Graham Paul Briggs - Chief Executive Officer and Executive Director Frank Abbott - Chief Financial Officer, Financial Director and Executive Director

Good day, ladies and gentlemen, and welcome to the Harmony Gold Mining Company Limited Operating and Financial Results for the Third Quarter Financial Year '15 and 9 Months Ended 31 March 2015 Teleconference. [Operator Instructions] Please also note that this conference is being recorded. I would now like to turn the conference over to Graham Briggs. Please go ahead.

Thank you very much, and good morning or good afternoon, depending on where you are, to all the listeners. And it gives me great pleasure in presenting these quarterly results. I'm certainly hoping that you have seen the documentation, the press release, the quarterly booklets as well as the presentation, which I'm going to take you through now. So thank you very much for dialing in. Slide 2 is the Safe Harbor statement. Slide 3, a bit of the agenda to what we're going to discuss. Firstly about what sort of action we've been taking, restructuring for profitability. Frank will take us through the quarterly results, and then I'll conclude by talking about crystallizing value. So if we you go to Slide #5, talking a little bit on the gold environment that we're in. Of course, you're all acutely aware of what's happening to commodity prices, not just gold, but generally in rand terms, of course, our gold price has been fairly static for the last 4 years, somewhere between 430,000 and 460,000 rand a kilogram. At the same time, rapid increase in cost and escalating input costs as I've got here on the page. Wage increases have been substantial, but wage and salaries are more than 50% of our costs. Electricity, of course, is another big issue. Not only are we been exposed to sort of electricity curtailment as it's called in the industry, but there's also higher-than-inflation increases. So in April, we were given a 12.7% increase in labor tariffs. It's certainly expensive, but then the load-shedding certainly takes its toll on our organization, because we have to switch off things and try and reschedule and catch up in other hours. And then there's the issue around policy and regulatory challenges. We can talk a little bit about that if there are any questions. But in that pie chart, basically, we have subdivided the cost so you can see the salaries and wages, and electricity totaling nearly 70% of our costs. Slide #6, talking about our labor force. You can see the numbers there, sort of 36,200 to 36,900 in the 3 years, financial '11, '12 and '13. Since then, we've been reducing labor numbers. We're down to about 31,800 right now. There may be further decrease in the labor numbers going forward, so that's a decrease of about 11%. Despite that, you can see what's happened to salaries and wages. So those numbers are in billions of rand from financial year '11 at ZAR 5.4 billion to a forecast this year at ZAR 6.7 billion. This is before any wage increases, and those are sort of to be negotiated, normally implemented by the 1st of July this year. And so we're not including that because obviously it's into our next financial year. So despite reducing labor numbers, of course, with the wage increases, there's still quite a substantial increase in cost. If we talk about our values on Slide 7. This has really come into sort of high gear, if you like, post 2012, the whole Marikana issue and so on, really looking about communication, making sure we keep our employees up to speed with what we're doing and assisting them in various programs as well. A lot of employees owe a lot of money, so we've got programs around that. We've got programs around housing, as you know. We can talk more about that if there are any questions on it. But really, it's sort of -- the core of this is really our 5 values, starting with safety, of course. On the gold wage demand, I've been putting it fairly bluntly. This afternoon, I had meetings with the unions, giving them exactly this presentation and informing them of our stance. We're saying that Harmony won't survive high wage increases, and we're not talking about high wage increases, I'm talking about the current union demands. That there would be massive retrenchments if we did give these increases, and therefore, it's a lose-lose situation. At present, we are not replacing employees, we're not employing new employees. There's a moratorium on new recruits. Where we have vacancies, people leaving or retiring or whatever the case may be, we find other people in other operations maybe that are trying to reduce numbers, and we've been replacing them. I'll talk a little bit more about restructuring and so on in the next section. But really, in the wage demand situation, we're going to have to end up with a win-win situation. And obviously, we'll have lots of discussions about job retention with the unions as opposed to retrenchments, hopefully. Electricity consumption and the cost thereof, Slide 9. A graph, which has got gigawatt-hours on the left-hand scale, millions of rands on the right-hand scale. And you can see that we've reduced our consumption by 13% over the last few years. We'll continue having to work on that. So at the moment, 2,600 gigawatts, and that's a prediction for financial year '15. So we're sort of 75% through it. If you are to look at the cost increase that we've just got of 12.7%, then that number of ZAR 2 billion will go up to ZAR 2.2 billion. Hopefully, we'll get our electricity consumption down a little bit more and that won't be quite so high. But that's still a high cost of electricity. Slide 10 gives a little bit of information about our total cost, and this slide is in rand billions. So in the financial year '11, ZAR 10.3 billion, you can see the increases in financial year '12, '13. And in '14 and '15, we really started looking at controlling our costs. These are total operating costs, including capital. And so during the last 2 years, we've been subject to about 0.3 -- or ZAR 300 million. And in this last year, we've got about ZAR 400 million, giving us a sort of grand total of ZAR 13.7 billion as the total cost. So you can see that, obviously, if you look at electricity, I've just been talking about ZAR 200 million going up there. Talk about restructuring. And got a graph here, which you may not have seen before. It's really a graph, which -- sorry, Slide 12? Yes. High grade on the left-hand scale; at the bottom, rand per kilograms. And so we're just looking at South African underground operations here. The current gold price around about the ZAR 460,000 a kilogram, so that's the yellow dash line that goes vertically. Everything on the right, loss-making; everything on the left, profits. And then, of course, there's some right on the line there, Unisel, Tshepong, Masimong. I'm going to talk a little bit in detail about Masimong, Doornkop, Kusasalethu. Phakisa is because -- it's on that line, really, because of capital and capital expenditure during this year. It has been doing a lot of development. It's improving its grades and it should, in the next year, move over to the left-hand side of that dash line. Slide 13, just to recap, Kusasalethu restructured those levels, 78 down to 95. All closed. All those people are out of those levels. We're now focusing on the new mine, which is the depth of levels 98 to 113. And on Slide 14, gives a little bit of information, with Section 189A process as the retrenchment process. It basically is giving notice to all interested parties, takes you through a 60-day notice period. After which, you can then do what you have to do of either go for retrenchments or whatever has been concluded during that period. So a reduction of employees over about 1,300 people at that mine. And new plan in financial year '16 has given some indication of what it looks like. There's obviously still work to be done. It would be nice if we could get closer to this during this quarter, but it is a quarter which is only just after the retrenchments, which finished in February. So -- at the end of February, so everyone's sort of -- we've got to build up a bit of morale and get some steam going in that operation. If we go to Slide 15 and talk about the other assets I promised to talk about, which is Masimong and Doornkop. Added Hidden Valley in there because it's also -- it wasn't on that chart we've seen, but it's also in a loss-making situation. Masimong is a very low grade operation. We've done some substantial changes to that plant, properly reduced the mine life to around about 2 years. We haven't completed the life of mine plan as such. Approximately 400 employees will be impacted. About 154 of them have either transferred and taken off, but we will probably end up in a Section 189A process there and we'll continue to focus on the higher grades. Grades are very low in this operations, sort of below the 4 grams a tonne mark and it's difficult to make any money out of a orebody with less than 4 grams a tonne underground in South Africa. Doornkop. This is one that I'm giving sort of notice of what we're doing here, but we still got to engage with unions and so on. Really, a new focus on the plan here is we'll probably also end up in a 189A process during this quarter, focusing on the high grade areas. We've done some good developments of late and we need to get into those areas. So it's likely to be a restructuring. Total number of employees at that operation, about 3,400 people. And I can't tell you how many may be impacted or not, but that's going to be some of the work that we're going to be doing during this quarter that we're in. Hidden Valley has had a tough 2 quarters. It's done well in reducing its costs and so on, but it's not making money. If you look at what stripping is required. So there are some reduction, cost-reduction initiatives. We need to look closely at the plan as to what we're focusing on and how much stripping we're going to do. As you know, that's part of the joint venture, so we will be looking at that with our partners. I'm going to hand over to Frank now to deal with the quarterly results.

Thank you, Graham. If we turn to Slide 17, we've got our operational results quarter-on-quarter and we'll see that our gold produced for the quarter was 10% lower at 245,000 ounces. We didn't have a very good March quarter with production, and this is largely due to the Christmas break. Our gold price is slightly higher at $1,220 an ounce. Our cash operating cost is very much the same as the previous quarter, and our production profit was in fact, in dollar terms, the same as the previous quarter at $55 million. Our all-in sustaining costs, because of the weakness in the rand, was in fact slightly lower than the previous quarter at $1,258 an ounce. If we page to the extracts from our income statement in dollar terms, and this is Slide 19, and we start at the top with the revenue. We see revenue was lower, we had 13% less gold sold during the quarter. It was slightly offset by a better gold price. Our production cost, fortunately, was lower and that was partially because of the restructuring, where we had savings on consumables and also labor, and it's also partially because of the weaker rand versus the dollar. Our inventory movement, we locked up some gold during the quarter and that had also effect on our production cost. So our production profit was in line with the previous quarter, $55 million. If we move down to the net loss figure, you'll see the net loss for the quarter was $22 million versus $79 million the previous quarter. Fortunately, we already provided for employment termination in the previous quarter and we didn't expense anything during this quarter. That's the $16 million. Where also, the previous quarter had a loss on scrapping of property, plant and equipment of $38 million, which wasn't repeated in this quarter. If we look at our headline loss, we've added back the loss of scrapping, we've had a quarter loss of $22 million, this is $47 million in the previous quarter. If we turn to our cash flow summary, which also extracts from our cash flow, this is the Slide 21 in dollar terms. You see we had $32 million cash flow from operations in this quarter. Our capital expenditure was $60 million. And so the difference between the $32 million and $60 million of about $30 million, our debt was increased from $151 million to $177 million. This is our net debt. So that increase of $26 million, which is really the difference between the cash flow from operations and the capital that we spent during the quarter. Our cash balance is reduced from $190 million to $58 million. You can see we paid back some of our debt during the quarter and the debt reduced with $35 million from $270 million to $235 million. Thank you. Graham?

Thanks a lot, Frank. So on Slide 22, we stack all the assets here. So not just the underground assets, rand per kilogram on the left-hand axis and the bottom in percentages. Bambanani is doing well, and then you can see on the extreme right, Kusasalethu, this is year-to-date figures. Kusasalethu has certainly improved quite dramatically quarter-on-quarter, but the focus is really on that one getting below the line, below the gold price line there. A lot of focus I've spoken about on Doornkop and Hidden Valley and Masimong, and I've spoken a little bit about Phakisa. So I'll try to deal with all the -- all the ones above the gold price line. It's the same figure, of course, whether it's on Slide 22 or 23, simply the gold price there. And here, we're not talking -- sorry, we're not talking all-in sustaining costs. We're using cash operating and capital. So just takes away sort of, I don't know, the ZAR 15,000 a kilogram or so from that. If we look at the crystallizing value, and this is really getting into the conclusion now, we have a section, again, which you've seen before, on Slide 24 -- or 25, sorry, of Golpu. It still remains a spectacular orebody. Stage 1 is in the process of a feasibility study. We have to start earthworks in September of this year. We're making good progress on the negotiation with the government for some pre-mine development. So that's still on schedule. Stage 2 is going to prefeasibility. So that, again, should be done by the end of the year, in line with our plans. It's a fantastic orebody. It deserves to be built. It's one of those orebodies in mines that when built will withstand all sorts of low commodity prices. Slide 26, looking at sort of actions to unlock the value here. Obviously, one of them is very operational-focused. We need to achieve the plans that we're putting in place. And if we don't achieve them, to the extent that we don't, we need to restructure those assets for product -- for profitability. That's what we're doing with Doornkop, Masimong. That's what we've done with Kusasalethu by basically taking more than 20%, sort of 21% of the cost out and only 13% of the gold. So taking more costs out per kilogram. And Golpu, certainly, it needs to be kept on-time and on-budget, so there's quite an emphasis there. It's in a joint venture, it's not wholly in our control, but the emphasis is there. And then the sort of second action is realizing shareholder value for the assets we have. Remembering that Golpu is up around about 50% of our reserves. And funding of Golpu is obviously quite important, and therefore, Frank and I have to spend some time on looking at all the strategic options on going forward as to how we unlock the shareholder value in that asset. Thank you very much, ladies and gents. I'd like to open ourselves for questions.

[Operator Instructions]

Well, it sounds like we haven't got any questions.

No. I think your presentation was quite firm.

Okay. Let me quickly sum up and say, ladies and gents, we had quite a difficult quarter, but at the same time, we've made some progress with the restructuring. We're still going to continue with that during this quarter until there's a real emphasis on operations achieving their business plans. Thank you very much. If there are any questions, which you want to send through, please send it to us.

Sorry, Mr. Briggs? Sorry to interrupt. We do have a question from Business Day, are you willing to take it?

Yes, I can take it.

Graham, Allan. Sorry about that. Do you have any idea when you could conclude the work on the strategic study into Golpu? Do you have a time by which you have to present that work to the board?

Allan, thanks. Yes, so Golpu in the sort of near term has fairly small financial requirements. As the shareholders will know and the market knows, the first couple of years was sort of fairly small financial commitments. And after that, it starts becoming bigger. The financial commitment continues up to 2020, fast forward, further 5 years. So whatever the solution is, we need to think of a longer-term solution for it, and also be able to fund that period. So this is not just going out for a bank loan, which typically only has a 3-year sort of life. So we certainly got time on our side and we're in the position now where I think it is right for us to actually talk about these things while we study the various options. We haven't landed on any option yet, but we've got a bit of time on our side still to be able to do something like this.

So no decision for 1 year or 2 then?

No, it will be sooner than that, I would say. [indiscernible] would be probably within the next 12 months, we'd have to land on some sort of plan going forward.

There are no questions left.

Okay. Well, thank you very much, ladies and gentlemen. I hope you have a great day.

On behalf of Harmony Gold Mining Company, that concludes today's conference. Thank you for joining us. You may now disconnect your lines.