Production is split between our high-grade, underground assets. Those underground assets optimized for cash generation, and our home high-margin SA surface business and our international business is currently in PNG, but with plans to expand. This is our equity story in 4 parts. Delivering on our strategy, but -- delivering on our strategic pillars will ensure that we create long-term value for all our shareholders and stakeholders. Effecting positive change and maintaining our trust is what we call mining with purpose. I thank you. I will now take any questions from the audience for those who have dialed in posted questions on the webcast.

Arnold Van Graan from Nedbank. Peter, 2 questions. The first one is your productivity initiatives, S300. I mean you're looking to achieve, what sort of 10% to 15% increase in productivity there. Can you just talk us through the more practical terms, let's say, mining terms, how are you going to achieve that? And what it all means. That's the first one. And then you had some permitting delays at Kareerand. Can you just talk us through that? What's causing that? I'm basically trying to figure out what role the authorities and the DMR is playing in these delays, if any?

Yes, I'll take the second part of the question first, and I'll ask Beyers maybe just to comment on that. If you could just give the mic to Beyers, please, get it. And -- the delays was -- we submitted a application, and then we had quite a lot of delays in terms of actually getting the application done. So we had to resubmit the application. And that actually took them much longer than we thought. And -- but that application went right in the beginning when we started just taking over from AngloGold Ashanti, so we would -- obviously, as we've known the assets a lot better with the application, quality of the asset improved. So resubmitted that.

And obviously, there's always time delays, and that's 3 months and 4 months, it have to be considered before we actually get it over the line. So yes, it was a little bit of a disappointment because I mean, we could have -- and it would have been great if we got it right. But we have got all regulation authorities approvals now, we are going. And I think it's only the safety officer. The one thing is that (inaudible) approval is still outstanding, but we're continuing with the construction of the -- some of works at the moment. So we've got delayed. So we -- as we think we're fully on the go. Yes. And Beyers, I'll let you maybe talk through S300, yes?

Thank you, Peter. Good morning, everybody. Thanks for the question, Arnold. Productivity improvement is identified as a clear aspect of our business that we're looking to improve. Obviously, in a growth environment, productivity is a fairly cheap improvement if you can realize that. So what we are doing is at the moment, our run rate is about 260 square meters per crew per month, and we're looking to improve that to S300. So it's 300 square meters per crew monthly. And so we have got a well-resourced business improvement platform now going in Harmony.

That's well (inaudible) office. And the projects is detailed on the slide. They include things like face time optimization, shift cycle optimization, the responsible use of technologies, although we do know that we're in a narrow tabular conventional type of environment, but faster drilling rates in order to increase that safe quality blast per day. So it's not rocket science. It's a real practical mining stuff. And if you look at our output per crew, although the average is around 260, we've got quite a big range there. I mean you've got crews doing 200 and crews doing 700, as Peter quoted in the presentation. So it's basically moving that mean slightly closer to the 300. So yes, not rocket science, but a well-resourced, well-equipped, safe crew with good environmental conditions, the productive (inaudible) And we're working really hard on the South African operations to grow the business in the SA context, around productivity improvement and driving the costs down that way with some high grades that we're also targeting. Thanks, Peter.

(inaudible) Securities. Peter, can I just ask you how important is (inaudible) to the future of the operations. Clearly, you paid big money for it. Well, substantial amount going back a couple of years ago, just to give us a feel for how important (inaudible) going to be in years to come.

Yes. My view is that it will be very important. Obviously, we haven't made that final decision yet. This year, we're going to spend time on doing the feasibility studies. It's not only the deepening part of the VCR that we're looking at. There's also with that deepening, we can bring a lot of the carbon leader in play, which is obviously will be quite great to have a little bit of that high-grade carbon leader, it was in our plan. But then also looking at the Tau Tona, Savuka shaft pillars, the extraction of that. We are looking at the moment -- we're working very close to the University of Pretoria. We're actually sponsoring the Rock engineering chair there. And we did a lot of work on Bambanani, the extraction of Bambanani shaft pillar in terms of trying to (inaudible) extraction rate versus the mining itself in terms of how we can manage seismicity and things like that. Now we think that IP that we created by doing all of that will probably help us to mine the shaft pillars. Now all of those are not approved yet.

As you can see in that graph that (inaudible) but I'm comfortable that with the grades that is available at Mponeng going forward that we most likely will give it a go. And -- but again, I mean, we still have to take it through the proper approval process. But certainly a fantastic ore body, and that will add about 50 years of life to the current Mponeng mine. So it can be quite substantial. And the shaft pillars, if you think about Bambanani shaft pillar, the shaft pillars are about the same size of the Bambanani shaft pillar, and we have 4 shaft pillars in Savuka and Tau Tona and a carbon leader and the VCR. There have been some mining in the past, so it's not all available, but it is actually potentially 3 or 4 Bambanani. So that is out there in Bambanani. As you know, we closed it now. We mined about 84% of the gold there. And it was a massively profitable project for us over time and very safe -- done very safely. So we're confident that we've got the IP to do that mining.

(inaudible) Could you please take us through your strategies, how are you going to fund CapEx going forward? How cheaply and economically, are you going to do that?

Yes. So we kind of always have the 3 buckets in terms of how we -- maybe, Boipelo, (inaudible) give you that opportunity to answer that because I mean it's more in your field.

From a liquidity perspective, we're quite comfortable. We've got headroom of about ZAR 8 billion. I mean you would have seen we refinanced our facilities just recently, including that green bond, specifically for the renewable energy perspective. So we're quite comfortable. I think Peter unpacked it quite nicely in that capital allocation slide. So we'll obviously -- I mean what we've done with (inaudible) as well, reprioritizing that capital to higher grade. So from a balance sheet perspective, in terms of funding, we're very comfortable.

The one -- maybe just to add to that, Wafi-Golpu obviously, are a big ticket item. And we always said that let's get through the first hurdle, get the mining license in place, and then we'll look at what the funding mechanism for that will be.

Peter, the other one I want to ask you is the drilling taking place at Target North. Are we still going to see some results from this drilling in the next year or so?

Yes. We (inaudible) get it what time do you -- we actually are getting to the end of that drilling program. So we are very close to bring it probably by I think start of next year, you have (inaudible) we will bring the results. We're drilling there. And yes, so we're quite happy to continue drilling there. Still (inaudible) busy with the deflections now a days. So yes, some good results coming out there as soon as those are out, we'll -- we just want to complete the final levels as the program had it, and then we will come back to the [market] and say what we found it.

Peter, I've got a question on the webinar from [Martin Creamer.] What do you foresee for Harmony as a future miner of copper? And when will copper begin? And what value do you see coming out of copper mining in the years ahead?

Yes, we do see ourselves as a gold copper play. Obviously, we have Wafi-Golpu as a major -- more a copper mine than a gold mine. So we will, by necessity, if we continue with Wafi-Golpu, be part of a copper story. So we certainly are also looking at potential copper growth in -- and as a company, very keen to progress that.

Any further questions. I think we are good.

Thanks very much. Thank you very much, and thank you for joining us.

I want to take telephonically, -- have you got any questions coming through?

There are a few questions, sir. The first question we have is from Patrick Mann from Bank of America.

Two questions. The one is just on strategy. So if I look at your sort of inorganic growth strategy you talked about looking for lower risk profile assets. But then, obviously, if we look at your current results, the sort of core of the portfolio has come from in Mponeng and Moab, where you've recently acquired this in South Africa. So I'm just wondering, going forward, have you written off in buying or looking at any inorganic opportunities within South African underground mines? Or is that still an option on the table? So that's the first question.

And then the second question is just on dividend policy and your cash flow. So if I look at your -- this year, add ZAR 2.5 billion of CapEx, and we're going into this high CapEx phase, that would pretty much take -- consume all of Harmony's gold -- Harmony's cash flow for this year. Should we be thinking about it that likely we're going to see low, 0 dividend for the next couple of years in this CapEx program? Or alternatively, I also see you've paid a bit more than 20% of free cash flow this year. So could you maybe use that as a guideline, but still attempt to pay a dividend? Just maybe a bit more how you're thinking about dividends and a high CapEx phase of your business.

Thank you, Patrick. I'd like Boipelo take the second part. I'll take the first part of the question, which is really about our growth within South Africa. And again, we will grow -- we are not -- obviously, as I think we demonstrated that we are very keen to invest in South Africa because we are investing a lot of money in South Africa at the moment. And certainly, if it's a quality asset, we will certainly continue doing that. But we will not just grow for growth's sake. I mean if we can't increase the value of the portfolio by acquiring specific assets in South Africa, we won't do that. Now so we -- so that is the thing. I mean that is important. Obviously, we also take into consideration things like safety and also other sustainability, things like, for instance, carbon emissions and things like that. But I mean, our key thing is that everything that we buy, everything that we do must be a better quality assets than we had before.

Yes. I think from a dividend perspective, when we went out with the policy, we said 20% of free cash and obviously subject to the discretion of the Board, and that takes into account major capital, our net debt to EBITDA being well less than 1. So what we wanted to do, obviously, we declared the interim dividend of ZAR 0.40. Yes, we did -- well, we did utilize cash in the second half, but that was mainly due to the blowout that we had at Hidden Valley in the first half of the year.

So if we normalize for that, then we wanted to -- well, obviously, we've got confidence in our plans going forward, and we wanted to demonstrate just that consistency in being able to pay a dividend. So we were quite comfortable in declaring that ZAR 0.22. So yes, if you try and work it out, it will be more than the 20% of free cash that we do guide. And I think going forward, we would want to -- yes, there is a lot of capital going forward, but it's just for the 1 year, and that will normalize eventually FY '24, et cetera. So -- I mean I don't want to guide what the dividend would be. But I think the key message is that it's just that consistency.

Any other questions telephonically.

The next question we have is from Adrian Hammond from SBG Securities.

Peter, Boipelo, a couple of questions. I think firstly for Boipelo, your guidance, I'm quite impressed with your ambitious cost guidance (inaudible) just over 7% year-on-year. How do you reconcile that with current inflation, which is trending north of 10%? Is that a function of lower 10s and a high grade? Then on your ambitious renewables and your plans with green loan, I mean you're taking this on book as I understand, but your peers are taking it off balance sheet business.

What is your rationale behind that given that (inaudible) producer. And then on your (inaudible) asset, what do you expect to catch from that? And then just for Peter. So just curious about project Zaaiplaats to understand why decided to go for those projects, it almost goes against your strategy here, which is pick up a high margin, where Zaaiplaats represents a much deeper, higher risk assets.

Should I go first?

Yes.

I think just on the renewable, Adrian, remember, the first phase is a PPA, the 30 megawatts. So that's off balance sheet. Then obviously, Phase 2 then is where the green loan kicks in. And we actually interrogated it quite carefully, and it's cheaper for us, we believe, for the second phase to do that on-balance sheet as opposed to off-balance sheet. So that's just on the renewable.

And with (inaudible) the cost, I wouldn't say ambitious, I think it's quite realistic, the ZAR 900,000 that we're guiding. Yes, kilograms do have, obviously, I mean, what we experienced with Hidden Valley, so we did have a drop in production, which influenced the rand per kilogram cost. But I mean, again, I think we have to contextualize. If you look at Harmony, it will always be 77%, which is labor, electricity and contractors that we cannot do away with. And labor, we're quite comfortable. We've got the 3-year wage agreement. Electricity is around 13%. And then what we have to manage is obviously consumables. So we're quite comfortable with what we've guided.

(inaudible)

Ladies and gentlemen, please remain online. The venue will rejoin us shortly. Ladies and gentlemen, please remain online. The venue will rejoin us shortly. (inaudible)

(inaudible) operate now. We (inaudible) through mining the Bambanani shaft pillar and other areas of Kusasalethu, Mponeng, et cetera. I think we do have the -- we know how to mine these deep-level mines, and it's obviously very high grade. I mean that ore body runs over 9 grams a tonne. So that is a significantly beautiful piece of reef there that still need to be mined. And yes, so we want to mine it safely. We want to mine, we believe we can.

And yes, we -- it is a project that I think should be done in South Africa, not only for all other things, but also just for job creation and other kind of things, but also it's a very profitable asset for us. We kind of (inaudible) presented all the matrixes of the project in terms of why it's such an important project for us to go, and then we certainly would do continue. And at the moment, we're actually doing quite well there. We really have (inaudible) that we developed over many years and (inaudible) declines. They are top-notch. I don't think there's anybody that can do better than they can. And we've got them there at Zaaiplaats, where developing those new declines, or starting to developing these new declines.

Thanks, Peter. Thanks, Boipelo.

Thanks, Peter. Any more questions online? Next question we have is from Jared Hoover from RMB Morgan Stanley. On the (inaudible) side, any questions? (inaudible) Thanks so much, Peter. Thanks.

Okay. Just (inaudible) thank you. Thank you very much. So good to have a person-to-person meeting again. Like I said, this has been quite a few years, and it's great to be back to normal or close to normal environment that we operate in again. Thank you.