Harmony Gold Mining Company Limited

Good morning, everybody, and welcome to the results of the first half of FY20. A special word of welcome also to four of our non-executive directors, Andre Wilkins, Kevin Sibaya, Michele De Boek, and Gretel Motal. Thank you very much for joining us this morning. It's really appreciated that you're here. I think today is also quite a landmark in the history of gold mining in South Africa because it will be the last year results presentation of Frank Abbott as our financial director. Now it's actually since 1927, it was 23 years that he's been the financial director. On and off he's been through arm for a secondment and back again. And then also a little bit of retirement for six months and come back again. This time around, We think he's still going to stay with us and still work as an executive director in charge of business development for the foreseeable future. Frank said to me the first results presentation they made, 40 million rand in Harmony at the time, and that was a very, very good result at the time. So much so that President Mandela called them and asked for 5 million to build a school. So that was... You know, the results presentation at the time in September 97, that was the first one. We also would like to then to welcome Boi Pelo. I think he's well known to everybody. Boi Pelo will take over from Frank from the 3rd of March. And Boi Pelo, welcome. You all welcome the team. You've been part of the team for quite a while. But welcome as the Financial Director of Harmony. So let's start with the presentation. Just take note of our safe harvest statement, please. Just in terms of safety, let's start with our safety. We are pleased to say that we've actually had a very good run for the first six months of this year. As a matter of fact, probably our best, as far as fatality frequency injury rate is concerned, probably the best performance we ever had in our history of a 0.07. And then from an LTI perspective, we had a slight regression from the previous six months of the previous quarter. But all in all, I think the trend is also in the right direction. The key contributors to that is really the visible felt leadership and behavioral interventions that we had in the company. Focusing on critical controls. I think we're really far down the line now to understand what are our controls and what are our risks. And proactively managing those risks in a way that's become a way of life for us. And then obviously a lot of modernization of our safety systems over the time. If one looks Moving forward to a proactive safety culture, I think I've had this slide up the last time around. We've progressed quite a lot as far as that's concerned. Our foundation is really learning from incidents. The psychology of safety, which we started now, quite a lot of work being done on that. The Harmony Leadership Program that includes a huge part of that is really on the safety, the culture of safety that we want to embed in the country, in the company. And then also our values and the way that we work our values. And then obviously visible field leadership. And really be connected. We believe that we're on track with a very, very sustainable way of dealing with safety. On the capacitation side, we've done the top-down leadership circles, and the bottom-up behavioral discussions that we have is currently going, and we've seen quite a lot of good that come out of this. If you look at, we had quite a number of operations that were fatality-free in the last year. Obviously, this is a program that we believe will take us five to six years to implement. We started in 2016, and we are really rolling it out and getting a lot of traction as far as that's concerned. If we look at the highlights for the quarter, we talked about the safety of fatality injury frequency rate improved by 46%. Like I said, it's the lowest ever recorded. Obviously, we know that good safety supports good production, and our risk management is really key in what we want to achieve. If you want to look at our gold production, we had an 8% drop if you look at competitive quarters. But if you want to look at the previous quarter, on the South African operations, we had a 4% increase in production. That's on the back of a 4% drop in grade. So we really had good momentum on all the operations in terms of our volumes. The biggest problem we had in the quarter was really the performance of Cusazaletu. Most of the other issues we were expecting and were performing more or less in terms of our plan, but the Cusazaletu mine was the one mine where we had quite a drop in grade, which was unexpected, and really on the back of where we had geological features that came in and actually dropped some of our high-grade panels, and then also mining into a fascist that was unexpected into the VCR, and those of you that understand the VCR know that it's quite erratic, and we mined many of our panels into what we call a terrace fascist. Being a sequential grid mine is not that easy to move, so we've done the moves that we could, and we actually had a total replan and Kusasa led to, should be out of the, by the end of this financial year, be back on the six grams, but then recovered. And then we had the 63% rise in operating free cash flow margin. The margin is now at 13%, really at the back of a gold price that increased with 19%. So very thankful for the gold price that we received. If we look at our continued opportunity to increase our margins, and so this is now since I took over, and we obviously had also a change in leadership on the South African operations. In FY16, we really focused on stabilizing our operations at 1 million ounces, South African operations at 1 million ounces. We introduced our hedging strategy. We repaid our debt during that year, and we actually put the target out there we'd like to get to close to 1.5 million ounce producer going forward. FY17, we bought Eden Valley. The rest of Eden, we recapitalized Eden Valley, and we actually had a very good run in the South African operations to be more predictable in our production targets. In FY19, Moab Kotsong, we acquired Moab Kotsong, we did the Hidden Valley E3 investment, we completed that, and our South African operations actually had very good momentum during the year. FY19, Moab Kotsong and Hidden Valley boost our production during the year, and we mined 1.45 million ounces, which is in line with our production guidance. Our focus in FY20 is to acquire quality assets, permit, fund and build Wafi Gold Pool, and I'll give you an update on that at the end of the meeting, increase margins from our current operations, and evaluate organic growth opportunities. When they look at our relational results, compared to the previous six months, the comparative six months, the first half of FY19, we had an 8% drop in production. I've actually to articulate the reasons for that already. Underground grade is really in the back of the grade that dropped from the 5.65 to the 5.29. Our gold price received was 19% up. Production profit, 21% up. Cash operating costs were down. And it's really not in back. If we look at the total cost of the mine, we've had about a 6% increase in cost, which is in line with inflation. Remember, that's the time when we actually do the adjustment for salaries during the first half of the year. And then also, obviously, the increases that we had on electricity and other inflationary things. It's really in the back of the lower grade that we had an increase in unit cost. And then operation-free margin is up with 63%, down to 13% from the previous, you know, the red and the black money. So, talking about raising our game, three, four areas that we need to really focus on. First of all, what has CASASA led to? We have the turnaround plan in place. The improvement in grades is expected in the quarter-fall of FY20. Target, the reinvestment project is proceeding well. We're really doing well in terms of the project. And the improvements expected in FY20-21, as a matter of fact, we're at the moment in quite good rate of masses, of masses that we're mining, and we should have a very good six months in there. Joel, the 137 level is completed. It took us quite a while to develop those extra levels. And the improvement is expected in early 2021 as the race lines get through. And in Hidden Valley, we really transgressed from stage five to stage six. We're in the top part of the ore body as we mine down the mountain. That obviously had much lower grade. So we expected that lower grade. We'll get into the higher grade latter part of this year, this financial year. And as we speak at the moment, we are actually mining much better grades at Hidden Valley, but that was expected. And then ask Frank just to talk a little bit through the financial results.

Thank you, Peter. This is the extraction of our income statement. And this is for the six months ending December 2019 compared to The six months ending December 2018. We start off there with the revenue. You can see our revenue is up to $15 billion. This is 11% higher than we had previously. The increase was due to a 19% increase in the gold price and that was unfortunately offset by 8% reduction in gold production. Our cash operating costs went up by 8%, as Peter said, this is the normal inflationary increases on those wages and on electricity. Our production profit went up by 21% to $4.1 billion. Amort was slightly lower because of lower production in this period. Expiration expenditure went up by $50 million and this was as a result of the expenditure at Wafi Gopu in this period, in the six months. We had a gain on our foreign exchange. This is from our dollar debt in this period. We paid tax on our foreign exchange gains and then our net profit was up to 1.3 billion from a loss of 19 billion in the period before. This is our US dollar. If we look at our net debt reconciliation, there we had the $4.9 billion at the beginning of the six-month period at the end of June. We generated cash of $3.1 billion. We spent capital in South Africa of $1.5 billion, $700 million at Eden Valley, and then there was some other expenses. And, you know, that takes us to our net debt position at the end of the year where we paid off 630 million net of our net debt. This is just in dollar terms. And I'll hand back to Peter.

Thank you. Our second whole focus area is going forward. Our strategy remains to produce safe, profitable ounces, increasing our margins. We have four strategic pillars. The first one is operational excellence. Our key focus remains to improve our safety performance and increase our productivity by doing that. and we really spent an enormous amount of time and effort to improve our safety. I mean, most of the time that both Bayes, the Chief Operating Officer, and myself are spending is really on safety issues and trying to improve and really mobilize the whole operations as far as safety is concerned. We revised our guidance due to the lowered rate, and this morning we had some feedback from some of our analysts that said, why do you actually adjust it for such a small margin? But we do believe that we need to have you know, be transparent. And so we dropped the production with 4% to 1.4 million ounces. And really on the back of the underground grade that we say now is between 5.50 and 5.57. That's in line with last year's performance as far as grade is concerned from the underground operations in South Africa. And our oldest standing cost on the back of that will now be between 600 and 610 rand a kilogram. From a cash certainty perspective, we'll focus on repaying our debt and hedge to manage our short-term volatility. And I think we've been quite good at that over the years. It's proven to be, you know, we're really making a lot of money because of that. And the hedges that we do going forward is an aspect of very, very high price. The third pillar is really effective capital allocation. And here we live under secure Wafi Gold Pool permitting. And we, this morning, had some very good news from out of Papua New Guinea. For those of you, just to take a little bit back in terms of where we were with Wafi Goldpoo, we submitted our application for a special mining license in 2016. It was a lot of negotiations. At the end of 2018, December 2018, we signed a memorandum of understanding with the government that actually governed the whole Wafi Goldpoo transaction. just after we signed it, there was a change of Prime Minister. The previous Prime Minister had a vote of no confidence in him. New Prime Minister came into power and at the time there was also a court case brought against the government by the Governor of the province, Marobi province, not being included into the negotiations and there was a stay of negotiations that was ordered by the court. So for quite a long, for a whole year now, we couldn't actually negotiate anything as far as Wafi Golpu is concerned. Both parties then agreed to withdraw from the MOU and then we got the stay of order then lifted this morning from the court so we now can continue with our discussions with the government on Wafi Golpu and we know that the government is very keen to permit this transaction so we believe that we're going to get some good traction going forward. So at least that is a good outcome and we can help us pursue and going forward with the permitting of what we go to. We'll pursue organic growth opportunities and mergers and acquisitions opportunities and obviously complete the hidden values access to stage 6 during the course of this year. From responsible stewardship, we maintain our strong stakeholder relationships. I think we as a company have been very been able to have very strong stakeholder relationships and continue to be a responsible corporate citizen with good governance in place and obviously focusing on environmental management. Just a bit about operating free cash flow and sensitivity of the gold price. If one look at the last six months' performance, the 1.9 million operating free cash flow, If we have a 5% increase in the gold price, it can easily increase close to 30%. Obviously, it's 10% more. If you look at the current spot price, around about the 10% level, it can easily be 60% more in terms of the performance. So we're really looking forward for a good quarter, giving the fundamentals that support the gold price. So our investment case, we are a 1.4 million ounce producer. We're a responsible gold mining company with an experienced creditable management team. We've got quality growth prospects at attractive returns, and we are really leveraged to the gold price because it's a real grand hedge stock. Thank you all. We'll take any questions.