Harmony Gold Mining Company Ltd (HMY) 2023 Q4 法說會逐字稿

Good morning, and welcome. A special word of welcome to Martin Prinsloo, one of our non-Executive Directors that joined us today. Martin, really appreciate to be here. Obviously, the rest of my executive team. Thanks for all for joining us and then, obviously, everybody else.

For those who don't know, my name is Peter Steenkamp, CEO of Harmony. And it's a pleasure to be here today to presenting the full year results of the financial year that ended on the 30th of June 2023 -- of June, sorry, end of June.

Please take note of our safe harbor statement.

Let's start with the company's strategy and to update on our excellent performance for this financial year. Our strategy is aimed at long-term value creation. We achieved this through the production of safe, profitable ounces and improving margins through operational excellence and value-accretive acquisitions. Harmony is a specialist gold producer with a growing international copper footprint. We have over 73 years of gold mining experience in South Africa and have been operating for almost 2 decades in Papua New Guinea.

During the financial year, we added a Tier 1 mining jurisdiction with the acquisition of Eva Copper in Australia. At 1.47 million ounces, we are South Africa's largest gold producer by volume and have a diversified portfolio of operating assets, which include gold, silver and uranium. We have 9 underground mines, 2 open-pit mines and various tailings retreatment operations. Our gold tailings retreatment business or recycling, as you may know it, is the largest global and said to grow by performance in the circular economy.

Our latest mineral resource and mineral reserves declaration is 138 million ounces and 39 million ounces, respectively. This is a substantial resource base and our pipeline of projects presents an incredible opportunity to convert these resources to higher quality reserves.

In addition to the various projects we have in South Africa, the Tier 1 Wafi-Golpu project in Papua New Guinea and Eva Copper in Australia provide us with a sizable international copper-gold footprint. Mining with purpose ensure all our stakeholders' share in the benefit of the metals we extract. And in our presentation today, we will provide further insights on how we create long-term value for all.

To ensure continued positive returns, we are directing major capital towards higher-quality assets and projects. Our 4 strategic pillars support our planning and investment decisions. These capital investments will drive down costs and improve margins, transforming Harmony into a high-quality gold and copper producer. Our South African high-grade and optimized underground mines are delivering strong operational free cash flows to support our growth operations.

Our high-margin South African retreatment operations in the Free State, West Wits and Vaal River region are low risk and support our contribution to the circular economy. These operations all continue supporting our international copper gold growth aspirations.

This financial year was a landmark year for Harmony. Not only that we again delivered against all guidance metrics, but our expansion into near-term copper took hold. We have built up an incredible momentum supported by an improved safety performance. Group lost time injury frequency rate per million hours worked improved to 5.49. This has remained below 6 for 2 consecutive financial years, a first in our 73-year history. This is a monumental achievement for deep-level mining in South Africa and affirms our commitment to improving safety.

Gold production remained steady year-on-year. We produced 1.47 million ounces, which was towards the upper end of the guidance despite the closure of Bambanani at the end of the 2022 financial year. Underground recovered grades exceeded the upper end of the guidance, improving by 8% to 5.8 grams a tonne. Our costs remained under control, with all-in sustaining costs below the guidance of around -- of about ZAR 890,000 per kilogram. This was an increase of only 6% and well below our planned annual increase of between 8% and 9%. I'm very pleased with this achievement, especially in the current inflation rate environment.

We deployed ZAR 2 billion in major capital towards our high-margin growth projects. On the back of the good operational performance, we generated ZAR 6 billion in operating free cash flow, an increase of more than 100%. This enabled us to maintain our strong flexible balance sheet with net debt to EBITDA at 0.2x.

Although we are now in a period of high capital expenditure, it remains our goal to return capital to shareholders. This is in line with our dividend policy and alongside our overall growth strategy. I'm therefore delighted to announce a final dividend of ZAR 0.75 or USD 0.04 as a result of the strong group performance in the 2023 financial year.

This financial year marks 7 years since we embarked upon our safety transformation journey. We have made tremendous progress, and the risk management is now embedded throughout Harmony. Harmony has adopted a proactive approach to safety. We have a centralized operational risk management team providing support to all our operations. Through digitalization and modernization, we have real-time dashboards to monitor our leading indicators. In fact, we now monitor over 9 million golden control data points. This ensures we prevent significant unwanted events before they occur.

As a company, we have embraced the culture of learning and strive for continuous improvement. Our cultural transformation journey has reached 75% completion to date, and we are progressing with this through the regular visible felt leadership engagements along with other safety awareness initiatives across our operations. We continue to equip our teams through ongoing leadership development and training, and I'm confident we are in the right track and firmly believe that zero loss of life is possible.

As I mentioned, our group lost time injury frequency rate is below 6 for 2 consecutive financial years. Our loss of life injury frequency rate declined to 0.06 per million hours of work. Now this is the lowest in the company's history. Despite this improvement, we tragically lost 6 of our colleagues during the financial year. Now, Harmony and its (inaudible) partners are continually engaging to learn from these strategies and ensure that these incidents do not happen again. Each employee is part of the Harmony family, and we deeply mourn each and every loss of life.

Taking care of the Harmony family requires a holistic approach to safety and health. The prevention of work-related illnesses and mental well-being is critically important as we aim to go beyond Zero-Harm.

Our decarbonization strategy has gained significant momentum, and Phase 1 of our renewable energy program is now complete. This program will deliver 360 megawatts renewable and alternative energy sources by financial year 2026.

Phase 1 is now generating 30 megawatts of solar energy, delivering green electrons to our Free State operations. This represents approximately 20% of our peak Free State operations demand and around 6% of our peak daytime demand for our South African operations. Construction of Phase 2 will commence in this financial year. This will add another 37-megawatt in renewable energy generation capacity.

The first 100-megawatt will be constructed at Moab Khotsong, largely funded using the ZAR 1.5 billion green loan that was secured in June 2022. The remaining 37-megawatt will be delivered through a power purchase agreement as with Phase I. Once complete, Phase 1 and 2 will generate a combined 167 megawatts. Now this is approximately 30% of our peak South African operations daytime demand and will save an estimate of ZAR 425 million per annum in electricity cost. This help us achieve our goal of carbon net zero by 2045 and reduces pressure on the South African grid.

Mining with purpose is what we are all about. True sustainability is embedded in all our decisions. And at Harmony, we believe in actions over words. As a result, we continue to receive positive external recognition for our efforts in sustainability. We have been included in the FTSE4Good Index for the sixth consecutive year, placing us at a 95% percentile. Our inclusion in the Bloomberg Gender-Equality Index for the fifth consecutive year is testimony to how we foster gender diversity and inclusivity. We have received a score of A from the CDP for our best practice water management strategy and our near-term and longer-term carbon reduction targets have been validated by the Science Based Targets initiative as we aim for net carbon zero by 2045.

Our decision-making is informed by our sustainable development framework. We balance all aspects of E, S & G. We support the circular economy through effective waste management through waste rock and tailings retreatment. We also donate waste rock dumps to our communities for aggregate on production, we promote good water stewardship, prioritizing recycling and efficiency used by the scarce resource. And we contribute to the resilience and prosperity of our host communities through benefit sharing. This makes Harmony a partner of choice.

Harmony continues its exciting growth journey supported by a clear strategy to deliver on its objectives. Since we embarked on our growth strategy in 2016, we have demonstrated our ability to create shared value through effective capital allocation. This is an ongoing and integrated process to find an optimal mix, ensuring we deliver to our strategy. We have prioritized capital to drive safe and productivity improvements through our Safe300 or S300 program. This program aims to achieve the safe blasting of 300 square meter per crew per month on average in the company. Not only will this further improve our safety performance, but will significantly enhance margins as a result of the various productivity and cost-saving initiatives.

In anticipation of Eva Copper and other key projects, we have maintained strong and healthy balance sheet and intend keeping our net debt to EBITDA below 1x. Through effective capital allocation, we have first of all lowered our overall risk profile, improved our margins, demonstrated our ability to generate meaningful returns and converted our resources to reserves, thereby extending our production profile.

With 138 million ounces of mineral resources and 39 million ounces of mineral reserves, Harmony presents a substantial opportunity to invest in exciting gold copper story. Our international copper projects now represent 23% of our mineral resources through the Eva Copper in Australia and Wafi-Golpu in Papua New Guinea.

Our 2024 financial year declared mineral resources have increased by 4% year-on-year, but our mineral reserves have remained steady. There is, therefore, upside potential to our reserves once Eva Copper and Mponeng extension feasibility studies are complete. With only around 26% of our reserves in South African underground mining, our production profile has been significantly derisked, and the balance of our future productions will come from, first of all South African surface gold, PNG copper and gold and in time, Australian copper. We, therefore, offer a countercyclical diversification through our low-risk and well-diversified gold and copper portfolio.

Our quality growth pipeline will unlock further value as we take our projects up the value curve. We are conducting various exploration drilling activities across all jurisdictions. These include the regional drilling in the Eva Copper surrounding tenements, building a Target North in the Free State is nearing completion. And we are also conducting brownfield exploration drilling at Joel to determine the possibility of deepening this mine. Pre-feasibility studies include the Kerimenge heap leach project near Hidden Valley and expanding our surface sources to convert the 5.7 million ounces in mineral resource to reserves.

We have communicated the Eva Copper feasibility study will be updated at the end of the year. We expect to have the results in the third quarter of the 2025 financial year. We are also finalizing the feasibility studies to determine whether we can extend Mponeng safely and profitably. Mponeng has 24 million ounces in mineral resources at an estimated reserve grade of 13 grams per tonne. This could potentially add 25 years to the existing life of mine at Mponeng. We have signed a nonbinding framework of MOU in April this year. We have taken significant steps closer to obtaining the mining development contract for Wafi-Golpu. This is a prerequisite for the granting of a Special Mining Lease.

Our other projects in execution are Zaaiplaats, the 9 grams per tonne high-grade life of mine extension project at Moab Khotsong, Kareerand which is extending the tailing surface facility at Mine Waste Solutions, adding 14-year life of mine. The Doornkop extension of 107 (sic) [207] and 212 levels and the Hidden Valley extension with stage 8 cutback now underway.

So we are investing in quality ounces, now to deliver even stronger future cash flows and higher margins. This profile is clearly for illustrative purposes and includes both approved plans and projects still in feasibility. This paints a very healthy picture for the future of the company, assuming current gold prices and exchange rates. As things stands, Harmony could remain a 1.4 million ounce producer well into the future. This excludes any potential value-accretive acquisitions that form part of our strategy. There is significant potential within our asset base for further value to be unlocked for all Harmony stakeholders.

Now in order to achieve our growth plans, high capital expenditure is necessary. Our growth capital will increase, but this is due to our sequence of projects, which I've already discussed. It is, however, important to illustrate that our sustaining CapEx or CapEx required to keep our operations going has remained consistent. Sustaining capital will increase in the 2024 financial year due to development as we maintain operational flexibility. And at Hidden Valley, we are investing in necessary fleet replacement and continue with Stage 7 and 8 cutbacks as we extend the life of mine. To benefit from future returns, investment in our assets is required now.

An exciting growth story attracts the best talent. Earlier this year, we announced a change in operational structure in support of our growth ambitions. We have a diverse and highly skilled senior management team with over 320 years of combined experience. Note that 40% of our senior team is females, something we continue to celebrate, especially as we near to the end of the women's month in South Africa.

Beyers Nel is now our Group Chief Operating Officer, oversees our global mining operations, and they will take you through the operational performance for FY '23. Thank you, Beyers.

Thank you, Peter. The strong full year results were predominantly driven by excellent recovered grades from our South African underground operations. However, most of our operations performed consistently throughout the year. Year-on-year, gold production was steady at around 46 tonnes with a small decline, mainly due to the closure of Bambanani mine at the end of 2022 financial year. If you were to adjust for Bambanani, group production increased by 2% and underground recovered grades increased by 8% to 5.8 grams per tonne. Our all-in sustaining costs increased by 6%, mainly due to inflationary increases in consumables, the ongoing project at Target 1 and some lower grades at Kusasalethu.

Now despite global inflationary pressures, we kept all-in sustaining costs below the guided ZAR 900,000 a kilogram. Capital expenditure increased by 23% to ZAR 7.6 billion as we progress well on our major capital projects. All-in sustaining costs, which include major capital expenditure, increased by only 9% to ZAR 940,000 per kilogram. I am pleased to report that operating free cash flow increased by 108% to ZAR 6 billion in this financial year.

Comparing the fourth quarter to the third quarter of 2023 financial year, all operating metrics improved. The strong momentum is continuing into the new financial year. Our South African high-grade underground operations have been the driver of our solid operating free cash flows due to the good margins. The South African high-grade operations contributed 31% towards group production and generated ZAR 3.5 billion in operating free cash flow at a margin of 23%. This represents 57% of group operating free cash flows.

South African optimized underground portfolio contributed 42% of group production at ZAR 1.1 billion or 19% to group's operating free cash flow. Our South African surface operations contributed 18% towards group production and generated ZAR 835 million in operating free cash flow. Margins at the South African surface operations -- surface operations rather remain suppressed due to the large capital project underway at Mine Waste Solutions.

Hidden Valley or our international quadrant contributed 9% to total production and ZAR 600 million in operating free cash flow was generated at a 14% margin after a very strong fourth quarter from the Hidden Valley mine. Moab Khotsong and Mponeng continued to transform the Harmony portfolio due to their high grades and good volumes. Production from these mines increased by 12%, while all-in sustaining costs decreased by 2%. Mponeng delivered a phenomenal performance with recovered grades improving by 16% to 8.4 grams a tonne. This is now our lowest-cost underground mine, with all-in sustaining costs improving by 9% to about ZAR 784,000 a kilogram. As a result, Mponeng generated ZAR 2.1 billion or 35% of total group operating free cash flow in this financial year.

Moab Khotsong also delivered a strong performance with grades improving by 7% to 7.3 grams per tonne and production increasing by 2% to nearly 6,700 kilograms.

Moving on to the South African underground optimized operations. These underground mines are highly leveraged to the rand per kilogram gold price and play a critical role in funding our growth aspirations. Operating free cash flows increased fourfold to ZAR 1.1 billion, while average recovered grades increased by 6% to 4.9 grams per tonne. All-in sustaining costs increased by 11% to almost ZAR 990,000 a kilogram, mainly as a result of ongoing -- the ongoing project at Target 1 and lower grades at Kusasalethu.

Pleasingly, the unbundling of Tshepong operations delivered as we had planned. Both Tshepong North and Tshepong South delivered strong operational performances and positive operating free cash flow. Joel was also profitable as margins normalized after the completion of the decline project. At Target 1, the optimization project is nearing completion and the mine is regaining flexibility. We expect an improved performance in the second half of the 2024 financial year.

Part of our strategy is to unlock value in our existing operations through brownfields exploration. During our financial year 2024 planning cycle, despite depletion during 2023 financial year, the life of mine of Masimong remained the same at 2 years. At Kusasalethu, we added 1 year for a 3-year life. At both these mines, we have identified blocks of ground with good potential to support this expansion.

The Harmony surface source operations remain high-margin and low-risk assets with strong cash flows. Surface source production decreased by 8% to 7,500 kilograms as we continue to mine out available surface sources. All-in sustaining costs increased by 12% to ZAR 764,000 a kilogram, mainly due to above inflation price increases in consumables and specifically reagents. Very good operating free cash flow margins were achieved at Phoenix, 39%; Central Plant reclamation 40%; and Savuka tailings 45%.

The operations returned ZAR 835 million in operating free cash flow, and this despite the ZAR 822 million in major capital, which was deployed at Mine Waste Solutions. At Mine Waste Solutions, the Franco-Nevada streaming agreement will end in the 2025 financial year. This will have a positive impact on revenue and margins as 25,000 ounces of gold can be sold at spot gold prices.

Lastly, let's touch on our International portfolio. Production from Hidden Valley mine increased by 18% to 4,400 kilograms while all-in sustaining costs remained steady at just over ZAR 1 million per kilogram. Hydro-electricity supply from the state utility normalized in the fourth quarter, reducing diesel consumption. There was a 56% improvement in recovered grades to 1.6 gram a tonne in the fourth quarter. And for this financial year, recovered grades remained steady at 1.1 grams per tonne. As a result of the very strong fourth quarter, operating free cash flow increased by over 100% to ZAR 600 million.

I will now hand over to our Financial Director, Boipelo Lekubo, to discuss the financial performance. Thank you.

Thank you, Beyers and Peter, and well done to the operational teams for delivering stellar results. I am delighted to report a strong set of financial results for the 2023 financial year. Please note that all U.S. dollar figures are in the annexure.

Group revenue increased by 16% to ZAR 49 billion from ZAR 42 billion on the back of higher underground recovered grades and a higher average gold price received. Headline earnings, on the other hand, per share increased by an outstanding 60% to ZAR 8.00. Net profit also increased significantly to ZAR 5 billion from a net loss of ZAR 1 billion in the previous reporting period. Although net debt increased to almost ZAR 3 billion post the Eva Copper acquisition, EBITDA for the financial year increased by 55% to ZAR 12 billion.

We were able to repay approximately ZAR 2 billion in debt on the back of strong operating free cash flows of ZAR 6 billion. Net debt to EBITDA was reduced to 0.2x after reaching 0.6x post the Eva Copper acquisition. There was, therefore, minimal change in our net debt to EBITDA year-on-year as we maintained balance sheet strength.

As Peter and Beyers mentioned, costs continue to be well managed in a high inflationary environment. With planning foresight, our cost increases are predictable and controlled. Total cash operating costs increased by only 5% to ZAR 736,000 a kilogram. Labor and electricity formed the largest component of our cost base. Labor increased by 6% or roughly ZAR 20,000 a kilogram, mainly due to salary increases. Electricity costs increased by 10% or ZAR 13,000 a kilogram due to annual tariff increases from Eskom. Electricity cost increases were offset by our effective energy efficiency program.

Consumables increased by 23% or ZAR 40,000 a kilogram year-on-year, mainly due to increased cyanide prices and diesel usage at Hidden Valley.

In U.S. dollar terms, our total cash cost decreased by 10% to just under $1,300 an ounce. Our net debt-to-EBITDA has trended downwards since 2018. And despite our various acquisitions, we've kept comfortably below 1x.

Our balance sheet remains robust and flexible with over ZAR 7 billion in available headroom. This places Harmony in a very strong position to fund future projects, including Eva Copper and absorb rather any adverse changes in the gold price. Harmony has always been a highly leveraged player on the rand per kilogram gold price. And you'll note that for every ZAR 100,000 a kilogram increase in the gold price, Harmony would generate between ZAR 3 billion and ZAR 4 billion in additional free cash flow in the 2023 financial year.

Currently, the gold price is at around ZAR 1,150,000 or, I wish -- ZAR 1,150,000 a kilogram, providing us with significant tailwind and strong operating free cash flows. It is because of this volatility that we have an effective hedge strategy in place. The gold hedge book is currently filled to the 20% limit at an average hedge cover of ZAR 1.1 million a kilogram for the 2024 financial year, and an average of around ZAR 1.3 million a kilogram for the 2025 financial year.

So please just refer to our hedge table in the annexure for further details.

Our capital allocation framework has created a strong growth pipeline, whilst allowing us to maintain a healthy balance sheet. As Peter mentioned earlier, we are pleased to announce a final dividend of ZAR 0.75 or USD 0.04 per share. This is the final dividend of about -- dividend yield of about 1%. The payment of the dividend demonstrates confidence in our plans and our ability to pay a dividend alongside our growth aspirations. Thank you.

And Peter, back to you to close.

Thank you, Boipelo and Beyers for the presentation. This is a -- yes, the financial nexus used to be much longer in the past, although [Frank] was also a very short one at that time.

So Harmony has a sizable and exciting project pipeline ahead. We have planned such that our projects capital is well sequenced and manageable. Our projects are catalysts to meaningful expanding margins over the next 4 years as we continue driving cost down. In the 2025 financial year, the Mine Waste Solutions extension is expected to come -- to be completed and the Franco-Nevada streaming contract will come to an end, as Beyers mentioned. Stage 8 waste stripping at Hidden Valley is expected to be completed by 2026 financial year, and this will result in a significant improvement in operating free cash flow margins at this mine.

We expect to deliver our first copper from the Eva Copper project in 2027 financial year and this is subject to the updated feasibility study being approved. In addition, we will also see the first gold from Zaaiplaats project at Moab Khotsong in the financial year 2027. Production from Wafi-Golpu is contingent to the special mining lease, and once in production, it will move Harmony into the first quarter -- quartile cost producer.

Our investment in our people, quality ounces and operational excellence continue to yield results. Over the past few years, we have shown resilience and demonstrated our ability to deliver to plan regardless of the challenges that we might face. We have created the necessary flexibility to maintain the strong momentum we have built at our mines. Our cost base is stable and predictable, and we have implemented good controls in ensuring our cost increases are in line with our plans.

In short, we have improved our safety performance and engineered a higher quality and diversified portfolio. We have delivered operational consistency and strong free cash flows. What we achieved in this financial year demonstrates our succeeding in our goal.

So Harmony is a specialist gold producer with a growing international copper footprint. Embedded sustainability practices, combined with quality ounces and long reserve life, enable us to continue delivering long-term value to all our stakeholders. Our mining team have strong technical skills and exploration capabilities to take our projects up the value curve. Geared exposure to the rand per kilogram gold prices provides us with strong tailwinds but we focus on what we are able to control. With a flexible and robust balance sheet, we are well positioned to deliver on our operational plans.

Production guidance for the group for financial year 2024 is between 1.38 million to 1.48 million ounces at an all-in sustaining cost of less than ZAR 975,000 per kilogram. Underground recovered grade has guided to be between 1.6 -- 5.6 and 5.75 grams per tonne. So I am incredibly proud of what our team achieved in this last financial year.

I would like to take this opportunity to thank each Harmonite for their contribution. I'm confident that we will achieve new heights in the year ahead. Thank you to our shareholders and stakeholders for your support and sharing in the Harmony story. Let us take questions from the audience after which we will attend to the questions posted online on the conference facility. Jared, you will take the questions of our audience.

René Hochreiter from NOAH Capital. Once again, well done with the results, excellent. Could you give us some guidance on the net debt to EBITDA over the next 8 years as you roll out your various projects?

I'll take that, Rene. I'm not going to guide on net debt to EBITDA over the next 8 years. What we can do -- I mean currently, we're sitting at 0.2x. We target levels below 1x. With an acquisition or obviously, with the funding of Eva looming, we can stretch that up to 1.5x. If you have a look at the EBITDA that we generated for the FY '23, there is a significant headroom to increase that. So I think that's as far as I'll take it. We do provide guidance for capital going forward, but we obviously have to come back to the market on the updated feasibility for Eva and what the capital is. So once that -- once we bring that forward, there'll be more light in terms of where we did and things will sit given -- when we articulate what that funding package will look like. 1x is where we are comfortable.

Yes. I think what Boipelo said that we will stretch it to 1.5x for short periods. We've done it in the past.

Yes. I think with Moab, we stretched it as far as 3x when we did the acquisition of Moab. But I think it's important for a gold company to maintain flexibility, and we're not too sure where the gold price will go.

It's Leroy Mnguni from HSBC. Your medium-term CapEx profile, if I look at the next 3 years, has come up quite significantly. And I was just wondering just for us to kind of think about the potential for it to increase further, we've seen a ballpark number for Eva Copper because there was a previous feasibility study. But for some of the other projects that you're currently considering, so like the Savuka, Tau-Tona pillar and the Mponeng extension, do you have an idea of what those numbers could be in terms of CapEx? Just ballpark, we won't hold you to it.

And then it looks like there's a significant portion of your kind of project CapEx is going to be outside of South Africa and into predominantly copper projects. Now, one of your peers earlier this week spent quite a bit of time talking about driving a re-rating from diversifying into other commodities, into other geographies. And I was just wondering if that's sort of part of your thinking or aim in your diversification strategy.

Yes, let me quickly take some of the questions. So I think -- I mean obviously, Leroy, that copper -- the guidance that we give in the next few years doesn't include Eva and also Mponeng potential extension. Now we haven't approved those products, so we don't know what that numbers are for now. There are quite a number of options, specifically on Mponeng in terms of how we're going to deepen the mine. The potential of making one big decline down or putting smaller declines down that maybe a little more cost effective and also targeting on the higher grades in the first place.

And remember, there's also quite a big chunk of the reserves that is above current infrastructure, which is a carbon leader and also, obviously, the shaft pillars, so it doesn't take a lot of capital to really develop those. So I don't want to speculate on what it's going to be. Let us do the work and then we will come back to the market. And then that will be at the next reporting cycle, which will be in February -- around about February. That's when we will do that.

In terms of our long-term strategy, we are a proudly South African company. And we do not have any intentions of moving out. As a matter of fact, we spend a lot of capital as we speak in South Africa with predominantly Doornkop, Zaaiplaats project and also, obviously, the Kareerand extension and the Mine Waste Solutions. So we are not afraid to diversify or to be in South Africa. To diversify outside South Africa, yes, we are. We are up 20 years -- close to 20 years in Papua New Guinea. So I think we know how to operate in Papua New Guinea. We've been very successful in operating there.

I mean if you look at the Hidden Valley mine, since we take it over as the sole owner, in my view, we have done very, very well at Hidden Valley mine, and we still have a very -- quite a number of good years in front of us. So yes, we are -- would not mind diversify in that jurisdiction because we are familiar with it and et cetera. We do have a very strong office operating from Brisbane in Queensland, and obviously, the mine is that -- the Eva Copper mine is in Queensland, it's northern part of Queensland. So it's a very easy adjustment for us to operate in that environment.

So yes, but we are South African, we don't necessarily believe that we should not invest in South Africa. As a matter of fact, if you look at our portfolio in front of us, there are going to be good investments in South Africa. And yes -- And I mean we -- again, we operated here for 73 years. So we know how to operate in South Africa. We don't battle to get approvals and things done, et cetera, et cetera and so -- and we are well respected, I think, also in this country, but also well respected in Papua New Guinea.

Peter, it's Arnold Van Graan from Nedbank. I guess this is probably a bit of a follow-up, you've answered most of the question. But I note your exploration projects, Target North, greenfields, Joel deepening, so you make the point that you are proudly South African company, but I just wanted to get a sense of how you see this playing out. Your future capital allocation investment given that you are putting exploration dollars into projects in mines that have historically been quite challenging. So maybe I guess you've already said a lot about that, but just give us a thinking of what opportunities you see and what are we missing?

Yes, obviously, Target North is an exploration. We restarted that -- I think in 2007, around about that stage, all the exploration Target North stopped. When I joined back in 2016, we had a look at it and said, why don't we just -- because there was a theory that we didn't prove at a time in terms of what potentially can be that ore body. So we spent money, not a lot of money, but we did spend -- we've drilled 2 big holes -- 3 big holes and deflections out of that to try and prove up a specific theory, which we think we've done. Obviously, all that work will be done like the next -- starting next year -- in the calendar year, talk about this financial year or so. We will have a look at them.

Then we'll have a model and a thing that we can look at to see what we can -- what to do it. What we're going to do to it, I don't know yet. I've got no idea how we're going to develop it or we're going to find co-partners that want to develop it with us. We think it's quite a big ore body. It's a last big sort of area in this space that still need to be developed. There's a lot of work from, I think from the '40s, they would drill holes put into that by the old Anglovaal and other companies I think so.

From a -- the geologists are extremely excited about this opportunity. And I'm equally excited about. If it was South Africa in 1980, it would have been a fantastic mine to develop, I think, going forward.

But we understand all the risk and everything else that goes with a brand-new mine that goes with it. So -- yes, so that exploration is kind of a greenfield. It will actually require brand-new shaft to be sunken and probably a twin shaft because you have to have a second outlet and that needs just to be sunk in an ore body that's 3,500 meters deep, around about that. So it's a big decision to be made in the future. But I think in the meantime, we need to take this thing and actually try and prove it and take it up the value growth because we're lying the portfolio as a resource now for a long period of time.

Joel is actually just the extension of the current job. I mean we've -- since we've deepened Joel, Joel has done fantastically well. We are -- it is just a -- it's actually more of a brownfield things about -- it can be extended to another level or 2, which obviously there's not -- it's a fairly shallow mine. It's not difficult to do that. And certainly, you can -- the mine is generating good cash. So you can take some of that cash back and put it into the decline system that we're going to put in place.

So we're drilling that now to understand that. I'm more excited about also all the tenements out there in Eva because it's quite a big, big area that we got, that we've bought as part of the acquisition of Eva and is actually not drilled, so there's a lot of opportunity to actually find more and probably bigger copper mine in that area potentially that can create over the long term of that particular mine.

But yes, so we had, I think, a strong pipeline from exploration to do project feasibility studies, do project execution, we've got quite a nice mix.

Yes, maybe my first one is just around the 1% dividend yield. Would that maybe be an indication of Harmony's approach to being stakeholder -- whole stakeholder oriented instead of being, I mean, some shareholder capitalism company of some sort? And same, I mean, on the results. The results, I mean, we will all agree that it's stellar results. However, I mean looking at the events that have happened in the past few weeks where your peers in the general industrials that they've been complaining about the external factors like a Transnet and Eskom.

But with Harmony, I mean, the case is different. Would that also be an indication that Harmony has actually learned to be less reliant on those 2 parties, which are actually the majorly impact anyone who is either in the mining or any heavy industrial sector? And maybe just the last one is -- I think the last one, maybe Beyers is around some of the declines that are reversing and you -- probably you can have 1 or 2 that can come up again. So would that potentially be related to some sort of a strategic shift?

Okay, maybe I'll start with the dividends. I mean in line with our capital allocation priorities, it's important for us to return back to shareholders in line with our dividend policy. You'll recall that interim, we did not declare an interim dividend, and that was really on the back of we had just done the Eva Copper acquisition in December. We didn't deem it prudent at that point to declare a dividend. So in line with the strong cash flow performance for the year, so -- with the dividend policy that we have, we've declared that final dividend.

So I think that -- I'll leave it at that.

Thanks for the question. I'll take Eskom and Transnet. We're not in the bulk commodities space, where we necessarily be reliant on rail to ports like the Transnet service. So that doesn't really have an impact on Harmony's operations right now. As far as Eskom goes, load curtailment. Again, we're not subject to load shedding when we started load curtailment, so we get a notification of dropping demand depending on the level of load curtailment.

So we do get forewarning. And if you consider operations, we're not necessarily the typical open cost operation that's got the crusher and the mill and the belt, everything in series. So we typically have large infrastructure, mines that were developed with scale. Some of these mines are very late in their life cycles, so they run at levels lower than nameplate capacity or infrastructure capacity.

And that being the case, it gives you a bit more flexibility to switch certain things or often delay certain loads and shift certain loads during the day. So you don't have to waste the whole day to get the tonnes out. You don't have to pump the whole day to get the water out. You don't have to refrigerate the whole day to cool the mine down. So we use the spare infrastructure capacity wisely to manage load curtailment. Now coupled to that, we've got a fairly robust energy optimization or efficiency program where we've continuously over the years, invested in less energy-intensive equipment, which obviously also assists. And then there's a renewable program, I guess, sitting on top of that.

So that's how we basically manage it in Harmony. Not to say it's not an issue. I mean clearly, uninterrupted power is good for mining, but that is how we managed to -- manage it at our mines.

Do you mind just repeating the last question about declines? I just didn't get the full scope of it.

(inaudible) some of the declines that are reaching the end of their life. And there's some that are -- you don't know what (inaudible). Now why would we check with that results to -- what would be the potential of that resulting into the strategic shift?

Yes, I can take it. So we've got quite a lot of IP around deepening mines and whether there'd be subverticals or extending declines. So I think fair to say we, as a company, at the moment, are spoilt for choice when it comes to projects, and that is a good thing. So these projects all compete against our investment criteria, but they also compete against one another. So at the end of the day, it's only the best ones that get the investment decision.

So yes, we've got lots of declines in the company. As Peter indicated, Mponeng extension might be an extension of current declines. But as I say, they're all just in the pot of investment decisions. And those ones that meet the criteria of the strategy will get the nod.

So I don't necessarily see a strategic shift or anything like that. I mean we've been out saying what our investment criteria is and how we evaluate these things. And yes, it's a good position to be in to be spoilt for choice when it comes to future projects.

But I mean just to -- I mean there are a time when a decline becomes suboptimal. And if you look at the old deep undermines and things are (inaudible) when we started, it was quite difficult because of decline and decline and decline and decline. So now we are -- in many cases, we actually have like a first generation and maybe the second generation declines. So there will be a time when just trying to expand your mine by decline mining is not always the best way to do it because of your traveling time and the logistics problems and stuff that you create by doing it.

So yes, for now, it is still okay. It still will be okay for the next year or 2. I mean deepening by creating 2 levels and mining the carbon leader and mining the shaft so that you could potentially add another 25 years to the life of mine -- of the current line of mine of 7 years to over 30 years. But then, of course, after that 30 years, will it still -- will it still be effective to do declines. And you want to have to look at the time where it is, where the price is. And obviously, the logistics support and stuff like that.

But yes, we got I think like Beyers said that we are very good at developing these one-level extra declines and keep on extending the life of mine. So we've done it for many years. And -- but there will be a day when that is not really a good decision to make any longer.

Leroy, again. I've got two more questions. So the first one is around your decision to sort of fund your CapEx using debt as opposed to equity. And I'm mindful of that old cliche saying that sometimes the best time to come to the market for funding is when you don't need it. You are a single commodity producer with no control over that commodity price. We're not too far off record high rand gold prices. Would now not be the best time to sort of come to the market, raise a bit of funding, so that you can fund your CapEx -- your project CapEx pipeline. Because the concern is that if the macro environment turns, immediately your debt ratios come under pressure, your profitability is under pressure and then it becomes a bit more difficult. So I was wondering if you had any comments on that.

And then the second question, just really out of interest. A lot of mining companies have complained that it has been very difficult with the renewable energy projects to feed power back into the grid and agree on some of those tariffs. I was just interested in what your experience has been and if that is something that's sort of been resolved or getting close to it.

I think just on the debt to the funding, I mean, Harmony is quite leveraged to the rand per kilogram gold price, so we do watch that closely. I think what you would have seen, for instance, when we did the Eva Copper acquisition, I mean, we deleveraged from 0.6x to 0.2x within a 6-month period, just on the ability with which we were able to generate EBITDA. So we're quite comfortable that we can take on a bit of debt just given where we are. If we look going forward, I mean, the big decision is around -- funding is around Eva Copper.

And where I sit at the moment, going to the market is not something that's on the card, that's possible, yes. But we don't have the full picture as to what that capital looks like. It will only be articulated once the feasibility is updated. And then there's also things like (inaudible) that have to go through rounds of approvals, et cetera. So we don't deem it appropriate at this point to come to market without a full story or what is this for, et cetera. So at the moment, that's not on the cards.

I completely take this. Beyers, would you like to take that?

I can take it, Peter. Leroy, thanks for the question on renewables. So we've opted more for a modular approach. So you find that a lot of these plants that we're building are at the [headgear], specifically designed for the headgear and ties directly into the mine grid. So we're not necessarily building big plants in the Northern Cape and wanting to wheel the energy across, which depends on infrastructure and distribution. So yes, for now, I mean, these things sit right next to the [headgear.] I think the opening slide had a perfect picture of where this plant sits. That's actually the one at Tshepong. So right next to the [headgear,] feeding directly into the mine.

Yes. And the other thing is that, I mean, obviously, we've -- our first phase was PPA. So we buy the energy. So that's what we buy. The second phase is 100 megawatt of that we built, so that is created by bringing in Moab Khotsong area -- in an open area. And that -- all of that energy will be consumed by the mine at the time. So it's -- none of that -- and the 100 megawatt goes either to the mine or to the plant. So there's no -- so it's not necessary for us to try and deliver some of that to Eskom. I think there is a problem at the moment. People are trying to -- I've seen a lot of commentary on that on people trying to get in. So far, the things are all in, like Beyers said, next to the [headgear] -- next to -- for our own consumption.

Arnold, I'm just going to give it to you now, and then we're going to take questions from the telephone, web call and webcast. I know we are running a bit short of time. So if I can just give it to Arnold, then we'll just see what other questions are coming in.

Thank you, Peter. Many of your peers have commented about or raised alarm about criminality and illegal mining impacting the operations. So you manage an extensive footprint throughout South Africa and what could be considered in some of those hotspots. Can you comment on the impact of this if any, and how you are dealing with it?

I think we're always obviously on a constant threat of illegal mining into our operations and things like that. That's always a threat. But I think over time, we've managed to reduce that risk quite significantly. And I mean, we actually took down 50 holes in the ground in South Africa in total that we closed up. And so there's no access into these holes any longer. So most of them are in the Free State area. And since we've done that, the access into the working areas are really on through our own shaft systems. And for that, we have got obviously the state-of-the-art base control systems in the world to make sure that people don't get in and out there.

So since we've done that in the Free State, obviously, the illegal mining issue kind of moved away from the Free State to other parts of the world. Now at the moment, where we operate, we, from time to time, have issues. Of late, it was built at the old Doornkop area, people managed to get into Kusasalethu. We closed the Doornkop shaft up, so there's no -- you can't go in, down -- that [battle] any longer. We have to use it in the past for ventilation. We don't have to use it any longer because we've made other plans.

Yes. So we obviously had this incident at the old Harmony shaft, but that was miles away from where we operate. These mines were operated in the '90s. And there was one hole that kind of bleeded methane in what we call the Harmony 5 wind shaft. But I mean that mine was never operated. It was a hole that was sunk and somewhere, there was an explosion at the bottom many years ago. And that hole stays open to bleed out methane in the (inaudible) area, as per a risk assessment that was done. And so, it was the only hole available. And unfortunately, people went down that hole and then obviously went into the methane areas.

So other than that, we've had very little impact on our operations. We can't say that any of these illegal activities had an impact on our results. And I think we've got a good control at that point in time on that. It is obviously a massive issue if we are going to look at what's happening on west front, east front. There's still -- I mean it's something that needs a real attention from government and police and judicial system. But I think we had a nice blueprint in the Free State on how to handle it, and we need somebody to take that blueprint and try and apply it somewhere else.

Thank you. Are there any calls that you want to take from the conference call?

Sir, we have a question from Jared Hoover of RMB Morgan Stanley.

Most of my questions have been answered, but maybe 2 more from me, please. Just on your cost performance, obviously, fantastic cost performance in 2023. Your AISC is going up by about 8%-odd in 2024, but I'm just trying to understand how we should be thinking about cost a little further out, given that your wage agreements come due relatively soon? And typically, you settle those at above inflation. And on top of that, I think you've extended the mine life of Kusasalethu and Masimong a little longer. Those mines were pegged for closure at the end of 2024. And I guess the expectation might have been that those large, fixed costs would have fallen out of the profile given the margins are relatively low on a consolidated basis.

So just some commentary there on your costs and how that might evolve post 2024. And then my second question, I think on one of your slides talking about your acquisition criteria. I think it looks like you've changed your -- the AISC that you will now look at for target assets. I think it looks like it's changed to $1,400, whereas previously your target assets or target mines, you would have been having an AISC of about $1,250. Can you just talk to why that criteria has changed? Have you actually changed the gold price at which you are targeting a 15% IRR or if I was to be a little bit more skeptical, is that being aligned to some of the target assets you're seeing in the market right now? I'll leave it there.

Okay. I'll take some of that, Jared, quickly. Yes, I mean, our cost performance is correct that our 3-year wage agreement comes to the end of this financial year. And then obviously, we have to renegotiate another tranche. I'm not sure if it's going to be 3, 4, 5 years or 1 year. I mean they're still out there. We haven't started any of that negotiations as yet. Yes, I think 2 things. I mean obviously, there was quite an inflationary...

If you look at our cost increases from last year to this year, it was basically 2 things that drove the cost up the curve, and one is reagents was very -- quite a steep increase in reagent cost. And there was a lot of corporate activity taking place in South Africa between Sasol, which is one of the -- the only supplier, and obviously, that was for sale and all the other kind of things that happened with that.

Now we saw a little bit of an easing of that and of late, so that we don't see -- we don't figure that kind of inflation will continue at that trend. The other one was actually -- we had to burn a lot of diesel at Hidden Valley on the back of not having hydro power. Now that situation has reversed. So the rain did come in PNG, so that we have got -- we are okay with that now as we speak.

But having said that, I mean, there are some obviously unknowns. I mean one of the biggest one is always Eskom increases that we're going to see going forward. We see, obviously, read the same papers that you read about, Eskom thinks that they undercover their costs. And so there's obviously pressure on their side, obviously, from outside and from the industry side. We will obviously push back as hard as we can. We do have renewables coming in that will make it actually a little bit easier for us, but yes, so that is -- these are the things that we get on the nose.

Yes, I mean luckily, the inflation kind of stabilized in a way. So we saw pressures in terms of increases will obviously also now not being as high as it used to be before.

On the Kusasalethu. Kusasalethu and some of the mines that we keep on having -- adding on these extra years. We actually got very good grades to the eastern side of our ore body in Kusasalethu that we didn't expect. We actually, first of all, drilled a hole into the VCR and got a very high grade. Then, we started developing because we stopped development, then we developed into the area, and that development has proven that we can actually extend the life of mine. We don't know the full extent in terms of how far we can extend. We know at one point in time that pay shoot will cut off, and then we will be in a situation where the place will be not profitable.

But we will not continue with Kusasalethu or develop sustaining CapEx if we're not certain about the grades that we're going to have going forward. So for now, we have a 3-year life and we're happy with that.

Our investment criteria, talking about $1,250, I think we use now, and then we're now looking at $1,250 -- $1,400 all-in sustaining cost. Yes, it's also a thing about trying to find the right assets that you can buy, but that's only one of the criteria. I mean it's other criterias like IRR, life of mine, prospectivity, being -- safety issues and all other kind of criteria. So we've done that. We have to obviously be realistic in terms of what is available. There's not that many mines available at $1,250 any longer. That's not something that you will pick up, and if it is there, you will probably not being able to pay for it.

So we need to be looking at where would this thing actually go to. But again, like I said, it's one of a suite of criteria. We do want -- we do believe that whenever we buy must be better quality than we currently have. And must be actually take a bit up the value curve, not down the value curve in terms of buying things that are making money now, but the long term is not the right decision for Harmony. So we have to look -- our current all-in sustaining cost of the company is about on dollar terms, it's about $1,550. So the $1,400 will be better...

I think we've broken our connection with everyone. So I think on that note, let's call it timeout. Peter, I don't know if you've got any concluding remarks?

From my side, just to everybody, thanks so much for joining us today. Please mingle with our team here. We are very glad to have you here. I think -- and again, I want to thank my team for a good result. So I think I'm very proud of the team that we have in Harmony. We have, first of all, a diversified team and I think a very committed team. I think like the spring box, we also believe that together, we are stronger. So -- and that is why I'm very proud of the team in terms of not only race diversification but also in terms of our gender diversification that we have. Ladies keep us really on own our toes. And we're very, very thankful for that. (inaudible) thanks.