Harmony Gold Mining Company Ltd (HMY) 2022 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Harmony Gold's interim results for the first half of the financial year 2022. (Operator Instructions) Please note that this event is being recorded. I'd now like to hand the conference over to Mr. Jared Coetzer. Please go ahead, sir.

Good morning. Thanks, Judith. Thanks, everyone, for joining us today. I'm here with Peter Steenkamp, CEO; and Boipelo Lekubo, Financial Director of Harmony Gold. I'll hand over to Peter now. Thank you very much.

Thanks, Jared, and good morning, everybody. I think the first 6 months of this financial year have been characterized by the number of temporary headwinds that negatively impacted our results, testing our resolve, but demonstrating our resilience and also determination. Our derisked, quality portfolio has ensured that we have maintained our momentum. We remain resolute to execute our goal of creating shared value for all our stakeholders.

The net profit was ZAR 1.4 billion for the 6 months. Revenue increased by 2% to ZAR 22 billion from ZAR 21.6 billion in the previous corresponding 6 months. Operating free cash flow margin is 11%, down from 22% in the corresponding period. Production profit of ZAR 5 billion from ZAR 6.8 billion in the corresponding period. Net debt to EBITDA remained steady at 0.1x. Headline earnings per share decreased by 65% to ZAR 2.48 from ZAR 7.13. And we're happy to declare a dividend of ZAR 0.40. I will now hand over for any questions.

(Operator Instructions) The first question comes from Adrian Hammond of SBG Securities.

Just a couple of questions from my side. Could you give us a bit of an update at Tshepong? I noticed it's still in the red, and it is a very sizable business. So if you could perhaps give us a bit more color what's happening there.

Also, you mentioned cost guidance is going up. Although you did actually quite well in Q2, with production down 12% quarter-on-quarter, but the costs were only up 2% [ASIC]. So why -- we're expecting a reasonably better H2 apart from Hidden Valley. So why are your costs going up so much? And could you perhaps give us some color on what's sort of inflation that you're seeing at the moment?

Thanks, Adrian. Yes, Mponeng -- sorry, Tshepong operations is -- we have -- first of all, we still have a massive amount of development that we're doing at Tshepong. I mean that obviously increased the all-in sustaining costs of Tshepong. But yes, if we look at the quarter, Tshepong actually did fairly well in terms of their operations. We had a bit issue with our plant prospect at Harmony One block, which we addressed, and I think we are now through that, that's really a legacy -- that plant was always a very, very good plant for us.

And at the time, it performed very well. And at the time, we had -- when we did the COVID interruption, since then had quite an issue with the plant call factor. But I must say, of late, we're seeing now that the -- and specifically on the November month was fairly bad for Tshepong.

We also had quite a change in terms of -- we're actually now taking most of the waste out at Tshepong, which obviously improve the grade, but bring the volumes down. The wastes are now treated [shipped -- will take to] waste dump. But all in all, I think the biggest issue was really safety impact issues and things like that at Tshepong.

But we're quite happy because at the moment, we do have quite a lot of development. And obviously, we're also getting the sub-75 at the declines. That is behind us. So we think that we will obviously get better grade of the sub-75 because that is going to be really in the sweet spot of the ore body. But also, we will, at one stage, get back it on the development.

But yes, so I think from our side, we had some management changes within the -- changed this quarter. In the 6 months, we now have 2 separate GMs running off the Phakisa and Tshepong, which [we had] in one port at one time and it actually didn't work for us really well. So -- but in general, I think at the moment, Tshepong is doing what is expected of it.

As far as the cost is concerned, I mean, the biggest issue on the cost is really the production and how impact did we have in terms of our cost guidance on Hidden Valley. Because remember, we -- on the 1st of January, we had that conveyor failure at -- pipe conveyor failure at Hidden Valley. I'm glad to say that the plant is now running. The conveyor will be fully operational on the 2nd of March.

We're still busy with some splices that we're going to replace before we start it up. It's actually not one that failed, but other ones probably were damaged by the impact of that pipe conveyor. So it is really on the back of that production.

If we look at the South African operations, we actually did -- we had a steady performance compared to what we had before. Given all the issues that we had, in any case, things like the impacts of -- quite a lot of safety impact that we had in operations, but also the load shedding, which we had at Stage 4 at one point.

And then obviously, also, we had some issues in the Free State with potable water to our plants [city bringing] water, which I also said that we think is now resolved, and we can actually, in fact, continue growing. So -- but given that, I mean, our South African operations had a fairly steady performance. It's really Hidden Valley that had an impact last quarter -- final quarter, but also obviously in this quarter that we're in at the moment.

Sorry, just to follow up on Hidden Valley, is it running ahead of schedule? My understanding is it only be running in April again?

No, we were running -- the plant -- really started up the plant. We got the truck tonnes down, so we have enough tonnes down to start up the plant and actually also the second -- well, the conveyor will run on the 2nd of March. So it's -- I [closed] a little bit. I think that was overstated. We never said April.

We said middle March.

Middle March, yes, that's what we said. But it's going -- obviously, it is a massive thing to repair. And the guys have done a good job. But obviously, they shouldn't have had it in the first place, but they did a good job in terms of repairing the damage that we saw there.

And then just on inflation, I mean, as a predominant South African gold producer, you are the benchmark. So perhaps a bit of color there, please.

Yes. I think as far as labor is concerned, we kind of settled down for the 3-year wage negotiations. We said -- on September last year, we settled on that. We obviously -- we take note of the NERSA increases of close to 10% that we had in electricity. Those are the 2 big ticket items for us.

In terms of consumables, we kind of managed that very well over time. There are some pressures after COVID interruptions in steel prices and things like that. But we kind of managed that fairly well over time. I mean we don't see a runaway increase.

And I think if you look at where we are now, we probably see around about a 7% increase in inflation compared to last year that we had. That's off the wage negotiations and everything else. But we believe that these are some upsides in terms of actually getting our performance up, especially in South Africa, so we can maybe get that by year-end to be less than 7%.

The next question comes from Arnold Van Graan of Nedbank.

I've got a few questions. 2 are related and other ones are on Hidden Valley. So [if you're] closing Bambanani's (inaudible) plant, what is the main reason for that? Is it just becoming hard to manage the safety, given the seismicity there? And the question that goes with that is since you closed Mponeng and Moab, which are obviously -- which obviously improves the quality of your ore body, we have seen you restructure and close some of your more challenging operations. So the question is, after Bambanani, is there anything else in the portfolio that could be restructured or closed over the next year or 2?

And then on Hidden Valley, the issue with the conveyor, that pipe recall, that's the second time that's happened. And the question is what is the -- what learnings have you had from this? And what additional controls are you putting in place to prevent something like this? And is it possible to prevent this from happening in the future?

Yes. Arnold, thanks a lot. On the Bambanani side, we've -- we can't -- we stopped it because -- I mean we think we can safely mine a vast portion of that pillar still until the end of this financial year. We're actually slowing down the rate of development of mining. But also mining, obviously, is just a final higher-grade part of that ore body. We think where we are now, we can do it safely. And it's really on the back of the higher seismicity and certainly going -- 17% of the pillar left, and I think we'll take probably around about another, say, 3% or 4%, 5% of that. And then we will call it a day.

The rest of the pillar really are -- if we tackle that, it's going to be a very high safety risk, and we're not prepared to take that safety risk. So we're finishing it off. There's another 4 months or so left of that pillar. Now if you look at the mines that possibly can follow is Masimong. We are busy at the process now of replanning for the new financial year. At the end of last year, we had 18 months left at Masimong.

Now Masimong is really lined on a high-grade B reef that we can possibly fund. And I think -- it looks like we may possibly have a little bit of B reef that may extend the life of mine with the agent that we're mining in that area. So I'm not -- I don't want to comment really that 18 months is going to stay 18 months, probably will be extended with another 6 months or maybe a year at the end of this year.

And then obviously, we have the next one is Kusasalethu. Again, we have a -- but very good grade at the moment at Kusasalethu. And we believe that they should -- can extend a little bit further than we originally thought. So that may have a little bit of longer life, but let's just not run ahead of ourselves. Let's do the planning process properly. And then we'll guide at the end of the year.

But yes, I mean, other than that, I mean, all the other operations are really in the process of being recapitalized like Target and those kind of mines, which currently are high-cost mines. But after we've moved all of that infrastructure down to the bottom of the mine will be a much different mine.

So yes, in terms of the conveyor, the conveyor, yes, we had a monitor system on the conveyor that actually monitor the splices. It is not a -- we're -- in actual fact in this particular case, we had a bit of a forewarning. But unfortunately, we didn't react to the forewarning the way we probably should have. And that is really on the back of -- we have massive issues in getting people in and out of PNG with COVID restrictions and things like that on top of that.

But be as it may -- I mean we now have actually bought an x-ray machine, which we used to hire in from time-to-time to help us to look at it to continuously monitor this belt. We've spent the money now, and it's actually on site as we speak so that we can x-ray the belt at frequent times to make sure that we don't have this problem. Because the issue is that this specific splice was done about March before -- the year before. So it didn't even run a full year, and then this splice did break down. Yes, it's a pity that it happened.

It is -- obviously, we've been -- we actually had a very, very long stint of very, very good performances off this thing. But I think the biggest issue that we currently have at Hidden Valley was the issue that we couldn't really get people in and out. Lots of highly skilled people left our employment because of the quarantine that they had to go through every time. I think it was 10-day quarantines that they were in. It was 14, but then it was reduced to 10. Would you have to sit in a cold room after you've been in PNG when you go back to your -- back to Australia. And that is not a very nice thing to do. So yes, so that's the thing, Arnold.

Ladies and gentlemen, apologies, we seem to have lost the main speaker line. Please remain on the line, and he will be rejoining us shortly. Arnold, you can please remain, and they will be completing your question shortly.

Gentlemen, thank you very much for dialing back in. Arnold Van Graan is still on line.

I think you addressed most of my questions. So yes.

Thanks. I'm not sure [if what we've got, Arnold Van Graan]. So I'm not sure what happened to our phone here. We'll get the technicians to come and have a look.

Look, I think I got the gist of that. Yes.

Thanks, Arnold.

(Operator Instructions) We have a follow-up question from Adrian Hammond of SBG Securities.

Yes. A question for Boipelo, just to -- please, could you give us some update on your hedging strategy? I mean I don't know if you did any more in the last quarter? Have you done some more? And are you still planning on hedging at 20%? And what's your thinking, given the recent rally in prices?

Thanks, Adrian. So yes, we have seen quite an uptick, you would have seen recently, obviously, the whole Russia-Ukraine, et cetera. So it did provide some opportunity to add to the hedges. Our policy remains unchanged. So it's still 20%, as you rightly said. And I think it's sitting at quite a comfortable position. It's included in the appendices of the presentation, I believe.

So the book is sitting at an average above ZAR 1 million a kilogram. It's Slide 40, that is, yes. So you'll note, at the end of December, there was about 217,000 ounces, yes. That's quite comfortable. So we're quite comfortable with that.

Do you -- I mean I appreciate you have a strategy in place for some time, and you did give the rationale. But your balance sheet is reasonably healthy. So I just think it's perhaps -- I guess is it still something that's valid to continue with this 20% strategy? And how do you sort of consider where the pricing is right for the group? So I think you can just give us -- I think you did give us in the past. There was a sort of margin you wanted to hedge, given where your costs are going. So where is that now?

So that 25%, I think you'll recall it was last year, not interim, where we took the market through that. So that still remains unchanged. So only when we see a 25% margin and above will we do that. So I mean it's not -- this is not speculative. It's not trying to be opportunist or anything. So we believe we're quite comfortable with that to lock it in at that margin.

Sorry, what margin specifically? And can you just define your production profit because there's some things there that aren't clear to reconcile?

So that would just be that -- it's at 25% of above cost inflation. In terms of the production profit, that would just be revenue excluding production costs. What exactly are you referring to, that's not clear.

Yes. It doesn't reconcile. Maybe I can chat with Jared after this, but it's obviously something there that's not making sense.

Thank you. (Operator Instructions) We don't seem to have any further questions on the line. Do we have any closing comments?

Yes. Thank you very much. Thanks, everybody, on the call. I was going want to remind you, through all the 5 values that we have to ensure we create value for all our stakeholders. Our objective remains to produce safe, profitable ounces by doing what we've always done, mining with purpose. Thank you very much for the call.

Thank you very much, sir. Ladies and gentlemen, that concludes today's event. Thank you for joining us. You may now disconnect your lines.