Harmony Gold Mining Company Ltd (HMY) 2021 Q4 法說會逐字稿

Good day, and thank you for joining the Harmony FY '21 Results Presentation. I hope you are all keeping safe. It's a pity that we can't be able to meet in person. Due to the COVID safety protocols, we will be presenting our full year results virtually.

With me presenting will be Boipelo Lekubo, Mashego Mashego is also in the meeting with me. Marian van der Walt and Herman Perry from the executives and then also the IR team in the leadership of Jared Coetzer.

Please make note of our safe harbor statement. Our FY '21 delivery versus -- compared to our previous year's results, FY '21 has delivered across all 4 pillars, resulting in a fantastic set of full year results. From the very beginning of the pandemic, we knew that we had to focus on the well-being, health and safety of our employees and host communities. At the same time, it was also imperative to steer the company through these unprecedented times to realize our strategic objectives. I am proud to report that we did both. FY '21 was indeed an incredible year for Harmony and has positioned us for what will be a truly exciting future.

Some of the key highlights we achieved in 2021 -- FY '21 include that we have been continued progress in improving across all aspects of ESG. Sustainable development is an important deliverable for management as we position ourselves for a greener and more equitable future. More of this shortly.

We have had a solid operational performance after acquiring Mponeng and related assets. We saw a significant increase in production and improved grades. Our evidence was only the new assets that -- which delivered, excluding Mponeng-related assets, we achieved a 5% increase on the old Harmony assets, and that's also a stunning performance. Excluding Mponeng and related assets, we achieved this extra 5%, which is actually noteworthy if we think that we -- the closure of Unisel has also happened in this year after the first quarter.

The financial highlights included a record headline earnings of ZAR 5.6 billion from a loss of ZAR 828 million in the previous year, and this amounts to ZAR 9.23 per share. EBITDA increased 64% to ZAR 9.8 billion, and an EBITDA margin of 23%. We have delivered a strong flexible balance sheet, allowing us to focus on key projects in FY '22, which are also paying a final dividend.

Our key features. Some of the original highlights include a 3% improvement in our operations in SA and lost time injury frequency rate. That's to 6.46 per million shifts, 83% increase in operating free cash flow from ZAR 6.5 billion. We have successfully integrated the Mponeng and related assets into our portfolio and have 9 months of these results into our results today, which contributed towards the 25 -- 26% increase in gold production. We managed to meet our production and grade guidance for FY '21. And notably, our all-in sustaining cost was only 0.4 above our guidance of -- at ZAR 723,000 a kilogram. A very good achievement considering the sharp increase we have faced in commodities like electricity and consumables.

Our ESG highlights. ESG falls under our first pillar of responsible stewardship and is embedded in our DNA. When making strategic decisions, all aspects of our ESG are also considered. I am pleased to report that we achieved some notable milestones this year, which include a record 3.38 million fatality-free shifts during the fourth quarter of FY '21. And we have implemented an effective COVID-19 vaccination strategy. We have spent almost ZAR 0.5 billion on training and development and ZAR 7.9 billion on preferential procurement in South Africa in the FY '21 alone.

Since 2016, we managed to reduce electricity consumption by 33% while realizing cumulative savings of ZAR 1 billion since 2016 on the back of these energy saving initiatives. This is a testimony to the fact that Harmony turns risk into opportunities.

Good governance and diversity are fundamental to our business. Ethical leadership is ethical mining. By adopting and integrating risk-based approach to decision-making, we considered the consequence of each of our actions and how it's impacted every aspect of ESG.

Creating Future Value. Harmony has an exciting pipeline of brownfield and greenfield opportunities. We are now in a strong position to take advantage of these opportunities to extract value and convert our resources to reserves both safely and profitably. We are investing in exploration and have identified a number of opportunities, including Kalgold, Tau Tona and Savuka shafts pillars, extractions and then also this Target North. Wafi-Golpu is still in permitting phase, and we are committed to realizing our aspirations of being a specialized emerging market copper and gold producer. The environmental permit for Wafi-Golpu has been approved. And we, together with our JV partner, continue to engage with the state of Papua New Guinea regarding the permitting. Whilst negotiations in PNG continue, we will continue to invest in the projects that have the potential not only to extend the life of our mines and replace some of our mined out ounces, but also to add to the overall value of Harmony.

I think one of the stories today is really investing in and creating value for the future and the capital projects that we've approved of late. So the key new projects include Zaaiplaats, which is a deepening of the high-grade Moab Khotsong. The mine waste solution Kareerand tailings expansion and the extension of our Hidden Valley mine in Papua New Guinea. Other projects already in execution included Tshepong Sub 75 project, the Doornkop 207/212 levels and related infrastructure upgrades and the Target 1 capitalization and decline development. These capital progress are expected to add significant value to the Harmony. And based on our assumptions, we expect an approximately 40% increase in net present value from these projects. Not only do we expect improved grades, but we also are optimizing and extending the life of our mines, too.

The projects are expected to deliver strong cash flows and will bring significant upside to Harmony as these projects are completed. Notable in this graph is the importance of pursuing this project as to how it transforms our cash flow over time.

Harmony is currently a 1.5 million to 1.6 million ounce producer. We are investing in our business and these projects because they have proven ability to extract value and extend the life of mine. We have shown these skills and expertise over the course of our 70-year history. Not only have we created value for investors, but we have also sustained jobs, communities, small businesses and continue to contribute to the fiscus of the emerging market countries we operate in.

The new projects are indeed complementary and will add to our production profile. Not only are we extending our production but are improving our margins and profit over time. These projects, therefore, make strategic and financial sense and will create long-term value for all our stakeholders and shareholders.

If we look at our margin expansion through our catalyst and this is really the time line of things that's going to happen going forward, in addition to these new products, there are other catalysts that will contribute towards the expansion of our margins. These include a number of our mines which are reaching the end of the life in the new year. We will see the streaming agreement with Franco-Nevada coming to an end in FY '25, and our major CapEx projects will also reach completion. All of these will ensure a decreasing CapEx profile, driving our margins higher.

I will now touch on 3 of our 4 strategic pillars and how we have delivered on the -- each of them in the course of '21. Our FD, Boipelo Lekubo, will run through our financials and the cash certainty, after which I will conclude.

Safety is a foundational value at Harmony, and safe production at all our operations at all times is nonnegotiable. We have invested significant resources in embedding a proactive culture of safety through Harmony and now in Phase 2 of our humanistic transformation journey, which we have aptly named Thibakotsi which means to prevent harm in Sesotho. Thibakotsi is about understanding the importance of one another, caring for one another, and it requires a conscious shift on how we think about ourselves and others. Developing safety leadership capabilities, embedding good safety practices, embracing a proactive safety culture, improving employee engagement and leading from -- learning from incidents or assisted in entrenching a safe behavior within all of our employees and help us to achieve our goals of zero loss of life.

If we look at our achievements, whilst we are making progress, accidents remain a constant and real threat. We pay our respect to our colleagues who have lost their lives during the course of FY '21 and extend our deepest condolences to their families. Each loss of life results in us having to reflect and see where our systems, procedures and behavior needs to change or improve. We are working tirelessly to ensure that we have results proportionate to the efforts we are putting in. I am, however, pleased to report that despite the loss of life incidents, the majority of our key safety metrics are trending in the right direction. Our lost time injury frequency rate in South Africa improved 3% to 6.46 per million shifts from 6.69 in FY '20.

Some of the notable milestones we achieved in FY '21 include Masimong, Joel, Mponeng, Hidden Valley and all surface operations, Free State plants fatal-free for the year, while Kalgold and Hidden Valley achieved 3 million fatality-free shifts.

Vaccinations. COVID-19 remains a major focus and is considered a material risk to our business. There is continued coordination from all stakeholders, management and employees towards the fighting off the pandemic in both South Africa and Papua New Guinea. Our vaccination rollout has been successfully. And as of the 25th of August 2021, over half of our employees have either been partially or fully vaccinated. We are aiming to have 80% of our workforce vaccinated with the first jab by the end of October '21.

Our KPIs are linked to our ESG. Further evidence of our embedded approach as can be seen here in the breakdown of our balanced score card. 20% of the management KPIs are linked to ESG outcomes, such as being included in the FTSE4Good Index. ESG components are also included in our financials and operational KPIs, which further illustrate our integrated approach to ensuring that all aspects of our business and the impact of our business are considered. We are continually assessing how best to integrate ESG factors into our KPIs and will be informed by those factors material to Harmony, but also the various frameworks, which guide our sustainable development strategy.

Our energy initiatives. Just as we place emphasis on diversity amongst our workforce, it is essential to consider how we diversify our energy mix. With hydropower already in place in Papua New Guinea, we have an exciting and comprehensive renewable energy rollout plan in place in South Africa. The first phase include plans for a 30-megawatt of renewable energy production, whilst Phase 2 will see us develop and incorporate a further 73 million megawatt of renewable energy into our plants. We have realized significant savings through energy saving initiatives post the acquisition of mine waste solutions. We also have seen our intensive all moved down considerably due to the high volumes treated at our surface source of business. We have a clear copper gold aspirations and are committed to the decarbonization through various initiatives.

The second of our strategic pillars is operational excellence, where we have once again shown in the past year that we have been able to extract the best from our assets. We have identified 5 key focus areas to help us achieve operational excellence throughout Harmony. These are safety and health, which I've discussed; active cost management, which I will address; capital allocation prioritized to drive margins growth; and production excellence aimed at productivity improvement; and obviously, infrastructure reliability.

The acquisition of Moab Khotsong in 2018 and then Mponeng and related assets last year has had a significant impact on our all-in sustaining cost due to the high grades at the underground mines and low cost and high volumes at the surface sources business. This chart illustrates which of our mines have the highest all-in sustaining margins, but it also show where we need to focus our attentions. Mines in the red block, namely Target, Joel, Kalgold and Tshepong are all undergoing optimization projects to ensure margins expand as they contribute and produce to plan, driving costs down.

This is just the same slide, just in U.S. dollar per ounce. Just quickly talk through these assets that need -- that require focus. First of all, Kalgold. I mean Kalgold really is a mine that we've mined at the first lockdown we might for profit. That's the only operation that was -- the only operation that was operational in South Africa. And we really bind the higher grade of the ore body out. But we also have a long-term plan for Kalgold. And really, the biggest thing for us is really to create the flexibility. So in the last year and also going forward in this year, a lot of effort will be put into the A zone and water tank, but the bridge area that actually should also be mined so that we can actually create a bigger pit. And actually, get sustainable volumes in place and stockpiles in place for Kalgold. So if we can actually go through the ups and downs like the drain and all other kind of things, Kalgold is in place. So Kalgold, although we didn't perform according to our -- didn't make money, we actually plan it that way and actually want to create a bigger and more flexible mine going forward.

Target 1 was probably the one mine that we had quite a blowout for the year. There was 2 things that happened there. First of all, we had huge problems with ventilation and cooling, which we, in the meantime, resolved by actually installing extra capacity. We also had the collapse of the 2 stopes, massive stopes, which we had to deal with. And then we had a seismic event at Target, which related to the loss of life, which we had to rethink our safety aspects of Target and actually then read -- many of our ecologists, we re-supported with the new standards that we put in place. All of that has put Target in quite a difficult situation for the year. And we hope to see this year that things will improve.

Tshepong is really about creating face lengths and flexibility. We're actually busy with the Sub 75 project. We do believe that we're going to get better grades going forward. And we actually have restructured the mine to have now 2 general managers, both in the old Tshepong South and Tshepong North, which is old Phakisa and the old Tshepong. And that since we've done it, we've seen quite a good performance of Tshepong.

And then Joel, I'm pleased to say that we actually, in fact, completed the deepening, chairlifts are running. We are back in normal things. And we really have done quite a lot of work to actually optimize the mine. And actually going forward, the mine will be in a much better shape.

Cost Control. I think our all-in sustaining cost for FY '21, as I said, was ZAR 723,000 per kilogram, marginally more than our cost guidance for FY '21 was between ZAR 700,000 and ZAR 720,000. Two contributing factors for the higher all-in sustaining cost was COVID-19 and royalties, which added around 2% to our all-in sustaining cost. Excluding these items, we would have been below the lower end of the guidance, and we are confident that we will manage to keep our cost controlled.

We don't expect COVID-19 cost to be as high as in FY '22 as this includes a number of one-off such as establishment of clinics, installation of temperature readers at all our operations and just the general management of COVID. Obviously, with the vaccinations being rolled out, that obviously is at the cost, not for the vaccination itself, but for the other work that we have to do as far as that's concerned. But the all-in sustaining cost for 2020 is planned at ZAR 765,000 to ZAR 800,000 a kilogram to cater for the inflationary increases and increases of electricity cost in South Africa. Our wage negotiations are currently underway, and we expect the agreement in the first quarter of FY '22.

Just in terms of our cost variances between FY '21 and '20. You can see in the slide here. It was a function of numerous items, but predominantly the inclusion of Mponeng and related assets into our numbers, and this added around ZAR 5 billion to our cash cost, that is in normal numbers. It's also worth noting that FY '20 costs were lower than anticipated due to the lockdowns and the impact of the pandemic. So we did see a normalization of costs in this year. Other items which increased were consumables, general stores and maintenance of about ZAR 305 million. Support costs of ZAR 133 million really with the reduction of steel nets in all our operations, high-grade -- stopes of high-risk stopes. Cumulative explosives is about ZAR 83 million. And then contract -- this contract, we added Kalgold, an increase of ZAR 171 million as we mined more waste. And then electricity, mainly due to the annual tariff increases that we saw.

If you look at our production guidance for the year coming in FY '22, we are expected production to increase to just under 50 tonnes of gold across all our operations. This translates to around 1.589 million ounces. This is an increase in production between 3% and 4%. Of note, it's really the reduction in surface sources as we've mined out many of the surface sources that was particularly at the Kopanang plant that was surface source, which we now put on to care and maintenance.

The next slide is really the same just in ounces on the same slide. And then the slide is improved grade as we're also improving our grades. A constant trend in the expected grade guidance for FY '22 will be around 5.57 grams per tonne from our underground operations in South Africa.

Our third strategic pillar is effective capital allocation. I would like to spend some time here discussing our new projects in FY '22. Harmony embarked about the growth strategy in 2016. I'm pleased to say that we have transformed our operations significantly over the past 5 years. We have concluded value-accretive acquisitions, derisked our portfolio while also improving quality of our assets. We have reduced our debt, placed ourselves in a strong position to extract further value through exploration and development of various projects. And we'll be committed additional capital to these projects in FY '22 as we invest into our future of growth.

On the right-hand side of the slide, we have listed the projects that meet our capital investment criteria. A number of deliberations took place with technical and mining specialists. We have also taken into account the views of stakeholders and shareholders alike, and we believe that these projects are the ones that will add significant value to Harmony. The substantial value in our portfolio and these projects allow us to do what we excel in. That is mine responsible at the benefit to all -- of all of us.

We want to look at the next slide is really the slide about our growth and resources. Our acquisitions have added 28.4 million ounces to our resources, which has resulted in a 90% increase year-on-year. And if you look at the reserves, similarly, our reserves have increased by 16% on the back of the new acquisitions, adding 9.3 million ounces year-on-year. The additional reserves will be from Zaaiplaats, Mponeng, mine waste solutions and Hidden Valley extension.

Our FY '22 capital guidance. Our total CapEx will this be increasing from 5.2 -- ZAR 5.1 billion in FY '21 to ZAR 8 billion in FY '22. Sustaining CapEx will represent 71% of the ZAR 5.7 billion. The major growth capital will be 29% or ZAR 2.3 billion in FY '22. The breakdown of major capital expenditure can be seen, here with the majority of the major capital being allocated between Zaaiplaats and Mine Waste Solutions. And Zaaiplaats will be funded by Moab Khotsong. Mine Waste Solutions and Hidden Valley by our group cash flow. The same split can also be seen here in U.S. dollar.

It is important to emphasize that we are investing in our high-grade, long-life assets. We have de-risked our portfolio through the surface and high-grade longer-life assets. And the result is 88% of the free cash flow generated in FY '21 was from our newly acquired assets and surface operations. This is a substantial shift from what we had in the past and perfectly illustrate our reengineering portfolio. Attracting more value from these assets is therefore essential.

The capital we previously allocated to Moab Khotsong and Hidden Valley has been paid back, and we are expecting the remainder of our investment in Mponeng and related asset to be prepaid in FY '22.

At Mponeng, ZAR 1.7 billion of the ZAR 3.3 billion acquisition price has been paid back already, with only 9 months, about ZAR 1.6 billion outstanding.

When we look at the Zaaiplaats project that we just approved, I mean, the key numbers daily there is a 225,000 ounce per annum producer. We will have a grade of over 9 grams a tonne, a 24-year life of mine and a pretax real IRR of about 19%, but this is a long-life asset. And the asset that certainly would stand us in good stead over many, many years. It is more in itself has been a very, very good asset for us, very, very profitable. And we expect Zaaiplaats to be equally profitable going forward.

Just in terms of how Zaaiplaats ore body looks like. And you can see the left-hand plan there, you can see the Moab Khotsong ore body was really 3 distinct different ore bodies, the one being the upper mine, which really mined out through Great Noligwa mine. Most of that was mined out through Great Noligwa mine. And then the middle mine, the mine that we're currently mining, and you can still see what is left in the middle mine. And then the big -- very big Zaaiplaats ore body. And that's actually the biggest part of the ore body for Moab Khotsong. And again, it's right in the sweet spot as far as grade is concerned. And so we're very comfortable that this mine will be a good mine for us going forward.

When we look at Mine Waste Solutions. Again, close to 1 million -- 100,000 ounces per annum. A very good all-in sustaining cost of ZAR 571,000 a kilogram, IRR of 43%, a 16-year life of mine. And it's really about -- the next slide will actually show you the area. On the top, you can see the green area there is where Mine Waste Solutions plant is. On the right-hand side, you will find the Kareerand tailings facility. It's really about extending the tailings facilities to cater for the next 16 years life of mine. And then we will mine the rest -- the Mine Waste Solutions complex and also the West Complex. The West Complex is the area that we'll move in first. That is a higher grade of tailings dams that's available and help you mix it with the Mine Waste Solutions part of it, but that is the mine that we have to do. But we really have to now extend Kareerand to be able to mine the next 16 years. And actually, it's quite a no-brainer of a project.

And then we look at Hidden Valley. Hidden Valley is really just the extension of another 2.5 years of the current life of mine. It's really on the back of using the Hamata pit as a tailings facility because we're constrained there is tailings placement because we're getting to the end of the current tailings facility life of mine. And it's a good mine with a good cutback, good management team. And we are retaining our, obviously, our workers for a strategic for possibly deployment later on into Wafi-Golpu.

Just for those of you that has not been to Hidden Valley, this is how this pit look like. You can see the cutback on the right-hand side will be Stage 8, which is the last cutback. And right in the left-hand corner, you will find the TSF, Hamata Pit that now will be the TSF2 and the plant -- the processing plant right there. If you want to look at the -- creating that second TSF, this is for Hamata Pit, we will build a wall and then obviously use the tailings to go into that old pit that we've mined.

So I guess now I will hand over to Boipelo to take us to the next part of the presentation.

Thanks, Peter. FY '21 has indeed been a fantastic year for us and we delivered an exceptional financial performance. Headline earnings per share increased by just under 700% to ZAR 9.23 from a loss in FY '20 of ZAR 1.54. You note EBITDA increased 64% to ZAR 9.8 billion from ZAR 6 billion in FY '20. The higher production, combined with a 16% higher rand kilogram gold price, resulted in a net profit of ZAR 5.6 billion in FY '21, compared to a large net debt to EBITDA in U.S. dollars.

In addition to reducing our debt, we've created flexibility and now have ZAR 7 billion or USD 500 million in available headroom through cash and undrawn facilities. This gives us substantial room to maneuver and provides a strong buffer during times of uncertainty. It also allows us to take advantage of the kinds of opportunities that Peter has discussed and others which may yet present themselves.

Again, just the U.S. dollar representation of the headroom. Harmony now has a clear dividend policy where we will return 20% of net free cash generated to shareholders. We'll be paying a final dividend of ZAR 0.27 in FY '21. And this combined with our interim dividend of ZAR 1.10 results in a dividend yield of 2.4% based on our share price on the 27th of August. We're confident in our ability to pay a dividend alongside our growth aspirations as we're in a strong position to fund CapEx from our retained cash.

Thanks very much. And I'll hand back to Peter.

Thank you, Boipelo. Okay. So let me conclude. The Harmony of FY '21 is very different from that of old. The Harmony is positioned in FY '22 and beyond. And there's a solid building blocks in place to ensure we mine sustainably throughout the cycle. We have optimized our existing operations, and we have integrated ESG practice throughout Harmony. Our acquisitions, combined with our responsible hedging strategy, will ensure that our balance sheet remains strong and flexible that we can deliver positive returns to our shareholders and stakeholders.

Our investment case remains compelling. We have reengineered our portfolio and deleveraged our balance sheet to create optionality and pay a dividend alongside growing the company. We are geared to rank gold price, with rand cost, but U.S. dollar revenue. As a 1.6 million ounce gold producer, we are expanding our margins through organic growth and our new exciting projects. We have a Tier 1 copper gold assets in Papua New Guinea, and our embedded ESG practices will create lasting legacies and ensure a sustainable future for all our stakeholders.

We thank you very much, and we'll now be taking questions.

If we can just move over to the Chorus Call, we'll take questions for people that are dialing in.

Of course, sir. The first question we have is from Adrian Hammond from SBG Securities.

I have 3 questions. Firstly, just I'd like to get a bit more clarity on your ability to pay dividends that you seem to be confident on. If I add your CapEx in addition to sustaining CapEx, I get all-in cost in excess of spot prices. So just curious to know how you reconcile that outlook, given your aggressive CapEx plans and your ability to pay a dividend.

Secondly, I want to know if you consider the Mponeng B120 project, if it's still an option? And if not, why? And then thirdly, could you give us an update on the movements within union membership. And if NUMSA is making headway into gold as they are in platinum?

Thanks, Adrian. I think maybe if I take the dividend one first. Obviously, I mean, our policy is quite clear. It's 20% of net free cash flow. That's after all CapEx and the like or other below-the-line items. Yes, obviously, with the CapEx spend that we're seeing next year, our free cash flow generation will be minimized somewhat, but it's important to understand that this ZAR 8 billion that we're spending is setting us up for growth. So obviously, as that capital comes down and the projects come on stream, we're going to see significant margins opening up.

So I mean, in order for us to grow the company, we need to spend this CapEx, and the dividend will follow suit. But I must add that in assessing these projects, et cetera, the discussion of a dividend does still feature. So it's important to still keep that in mind when you assess our funds on dividends.

So is that still flexible? I mean, I noticed the footnotes on your slides that you -- although your policy, you say, it's quite clear, you still consider future CapEx spend. So it's not so clear.

Yes. And I mean, those are standard caveats that any company would have. And we have to be responsible as well the Board in terms of assessing what's coming up, what lies ahead, et cetera.

Adrian, the Mponeng question, let me just repeat that again because it's about deepening of Mponeng. Is that correct?

Yes. Into the carbon leader reef, yes.

Okay. Yes. The deepening is really on VCR, but then obviously, there's also a bit of carbon leader that will be available to the north or west of it. But yes, at this point in time, we are considering the extraction of the 2 shaft pillars, which is both Savuka and Tau Tona and then what we call the Tau Tona blue block, which is the Tau Tona blue block is the area that AngloGold Ashanti in any case had in their plants. And we are busy developing in that area and creating that flexibility.

What is exciting about the Savuka and Tau Tona block is that it is obviously on VCR and Carbon Leader. And both of them has got higher grades than, for instance, that Bambanani had. So they are very, very high-grade blocks that we can take. Obviously, they are tricky and have to be taken with caution and a lot of planning that goes with that. And then obviously, the deepening of Mponeng is certainly something that's on the card in the long term. At the moment, we don't -- because we have a 9-year life of mine left in our current, without even the short pillar extractions that we want to do. So obviously, something that will come a little bit later. But yes, I mean, deepening the mine will actually add another 30 years of life at a very good profit to Mponeng.

So we're very happy what we experienced at Mponeng. We've got fantastic people there. Very, very good performance, culture and everything in place.

And then as far as the unions are concerned, yes, we still have -- the NUM as being the #1 unit and to the tune of about 60% of our labor force will be -- even after taking over where, obviously, AMCU had a much bigger, say, in Mponeng. But having said that, I mean, we obviously work with all the different unions. And so we are busy with negotiating. We have got all the major unions around the table being AMCU and UASA and Solidarity and all the unions are around the table to have the discussions with us. So -- and we try to keep a relationship with everybody else, but NUM is still the majority union for us.

Thanks so much. Have we got any further questions?

Yes. We have a question from Leroy Mnguni from HSBC.

My first question is just around the Tshepong impairment. It seems to be driven by a deterioration in your outlook for grades, and I'm just trying to reconcile that with some of your comments from your last results around expecting those grades to improve as you mine more from the higher-grade producer section. Has anything changed there? Maybe if you can give us a bit of color around what exactly is driving that impairment.

And then just on your guidance for production, it seems there's quite a bit of production that will be lost from your South African surface operations. So if you could just elaborate a bit on exactly what's driving that and if it will return in latter years, please.

Thanks for that. First of all, Tshepong. Every year, we do -- as we upgrade our models, geological models and also our grade models, we obviously do a life of mine plan. So in Tshepong case, nothing deteriorates from the deepening of the mine. Because the deepening of the mine is ready in the high grade. So the high-grade part of that will certainly continue. And we expect the grades to improve going forward as we get to the needs of the ore body. So that is still in place. I think impairment is really about the life of mine, looking at the life of mine. And there are some changes in terms of certain blocks that we've taken out and said we'll not mine it because it's not too low grade. And certainly, we're not going to make it. So that's what the impairment is normally worked on.

And then the second question was really on the -- can you just remind me on the second part of that question?

Production.

On surface, yes, surface sources. We -- the biggest change from last year to this year is that we're actually going to take the Kopanang plant off-line from surface sources, and the Kopanang plant is actually run out of surface sources to be mined. So what we've got left now we will do through the Great Noligwa plant and not through Kopanang plant. So Kopanang plant is coming to end to put on care and maintenance.

And then obviously, as we go with the surface sources, we start with the higher grade first and then lower grade. So there's no chances of actually bringing surface sources back going forward. I mean, what we have with surface sources is what we've got. And what we can do going forward is that we will bring in the Kusasalethu plant to actually model surface sources in the west -- wet area. But as far as the Vaal river area is concerned, those surface sources are completed. So we're not at the end of that high levels of surface sources at AngloGold Ashanti is at. But we always knew that. We always knew we're only going to have a few months of that going forward.

Kopanang plant, obviously, is now up for care and maintenance, and we cannot make a decision still in terms of are we going to actually take it down or try and do some more surface retreatment. And that feasibility at this point in time is ongoing.

The next question we have is from Jared Hoover from RMB Morgan Stanley.

I've got a few questions, please. Maybe I'll just start off with my first two, and I'll follow up with a few more. So my first one is relatively easy. You've given us a mine-by-mine asset split for FY '22. But can you give us an indication of what the total CapEx for the Mine Waste Solutions TSF extension is for Hidden Valley and for Zaaiplaats. And just remind me what your gold price is that you're using to calculate your IRRs. I'll leave it there for now and follow up with the few more.

Okay. The total CapEx spent -- major CapEx, as we call the project CapEx for Zaaiplaats will be ZAR 4.5 billion. But that will be spent over a very long period of time. As we create new levels, we start mining, and so we will continue. So it's about 10-year time that we're going to build all the declines to the bottom of the declines area. Kareerand extension is ZAR 3.2 billion. That will be about 4 years to build. Obviously, we're starting now with the soil preparation and everything else that will be quite a high capital spend in the first year or so. Hidden Valley is -- what's the number of Hidden Valley? It's about 1.4...

1.4.

1.4. Again, that will be spent as we do the cutback over the time, so it's 1.4 -- So that -- those are the capital spends that we have. And the final part of Jared's question is the ZAR 800,000 a kilogram was used in the calculation of the NPVs and everything else. I don't -- rand per kilogram was used, ZAR 800,000 a kilogram.

I mean, just high level, that seems like quite a high number to use. Do you perhaps have a sensitivity at a slightly lower gold price cost, what your IRRs might look like, maybe at, say, ZAR 600,000, ZAR 650,000?

Yes, we used, I think, ZAR 700,000 and ZAR 750,000 and then ZAR 800,000 and ZAR 850,000 and obviously, ZAR 900,000 that we've put into the -- obviously, we always do sensitivities on these things. And even if the gold price do drop, I think these projects are still the worth of while to continue because, I mean, in the long term, they are low all-in sustaining cost operations. So they certainly go and if we go to like a ZAR 700,000 a kilogram, we will still be building these projects. Probably, below that, we will reconsider.

Okay, okay. Great. And then my second question is you've recently made a bid for, call it, an unsuccessful bid for Golden Globe in Australia. So -- and obviously, there's a lot more CapEx coming up in FY '22. So my question is, is the CapEx that you're spending in South Africa and Papua New Guinea now really plan B because your intention was maybe to do acquisitions? Or should we be thinking that there's potentially more M&A to come in the future over and above this current CapEx to fill that production profile gap between 2026 and 2030?

Jared, I'm not sure where you get your information from, but we never made a bid for Golden Globe. I think we were part of a team that looked at the asset, but we never made a bid for it. So -- but yes, we're always scanning the environment for opportunities that can possibly come our way. The -- we're always on our -- we're constantly looking at things. At this point in time, we've got nothing in mind that we can possibly do. Obviously, it must be value accretive. And we also have to look in terms of how we're going to be able to manage that properly. Yes, so we have not -- we don't have anything on the cards as we speak.

Okay. So fair to say that M&A is something that is constantly in focus. And I mean, maybe once you go past these 2 sort of peak CapEx years, 2022, '23, we could potentially see something if it meets your hurdles.

Yes, no. We will certainly always be on a look out for something.

Okay. And then one more question from me. Obviously, there's a step-up in SIB CapEx as well. And historically, you've had issues around flexibility in your underground operations. It was made worse by COVID-19. But should we be thinking of this bump in SIB CapEx as maybe want to rectify the flexibility situation? Or is it just the case of that's the level you need to spend to keep the production profile at about 1.4 million ounces?

I think it's a bit of both. We certainly have lot -- lose a little bit of time during the COVID lockdown. Remember, at one stage, we only had 50% of our people back at work. And then when we got back, we had to look after our vulnerables. We also had to look after people that was not at work. So kind of like -- the development was not always fully manned. There's a little bit of catch-up there, but I don't think it's a problem in terms of our flexibility. And we've got -- all of that is in account in our plans going forward. But we do want to create more flexibility and do some more development.

But there's also some of the operations actually getting to the end of their lives, which is like Kusasalethu, it will take some development still because it's got about a 3-year life. But then 2 years from now, there will be no development on that mine. It will only be the harvesting of the final part of the ore body.

So there's a bit of that. So yes, so we -- there is quite a jump, but it's because of the underperformance a bit in the previous year and a little bit of catch-up, as far as that's concerned, but I'm not concerned that we don't have the flexibility to deliver on our plan.

The next question we have is a follow-up from Adrian Hammond.

Yes, some follow-up questions, please, then. Just curious about costs going forward. Firstly, are you hiring contractors to offset the -- more contractors to offset COVID impacts? And then I think maybe a question for Boipelo. Just like to get a sense of what sort of cost inflation you as a South African -- a lot South African gold producers experiencing now for a normalized ramp time basis, so factoring in it power, diesel, labor, et cetera, what sort of inflation numbers are you experiencing?

And then just perhaps a follow-up from Jared around other opportunities. So you stood here sometime a year or 2 ago with great ambitions to explore further and diversify the portfolio. Peter, could you give us some color on the change in the landscape since that point in time due to -- it seems that those opportunities are harder to point.

Okay. Thanks, Adrian. I'll kick first and then the third question, and then Boipelo can take the second one. On the labor and contractors, Adrian, no, we haven't actually increased our labor -- our contractor complements to make up use of it. We in actual fact last year closed down Unisel. So we absorbed that labor into our operations, and we're now back to normal levels. Obviously the next mine that we will close is Masimong, which got about 2,000 people on that -- on the mine. And we obviously also hope that we can absorb them into our operations by opening up voluntary separations and things like that, so we don't have forced retrenchments. So we're very stable as far as that's concerned. Our contractor labor has been very stable.

In terms of the landscape, how it's changed, obviously, the gold price is quite an influence in terms of being able to find the kind of right assets and pay the right price for that. And -- but we still have the ambition to go into Africa. We still have the Continental Africa now. We're still looking for opportunities in Southeast Asia. We will also look at some Australian assets, if possible, but that's obviously very expensive. And opportunities in South Africa. Nothing of that is off the cards. We, at the moment, believe that we've got very good projects, and we are very excited about our ability to deliver on these projects and actually deliver. That's a good challenge for us, but certainly looking at opportunities that will come our way.

But we had probably an opportunity in the past that we had a company that wanted to have changed their views as far as their strategy is concerned, and that obviously suited us. Going forward, we're not sure what's going to happen. But I think there's still some opportunities that are still available for us. But the African -- Continental Africa dream is still there, and we are always looking at opportunities to go there.

Peter, can I just take you up a bit more on the costs? You're now probably most marginal globally given your new guidance. And typically, when costs go up so much, one, focus of cost savings. So are there opportunities within the group to remove costs going forward? And yes, I think, so with that in mind, if gold prices start to fall, what options do you have to offset that, please?

Yes. I think, Adrian, if I can maybe just take the first part of that question. I think, obviously, we -- there's been quite a lot of things that got -- headwinds have come as far as cost is concerned. The one is obviously the electricity cost is always ever increasing. We -- obviously, renewables is one of the ways out, but obviously trying to find a way of actually saving cost. If one looks at our absolute cost year-on-year and what we plan going forward, our asset cost is going up, but only 5%. I'll talk about operational costs. The rest is really in the capital and the things of that. And capital, you can either switch on and off and things like that, you can go with that.

But I think importantly is that we want to derisk a portfolio that we've got. We've got certain assets, and we want to get better-quality assets and actually mining the better-quality asset as being a -- and that will create, obviously, the margins that we need to go forward and be able to go through these fluctuations in the gold price. So it's really on taking these kind of operations, developing them, making sure that they perform well. Those are the cost levers that we can pull.

I think all the things that we possibly can do in terms of saving costs we've done. There's still a huge amount of work that we're doing to try and debottlenecking all our operations to improve our productivity. That's -- we call our business improvement strategies. And one day, when we have Investor Day, I think it's worth your while to come and see in what we are doing as far as that is concerned. So a lot of that work has been put in place. But really, it's about actually getting the higher quality assets into our portfolio, making it biggest part of the mix and making sure that we drive our margins up. Boipelo, would you like to take some of that?

You covered on the inflation aspect, Adrian?

In the past, your average inflation has been about 10%. And given the dynamics of the past, any change to that?

Yes. I mean, we've always tried to manage it below general mining inflation. Obviously, with our pocket of costs, labor is obviously the biggest chunk, then electricity. Peter touched on the electricity. I mean there is that large increase. We can't avoid that, but we try and manage it with -- through managing consumption, renewable, et cetera. We're in the middle of wage negotiations, as you know. So I mean all parties are trying to conclude that as quickly as possible. And then when you look at your other costs, your consumables, et cetera, those will generally be managed within normal inflation, your 4% to 5%.

Peter, I think that's all we've got time for. We need to wrap things up.

Yes, just for me, I want to say, thank you very much for joining us today. I really appreciate that. Again, I think, like I said in my conclusion, we have a totally different company. We've got new challenges ahead of us to really build these projects and build world-class projects. We're looking forward to that challenge. And yes, as a company, we are certainly very excited. We also get a huge amount of support to all the stakeholders that we have within, our workers and everything else. We hopefully will conclude the wage negotiations soon and then, obviously, get some stability as far as that is concerned, too.

So thank you very much for being with us today, and we really appreciate your presence. Thank you.