Harmony Gold Mining Company Limited (NYSE:HMY)
Q3 2014 Earnings Conference Call
May 6, 2014 9:00 a.m. ET
Graham Paul Briggs - CEO
Frank Abbott - CFO
James Hayter - Rossport Investments
Patrick Mann-Deutsche Bank
Good day, ladies and gentlemen, and welcome to Harmony Gold Mining Company Limited Third Quarter 2014 Results ended 31 March 2014 International Conference. All participants will be in a listen-only mode. (Operator Instructions) Please note that this conference is being recorded.
At this time, I’d like to turn the conference over to the CEO, Mr. Graham Briggs. Please go ahead.
Graham Paul Briggs
Thank you very much, and good afternoon from South Africa or good morning if you’re in completely different time zone. Thank you very much for joining us on this conference call. I have with me, Frank Abbott, (indiscernible) we will be out to answer to a multitude of questions. Also inherent in U.K. and Marion and Harmony have made a more detailed or some questions that we will go to later.
I’d like firstly to go through the presentation. I’m hoping that you had seen the results either in the booklet form coming out of the webcast or the presentation. But we’d like to go through the presentation.
Slide 2 is Safe Harbor Statement, but what I’m going to be talking about today on the agenda, we will talk a little bit about pricing, and we will talk operational results. Frank will take us through the financials. He’ll take you through the financials. He’ll talk on Walfi-Golpu, and a little about that project and there we are. And then I’ll conclude.
On safety, we’re moving to Slide 5. Safety has always been part of the strategy, which underpins our strategy, it’s something that we have to do imperative in mining, we have to be safe. We are striving for (indiscernible). We have over the last while made a modest improvement to safety. And this quarter was, I believe, an anomaly.
Having said that, we’re looking at our complete safety system, we got independent safety review on daily economics. Those people will look at all our operations, not just some of the operations. And really have a look to see if there is something fundamental that we’re doing wrong as homely. We’re working with the DMR on the safety efforts and certainly we will tell them what the safety order reveals, and review reveals.
So it’s in there, the executive who was certainly well involved in safety and it goes down into the core of recognition and rewarding people’s safety. So it was certainly a large concern, especially we are doing corporate laws there. And we need to learn from every safety (indiscernible).
On the operational results, I am starting on slide 8, improvements on the (indiscernible) we have that clause with the plan guide. You can see that we’ve overachieved in the current quarter over the last quarter and this quarter. Going forward, our expectation is that our quarter or the guidance is somewhere around 4.9 meaning that we will overachieve on our plan guide for the financial year.
Production, we’ve got on slide 9, March quarter from ’12 to 2013 and 2014, you can see that this March quarter despite the negatives on (indiscernible) three operations that really (indiscernible). The quarter -– March quarter is actually quite a good quarter in terms of customers is good as it could have been a substantial (indiscernible) three operations been better.
On Slide 10, (indiscernible) has quite a longer period or all in sustained costs and certain we need to drive that cost down even further. That’s a quite (indiscernible).
Slide 11 is the indication of the improvement in productivity, so we have a number of people working in our operations that employees got contractors, the production in South Africa in kilograms and then in the grams for nine-twelve months. And so, we would come from 80% to 86% improvement. (Indiscernible) 10% improvement. This comes of many, many quarters of a downward trend in productivity (indiscernible) and improved productivity and planning to continue to increase that productivity and gain some of the losses that we’ve had over the last few years in productivity.
The average age of the workforce decreased in the average age from about 48 to 43 years. That goes in hand with the productivity of course because we’re slightly into workforce menu. We’re the energetic people in the workforce, and that can be quite a demanding job. It certainly is going to help with productivity. Now, this goes on the back of course of a declining number, you can see a 5% decline in numbers, and that really goes around the strategy of when we have got a company with people really looking at trying to improve this average age of workforce.
Slide 12 is some of the group operating results. Kilograms produced will be 12% down from the previous quarter. We see that in kilograms of course. Gold price in kilogram is made up 5%, almost flat in U.S. dollars. Cash flow and the run rate (indiscernible) more of flexibility and so on, but if you look at the order of the sustaining cost from the end of that (indiscernible) customers in our gold sold, in our gold produced and therefore dollar terms reflects 12 fin two versus 12 find four of the March quarter and (indiscernible) kilogram. Again, we (indiscernible) that difference which expend some of those dollar and rent process.
Looking at Slide 13; this is the group operating results nine monthly. So, we are looking at the nine months ending March 2013 with the nine months ending March ’14, and you can see there is 3% in gold produced. The gold prices have gone high in the Rand terms, 7% in dollar terms, down 22%, just to give you some numbers in cash operating costs. All-in sustaining cost declined about 2% -- improved by 2% and improved by 18% when it comes to dollars per ounce.
In fact we are changing the exchange rates, of course, I think there has been some very good cash control and cost control in Harmony.
And with sort of comment, I’m going to hand over to Frank to talk about the financials starting on Slide 16, I think -– 15.
Thank you, Graham. On Slide 15 which expect the income tax in quarter-on-quarter had -- despite the effective that we had low gold production. We actually had a mid profit for the quarter compared to last, the previous quarter. Our rating was down by 6%. That would allow to (indiscernible) I think anytime we will reduce our production cost t0 119 million and you can see our production process was 94 million for the quarter. And as I’ve mentioned it was levered during the quarter. The (indiscernible) 22 million because of the completion of certain drilling works that we’ve done at Golpu. Foreign exchange translation loss for the quarter was lower, and this is probably U.S. dollar line facility, and I think made profit of 31 million.
If you look at Slide 16, it’s shows our income statement quarter-over-quarter in U.S. dollars, you can see at the bottom we have (indiscernible) small profit. If we price (indiscernible) we look at Slide 17 (indiscernible) you start at the top, we will see that our cash flow from operations in Rand terms increased. We get cash flow from operations of 825 million is a (indiscernible) inspiration. The capital expenditure -- this all resulted in (indiscernible) 835 million. During the quarter we fight back our (indiscernible) is the $270 million that we have got with the syndicated banks.
Turning to Slide 18, net debt in U.S. terms, we continue – in the bottom that (indiscernible) million.
Moving to Slide 19, it shows that our capital -- they are being controlled and review our capital as (indiscernible) which we completed the financial year ’13 with the financial year ’14 plus the forecast for the remaining of this quarter, we can see events that came down to 2.5 million and in dollar terms that came down hopefully (indiscernible) $245 million for the current year.
On Slide 20, our all-in sustaining costs for the nine months ending March ‘13 for fiscal nine months ended March ’14 and we this is actually in terms of that net earnings decreased by 1%. That could be to inflations of more than 6% and mining section has been in the double-digit for years.
Now turning to Slide 21, this conduct in unit cost, all-in sustaining cost in dollar terms and from (indiscernible) this is the unit split. This is also because (indiscernible) competitive nine months ended March ‘13.
We get to slide 22, and these are all exploration cost. We want this to continue this current trend 2014, corporate costs have come down (indiscernible) costs in unit dollars, we can see the margin and it’s actually an exploration cost and corporate costs. Thank you, again.
Graham Paul Briggs
Thank you, Frank. Looking at Wafi-Golpu, and starting at Slide 25, due to the results of the last two boreholes which we drilled, if it brings to an end the drilling program of 2014, we think that there is some fantastic links of Wellmann Live and (indiscernible) here both from a Golpu perspective and from a corporate perspective. And I have done, I would say, any results –- that's simply great results. They’re being incorporated in the geological model, resource model. And we continue to update that model that where we came to mention whether it will be faulting the mineral production or great trends into that resource model, and we are putting it into the study that we have.
On 26, the mind view of Harmony has come from and the 2012 pre-feasibility outcome, a sort of big bang, big mine dictions. High capital 2012 situation where we are not looking at a much smaller, much lower capital near-term cash flow, something that’s scalable, something that can be built into a greater production in the future, and a real sustainable approach, but keeping a much closer watch and this capital intends to be as low as the profitability in the operation.
Eventually one of the changes there is looking at different mine methods, looking at sublevel caving as opposed to block caving, sublevel caving means that you can be a little bit more selective in your mind and that obviously you can be selective as well on the grade.
In conclusion, Slide 28 talk about safety and external view related to continue leading from the funds here, and whatever comes out of these discussions that we incorporate and be a better company forward. We have during this quarter the change in operational management. Alwyn Pretorius is our Chief Operating Officer. We have been the 12 months -- two months. There is an increased focus on reducing span of the control of some of the individuals, and therefore three general managers as before it was June, and also adding more senior identity capacity to them, so that we don’t have some of the infrastructure problems that we had.
As we will continue to look at our planning process we achieved redesigning that. We have redesigned that looking at bottlenecking, de-bottlenecking and optimization of the assets.
Slide 29, a graph put together by taking it from the second and first and 14th to probably a few days ago that’s really frolicking at full, showing that these safety in benefit in a marginal company the sentiment in gold products increases and the Harmony shared products increases dramatically more. So it obviously gives you a better idea of putting in mining in Harmony as a result of the many markets would have been more efficient where that doesn’t turn back to the beginning of January.
Slide 30, we think there is tremendous upside in Harmony. We thus improved results. We have demonstrated that quarter-on-quarter for the last while. We certainly has demonstrated that in closer to 5.5 tons in the longer term. So we have good success embedded in the criteria that I have said. Turning to the balance sheet, you know, what that means, it will affect many that you can actually lay it on, should they come around or they can open up opportunities. Golpu, total has to be one of the top reserves in the world. It maybe not fashionable to built big mines now that we have the plan to adjust that to look at the scalable and modular 09, one day I have got no doubt, this will be a big mine.
Increase in productivity, for some time now we have been talking about these things and we have demonstrated this in what I showed you and as we are looking over a nine months period. If you look on quarter-on-quarter-on-quarter, of course you give greater variations that we need to be finding trends, trends being around to improve that. Good capital spending again 92% in capitals. We all see a good season in a year-on-year capital of where we are. Net free cash flow is certainly held up a bit and we get to the foreign currency. Again in the season that’s something that we can just rely on. We are going to do what we have to do to reduce costs and improve gold production. And that remains essential to where we are going to. We got earning goals, and of course we are not hedged and have no intention of hedging.
With that, I’d like to hand over to questions.
(Operator Instructions) Our first question is from James Hayter of Rossport Investments. Please go ahead.
James Hayter - Rossport Investments
Hi, guys. Well done on (indiscernible), but a question referring to that -- with option in capital expenditure, how should we think of it? Is it sustainable at this level or should we expect thinking about its outcome maybe tie more towards 2 million to 2.5 million ramp a year as we got a sustainable number for our models going forward?
Thanks, James. Yeah, I think that question is very important because what we have been doing over quite a few years, of course we have been seeing quite higher amount of capital on the various projects we have had consolidated during the quarter and so on. And to a greater extend, we are at the end of those capital projects. And now a lot of the capital is actually in developing in the orebody; that’s probably where most of the capital goes. There is still some capital on the other areas that have smaller capital on (indiscernible) that’s the sort of capital level I think we can see going forward. What is it in the capital going forward of course is Golpu. We haven’t given numbers on that. We are hoping that we will be able to give better guidance on there on August as to what that project may look like, what the capital would be and they are certainly graphitizing and finding what their capital would be. Frank, (indiscernible) is mentioned, yeah.
James Hayter - Rossport Investments
Okay. Good luck, guys. Thanks.
(Operator Instructions) Our next question is from Patrick Mann of Deutsche Bank. Please go ahead.
Patrick Mann-Deutsche Bank
Good afternoon guys, again. Two quick questions please. Just on the amount received from bits-gold or from the sale of bits-gold, can you give us a sense of the after-tax amount that you receive and if there is any other accounting effects, and will this also inform the decision on whether or not to pay a dividend or the content of that dividend or whether it’s marked for anything else? I mean, just a very quick question on the RCF that you paid down, is that facility still available? Thanks a lot.
And I think you could –- this is Frank speaking, I think on the third thing as we speak about 30 million for the shares. We are not back on a 50 million rent. And as we I (indiscernible) in the current quarter, so it wasn’t included yet in the first quarter in the cash. And as we can start on the dividends of course we would have to move in fact all the other factors. If we have a good quarter it in our hand as we have got a lot of money in the bank, it would of course affect our decision.
And then, Pat, the other question is on the facilities that’s (indiscernible) and the current facilities, we have got (indiscernible) facility of 1.3 billion which is in site of which we can go on for the next few years, and then of course the dollar facility of $270 million which we have to revise within the next year. We will be speaking to the banks in the next few months to see what we do about this facility; self holders banks has actually indicated us good luck to extend that facility and we will be talking to them.
Patrick Mann-Deutsche Bank
Great. Thanks a lot.
Yeah, because we have got money in the bank to keep the renting money …
(Operator Instructions) Mr. Briggs, I will just pause for a moment if you get on further questions.
Graham Paul Briggs
Good. Glad to see that we are not seeing further questions. So let me just sum up. Thank you very much ladies and gentlemen for joining us. I think it has been a pleasing quarter despite the production issue that we had on the three operations. As I mentioned we have various structural changes we benefited, and will continue to be looking at what we should do to produce better tonnage by facility. Days has improved, productivity improved, but as we continue to drill and produce more gold, and that really is the basic of what we got to in the future. We got excellent cost control and time has indicated the sort of weakened inflation and so on.
So we are looking forward to do improved margins and pay dividends in the future. Thank you very much ladies and gentlemen. Have a good day.
Thank you. On behalf of Harmony Gold Mine Company LTD, that concludes today’s call. Thanks for joining us. You may now disconnect your lines.
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