Harmony Gold Mining Company Limited

Good day, and thank you for joining the Harmony FY21 results presentation. I hope you are all keeping safe. It's a pity that we can't be able to meet in person. Due to the COVID safety protocols, we will be presenting our full year results virtually. With me presenting will be Wapele Lukubo. Mashegu Mashegu was also in the meeting with me. Marianne van der Walt and Herman Perry from the executives. and then also the IR team and the leadership of Jared Kutzer. Please note of our safe harbor statement. Our FY21 delivery versus our, compared to our previous year's results, FY21 saw us deliver across all four pillars, resulting in a fantastic set of full year results. From the very beginning of the pandemic, we knew that we had to focus on the well-being, health and safety of our employees and host communities. At the same time, it was also imperative to steer the company through these unprecedented times to realize our strategic objectives. I am proud to report that we did both. FY21 was indeed an incredible year for Harmony and has positioned us for what will be a truly exciting future. Some of the key highlights we achieved in FY21 include that we have been continuing progress in improving across all aspects of ESG. Sustainable development is an important deliverable for management as we produce in ourselves for a greener and more equitable future. More of this shortly. We have had a solid operational performance of the acquiring and related assets. We saw a significant increase in production and improved grades. Our evidence was only then the new assets that we delivered, excluding Mpunega-related assets, we achieved a 5% increase on the old Harmony assets, and that's also a stunning performance. Excluding Mpunega-related assets, we achieved this extra 5%, which is actually noteworthy if you think that the closure of Unicel also happened in this year after the first quarter. The financial highlights included record headline earnings, of $5.6 billion from a loss of $828 million in the previous year, and this amounts to $9.23 per share. EBITDA increased 64% to $9.8 billion, and an EBITDA margin of 23%. We have delivered a strong, flexible balance sheet, allowing us to focus on key projects in FY22, which are also paying a final dividend. Our key features Some of the original highlights include a 3% improvement in our SA operations and last time injury frequency rate. That's due to 6.46 per million shifts. 83% increase in operating free cash flow from 6.5 billion. We have successfully integrated and related assets into our portfolio and have nine months of this results into our results today. which contributed towards a 26% increase in gold production. We managed to meet our production and grade guidance for FY21, and notably our only sustaining cost was only 0.4 above our guidance at R723,000 a kilogram. A very good achievement considering the sharp increase we have faced in commodities like electricity and consumables. Our ESG highlights. ESG falls under our first pillar of responsible stewardship and is embedded in our DNA. When making strategic decisions, all aspects of our ESG are also considered. I am pleased to report that we achieved some notable milestones this year, which include a record 3.38 million fatality-free shifts during the fourth quarter of FY21. And we have implemented an effective COVID-19 vaccination strategy, We have spent almost half a billion rand on training and development and 7.9 billion on preferential procurement in South Africa in the FY21 alone. Since 2016, we managed to reduce electricity consumption by 33% while realizing cumulative savings of 1 billion rands since 2016 on the back of these energy saving initiatives. This is a testimony to the fact that harmony turns risk into opportunities. Good governance and diversity are fundamental to our business. Ethical leadership is ethical mining. By adopting an integrated and risk-based approach to decision-making, we considered the consequence of each of our actions and how it's impacted every aspect of ESNG. Creating future value. Omni has an exciting pipeline of brownfield and greenfield opportunities. We are now in a strong position to take advantage of these opportunities to extract value and convert our resources to reserves, both safely and profitably. We are investing in exploration and have identified a number of opportunities, including Kelgold, Tautona and Savuka shaft pillars, extractions, and then also this target north. Wafi Gold Pool is still in permitting phase, and we are committed to realizing our aspirations of being a specialized emerging market copper gold producer. The environmental permit for Wafi Gold Proof has been approved, and we, together with our JV partner, continue to engage with the state of Papua New Guinea regarding the permitting. Whilst negotiations in PNG continue, we will continue to invest in the projects that have the potential not only to extend the life of our mines and to replace some of our mine advances, but also to add to the overall value of harmony. I think one of the stories today is really investing in creating value for the future. and the capital projects that we've approved of late. So the key new projects include Zyplas, which is a deepening of the high-grade Moab Kotsong, the mineway solution, career on tailings expansion, and extension of our Hidden Valley mine in Papua New Guinea. Other projects already in execution include the Tsepong Sub-75 project, the Doernkopf 207-212 levels, and related infrastructure upgrades, and the Target 1 capitalization and decline development projects. These capital projects are expected to add significant value to the Harmony, and based on our assumptions, we expect an approximately 40% increase in net present value from these projects. Not only do we expect improved grades, but we also are optimizing and extending the life of our mines too. The projects are expected to deliver strong cash flows and will bring significant upside to Harmony as these projects are completed. Notable in this graph is the importance of pursuing this project as to how it transforms our cash flow over time. Almond is currently a 1.5 to 1.6 million ounce producer. We are investing in our business and these projects because they have proven ability to extract value and extend the life of mine. We have shown these skills and expertise over the course of our 70-year history Not only have we created value for investors, but we have also sustained jobs, communities, small businesses, and continue to contribute to the viscous of the emerging market countries we operate in. The new projects are indeed complementary and will add to our production profile. Not only are we extending our production, but are improving our margins and property over time. These projects, therefore, make strategic and financial sense and will create long-term value for all our stakeholders and shareholders. We look at our margin expansion through our catalyst, and this is really the timeline of things that's going to happen going forward. In addition to these new products, there are other catalysts that will contribute towards the expansion of our margins. These include a number of our mines which are reaching the end of their life in the new year. We will see the streaming agreement with Franco Nevada coming to an end in FY25, and our major CapEx projects will also reach completion. All of these will ensure a decreasing CapEx profile, driving our margins higher. I will now touch on three of our four strategic pillars and how we have delivered on each of them in the course of 2021. Our FD Port Pelo Recuper will run through our financials and the cash certainty, after which I will conclude. Safety is a foundational value at Harmony, and safe production at all our operations at all times is non-negotiable. We have invested significant resources in embedding a proactive culture of safety through harmony, and now in phase two of our humanistic transformation journey, which we have aptly named Tibakotsi, which means to prevent harm in susutu. Tibakotsi is about understanding the importance of one another, caring for one another, and it requires a conscious shift on how we think about ourselves and others. Developing safety leadership capabilities embedding good safety practices, embracing a proactive safety culture, improving employee engagement, and learning from incidents are assisted in entrenching a safe behavior within all of our employees and help us to achieve our goals of zero loss of life. If we look at our achievements, whilst we are making progress, accidents remain a constant and real threat. We pay our respect to our colleagues who have lost their lives during the course of FY21 and extend our deepened condolences to their families. Each loss of life results in us having to reflect and see where our systems, procedures, and behavior needs to change or improve. We are working tirelessly to ensure that we result proportional to the efforts we are putting in. I am however pleased to report that despite the loss of life incidents, the majority of our key safety metrics are trending in the right direction. Our lost time injury frequency rate in South Africa improved 3% to 6.46 per million shifts from 6.69 in FY20. Some of the notable milestones we achieved in FY21 include Massimong, Joe, Mpuneng, Hidden Valley, and all surface operations. Three state plants were fatal free for the year, while Calgold and Hidden Valley achieved 3 million fatality-free shifts. Of vaccinations, COVID-19 remains a major focus and is considered a material risk to our business. There is continued coordination from all stakeholders, management and employees towards the fighting of the pandemic in both South Africa and Papua New Guinea. Our vaccination rollout has been successful and as of the 25th of August 2021, over half of our employees have either been partially or fully vaccinated. We are aiming to have 80% of our workforce vaccinated with the first jab by the end of October 21. Our KPIs are linked to our ESG. Further evidence of our embedded approach to ESG can be seen here in the breakdown of our balance scorecard. 20% of the management KPIs are linked to ESG outcomes, such as being included in the FTSE for Good index. ESG components are also included in our financials and operational KPIs, which further illustrate our integrated approach to ensuring that all aspects of our business and the impact of our businesses are considered. We are continually assessing how best to integrate ESG factors into our KPIs and will be informed by those factors with material to harmony, but also the various frameworks which guide our sustainable development strategy. Our energy initiatives. Just as we place emphasis on diversity amongst our workforce, it is essential to consider how we diversify our energy mix. With hydropower already in place in Papua New Guinea, we have an exciting and comprehensive renewable energy rollout plan in place in South Africa. The first phase includes plans for 30 megawatt of renewable energy production, whilst phase two will see us develop and incorporate a further 73 megawatt of renewable energy into our plans. We have realized significant savings through our energy saving initiatives post-acquisition of mineway solutions. We also have seen our intensive oil move down considerably due to the high volumes treated at our surface source of business. We have clear copper-gold aspirations and are committed to decarbonization through various initiatives. The secret of our strategic policy is operational excellence. where we have once again shown in the past year that we have been able to extract the best from our assets. We have identified five key focus areas to help us achieve operational excellence throughout Harmony. These are safety and health, which I've discussed, active cost management, which I will address, capital allocation prioritized to drive margins growth, and production excellence aimed at productivity improvement. and obviously infrastructure reliability. The acquisition of Moab Katsong in 2018 and then Mpuneng and related assets last year has had a significant impact on our oil and sustaining costs due to the high grades at the underground mines and low costs and high volumes at the surface sources business. This chart illustrates which of our mines have the highest oil and sustaining margins, but it also shows where we need to focus our attentions. Mines in the red block, namely Target, Joel, Calgoat, and Sapong, are all undergoing optimization projects to ensure margins expand as they contribute and produce to planned driving costs down. This is just the same slide, just in US dollars per ounce. I'll just quickly talk through these assets that require focus. First of all, Calgoat. I mean, Calgold really is a mine that we've mined at the first lockdown we mined for profit. It was the only operation that was operational in South Africa, and we really mined the higher grade of the ore body out. But we also have a long-term plan for Calgold, and really the biggest thing for us is really to create the flexibility. So in the last year and also going forward in this year, a lot of effort will be put into the A-zone and water tank pit, the bridge area that actually should also be mined so that we can actually create a bigger pit, and actually get sustainable volumes in place and stockpiles in place for CalGold so that we can actually go through the ups and downs like with rain and all other kind of things, get CalGold in place. So CalGold, although we didn't perform according to our, you know, didn't make money, we actually planned it that way and actually want to create a bigger and more flexible mine going forward. Target 1 was probably the one mine that we had quite a blowout for the year. There was two things that happened there. First of all, we had huge problems with ventilation and cooling, which we in the meantime resolved by actually installing extra capacity. We also had the collapse of the two stoves, massive stoves, which we had to deal with. And then we had a seismic event at Target which led to the loss of life, which we had to rethink our our safety aspects of target, and actually then many of our colleges we resupported with the new standards that we put in place. All of that has put target in quite a difficult situation for the year, and we hope to see this year that things will improve. So Paul is really about creating facelinks and flexibility. We're actually busy with the sub-75 project. We do believe that we're going to get better grades going forward, and we actually have restructured the mind to have now two general managers both in what we call Tsepong South and Tsepong North, which is the old Pakisa and the old Tsepong. And since we've done it, we've seen quite a good performance of Tsepong. And then, Joel, I'm pleased to say that we in actual fact completed the deepening. Chairlifts are running. We are back in normal things. And we really have done quite a lot of work to actually optimize the mine. And going forward, the mine will be in a much better shape. Cost control, I think our orderly sustaining cost for FY21, as I said, was R723,000 a kilogram. Marginally more than our cost, than guidance for FY21 was between R700 and R720. Two contributing factors for the higher orderly sustaining cost was COVID-19 and royalties, which each added around 2% to our orderly sustaining cost. Each of these items, we would have been below the lower end of the guidance, and we are confident that we will manage to keep our costs controlled. We don't expect COVID-19 to cost to be as high as in FY22, as this includes a number of ones-off, such as establishment of clinics, installation of temperature readers at all operations, and just the general management of COVID. Obviously, with the vaccinations being rolled out, that obviously is at a cost not for the vaccination itself, but for the other work that we have to do as far as that's concerned. But are all these saving costs for 2020? The 20 is planned at 765 to 800,000 rand a kilogram to cater for the inflationary increases and increases of electricity costs in South Africa. Our wage negotiations are currently underway, and we expect the agreement in the first quarter of FY22. Just in terms of our cost variances between FY21 and 20, you can see in the slide here that It was a function of numerous items, but predominantly the inclusion of Mpuneng and related assets into our numbers. And this added around R5 billion to our cash costs. That is in normal numbers. It's also worth noting that FY20 costs were lower than anticipated due to the lockdowns and impact of the pandemic. So we did see a normalization of costs in this year. Other items which increased were consumables, general stores, and maintenance of about R305 million. Support costs, so $133 million really with the introduction of steel nets in all our operations, you know, high-grade or stoves of high-risk stoves. Chemicals and explosives was about $83 million. And then contractors' contracts, you know, we added coal gold, which is an increase of $171 million as we mined more waste, and then electricity money due to the annual tariff increases that we saw. Look at our production guidance for the year. coming. In FY22, we are expected the production to increase to just under 50 tons of gold across all our operations. This translates to around 1.589 million ounces. This is an increase in production between 3 and 4 percent. To note is really the reduction in surface sources, as we've mined out many of the surface sources that was particularly at the the Koppenong plant that was for surface soils which we now put onto care and maintenance. The next slide is really the same, just in ounces, same slide. And then the slide is improved grades. We're also improving our grades. A constant trend in the expected grade currents for FY22 will be around 5.57 gram per ton from our underground operations in South Africa. Okay. Our third strategic pillar is effective capital allocation. I would like to spend some time here discussing our new projects in FY22. Now, how many embarked about the growth strategy in 2016? I'm pleased to say that we have transformed our operations significantly over the past five years. We have concluded value-accreditive acquisitions, theorized our portfolio, while also improving quality of our assets. We have reduced our debt volumes. placed ourselves in a strong position to extract further value through exploration and development of various projects, and we will be committed additional capital to these projects in FY22 as we invest into our future of growth. On the right-hand side of the slide, we have listed the projects that meet our capital investment criteria. A number of deliberations took place with technical and mining specialists, We have also taken into account the views of stakeholders and shareholders alike, and we believe that these projects are the ones that will add significant value to Harmony. The substantial value inherited in our portfolio and these projects allow us to do what we excel in, and that is to mind responsible and to benefit of all of us. If you want to look at the next slide, this is really a slide about our growth and resources. Our acquisitions have added 28.4 million ounces to our resources, which has resulted in a 90% increase year-on-year. And if you look at reserves, similarly, our reserves have increased by 16% on the back of the new acquisitions, adding 9.3 million ounces year-on-year. The additional reserves will be from Zyplas, Mpuneng, Mineway Solutions, and Indian Valley Extension. Our FY22 capital guidance... Our total CAPEX will thus be increasing from 5.1 billion in FY21 to 8 billion in FY22. Sustaining CAPEX will represent 71% of the 5.7 billion, while the major or growth capital will be 29% or 2.3 billion in FY22. The breakdown of major capital expenditure can be seen here, with the majority of the major capital being allocated between Zyplas and Mineway Solutions. And Zyplas will be funded by Moab Kotsong, Mindvalley Solutions, and Hidden Valley by our group cash flow. The same split can also be seen here in US dollar. It is important to emphasize that we are investing in our high-grade long-life assets. We have de-risked our portfolio through the surface and high-grade longer-life assets. And the result is that 88% of the free cash flow generating in FY21 was from our newly acquired assets and surface operations. This is a substantial shift from what we had in the past and perfectly illustrates our re-engineering portfolio. Attracting more value from these assets is therefore essential. The capital we previously allocated to Moab, Kotsonga and Hind Valley has been paid back And we are expecting the remainder of our investment in Penang and the latter has to be prepaid in FY22. At Penang, 1.7 billion rand of the 3.3 billion rand acquisition price has been paid back already with only nine months, with about 1.6 billion rand outstanding. When they look at the Zyplast project that we just approved, I mean, the key numbers that are there is a 225,000 ounce per annum producer. We will have a grade of over 9 grams a ton, 24-year life of mine, and a pre-tax real IRR of about 19%. But this is a long-life asset, and an asset that certainly would stand us in good stead over many, many years. It is more in itself has been a very, very good asset for us, very, very profitable, and we expect... Xyplast to be equally profitable going forward. Just in terms of how Xyplast ore body looked like, and you can see, you know, the left-hand plan there, you can see, you know, Moab Katsong ore body was really three distinct different ore bodies, the one being the upper mine, which really mined out through Great Naligawa mine. Most of that was mined out through Great Naligawa mine. And then the middle mine, the mine that we're currently mining, and you can still see what is left in the middle mine, And then the big, very big Zyplas ore body. And that's actually the biggest part of the ore body for Moab Kotsong. And again, it's right in the sweet spot as far as grade is concerned. And so we're very comfortable that this mine will be a good mine for us going forward. If one then look at the mineway solutions, again, close to 100,000 ounces per annum. A very good oil and sustaining cost of 571,000 rand a kilogramme. IRR of 43%, a 16-year life of mine. And it's really about, the next slide will actually show you the area. On the top, you can see the green area there is where Mineway Solution Plant is. On the right-hand side, you will find the Carrerant tailings facility. It's really about extending the tailings facilities to cater for the next 16 years' life of mine. And then we will mine the mineway solution complex and also the waste complex. The waste complex is the area that will move in first. That is a higher grade of the staling dumps that's available and helps you mix it with the mineway solutions part of it. But that is the mine that we have to do. But we really have to now extend career on to be able to mine the next 16 years. And it's actually quite a no-brainer of a project. And Then we look at Eden Valley. Eden Valley is really just the extension of another two and a half years of the current life of mine. It's really in the back of using the Amata pit as a tailings facility because the big constraint there is really tailings placement because we're getting to the end of the current tailings facility life of mine. And it's a good mine with a good cat pack, good management team, and we are retaining obviously our workers for a strategic purpose. possibly deployment later on into Wafi Gopu. Just for those of you that have not been to Inland Valley, this is how the spits look like. You can see the cat-back on the right-hand side will be stage 8, which is the last cat-back. And right in the left-hand corner you will find the TSF Namata pit, which now will be the TSF 2, and the plant, the processing plant at the right there. If one then look at the creating that second TSF. This is a Hamata pit. We will build a wall and then obviously use the tailings to go into that old pit that we've mined. So, yes, now I will hand over to Papello to take us to the next part of the presentation.

Thanks, Peter. FY21 has indeed been a fantastic year for us and we delivered an exceptional financial performance. Headline earnings per share increased by just under 700% to 923 South African cents from a loss in FY20 of 154 cents. You note EBITDA increased 64% to 9.8 billion rand from 6 billion in FY20. The higher production combined with a 16% higher rand kilogram gold price resulted in a net profit of 5.6 billion rand in FY21 compared to a loss of 850 million in FY20. We expanded our operating free cash flow margin to 16% in FY21, a 23% increase year on year. We realized a 1 billion rand gain on derivatives in FY21 In FY 2020, we saw a loss of 1.7 billion rand, so this does confirm that our more definitive hedging program is yielding positive results, and we'll still see that in future. Our existing hedge book is also favorably positioned relative to the current gold price. In terms of debt, you'll note that we've managed to reduce our net debt by a further 819 million rand during the course of the financial year, and our net debt to EBITDA sits at 0.1 times from 0.2 times in the previous financial year. The next slide is just the same indicators but in U.S. dollars. In terms of our balance sheet strength, our balance sheet has continued to strengthen, and we've managed to deleverage considerably over the last three years. As I alluded to in the previous slide, we currently have the net debt to EBITDA at only 0.1 times, which is well below our target of one times. What is also noticeable to note is the blue bars, which indicates the EBITDA, and it's just an indication to show just how well the new acquisitions have been for us. Again, the same chart reflecting net debt to EBITDA in U.S. dollars. In addition to reducing our debt, we've created flexibility. and now have 7 billion rand or 500 million U.S. dollars in available headroom through cash and undrawn facilities. This gives us substantial room to maneuver and provides a strong buffer during times of uncertainty. It also allows us to take advantage of the kinds of opportunities that Peter has discussed and others which may yet present themselves. Again, just a U.S. dollar representation of the headroom. Harmony now has a clear dividend policy where we will return 20% of net free cash generated to shareholders. We'll be paying a final dividend of 27 SA cents in FY21, and this combined with our interim dividend of 110 SA cents results in a dividend yield of 2.4% based on our share price on the 27th of August. We're confident in our ability to pay a dividend alongside our growth aspirations as we're in a strong position to fund capex from our retained cash. Thanks very much, and I'll hand back to Peter.

Thanks, boy pillow. Okay, so let me conclude. The harmony of FY21 is very different from that of old. The harmony positions is positioned in FY22 and beyond, and has a solid building block in place to ensure we mine sustainably throughout the cycle. We have optimized our existing operations, and we have integrated ESG practice throughout Harmony. Our acquisitions combined with our responsible hedging strategy will ensure that our balance sheet remains strong and flexible, so that we can deliver positive returns to our shareholders and stakeholders. Our investment case remains compelling. We have re-engineered our portfolio and deleveraged our balance sheet to create an optionality and pay a dividend alongside growing the company. We are geared to the rank gold price with rank cost but US dollar revenue. As a 1.6 million ounce gold producer, we are expanding our margins through organic growth and our new exciting projects. We have a tier one copper gold asset in Papua New Guinea and our embedded ESG practices will create lasting legacies and ensure a sustainable future for all our stakeholders. We thank you very much, and we'll now be taking questions.

Thank you very much, Peter. If we can just move over to the chorus call, we'll take questions for people that are dialing in.

Of course, sir. The first question we have is from Adrian Hammond from SPG Securities.

Good morning, Peter. Good morning. I have three questions. Firstly, I'd like to get a bit more clarity on your ability to pay dividends that you seem to be confident on. If I add your capex in addition to sustaining capex, I get a falling cost in excess of spot prices. So just curious to know how you reconcile that outlook given your aggressive CapEx plans and your ability to pay a dividend. Secondly, I want to know if you considered the implementing B120 project, if it's still an option, and if not, why? And then thirdly, could you give us an update on the movements within union membership, and if NUMSA is making headway into gold as they are in platinum. Thank you.

Thanks, Adrian. I think maybe if I take the dividend one first. Obviously, I mean, our policy is quite clear. It's 20% of net free cash flow. That's after all capex and the like or other below the line items. Yes, obviously with the capex spend that we're seeing next year, our free cash flow generation will be minimized somewhat. But it's important to understand that this 8 billion rand that we're spending is setting us up for growth. So obviously as that capital comes down and the projects come on stream, we're going to see significant margins opening up. So, I mean, in order for us to grow the company, we need to spend more. this capex and the dividend will follow suit. But I must add that in assessing these projects, et cetera, you know, the discussion of a dividend does still feature. So it's important to still keep that in mind when you assess, you know, our stance on dividends.

So is that still flexible? I mean, I noticed the footnotes in your slide that you mentioned Although your policy, you say it's quite clear, you still consider future cap expense, so it's not so clear.

Yeah, and I mean, those are standard caveats that any company would have. And, you know, we have to be responsible as well, the board, in terms of assessing what's coming up, what lies ahead, et cetera.

Cool. Thank you. Adrian, your Mpuneng question, let me just repeat that again because it's about deepening of Mpuneng. Is that correct?

Yeah, into the carbon leader reef.

Okay. Yeah, the deepening is really on VCR, but then obviously there's also a bit of carbon leader that will be available to the north or west of it. But, yes, at this point in time, we are considering the extraction of the two shaft pillars, which is both Savuka and Tautana, and then what we call the Tautana blue block. which the Tona Blue Block is the area that Anglia Golda Shant, in any case, had in their plants. And we are busy developing that area and creating that flexibility. What is exciting about the Savuka and Tau Tona Block is that it is obviously on VCR and Carbon Leader. And both of them have got higher grades than, for instance, the Bambanani had. So they are very, very high-grade blocks that we can take. Obviously, they are tricky. and have to be taken with caution and a lot of planning that goes with that. And then obviously the deepening of Mpuneng is certainly something that's on the card in the long term. You know, at the moment we don't because we have a nine-year life of mine left in our current, you know, without even the, you know, the sharp pillar extractions that we want to do. So it's obviously something that will come a little bit later. But yes, I mean, deepening the mine will actually add another 30 years of life at a very good profit to Mpuneng. So You know, we're very happy with what we experienced at Imponeng. We've got fantastic people there, you know, very, very good performance, performance culture, and everything in place. And then as far as the unions are concerned, yes, we still have the NUM as being the number one unit, and to the tune of about 60% of our labor force belong to the NUM, even after taking over where, you know, obviously AMCU had a much bigger say in Imponeng. But having said that, I mean, we obviously work with all the different unions. And, you know, so we are busy with negotiating. We have got all the major unions around the table, being NUM, AMCU, and also, you know, UASA and Solidarity. And, you know, all the unions are around the table to have their discussions with us. So... And we try to keep a relationship with everybody else, but NUM is still the majority union for us.

Thanks so much. Have we got any further questions?

Yes, we have a question from Leroy Mguni from HSBC.

Thanks for the opportunity. My first question is just around the Tsepung impairment. It seems to be driven by deterioration in your outlook for grades and I'm just trying to reconcile that with some of your comments from your last results around expecting those grades to improve as you mine more from the higher grade practices section. Has anything changed there? Maybe if you can give us a bit of color around what exactly is driving that impairment. And then just on your guidance for production, it seems there's quite a bit of production that will be lost from your South African surface operations. So if you could just elaborate a bit on exactly what's driving that and if it will return in later years, please.

Thanks for that. First of all, Sir Pong, every year we do As we upgrade our ore models, geological models, and also our grade models, we obviously do a life of mine plan. So in Supong's case, nothing deteriorates from the deepening of the mine because the deepening of the mine is really in a high grade. So the high grade part of that will certainly continue, and we expect the grades to improve going forward as we get to the needs of the ore bodies. So that is still in place. I think impairment is really about the life of mine, looking at the life of mine, and there are some changes in terms of certain blocks that we've taken out and said we're not going to mine it because it's not too low grade, and certainly we're not going to make it. So that's what the impairment is normally working on. And then the second question was really on the, let me just remind me on the second part of that question.

Production.

On surface, yeah, surface sources. The biggest change from last year to this year is that we're actually going to take the Koppenong plant offline. from surface sources, and the Koppenong plant has actually run out of surface sources to be mined. So what we've got left now we will do through the Great Nalewa plant and not through Koppenong. So Koppenong plant is coming to an end to put on care and maintenance. And then obviously, you know, as we go with surface sources, we start with the higher grade dumps first and then lower grade. So there's no chances of actually bringing surface sources back going forward. I mean, what we have with surface sources is what we've got. And what we can do going forward is that we will bring in the Kusasa Lake to plant, to actually mill surface sources in the West Vets area. But as far as the Ball River area is concerned, you know, those surface sources are completed. So we're not at the end of that high levels of surface sources that Anglicold and Shanti had. But we always knew that. We always knew that we were only going to have a few months of that going forward. Koppenang plant obviously is now, up for care and maintenance and we can make a decision still in terms of are we going to actually take it down or try and do some more surface retreatment and that feasibility at this point in time is ongoing.

That's very clear. Thank you.

Thank you. The next question we have is from Jared Hoover from RMB Morgan Stanley.

Hi, Peter and team. I've got a few questions, please. Maybe I'll just start off with my first two, and I'll follow up with a few more. So my first one, relatively easy. You've given us a mine-by-mine asset split for FY22, but can you give us an indication of what the total capex for the Mineway Solutions TSF extension is for Hidden Valley and for Zyplot? And just remind me what your goal price is that you're using to calculate your IRRs. I'll leave it there for now and follow up with a few more.

Okay. The total CAPEX spent on major CAPEX, as we call it, project CAPEX, for Zyplast will be 4.5 billion rand, but that will be spent over a very long period of time. As we create new levels, we start mining, and so we will continue. So it's about 10-year time that we're going to build all the declines to the bottom of the declines area. Career land extension is $3.2 billion. That will be about a four-year to build. Obviously, we're starting now with the soil preparation and everything else. That will be quite a high capital spend in the first year or so. Hidden Valley, what's the number of Hidden Valley? It's about 1.4. Again, that will be spent as we do the cutback over the time, so it's 1.4. So those are the capital spends that we have. And the final part of that question is that 800,000 rand per kilogram was used in the calculation of the NPVs and everything else. The rand per kilogram was used, 800,000 rand per kilogram.

Thanks, Peter. I mean, just high level, that seems like quite a high number to use. Do you perhaps have a sensitivity at a slightly lower gold price for what those IRRs might look like? Maybe at Say 600, 650?

Yeah, we used, I think, a 700, 750, and then a 800, and 850, and obviously a 900 that we've put into the, you know, obviously we always do sensitivities on these things. And even if the gold price do drop, you know, I think these projects are still worth our while to continue because, I mean, they were long-term, they are low oil and sustaining cost operations. So they certainly go, and if we go to, you know, like a 700,000 rand a kilogram we will still be building these projects. Probably below that we will reconsider.

Okay, okay, great. And then my second question is, you've recently made a bid for, or call it an unsuccessful bid for Golden Globe in Australia. And obviously there's a lot more capex coming up in FY22. So my question is, is this capex that you're spending in South Africa and Papua New Guinea now really plan B? because your intention was maybe to do acquisitions, or should we be thinking that there's potentially more M&A to come in the future over and above this current capex to fill that production profile gap between 2026 and 2030?

Gerrit, I'm not sure where you get the information from, but we never made a bid for Golden Globe. I think we were part of a team that looked at the asset, but we never made a bid for it. But, yeah, we're always scanning the environment for opportunities that can possibly come our way, We're constantly looking at things. At this point in time, we've got nothing in mind that we can possibly do. Obviously, it must be very accretive. And we also have to look in terms of how we're going to be able to manage that properly. So we don't have anything on the cards as we speak.

Okay, so fair to say that M&A is something that is constantly in focus. And, I mean, maybe once you go past these two sort of peak CapEx years, 2022, 2023, we could potentially see something if it meets your hurdles. Yeah, no, we will. Certainly, we'll always be on the lookout for something. Okay, and then one more question from me. Obviously, there's a step up in SIV CapEx as well. And historically, you've had issues around flexibility in your underground operations. It was made worse by COVID-19. But should we be thinking of this bump in SIV CapEx as maybe one to rectify the flexibility situation, or is just the case of that's the level you need to spend to keep the production profile at about 1.4 million ounces?

I think it's a bit of both. We certainly lose a little bit of time during the COVID lockdown. Remember, at one stage, we only had 50% of our people back at work. And then when we got back, we had to look after our vulnerables. We also had to look after people that were not at work. So the development was not always fully manned. And there's a little bit of catch-up there, but I don't think it's a problem in terms of our flexibility. We've got all of that as an account in our plans going forward. But we do want to create more flexibility and do some more development. But there's also some of the operations actually getting to the end of their lives, which is like, you know, it will take some development still because it's got about a three-year life, but then, you know, two years from now there will be no development on that mine. It will only be the harvesting of the final part of the ore body. So, you know, it's a bit of that. So, Yeah, so it is quite a jump, but it's because of the underperformance of it in the previous year and a little bit of catch-up as far as that's concerned. But I'm not concerned that we don't have the flexibility to deliver on our plan.

Okay, great. Thanks, Peter. I'll leave it there for now.

Thanks, Jared.

Thank you. The next question we have is a follow-up from Adrian Hammond.

Hi, Peter. Yes, some follow-up questions, please, then. Just curious about costs going forward. Firstly, are you hiring contractors to offset, more contractors to offset COVID impacts? And then I think maybe a question for Pelo. Just like to get a sense of what, you know, what sort of cost inflation you as a South African, a large South African gold producer is experiencing now for a normalized rampant time basis. So factoring in it. Power, diesel, labor, et cetera. What sort of inflation numbers are you experiencing? And then just perhaps a follow-up from Jared around other opportunities. So you stood here some time, a year or two ago, with great ambitions to explore further and diversify the portfolio. Peter, could you give us some color on the change in the landscape since that point in time? It seems that those opportunities are harder to find. Thanks.

Okay, thanks, Adrian. I'll kick the first and the third question. I mean, who can take the second one? On the labour and contractors, Adrian, no, we haven't actually increased our labour, our contractor complements to make use of. We, in actual fact, last year closed down Unicell, so we absorbed that labour into our operations, and we're now back to normal levels. Obviously, the next mine that we will close is Masimung, which has got about 2,000 people on the mine, and we obviously also hope that we can absorb them into our operations by open-air voluntary separations and things like that, so we don't have forced retrenchments. So we're very stable as far as that's concerned. Our contractor labor has been very stable. In terms of the landscape, how it's changed, obviously the gold price is quite an influence in terms of being able to find the kind of right asset and pay the right price for that. But we still have the ambition to go into Africa. We still have the continental Africa now. We're still, you know, looking for opportunities in Southeast Asia. We will also look at some, you know, Australia, as it is possible, but that's obviously very expensive. And opportunities in South Africa. Nothing of that is off the cards. We, at the moment, we believe that we've got very good projects and we are very excited about our abilities to deliver on these projects and actually deliver, you know, that's a good challenge for us. But certainly looking at, you know, opportunities that will come our way. But, you know, the... You know, we had probably an opportunity in the past that we had, you know, a company that wanted to, you know, change their views as far as their strategy is concerned, and that obviously suited us. Going forward, you know, we're not sure what's going to happen, but I think there's still some opportunities that are still available for us. But, you know, the African, continental Africa dream is still there, and we are always looking at opportunities to go there.

Thanks, Peter. Can I just take you up a bit more on the costs? You're now probably the most marginal globally, given your new guidance. And typically when costs go up so much, one talks of cost savings. So are there opportunities within the group to remove costs going forward? Yeah, I think so. You know, with that in mind, if gold prices start to fall, what options do you have to offset that case? Thanks.

Yeah, I think, Adrian, if I can maybe just take the first part of that question. I think obviously we – there's been quite a lot of, you know, things that – headwinds that come as far as cost is concerned. The one is obviously that the electricity cost is always forever increasing. We – You know, obviously renewables is one of the ways out, but obviously trying to find a way of actually saving costs. If we look at our absolute costs year on year and what we plan going forward, our absolute cost is going up, you know, with only 5%. I'm talking about operational costs. The rest is really in the capital and the things like that. In capital, you can either switch on and off and things like that. You can go with that. But I think importantly is that we want to de-risk the portfolio that we've got. We've got certain assets and we want to get better quality assets and actually mining the better quality assets as being the And that will create, obviously, the margins that we need to go forward and be able to go through these fluctuations in the gold price. So it's really on taking these kind of operations, developing them, making sure that they perform well. Those are the cost levers that we can pull. I think all the things that we possibly can do in terms of saving costs we've done. There's still a huge amount of work that we're doing to try and de-bottling all our operations to improve our productivity. You know, that's what we call our business improvement strategies. And one day when we have, yesterday, I think it's worth your while to come and see what we are doing as far as that is concerned. So a lot of that work has been put in place. But really it's about actually, you know, getting the higher quality assets into our portfolio, making a bigger part of the mix, and making sure that we drive our margins up. Would you like to take some of that?

Are you covered on the inflation aspect, Adrienne?

In the past, your average inflation has been about 10%, and given the dynamics of the past, has there been any change to that?

Yeah, I mean, we've always tried to manage it below general mining inflation. Obviously, with our pocket of costs, labor is obviously the biggest chunk, then electricity. Peter touched on the electricity. I mean, there is that large increase. We can't avoid that, but we try and manage it through managing consumption renewable, et cetera. We're in the middle of wage negotiations, as you know. So, I mean, all parties are trying to conclude that as quickly as possible. And then when you look at your other costs, your consumables, et cetera, those will generally be managed within normal inflation, your 4% to 5%. Thanks, Peter.

Peter, I think that's all we've got time for. We need to wrap things up.

Just for me, just to say thank you very much for joining us today. I really appreciate that. Again, I think, like I said in my conclusion, we have a totally different company. We've got new challenges ahead of us to really build these projects and build world-class projects. We're looking forward to that challenge. And, yes, as a company, we are certainly very excited. We also get a huge amount of support to all the stakeholders that we have within our workers, everything else. We hopefully will conclude the wage negotiations soon and then obviously get some stability as far as that is concerned too. So thank you very much for being here today, and we really appreciate your presence. Thank you.