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

Good morning. My name is Jared Coetzer, Head of Investor Relations at Harmony. Welcome to the Harmony financial year 2022 results presentation. I'm here with the senior executives, Peter Steenkamp, CEO; Boipelo Lekubo, FD; Mashe Mashego, Group -- Group Executive for Corporate Affairs; Beyers Nel, COO; and Marian van der Walt, Senior Group Executive for Enterprise Risk Management.

Over to you, Peter. Thank you.

Thank you, Jared, and good morning, everybody. Harmony ended the financial year on the front foot, confident and with good momentum.

Despite operational headwinds and geopolitical uncertainty, we delivered a good set of results, meeting our revised production guidance for the year. This again demonstrates our solid mining experience and resilience navigating through headwinds. We have regioned and derisked our portfolio with the production now diversified across 3 core business areas, approximately 30% of the production is from surface and international assets, 30% is from our higher-grade mines, Moab Khotsong and Mponeng and the remaining production is coming from those assets that we've optimized for cash generation.

Safety remains a nonnegotiable, and I believe we can finish each day without the incident. Our LTIFR has been below 6 for the last 3 quarters, indicating we are doing the right things. This is further evidenced through the increase in white flag days. Safe days returned into safe weeks, which become safe months, resulting in a life of life free year. Costs are under control, enabling us to plan a 8% inflation.

We are prioritizing and redirecting capital towards a high-grade underground and high-margin surface assets while improving overall margins and progressing our Tier 1 Wafi-Golpu asset in PNG. Our 4 key focus areas are the safety of our people, improving returns, reducing costs and growing our quality ounces. Some just results for the year, our revenue increased by 2% to ZAR 43 billion.

Net debt to EBITDA remained stable at 0.1x. Our mines generated a ZAR 2.9 billion in operating free cash and we generated a production profit of ZAR 9.5 billion. We ended the year with 39.8 million ounces of higher-quality reserves. Adjusting for one-off times, our headline earnings per share was ZAR 4.99. Our confidence in now execution resulted in a final dividend of ZAR 0.22 per share. This takes the full year dividend to ER 0.42 per share.

I'll take any questions.

(Operator Instructions)

Our first question is from Leroy Mnguni of HSBC.

My question is just around costs. Your costs came in sort of above the top end of your guidance range, which points to significant cost pressures. But if I look at what you're guiding for next year. It seems like you expect much better cost containment in FY '23, what do you expect to drive that improvement?

Yes, I think from a cost perspective, I think if you're looking on a rand per kilogram, obviously affected by the lower production. I think you'll recall the issues that we had at Hidden Valley in the first half of the year. So that obviously had an impact.

On a total cost perspective, I think we're managing quite well. Obviously, labor, we've got a fixed agreement there, so that's contained at 6% on a fixed labor cost perspective. Electricity obviously accounts for a big chunk of the costs as well. And then where we were impacted was perhaps on consumables. But overall, we've maintained that.

Maybe just to add to that, we also closed, obviously, our very high cost Bambanani mine. And from -- it is a mine that didn't do well in the last year as far as rand per kilogram cost because of the kind of levels of systemicity and stuff that we had there. And we're also actually improving grade. I think that's an important thing about year-on-year. And we're quite confident about the grade we've seen an uptick in terms of where we're going to go with Moab and Mponeng and then obviously, Joel also getting back and then obviously, the one big mine that is still -- the second part of the year, we will have target the capital recapitalization of target will be completed. So that will also have a better second year.

And then obviously the big one as Boipelo mentioned is that we should have a full year of hidden value without issues there. It cost us quite a lot when that conveyor system broke down really actually standing for the 2 full months.

Our next question is from Patrick Mann of Bank of America.

I just wanted to ask around Tshepong and the decision to stop the sub-75 or below 75 there. I mean what went wrong or what drove that decision? And then is it kind of permanently off the table? Are you going to do any more studies on it? Or is it something to look at it in the future? Or is it completely off the table now?

And I suppose where I'm going with this is, are there any other operations where we could see a sort of shortening of life if you decide to pull reinvestment programs and sort of move them to the run for free cash flow in the bucket.

Patrick, yes, Tshepong obviously was not an easy decision. It is something that was -- that we had to make because let me say there's 2 things that did -- on the mine plan as it was last year, we started mining on the Northeast and Northeast west of the mine. We're mining what we call the old mine at the boundaries.

Now that was very difficult mining because geologically, it's very broken up. So we have a lot of dilution when we mine the small little blocks that we mine, and it creates a lot of issues for that. So we stopped that mining and actually moving those crews back to what we call the ore pillar, which is a high-grade pillar that is actually quite next to the station, which will obviously make it a lot easier, more profitable mining going forward.

But that mine in the current cost situations where we are keeping unwinding that we don't think -- we know we didn't make a lot of money out of mining, that very difficult areas and obviously also for is a little bit more unsafe. The sub-75 , we actually is about capital prioritization.

Where do we spend the money? We actually will the sub-75 in place will not -- Tshepong will not be profitable for quite a while. And we had to make a choice between where we should go with this capital. And obviously, before that, we didn't have the more ops and the things like that to go to that.

So sub-75 has been put on hold. So it's not to say we're not going to go back there. We still have a positive IRR. And obviously, as our views of the thing and our capital allocation things change, we will -- we may go back there. We do have a little bit of time to make that decision going forward. But then, of course -- but I mean, we had to -- the things that we have to deliver now on is we've got a fairly big capital spend next year, delivering on Zaaiplaats and also delivering on the Kareerand extension that gives us a mine resolutions another 60 or 20 years of life. So that to us is extremely important.

And -- so yes, the second part of that question is, we don't think there's anything else. We had all the prioritization in terms of capital, and we think that it is fine. Obviously, if there's changes in terms of price and things like that, we have to rethink every year, we in actual go through this planning process and think about where we're going to spend capital and what we're not going to do.

But the sub-75 is being put on care and maintenance. We actually -- we're on the level with the development, and we can restart that. We cleaned it up to the phases. We've got pumps in the phases we've got ventilation right in the phases, we can restart that if it's possible.

But I think it would be very important that we actually develop a high-grade ore bodies rather than the lower grade part of the ore bodies. So it is -- that's why we use the word we put it on hold or on pause. So we use that word and not to say that we're never going to go back, Patrick.

Okay. Maybe -- sorry, a quick follow-up. What sort of gold price would make it economic again or make it not be a drag on cash flows? Do you have that number in your mind or not really?

I think -- I mean, as we speak at the moment, we've got a plan for next year that is very much -- we will probably make a bit of money because I think our plan is very robust. But it is -- we spent ZAR 8 billion in capital next year. So if we can have another ZAR 1 billion or so spare, then we certainly would remain targeting it. But we will definitely not doing anything this financial year. And at the end of the year, we will evaluate again and see where we are and how things have changed, then we would -- we can restart that project.

Okay. Makes -- CapEx prioritization makes a lot of sense. So, yes.

Our next question is from Rene Hochreiter of NOAH Capital.

The cost is really worry me the cost increase is if you take the cost increases of Hidden Valley out of the equation, what -- it's probably in your announcement, but what would they have been without a value in there? And secondly, going forward, I mean, everybody knows that there's incredible inflation all over the world, especially mining inflation. What sort of increases are you planning?

I mean, I remember that the middle of the previous decade, you actually had a number of maybe even years where cost increases were actually 0, sometimes even dropped your costs. Is it possible that we could actually get back to that sort of scenario? Or is inflation now something that we're going to have to live with forever in a day?

Yes, Rene, inflation not necessary going to be there forever in a day. But I mean, obviously, we are in a -- the one that we -- we are in a situation where we do have high levels of inflation at the moment. But let's get to -- if you unpack our things, we're very confident that we we'll be able to get getting plan. So we planned about an 8% increase. And now we -- if you unpack it, our biggest cost specifically in South Africa is about labor. There, we've got a -- we actually got a signed agreements in place for the -- which now in the second year of a 3-year agreement, which kind of bring it down about just below 6%, that is the kind of what we talk about guaranteed pay, the increases that we've seen year-on-year.

Then, of course, I think we do have a little bit of better grades going into the next year. No, we will definitely have better grades. And that grades -- we're mining into higher grade areas in Mponeng. We always knew that they were there. Last year, we were in a much -- a bit of a lower gate patch. But going into the future, it will be a higher grade. And we also -- we'll see a little bit of a better performance at Moab in terms of where we're going to mine next year.

But Joel also had quite an increasing grade now fully into that new level that we created. And that is actually -- and we undercut that wide brief in terms of -- we've been quite successful in doing that and we see very, very good grades on Joel now. So yes, we are confident with it also with -- and Tshepong restructured is also the grade improvement that the should be forthcoming. So grade is going to have quite a big thing.

There will be a slide, Rene, that actually shows the cost that we had in the last year which actually unpacked in high-grade assets, which are our high-grade assets is really Moab and Mponeng, which comes about ZAR 800,000 a kilogram, then our remaining underground assets actually run at about ZAR 850 or ZAR 860 around about there.

And then the surface operations obviously run 700 -- round about ZAR 700,000 a kilogram. So those are the (inaudible) Hidden Valley, obviously, had a cost over ZAR 1,000 a kilogram last year because of the conveyor breakdown. So we've depicted it like that, I think the average of that, obviously, the remaining underground assets are a big chunk of that.

In the area, we've got a fantastic performance from Kusasalethu, but obviously, also a very bad performance on Target. So the average of that brings down. Now Target is one of the mines that we believe that by the end of -- end of the year, the capital constructions and everything should be finished.

And then the Target would be a much different mine than we had in the past. So we're quite happy to that, that thing will change in the latter part of this year. So Rene in the presentation, we will show you that thing, and I hope that will help you answer those questions.

Our next question is from Arnold Van Graan of Nedbank.

My question is around Kusasalethu. Maybe we can just have a bit of a discussion around that. So obviously, the mine didn't have a great safety record during the year. But if you look at the operational performance, it's done fairly well. And I see that's on the back of significantly higher grade. So my question is, what is sort of the plan at Kusasalethu because it's got a check at history.

It always seems to run into issues more often than not. Obviously, the safety record, I would say, is another issue. So this high grade, is it sustainable? Or is that you're taking a decision to always also harvest it and sort of cutting it back and running it for cash? Or is that grade performance sustainable. And I guess just maybe a general discussion around Kusasalethu and its future, just given that it does seem to run into issues from time to time.

Arnold, thanks. I mean, obviously, Kusasalethu is that one mine that all of us love because we all work there. But all of us had cash in our banks because we work there, too. So it's love and hate kind of -- but I must say, of late, one of the better mines to operate on.

First of all, the grade was very, very good, great. There's 2 things that actually impacted. First of all, we were mining higher grade. Our physical face grades were better, but then also move the ore to the Mponeng plant. So Mponeng plant is now fully running only on reef.

And that created quite a lot of better recoveries over time. That 2% percent that we've made there because I mean the Kusasalethu plant was, I think, old technology and everything else. And certainly, to that also a plant that was quite erratic over time.

But I mean the Mponeng plant is a state-of-the-art new plant that is actually what we want. So that was the 2 things that actually impact on that, but we did mine a higher face grade. We don't foresee that at higher face grade will continue necessarily in the next year. It will be slightly lower, but it will still be a good mine going forward.

The safety issue is obviously a massive, massive concern for us. As a matter of fact, we have spent myself and Beyers now spent an enormous amount of time at Kusasalethu. I had mass meetings with everybody on the mine. And so the things we have unbelievable support from everybody on site and from national offices and from regional offices from different unions from everything to actually turn around that safety thing.

Now unfortunately, we had 8 fatalities in 1 financial year, which is totally unacceptable. And especially after that fall in one incident. There was I think 5 incidents in total that actually added that. We had a very, very hard and long look at the mine. But I must say if there's one thing and give me a lot of hope is the way in terms of how the people pull together.

Having said that, Kusasalethu has got a 2-year life. That is what it is. I mean after that, we're going to go into grades that we cannot sustain the operation of that mine. The cost structure of that mine is just too high. We're mining in that pay shoot so and that pay shoot is going to get to an end. And so at the moment of life of mine look like 2 years and that is it. So there is some discussions and stuff because as we always had, I mean, it's not as if the people on the shaft doesn't know what is happening or what is going to go up and going forward.

So -- but yes, we are -- it is a high-cost mine, a lot of refrigeration, obviously, a deep mine, very far from the mining is very far on the station. We are trying to do with business improvement things in terms of looking at the shift cycles and stuff like that and see if there's alternative, but the current life of mine -- is of minus 2 years.

Our next question is from Dominic O'Kane of JPMorgan.

Peter, just going back to Tshepong, under the new 7-year mine life, how should we think about sort of production profile for the next, I dont know, let's say, 5 to 7 years. Is it reasonable to assume that it can continue at 225,000 ounces a year? Or should we be modeling in a declining production profile?

Yes. The Tshepong the Northern South together, obviously will be at about 200,000 ounces. But I mean if we look at the North side, it's about probably 100 -- 110,000 ounces. That will probably continue for the next 7 years. I mean, at that production level. That will be -- I don't think it it's decline.

But the important thing is as from day 1, we will now be profitable, where we -- Tshepong life of mine actually for the first 10 years, it doesn't really make a lot of money because of the capital at the case of sub-75 at the current gold price, current cost environment and inflation that we've seen going forward. So what we've done is that we really look at, I'd say, making money as from day 1.

And then obviously, the mine itself, we can -- like I said, we can always restart that if the gold price changes and things like that over time.

But for the next 7 years, it will be profitable, and we'll make money from day 1. So like I said, the previous plan that we had doesn't make money in the first 10 years, then start making money in the latter part of its life. And that is not -- that's not the right -- I don't think the right financial decision to continue with that.

Our next question is from Adrian Hammond of SBG Securities.

I want to ask you about CapEx for the group next year. What is the group overall CapEx? I mean the split that project CapEx of that and which projects?

Okay. Overall, Capital, maybe Boipelo, would you take that?

Sure. So overall CapEx, Adrian, we're estimating at around ZAR 8 billion. And if you split that about 47% of that is sustaining CapEx and then 32% would be growth CapEx. Hidden Valley, 10%, and we're looking at deferred stripping of about 11%.

Obviously, I mean, we did announce that CapEx spend last year, of which a big chunk we didn't utilize due to worth Kareerand and obviously, the delay of Zaaiplaats. So some of that is carried forward into this new year. So which is why we're still sitting at that ZAR 8 billion mark.

And can we chat briefly on Zaaiplaats, what's the total CapEx budget for this? And what's the CapEx profile look like over the next 3 years, please?

Next year's Zaaiplaats is about ZAR 602 million is Zaaiplaats' project itself for the year. And most likely, it will be on that level for the next year. So I don't have the next year, we obviously don't guide next year in front of me, but we can obviously Adrian help you a little bit there. But the ZAR 602 million is for the next just financial year that we did now. So that's a big chunk. And then obviously, Kareerand is about ZAR 960 million close to ZAR 1 billion, we're going to spend on Kareerand.

Sorry, just to be clear, ZAR 1 billion at Kareerand and ZAR 600 million at Zaaiplaats.

Kareerand for the training is about ZAR 1 billion. And then obviously, the pump stations, which actually supports the expansion of the thing is about another ZAR 443 million. So if you add all of that, it's about the ZAR 1.4 billion that we spend on Kareerand's expansion.

And what's the total project CapEx for the Zaaiplaats?

It's about -- I think it's about close to ZAR 5 billion in total, yes.

ZAR 5 billion.

ZAR 4.5 billion, if I remember correctly, ZAR 4.5 billion to ZAR 5 billion i think.

And that's going to be spent over what sort of time frame?

About 4, 5 years, 5 years in total, yes.

Okay. And then just on the producer maintenance charges went up quite a bit. Is this sort of the new norm now that you've got to be paying every year?

Probably is a new norm, yes. But once we get the covalent and Kopanang plant is actually what we stopped last year. So we keep that on care and maintenance, obviously, trying to use it later on. So that's 2 things. But Kopanang plant obviously is a decision that we have to make in terms of what we're going to do. We can break it down. We haven't made a decision yet. So we're looking at potentially increase other -- from other sources at treating facilities there.

Have a follow-up question from Rene Hochreiter of NOAH Capital.

Peter, just one more question. You've impaired certain assets, which ones have you -- sorry, I probably should have read the announcement, which assets have you impaired and for what reason, please?

So in the financials, there's quite a substantive note on this. We've impaired its Tshepong makes the bulk of it, so that's about ZAR 3.6 billion. We've impaired Moab, but that's about ZAR 500 million. Kusasalethu ZAR 145 million and Bambanani, but I mean that's -- we impaired that at interim just due to that closure.

Tshepong, obviously, on the back of the restructure when you look at the entire life of mine, obviously, to reduce some reserves have moved to resources as well as the impact on costs. So that's why that we've been paid today. Moab Khotsong as well the issue there around costs with Zaaiplaats also coming on board. But with Moab, the bulk of that is goodwill. So it's not necessarily a write-off of assets.

Kusasalethu, obviously, I mean, Peter went through that. It's got 2 years left. So it's evidence that we would be impairing or as we said, Bambanani, that was the closure. So all in all, the total impairment of ZAR 4.4 billion.

(Operator Instructions) We have a follow-up question from Arnold Van Graan of Nedbank.

Peter, just, I guess, a bit of a strategic question on future growth, M&A opportunities outside of South Africa. Just give us a sense how you think about that? And that against the backdrop of delays in Golpu and challenges in PNG.

Arnold, as you know, we've got -- since Philip left us to join ARM, we have now -- Johannes is now in charge of our new business and operating out of Australia. So we have a lot of -- I think a lot of activity there in terms of trying to scan and finding the right kind of assets to potentially grow our reserve base. So far, we haven't been successful in anything that we looked at. And -- but it's not to say that we're not looking at things. We are busy looking at potential things. I think the important thing is for us, Arnold, is that everything that we buy going forward needs to be a better quality asset.

So obviously, things that are for sale, not necessarily better quality and don't necessarily fit what we want to set ourselves to. And obviously, better quality assets is going to be more expensive. I mean that is without any doubt about that. But we are looking for that. And Wafi-Golpu still a very important I think out there, we are glad to say that the elections in PNG is now behind us.

And it's actually quite a good win for the current Prime Minister, which is, I think, a good thing for PNG to have stability and to have and quite a landslide is coalition in terms of [Easter election] as Prime Minister has been surprisingly good, and are we glad for him for that.

And we see a lot of I think now momentum since the new ministers are appointed and everything else. And Johannes, as we speak are in PNG, base talking to see that we get that process going. So I'm confident that we're going to have traction on the PNG thing soon on Wafi-Golpu as an asset.

But yes, like anything else, I mean, we always have this a little bit of a cliff in front of us. We had certainly constantly have to work on as a company. We've been able to do it for 70 years now. So we are confident that we will be able to find a way to grow our assets.

So Arnold, I'm not sure I'm talking on a lot of things, and I'm sure I answer your question, but the long and short of that is that we just keep on looking and keep on scanning and are involved with a lot of kind of prefees and stuff like that or feasibility studies and due diligence actually more than anything else to make sure that we get on.

Peter, if I may just add. Arnold, it's Marian van, and good morning to everyone. During the presentation this morning, we will also gain share our production profile going forward. And you'll be quite surprised to see what the profile looks like without M&A. Obviously, including Wafi-Golpu, but yes, I'll make sure to look at Slide 13 later this morning.

And since we have no further questions on the line. I would like to hand back to Peter for any closing comments.

Thank you very much, Irene. We have a clear strategy to invest in projects that will generate the best possible returns, ensuring we meet our long-term objective. I am confident that we will again deliver on our strategic objectives of safe profitable ounces in FY '23. Sustainability remains at the center of all strategic decisions, delivering meaningful returns to our shareholders while at the same time affecting positive change and maintaining the trust of all our stakeholders in what we call mining with purpose. Thank you very much.

Ladies and gentlemen, that concludes this conference. Thank you for joining us. You may now disconnect your lines.