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

Hi. Good morning. Thanks very much for joining us. My name is Jared Coetzer, Head of Investor Relations at Harmony. I'm here with the executive director team: Peter Steenkamp, Boipelo Lekubo, Mashego Mashego and some of our other senior directors. Thanks for joining us for the full year results. I'll now hand over to Peter Steenkamp.

Thank you, Jared. Good morning to the Harmony's Full Year Results for the Financial Year 2021.

We delivered a stellar set of full year 2021 results as the resilience and determination shown through the companies ensured we achieved our strategic objectives. We adapted to a changed environment in the face of the ongoing COVID-19 pandemic, the successful acquisition and integration of Mponeng and related assets reflecting in our numbers. This demonstrates how we have further transformed our earnings profile through the acquisition of high-grade assets while delivering on our strategy of safe, profitable ounces and increasing margins.

As we continued on our growth strategy, we have identified substantial opportunities in our existing portfolio through exploration and brownfield projects, which will extend the life of some of our larger high-grade assets, adding lower risk and higher-margin ounces to Harmony's portfolio.

We are -- we can take any questions from that. Thank you very much.

(Operator Instructions) We have also question from Arnold Van Graan from Nedbank.

Well done on the results. I guess 2 broad questions from my side. First one is basically just talk to us about costs, seeing cost pressure across the industry, not just in (inaudible) what impact is COVID having on your...

Arnold -- sorry, Arnold, can you speak up a bit? You're very...

Sorry, guys. Apologies. So the first one is on cost. What trends are you seeing because cost is an issue, not just in South Africa but across the global sector. How do you see that playing out? Maybe touch on how COVID is impacting your productivity and cost.

And then, Peter, in your intro, you talked about your opportunities in the portfolio. So maybe you can expand a bit more on that. And specifically, what I'm interested in is you talk about high-grade opportunities in some of your larger mines and extending that. I'm just interested to just get a bit more color on that.

So as I said, quite broad questions, but yes, if you can just maybe share some more color on that. I hope you could hear that.

Thanks, Arnold. Loud and clear now. So thank you very much. You're much closer to the speaker. Yes, Arnold, yes, on costs, obviously, we always have inflationary pressures as a mining company in South Africa. Obviously, the biggest 2 tickets here are labor costs and also the electricity.

As far as electricity is concerned, I think in our presentation, we actually talked about our successes so far with cutting back on electricity consumption. Since we actually started with our kind of electricity, we call it ETA process within Harmony, since 2016. We now have a run rate of about over ZAR 1 billion of savings that we've managed to bank over the time in terms of just being more smarter on how we deal with electricity like we call electricity on demand, variable speed in terms of compressors and things like that. So a lot of engineering kind of things that went into that.

We're obviously also now embarking on our renewables. We've got first 30 megawatt of renewables are now approved and everything is in place and everything got all the licenses. So we're in the process of now allocating the build programs and we will be running -- soon we will able to start the first city. We obviously then want to expand that and there's also discussions today we will have some -- in that presentation, we show how we want to actually be more -- have more renewables into our operations. So that is the thing.

As far as labor is concerned, we're obviously now busy with wage negotiations. So I think it's going fairly well. We haven't concluded that yet, but I'm quite encouraged in terms of our discussions that we currently have with our people. So we probably will have a good outcome there.

And then as far as COVID is concerned, yes, the starting of the year, I think in our end of the quarter, we alluded to the fact that we started the quarter, which is now the third quarter, which is January just after the Christmas break, with very high levels of -- in the midst of the second wave, that's really had an impact in terms of the startup of the year -- of the second part of the year. But yes, we're managing it well. In South Africa, I think, at the moment, COVID has got very little impact in terms of how we operate. The one place where it did have an impact is really at Hidden Valley and it's really on the back of the opportunities for people to travel. There's quite a lot of -- people have to go in quarantine for 14 days when they go back to Australia, especially expats had a big issue in terms of getting in and out. And for that reason, we've not necessarily had all the right supervision on-site and then we also had quite an impact as far as we had a conveyor breakdown of overland conveyor there, which actually stopped the operation for a month. So that had an impact on us.

As far as COVID-related cost is concerned, we talk about ZAR 12,000 a kilogram. That's the cost of COVID. If you take it in all-in-sustaining cost, it's actually added more than that we originally had in the plan. Yes.

And then in terms of the opportunities, we are now looking really at the 2 big things that we approved in the last board cycle is really the Zaaiplaats project. We are going to build Zaaiplaats. It is a significant big ore body, 24-year life of mine at a capital build of ZAR 4.5 billion over the next 10 years. Next year is about ZAR 500 million that we're going to spend on Zaaiplaats.

So Zaaiplaats obviously something that is a high-grade ore body. It is as big as -- if you look at the Moab Khotsong mine has got the upper mine, which actually we mined, the Great Noligwa. And it's got the middle mine, which is a smaller part of the ore body. And now the bigger part of the ore body is Zaaiplaats and that is a 400-meter deep that we have to deepen the current shaft through a decline system. And we believe that is a very, very good profitable all-in sustaining cost of just over ZAR 500,000 a kilogram long term. It's a very, very good ore body. And you can see how well that Moab Khotsong just in the last few years since we've got it in 2018. So it's a quite exciting one.

And then, of course, the other one is really, as we said, when we bought the AngloGold Ashanti assets is that the Kareerand extension is actually the tailings facility at the Mine Waste Solutions that we have to extend to actually create another 16 years life of mine. That is no-brainer really to do that because it is such a profitable operation, especially when the Franco-Nevada streaming is done in a few years from now, we would be -- that's just going to be a fantastic opportunity for us to operate. And so -- but we have to build that thing, that's about ZAR 3.2 billion we're going to spend over the next 4 years to build the tailings facility, but obviously with a very, very good all-in sustaining cost and 16 years of very, very high levels of profits out of that.

The other project that we did extend is not big, it is really the Hidden Valley extension. I think, Arnold, we always said that we're going to extend Hidden Valley to Stage 8, the extension, as we call it. The big issue was always the TSF. Are there enough place for TSF and we're actually now have a plan to use the old Hamata, but to use that as a tailings facility. And that will then obviously extend Hidden Valley for now on for 6 years -- actually another 2.5 years. So -- but I mean that is also, again, is something that can be easily funded out of Hidden Valley and continue with that.

So yes, Arnold, those are 2 -- or the 3 ones that we approved. Obviously, we're still busy with the deepening of Tshepong, which has been approved before. We're finishing off Target in this year. Slightly a little bit over on the next year. Joel is completed and then obviously, the Doornkop is really -- the buildup of Doornkop making it a bigger mine, extended its life of mine with about 2 years, but actually as a matter of fact bigger mine for Doornkop, which has actually already been approved but far down the line already.

Arnold, just to correct the number, it's ZAR 536 million for Zaaiplaats for next year.

For next year, yes. ZAR 4.5 billion for the total -- for the 10 years, yes.

Yes. Small change in this market, guys.

The next question we have is from Catherine Cunningham from JPMorgan.

I just have a quick modeling question. I'm looking at Slide 60 where you give your capital guidance. Can you just give us the split for 2023 and 2024 on the SA growth capital, what is MWS and what's Zaaiplaats there?

Catherine, if you just actually have a look on Slide #30, we normally put our CapEx guidance in the annex, but we actually bumped it forward a little bit because of the projects, which we're doing this year. So if you go to Slide 31, you see our FY '22 CapEx guidance per operation. And you'll see the 2 pie charts, FY '21 and FY '22, which gives us split between sustaining CapEx and major CapEx. What you will see is our total CapEx for FY '21 is going to be about ZAR 8 billion, up from ZAR 5.1 billion, where the split between sustaining CapEx will be 71% and our growth CapEx will be 29% or ZAR 2.3 billion.

But Catherine, you were asking about 2023?

Yes. 2023 and 2024. I mean, I saw the 2022 number on the slide.

We'll get back to you on that figure because I don't necessarily have the split. We want to know what of that is Zaaiplaats, what is that is Ku-Riha.

Yes, yes.

Ku-Riha, a big chunk of that is in the first year because, remember, we're only doing the swells and the preparation. So a lot of that is in the first year. So I think the ZAR 500 million that we have for sort of Zaaiplaats will probably continue in the next year. But we'll get back to you on the right number for that. I mean we don't have it here with us at the moment.

So usually, we don't guide, Peter. We only really guide specifics for the next year and provide sort of a title for the next couple of years. But I think it's safe to say that like last year, generally, that amount per year is almost such is for major CapEx. And as you see, that will be around -- or most of the CapEx has been listed for marketing purposes, Catherine.

(Operator Instructions) the next question we have is from Adrian Hammond from SBG Securities.

Thanks for the details for your outlook. There's so much to talk about your outlook rather than existing results. I'm just going to really go talk about what you're guiding, which is quite a significant step-up in CapEx for the group. At the same time, you've got quite a material increase in your cost guidance.

So a couple of things. I mean, firstly, what's driving the significant cost increases despite the fact that you've got Mponeng and Mine Waste as 2 of your lowest cost assets now fully consolidated and where you're seeing those pressures from. And also I see you've increased your reserve gold price, some 11% quite materially year-on-year.

And with that, so I'd like to understand how that sustains some of your life of mines, particularly interested in seeing how you see the life that Kusasalethu, at Masimong and at Bambanani.

And also I'm very interested to understand your choice of project CapEx, particularly why Zaaiplaats, given that it's significantly deeper and of higher risk given no one is really building deeper mines these days, but I'm quite impressed that you decided to go ahead with it. So what was your thinking around pulling the trigger on that?

And Hidden Valley as well. I guess, Hidden Valley, you've extended a little bit more life than what we really weighed in terms of the decision to allocate to these projects and not something else. And you've also talked about going into ex SA into Africa, but we're not seeing any of that. So if you could just expand on that.

Thanks for that. And on the cost -- I don't know -- actually, you're talking about going forward, not necessarily that we've done between '20 and '21, I presume that?

Correct, correct.

Yes, I think if we look at our operational cost on planning in terms of where we were last year and where we're going forward, we're looking at probably a 4% increase. I mean that is what we've planned and that is really on the back of improved efficiencies, improved -- obviously, savings as far as electricity is concerned and those kind of things.

So the operational cost is not necessarily increased, but we do have quite a bigger capital spend, especially on sustainable capital. And that is really on the back of we started last year and we had a -- we've obviously focused on bringing our stoping crews back earlier. Then we had this second wave, which actually quite a lot of people were affected by that, I think 250 people at the start of the new year. But obviously, a lot of people that we had to go in the isolation and things like that because of a close contact, et cetera.

So our plan of development kind of always behind it, you can probably say in a certain way. And so eventually, we ended up by -- we have to do this development and the capital and things just to make sure we don't have a flexibility problem, but our plans probably sorted out so the action plan for next year is fine, but we have to get a sustainable CapEx in place.

And there's also a little bit of on the kind of what we always used to call majors and abnormals. There's a bit of stuff that we've put in regarding safety things like, for instance, WiFi systems and stuff like that we put into mines. But also things like, for instance, buttressing of -- with the new standards that we bring on for TSF, there's a lot of work to be done there, which we kind of do a bit of work. It's not big money, but it is work that we have to go and do.

But all of these add up to a little bit of higher sustaining capital that we normally had. And there's ZAR 1.4 billion difference between last year's actual and this year's new things. And on top of that, there's obviously also the major capital that we have to spend.

So the thing then really talking about Zaaiplaats and where we are, let's handle Zaaiplaats first. I mean Zaaiplaats is a high-grade ore body. That is really a class ore body. It's a big ore body. It's going to give us 24 years of life of mine. It is something that is going to be -- and all-in sustaining cost in today's terms we're talking about ZAR 550,000 a kilogram at a steady state. So it's really something that is quality ore body right on our doorstep. We're right there...

Are you developing that, Peter?

The triple decline as we're going to put down. And it's actually 400 meters vertical depth, but obviously, at the thing. So it's quite -- we're really focusing and developing our higher-grade ore bodies and our quality ore bodies that we want to put in place.

So really, as far as Zaaiplaats is concerned -- and I'll show you, if you look at that slide and I'll show you in the presentation I did today, the biggest part of the ore body of Moab Khotsong actually is in Zaaiplaats. So that whole shaft system that was sunk when I started my career in Vaal Reefs in the day. The biggest part of that ore body is really the Zaaiplaats ore body. So -- and we're right there.

So the triple decline -- so we certainly have -- obviously, we are confident of going deeper and deeper in mine that you have to be more diligent, but we're doing a hell lot of work in terms of managing seismicity, managing ways of mining these things, extraction rates and things like that. So we're quite happy as far as that's concerned. So Zaaiplaats, I think, is easy.

Yes. Can I ask what is the mine life ex Zaaiplaats? So assuming you're just continuing with the middle mine?

So that's another 5 years, 5 years left. So this will obviously then extend that. And then going back also to Hidden Valley. I mean hidden Valley really it was also about that finding a place to put some slimes down. So the amount of work is actually a very elegant way of building that the TSF and it actually allows us another 2.5 years. Remember that ore body is still there. If we find another piece if we can possibly extend that life of mine, but it gives us now another 6-year life. There's 2.5 years to the current life of mine at 4.5 years. So that actually creates quite a nice continuation of that mine. And so I think...

Can I ask you then that, that planning you don't put it in value, does it tie up with Wafi-Golpu because your initial plan was to take that labor into Wafi-Golpu. So does this sort of talk to that idea?

Well, it's obviously strategic for PNG. I mean the fact that we can actually extend Hidden Valley is strategic for us, our presence there, our ability to influence the things. And we believe it probably will dial a bit. It depends on when the SML will finally be signed that we can take people there. But yes, I mean, it's always a -- it is -- it actually gives us a little bit more time, et cetera. But obviously, we're pushing the SML as fast as we can.

Would you -- given your pipeline of CapEx, I mean, you can't -- I mean, I don't see how you do it all. So assuming you've got your SML today, how would you fund Golpu?

We always said, Adrian, that Golpu will be kind of average own funding process. I mean it's -- we will -- we don't think we're going to get the SML today. So -- but even if we do, we still have to redo our feasibility because with all the SML L conditions in place and then start with the project. The first year 2, 3 years of that project is very low capital spend. It's only then that, after that, the bigger part of the capital will go.

So I've got no idea when the SML will be issued. But we are working on it, and we actually are now in negotiations or with discussions with the government to get the final draft in terms of how we can possibly do that, build the mine.

But yes, this capital build, our big ticket at the moment is really Kareerand. That is a very, very short capital spend. It's not a big capital. And then after that, it is -- Zaaiplaats will continue like typically what's to be done with many of our decline developments in the past.

The next question we have is from Patrick Mann from Bank of America.

I just -- I've got 2 questions for now. I just wanted to ask, looking at the upcoming closures, so Masimong, Kusasalethu, Bambanani, as they come to the end of their life, can you just give us some guidance around the cash flow implications of that? So what exactly happened from a cash flow perspective as those mines are kind of permanently closed?

And then the second question is, I suppose, more of a strategic one. If I look at the slides you put together at the end, which was showing the paybacks on Moab Khotsong and Mponeng, it seems like you've had the best success recently from buying assets from other people in South Africa and kind of extracting more value from them? Is there more opportunity in that regard? Or do you think you've kind of run out of runway to do that any further in South Africa?

Thank you, Patrick, and thank you for that question. Yes. Obviously, Masimong, Bambanani, Kusasalethu, definitely Masimong and Kusasalethu, is the higher end of the cost areas. And all of Bambanani is obviously not because it's off the grade that we have at Bambanani. We did have in the last year lower grades out of Bambanani and we are now in -- because we started at the highest grade part of the extracting of the pillar -- if you understand what we've done in Bambanani, we actually mined through the shaft. So we started at a higher grade, I would say, the western block and then mined through to the east. And by doing that, we had to have our mining into lower grades of Bambanani. But the final remnant, which is now about 25% of the pillar is left is actually in lower grade.

So Bambanani is coming on a higher cost kind of operation, but certainly Masimong and Kusasalethu are in the higher end of -- Masimong really on grade and then obviously Kusasalethu is a high-cost mine with all refrigeration and deep levels and everything else that we have to put in place there.

So those -- so as you're closing down, the margins will improve and then as we then obviously go with all the other things we're actually going into the developing the higher grade parts of the ore body. So it will have an impact. I mean, obviously, we can model -- you can model the cash flows and look at that.

You can look at the current operating cash flow margins.

Yes. If you look at the current operation, fee costs and margins, we have in '21 7% for Kusasalethu; 10% for Masimong; and then obviously, Bambanani had 27%. So it is on the -- those are the higher cost operations.

Sorry, maybe I didn't ask the question clearly. I was more wondering in terms of the actual closure, so how does the cash flow -- there obviously will be people to -- or there will be restructuring and people to be retrenched, but there's also environmental trust kind of rehabilitation funds that you can use. So I'm just trying to think, as it comes to the end of its life, does it -- as it winds down, what are the closure costs and kind of cash flow implications for you? Is it -- is there a final investment to kind of put it on to permanent care and maintenance? Or is that all funded from the rehab funds in place? So not really the group, but, okay, we're closing, we're -- there's no more mining happening. What do you have to spend from a cash perspective here?

Yes. Okay. Masimong, obviously, both Masimong and Kusasalethu, Masimong, is not a big number of people. It's about 2,000 people in Masimong. And I think most likely, we will be able to absorb them. Just understand we just closed -- in the last year, we closed Unisel without any forced retrenchments. But obviously, there were voluntary retrenchments, which we allowed and gone through. I can't remember the number that we actually -- ZAR 300 million that we spent on retrenchment in last year for voluntary retrenchments.

And so we closed Unisel without any forced retrenchments. And we -- most likely in Masimong's case we'd like to do the same. And as people get the -- or the majority of that.

Kusasalethu is going to be the more difficult one to close down because the numbers are much bigger. And we have to have -- we haven't actually provided a full closure plan of that. At that point in time, we will probably have to do the closure of that.

But then Bambanani, Bambanani is also small. We actually, in fact, believe that the Bambanani team is a very good team to move to shaft pillar extraction at Tau Tona and Savuka. So we are busy with the feasibility study, and hopefully, we will be able to move the crews there, experienced shaft pillar extraction people and a very, very good crew. So I don't foresee that we actually want those crews and actually being there in place.

So yes, as far, Patrick, as the closure of the mines are concerned, the rehabilitation of that, that's all provided for in the rehab fund. So that we will usually have fund to do that. Yes, I hope that answered that part of the question, Patrick.

Yes, that helps. That's helps a lot. And then, yes, maybe just on acquisitions in South Africa, yes.

Yes. It's a difficult one to say, Patrick, I don't think there's too much to buy. Obviously, with AngloGold Ashanti and ourselves, we -- there was a strategic intent of AngloGold Ashanti to exit South Africa and we could have assisted them in that. So that was a -- I think this was a very good buy for us and obviously bring opportunities for us going forward. So we're very happy with that.

And we also -- we've managed to pay it back in short periods of time. We actually paid in the 9 months since we owned -- and put in mind, we paid more than half back. So that's actually quite a, I think, a good indication in terms of the quality of the thing.

So would we find similar kind of things, I don't think so. Yes, but we are constantly looking out for opportunities to grow the company. The African dream is still a dream that we -- Continental Africa dream is still a dream. So we still want to go into -- but at this gold price, it's difficult to find value-accretive kind of opportunities. But it's not to say that we don't -- are not looking at that. So -- we have a full-time team looking at opportunities in the areas that we said we want to do.

Okay. Yes, I would agree that you got a good deal and a very good return on those assets.

Thanks, Patrick.

The next question we have is from [Sepo] from Value Capital.

Well, I've got a bit of a different take on things this morning. Peter, you've been on the job now for 5.5 years odd at Harmony?

Yes.

And the numbers with the way I'm looking at it, production is up from 1.1 million to 1.55 million. Cost, operating cost in rental, that is your cash cost plus CapEx is up from ZAR 16.6 billion to ZAR 33.7-odd billion. So that's [220%] increase there. Your net asset in per share is down from $4.38 to something like now about $3, which is about 34% down?

Sorry, [Sepo], can you speak a bit clearer, please. It's a bit quiet.

Yes. Can you hear me now?

Yes. It's much better, thanks, [Sepo].

Your net asset value per share is down 24-odd percent. Your EBITDA margins over the period that you've been in charge have been ranged from 12% to 20-odd percent, obviously increasing when the gold price has gone up by something like 50%. Today, your employee numbers right now you're talking about they are around 46,000. I think the last time Harmony was employing 46,000 people, Harmony has a 3 million-ounce per year producer, 2.99 million. That is in 2003.

Peter, maybe the broader question is, what is it that you brought to this company in granularity form if you can sort of articulate that for us so that we can see. And on that track, what is it that you are doing that Anglo didn't do because by reading your scope, it's the same scope that Anglo had and had to abandon the asset. So this wasn't making money, although that you are -- I do concede that you are mining it on the surface at the moment, if you can confirm that.

And also on Target 3, I see that you guys have been paid for ZAR 178 million, that's the incoming (inaudible). But I see that Target 1 asset prices have gone up on that. So please, you can maybe do some recon on that.

And also, if you can go back on your on 20-F, I've got questions regarding actually your South African assets. Which number should we use for 2016? Is it 14 62 million or just 14 26 million that we need to consider there.

And obviously I have got questions on mineral resources as well. I see that we have more especially around kind of great policy. Maybe I could talk to [Greg] or Jaco with regard to that, which is are you -- The Mineral Company has been reviewing Harmony's mineral resources for the last 15-odd years. This time maybe we went to somebody else to put fresh eyes on perspective, more especially around actually the cut policy, part of grade policy because we believe that the source of operational challenges are the hopefully bad cutoff policy, part of grade policy.

[Sepo], that's quite a handful to answer. I don't think we'll have time on this call to do that. So I would say maybe just a little bit of an overview and then you can obviously always add it up with -- catch up with the IR team in terms of all these things. I think the company as -- especially as far as market cap is concerned, it's grown significantly from where it was in 2016 when I joined Harmony to where it is now. I think we had a very clear strategy right in the beginning that we want to grow the company, that we want to actually add quality ounces to our portfolio.

We've done it through probably 3 very significant, and it's more than that, but 3 significant steps. The first one is to take over Hidden Valley as full owner. And I think since if we took it over, Hidden Valley, everything in Hidden Valley has improved, profitability, safety has improved dramatically. Hidden Valley is actually a staunch operation in our stable. Similarly, we've done -- kind of stabilized our -- that in South African operations. We don't have any of these typically stoppages and unplanned things that we had in the past. And I think those operations are actually working very well at this point in time.

There is also -- if you want to look at the acquisitions that we made, Moab Khotsong, Mine Waste Solutions and Mponeng mine, all 3 of them has been selling, I think. And eventually, where we're at -- we are today, we have a significant improvement in terms of our market cap. We are -- we're the top performer -- second top performer last year in terms of the best company in South Africa. So there's quite a lot of things that actually worked in our favor.

I think the rest of your answer -- your questions, Sepo I will ask that you get to Janet and the team, catch up with them and we can give you answers on those because it's quite -- to do it today, it will take probably a few hours to do that and we don't have time.

Yes. I think if I may push back on Hidden Valley. Peter, since you reinvested in Hidden Valley, it actually hasn't paid back its initial capital. I mean you're still $10-odd million under so with regard to your previous investment. So I don't know how that square up with actually your capital allocation framework because clearly this has not been a quick payback as an investment for Harmony.

[Sepo], it's Marian here. So we actually since taking full ownership of that mine, after 3 years, we invested some capital and actually managed to repay that capital. And I'll actually get Jared just to also send you a breakdown. So that mine is now moving into profitability. So finally, the parent no longer have to carry that child. Papua New Guinea is going to make some handsome -- or produce some handsome cash flows. So that's all sorted.

Yes. I'm greatly concerning that, in fact, it is only now that you think it's moving into, you said it yourself, (inaudible).

Let's follow up for this -- please give me a call, we can run through all these questions after the call. We still got a couple of other participants.

The next question we have is from René Hochreiter from NOAH Capital.

Well done on a good set of results. Just a little bit disappointing the dividend. I was expecting a little bit more with sort of a good gold price environment that you've had. And then what worries me going forward in terms of dividend declaration is that your CapEx profile looks enormous compared to just a few years ago, adding up quite a lot of CapEx on that one of the analysts have already pointed out for a number of years, which actually means that your ability to pay dividends is going to be crimped. Is that a correct sort of assessment or am I wrong?

René, it's Boipelo here. Thanks for the question. I mean the policy is quite clear, 20% of net free cash, which is after capital and all the rest of it. Yes, I mean, admittedly, the ZAR 0.27 is lower than the ZAR 1.10 that we declared at interim. But that's really just a function, gold price has come down a bit. Peter spoke about the issues -- the challenges we had at Hidden Valley, et cetera. So the second half of the year, net cash generation did come down.

Going forward, I mean, René, you'll appreciate that the capital with spending is for crews. So we're trying to open up those margins, open up that free cash. So we anticipate that with that then, the dividends will increase going forward in the long run. Yes.

Yes. I'm just worried that free cash flow, you should actually be paying out everything, not just the 20% that you mentioned. So I'm a little bit worried about that. But anyway, it is what it is.

The second thing is I see that you've got Wafi-Golpu coming in, in 2028 in terms of your production profile. When do you think you're actually going to start developing that mine. I read what you've said in your announcement, but you're still having meetings with the government and you still haven't got your mining lease, your special mining lease.

Yes. If you see that graph that we put out there, we actually put it in -- not in solid color, so we put it in a color that is indicative in terms of how we should do it. It's, what do you call it in quick English, it's not a solid line that we have, but we believe it? That's more or less what we think at this point in time in Wafi-Golpu will come into play.

Yes, I think what we said is what -- where we are with the SML. We started talking to the government. We are in negotiations with the government negotiation team. We don't know if we -- where we will be and we're not -- and obviously, after we've done, we have to do a proper -- we do the feasibility study that we've done in 2016 with all the conditions that was in place at the time to see if it's still worth our while to continue with the mine.

But yes, the -- so I don't want to make any promises on Wafi-Golpu because I think every promise on Wafi-Golpu has been broken in the last 30 years. So let us not make more promises on that. So we all -- you can say we work tirelessly, Johannes and his team, to try and get it over the line, René.

So yes, I think importantly for us is that we've not put all our help on Wafi-Golpu and we started to build the company and expand the company and grow the company. We'll continue to do that without Wafi-Golpu. Wafi-Golpu, if we're more certain then obviously we can factor it in, in terms of our planning going forward.

René, this is Jared here. Just to quickly add on to your concerns about the CapEx profile. I mean on Slide 10, you'll see, we've actually got a clear list of catalysts, which will come into play over the next few years. So yes, quite right. We have got some sizable ambitions when it comes to our projects such as Zaaiplaats, Mine Waste Solutions, et cetera. But I think it's important to note that our CapEx profile over time is going to decline substantially. So we'll obviously have our mines, which reach the end of their life in the next few years. Some other catalysts such as Franco-Nevada. And then the major CapEx that you've got planned for Mine Waste Solutions is only over 4 years where Zaaiplaats, for example, is spread over 10 years. So the total project CapEx for Zaaiplaats, for example, is ZAR 4.6 billion. That will be spread over 10 years. But as these other mines come to an end, we will see our CapEx profile come down and our margins expand, which will, in turn, free up cash flow and improve our capacity to pay dividends.

Yes. I think, René, you would also maybe just remember, like I said to -- also to Adrian earlier, is that we've always been thinking declines. That's -- we always were in some way either it was on (inaudible) or whatever, we are thinking declines. And this is one of the declines. The nice thing about Zaaiplaats is actually a decline that we're seeing into a 10-gram a tonne ore body and not 5-gram a tonne ore body. So that's certainly something that we've done.

So yes, it is a big capital taken over time, but it's paid over many years. I mean the declines, as you know, you open it up level for level, level for levels and so you like open up the ore body.

So yes, -- going down to the bottom will cost us about ZAR 4.5 billion. That's quite a few of those, I think 6 levels -- no, that's actually 4 levels. And then at the end of the day, it is quite -- but it's a fantastic ore body. As you can see, if you actually open it up, you actually make a lot of money. And you can -- if you look at Moab Khotsong and just maybe for a little bit, it's also not a very I would say mining engineering friendly kind of layout that was built in the middle mine. You've got this inter-levels. You've got -- you only had a few levels into the ore body and then you had these inter-levels in between, which obviously creates a bit of extra cost and things like that. But still, it is a massive -- a very good mine for us and actually a very, very profitable mine. And again, going down to the bottom line of that, I mean, you're right in the sweet spot of the ore body in terms of grade.

Yes. I mean you, Peter, especially, and Harmony has done a great job with the assets that you have got and keeping and rolling over and going from 1.1 million to 1.6 million ounces a year. So It's absolutely no problem. It's just that your ability to pay dividends looks like because of the replacement of the ore body is going to be crimped for quite a few years to come, which is a little bit disappointing. But like I said, it is what it is. So I wish you all the best.

Sorry, if I may just add. I mean, the one thing -- the one shift that I've seen since I've been with Harmony is that dividends are now very much to follow up the discussions we're having. So that should give you some comfort. And that was also part of the discussion when we decided on capital projects to pursue and which ones would add the most to our cash flow going forward. So that we would be in a position going forward to continue having the dividend discussion.

The next question we have is from Arnold Van Graan.

Yes, Peter. Okay. So I note the impairments and you already talked about a lot of that. But at a time when the gold price is high, what's driving that? Is it higher cost, one aspect? But is it also -- given that you've now got Moab and Mponeng, you essentially have access to better quality ore bodies to develop and are you basically shifting the company away from, let's call it, lower-grade, difficult troubled operations and rather focusing your capital and efforts on to higher-grade, potentially higher-quality assets.

And I guess the question -- you can also use that to maybe address a lot of the previous questions. But that's the sense I get. The sense I get is you are moving away from the assets that have given you lots of headaches over the years and many of these were at one stage, almost the star assets of the future. And you now seem to be shifting your focus to the new future, which is the assets you acquired from Anglo. Is that assessment right? Or how do you -- why are we sitting with impairments now?

I guess -- and I don't want to put a negative slant on it, but are we not lining up the next generation of impairments of all these projects that you are now embarking on. Again, going back to some of the previous questions.

And look, don't get me wrong. I understand you have to keep the profile going. That's the nature of a gold mining company. So I'm supportive of the growth. But I'm just a bit concerned that we could see these projects on the impairment list in a few years from now. Or is the nature and the quality and the grade, particularly in these ore bodies of such a nature, that the likelihood have impairments further down on, it's much lower compared to these assets in a like-for-like gold price environment.

Arnold, this is Boipelo, I'll take this one. So the impairments are specific and it's isolated to 3, I'll call it, cash-generating units and I mean we assess it quite carefully. It's got nothing to do with an intention of an impairment down the line. So the 3 assets that we impaired firstly is Bambanani, and Bambanani, we're impairing goodwill here. And I mean this is expected as we mine that ore body down, obviously grade is reducing. So Bambanani was for one, that was an impairment of ZAR 187 million.

The second asset that we impaired was Target 3. And Target 3, we impaired really because we've had a look at it. The sale of the operation was abandoned and there's no real further development. It's not really viable at this stage. So from an accounting point of view, given that there's no future benefit that we're seeing right now, we've impaired that entire asset. So that was an impairment of ZAR 178 million.

Then lastly, was Tshepong. That was the biggest there, we impaired ZAR 759 million. And really on the back of the updated life of mine, it included a reduction in the planned grade or planned gold with [overall] grade, which resulted in lower gold. And it was really just a change in the mining profile in the plan, which impacted the timing of cash flow. So the impairment is really specific to just those 3 assets.

And I get that. But -- and even on the last one on Tshepong, you said there's a change in the profile. And I guess that's really my question. What's changed there? Is it your -- is it the way you're mining these ore bodies? Are you moving away from risk because ultimately, the impairment is an accounting consequence of the mine plan.

So my question is really what are changing in these mine plans that are resulting in impairments of assets that were flagship assets a few years ago. And I think, Peter, you -- that's really my question. What's changing? Is your approach to some of these assets changing because you've got better options elsewhere? That's really the question.

Yes, not -- in the case of Tshepong, no. Let me just say, I mean, obviously, every year, we look at, first of all, we upgrade our ore body models with the latest information that we have. We're also looking at there are some areas that we look at, specifically things like pillars and stuff that we will take out for safety, things -- I mean, typically, what we've done at Mponeng mine now when we had the first chance on the planning process is that we took all of those pillars that was there, stabilizing pillars that was actually in the life of mine of AngloGold Ashanti. That's just an example now, Arnold, that was in the -- that they would have mined through the raise boring drilling, those the kind of things. We took it out because we don't believe that it's a viable way of extracting that pillars. So the pillars was actually taken out of life mines.

But definitely in Tshepong's case, it's really that we look at the building up the life of mine that we do every year over again. And it doesn't take away from where we're actually focusing our mining to. We're still doing -- going for below 75, of course, that is a higher grade part of the ore body. But it may be areas outside of that or areas outside of that, which we say we're not going to mine any longer because of the current economics.

But getting back to your focus in terms of where we are, we're putting that, yes, of course, we are putting our -- with the new asset mix that we have, we have to reprioritize in terms where we will spend our capital. And for that reason, we believe that 2 of the areas that we now have, that is a very good place to invest money in is both in Moab with the Zaaiplaats extension, but also in Mponeng going forward. We haven't completed the feasibilities now on the Tau Tona and Savuka shaft pillars. We believe that those -- there are 2 rigs going through, both VCR and Carbon Leader. And both of them are higher grade than Bambanani were. So you've actually got 4 Bambanani shaft pillars that you can go in mine for higher grade. Mine shoppers, you can go and mine if you can find a safe way of doing that. So we haven't done -- bring that into our plan yet.

And then secondly, going also to the deepening of Mponeng, say, another 2 levels or so will add 30 years of life to Mponeng. And certainly, that's something that will come on the cards going forward given the grade of the ore body and obviously the profitability of these mines going forward.

So Arnold, to answer you, yes, since we've got these new assets, we have to look at those. I mean, also Mine Waste Solutions that come into the fore now. Mine Waste Solutions after the Franco-Nevada streaming is gone and it's going to -- well, it's profitable now, but it will be very, very profitable then. And certainly, doing -- spending capital on the extension of Kareerand is a good investment decision.

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

Sorry about this. I dialed in a bit late, so I apologize if I'm asking something that's already been asked and you've already explained it. But I just wanted to get a feel for is the majority of CapEx, obviously, quite a big step-up in 2022, about ZAR 8 billion. Is that related to Mine Waste Solutions, Hidden Valley and Zaaiplaats? But more specifically, is there anything else in the portfolio where you're spending significantly more CapEx?

And is that CapEx actually growth that you're spending at those 3 projects? Because it looks like Zaaiplaats really keeps more flat at about 200,000 ounces; Mine Waste Solutions, flat at about 100,000 ounces; and Hidden Valley also at about 160,000 to 200,000. So just your thoughts around classifying that as growth.

And maybe if you could just talk to the risks around Zaaiplaats. I mean I understand your mining method is more case of putting in declines as opposed to like these vertical shafts, which is less CapEx-intensive and almost on a pay-as-you-go approach. But I think there are other assets in your portfolio where you've mentioned that they aren't really friendly from an engineering perspective and they've given you perennial problems. So while the metrics might look good at Zaaiplaats, is the potential for negative sort of consequences from a mining perspective to actually not hit those numbers you're talking about. And I'll follow-up with one more after this.

Thanks, Jared. I would -- if you can maybe go to Slide 61 first, which is just a bit of a kind of overview in terms of our CapEx spend for the next year compared to the year that we just finished. And you can see that we in the Slide 60, you see in rand terms that, yes, ZAR 5 billion that we spent last year in terms of capital is actually well shown there. But the big issue then obviously is sustaining cap was just about ZAR 3 billion. That will increase to ZAR 4.3 billion going forward. And that's really on the back of more development that we're going to do. Through this COVID cycle, we've -- and a few ways that we had kind of -- we believe that we should do development and actually increase our development to make sure that we get the mines. And obviously, also on the back of we're going to have now Mponeng mine into our portfolio, we only had them for 9 months. So it's a little bit of extra quarter of that, too. So sustaining CapEx, I believe, is a must for us to be able to sustain our operations going forward to keep this 1.4 million ounces of profile going forward.

And obviously, from a project capital -- growth capital perspective, there's quite a significant increase and that's really on the back of these few products that we agreed now, Hidden Valley, Zaaiplaats and also then things. And also the current growth projects that we are busy with at this point in time.

So yes, this capital spend will go down going forward in terms of as we're now starting to get to more normalized figures as far as sustaining CapEx is concerned, we obviously also get to the end of the life of sustaining capital you saw as it relates to Bambanani and some of the other mines that we're getting to the end of their lives.

So yes, that is where we are, Jared. And then I'm not sure, are there questions on the...

Yes, sorry, I guess I was a bit long-winded, but just around Zaaiplaats. I mean, metrics, obviously -- yes. The metrics obviously look good, high grade, et cetera, but you mentioned it's not a mining engineering friendly sort of deposit. And I mean you do have other examples in your portfolio like this. I'm not sure if it's Target or Joel, where there have been engineering issues and that's contributed to lower free cash flow generation and then a higher issue there.

No. I think Zaaiplaats we scrapped properly. We've got -- I think the ore body, everything is well-known to us. I think -- I don't think there's any surprises. We are going to do the decline systems. It's typically things that we've done in the past. We've -- since I've been the part of the Joel mine, we, in actual fact, got all our targets. We look at sub-75. It's a form. We're also doing -- we're on target with all our mining work there. So it's not an issue. We don't believe that there's something that we cannot do.

Target is a little bit of a different cup of tea. I mean Target itself, obviously, for the year has been quite a disappointment. And it's really on the back of a few things.

First of all, we had huge ventilation problems at Target. And we -- it's not unknown. One of the biggest things that we had at Target is that we actually get the declines going because of ventilation constraints and things that we have in operations. So we've done a huge amount of work in the last year to try and debottleneck our ventilation constraints, also putting in more an extra refrigeration, both on surface and underground to be able to get the quality our ventilation in place and so forth by doing that, and it's now all installed. So we believe that now we have the conditions that is conducive for mining there.

And then obviously, in Target, we see ahead that 2 stopes -- that massive stopes that collapsed, which we are now -- we've got actually back in terms of normal production now. But that had a massive impact on the Target performance.

But I think -- we don't think the Target performance for months, we didn't do anything in the project because of ventilations constraints, which we managed to resolve now.

But going back to Zaaiplaats -- I mean, Zaaiplaats, from a mining engineering perspective, I don't think there's that many things that worry me at this point in time. We're familiar with it. We've done it before. We've got good conditions there. We've set it up well. We've done -- since we've taken it over. But even prior for us taking over, we -- the mine management at the time did prepare a place for a decline thing.

Jared, I think we need to wrap things up now. We've run out of time. If you've got any questions, which you would like to direct in addition to this, just give the IR team a shout and we all now we will get back to you on those questions. Peter, can you sort of wrap things up?

Thanks, everybody. Our reengineered portfolio and deleveraged balance sheet will allow us to extract further value from our assets while at the same time creating opportunity for the business in the future.

We thank you very much for this call. I think it's been a long call, but that was expected that all the new things that we have for Harmony, but thank you very much for joining us. I really appreciate it.

Thank you very much. And again, if you've got any questions, please just get ahold of the Harmony IR team and we will certainly get back to you immediately.

Thank you very much. We will be having a presentation at 10:00, it will be a live presentation of our results. Thank you.

Thank you, sir. Ladies and gentlemen, that then concludes today's conference. Thank you joining us. You may now disconnect your lines.