Harmony Gold Mining Company Limited (HMY) Q4 2021 Earnings Report, Transcript and Summary

Good day. And thank you for joining the Harmony FY'21 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 Boipelo Lekubo; "Mashego" Mashego is also in the meeting with me; Marian van der Walt and Herman Perry from the Executives; and then also the IR team under leadership of Jared Coetzer. Please take note of our safe harbor statement. All FY'21 delivery versus our -- compared to our previous year's results, FY'21 saw as the level 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 wellbeing, the 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. FY'21 was indeed an incredible year for Harmony, and has positioned us for what will be a truly striking future. Some of the key highlights we achieved in 2021 -- FY'21 include that we have been continued progress improving across all aspects of ESG. Sustainable development is an important deliverable for management as we position ourselves for a greener and more equitable future; more of this shortly. We have had a solid operational performance after acquiring Mponeng and related assets. We saw even a significant increase in production and improved grades. Our the new assets that which delivered, excluding Mponeng and related assets, we achieved a 5% increase on the old Harmony assets, and as also stunning performance. Excluding Mponeng and related assets, we achieved this extra 5%, which is actually noteworthy if you think that the closure of Unisel was also happened in this year, after the first quarter. The financial highlights included a record earnings of ZAR5.6 billion, from a loss of ZAR828 million in the previous year, and this amounts to a ZAR9.23 per share. EBITDA increased 64%, to ZAR9.8 billion, and an EBITDA margin of 23%. We have delivered a strong, flexible balance sheet, allowing us to focus on key projects in FY'22, which we're also buying a final dividend. Our key features, some of the original highlights include a 3% improvement in our SA and Lost Time Injury Frequency Rate, that's through the 6.46 per million shifts, 83% increase in operating free cash flow, from ZAR6.5 billion. We have successfully integrated Mponeng and related assets into our portfolio and have nine months of this results in the -- into our results today, which contributed towards the increase in gold production. We managed to meet our production and grade guidance for FY'21. And notably, our all-in sustaining cost was only above our guidance of -- at . 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 FY'21. And we have implemented an effective COVID-19 vaccination strategy. We have spent almost ZAR500 million on training and development, and ZAR7.9 billion on preferential procurement in South Africa in the FY'21 alone. Since 2016, we managed to reduce electricity consumption by 33%, while realizing cumulative savings of ZAR1 billion, since 2016, on the back of these energy saving initiatives. This is a testament to the fact that Harmony turns risks into opportunities. Good governance and diversity are fundamental to our business. Ethical leadership is ethical mining. By adopting and integrating and risk-based approach to decision-making, we considered the consequence of each of our actions, and how it's impacted every aspect of E, S, and G. Creating future value, Harmony 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 Kalgold, Tau Tona and Savuka shafts pillars, extractions, and then also there's Target North. Wafi Golpu 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 Golpu 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 P&G continue, we will continue to invest in the projects that have the potential not only to extend the life of our mines and replace some of our , but also to add to the overall value of Harmony. I think one of the stories in today is really investing and creating value for the future and the capital projects that we've approved of late. So, the key new projects include Zaaiplaats, which is a deepening of the high-grade Moab Khotsong, the Mine Waste Solution Kareerand tailings expansion, and extension of our Hidden Valley Mine in Papua New Guinea. Other projects already in execution include the Tshepong Sub 75 project, the Doornkop 207/212 levels and related infrastructure upgrades, and the Target 1 capitalization and development. These capital projects are expected to add significant value to the Harmony. And based on our assumptions, we expect an approximately 40% increase in 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 these projects as to how it transforms our cash flow over time. Harmony is currently a 1.5 million ounce to 1.6 million ounce producer. We are investing in our business, and these projects to 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 basis, but we have also sustained jobs, communities, small businesses, and continue to contribute to the of the emerging market countries we operate in. The new projects are indeed complimentary, 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. If 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 projects, 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 FY'25, 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 through the course of '21. Our FD, Boipelo Lekubo, 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 2 of our humanistic transformation journey, which we have aptly named , which means to prevent harm in 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, and embracing a proactive safety culture, improving employee engagement, and learning from in safe behavior that within all of our employees, and help us to achieve our goal of zero loss of life. If you look at our achievements, whilst we're 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 FY'21 and extend our deepest 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're working tirelessly to ensure that results proportional to the efforts we're putting in. I'm 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 rates in South Africa improved 3% to 6.46 per million shifts from 6.69 in FY'20. Some of the notable milestones we achieved in FY'21 include Masimong, Joel, Mponeng, Hidden Valley and all surface operations. Free State plants were 523 for the year, while Kalgold and Hidden Valley achieved 3 million fatality free shifts. Our vaccinations, COVID-19 remains a major focus and is considered a materialist to our business. There is continued coordination from all stakeholders, management and new stores towards the fighting of the pandemic in both South Africa and Papua New Guinea. Our vaccination rollout has been successfully and as of the 25th of August 2021 over a half of our employees have either been partially or fully vaccinated. We're aiming to have 80% of our workforce vaccinated with their first job by the end of October '21. Our KPIs are linked to our ESG. Further evidence of our embedded procedures can be seen in the year in the breakdown of our balanced scorecard, 20% of the management KPIs are linked to ESG outcomes, such as being included in the FTSE4Good 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're continuing assessing how best to integrate ESG factors into our KPIs and will be informed by those factors material to Harmony, but also the various frameworks which guide our sustainable development strategy. Our Energy Initiative 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 megawatts of renewable energy production, while Phase 2 will see us develop and incorporate a further 73 million megawatts of renewable energy into our plans. We have realized significant savings through our energy saving initiatives post acquisition of Mine Waste Solutions. We also have seen our intensive move down considerably due to the high volumes treated at our surface source of business. We have clear copper/gold expirations, and are committed to the de-carbonization through various initiatives. The secret of our strategic pillars is operational excellence where we have once again shown in the past year that we have been able to extract the base from our assets. We have identified five key focus areas to help us achieve operational excellence throughout Harmony. These are safety and health which are discussed active cost management, which I will address capital allocation priorities should drive margins growth and production excellence aimed at productivity improvement, and obviously infrastructure reliability. The acquisition of Moab Khotsong in 2018 and then Mponeng and related assets last year has had a significant impact on only sustaining costs due to the high grade at the underground mines and low cost and high volumes at the surface sources business. This chart illustrates which of our mines has the highest all-in sustaining margins, but it also show where we need to focus our attentions, mines in the Red Block 9 Target, Joel, Kalgold and Tshepong are all undergoing optimization projects to ensure margins expand as they contribute and produce to plan driving cost down. This is just the same slide just in U.S. dollar per ounce. Just quickly talk through these assets that need to go by focused. First of all, Kalgold, I mean Kalgold really is a mine that we've mined at the first lockdown we mined for profit, there's only operation that was only operation that was operational in South Africa. And we really mine the higher grade of the ore body out. But we also have a long-term plan for Kalgold. And really the biggest thing for us is really to greater 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 Watertank 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 Kalgold. So we can actually go through the ups and downs like with rain and all other kinds of things get Kalgold in place. So Kalgold, although we didn't perform according, didn't make money, we actually did plan 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 stopes, massive stopes which we had to deal with. And then we had a seismic event at Target, which was in right at the loss of life, which we had to rethink our safety aspects of COVID and actually then read many of our images, we re-support it 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 it was really about creating great things of flexibility. We are 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 mine to have now two General Managers both in Pool, Tshepong South and to Tshepong North and that is since we've done it, we've seen quite a good performance of Tshepong. And then Joel, I'm pleased to say that we in actual fact completed the deepening, wells are running, we are back in normal things. And we really have done quite a lot of work to actually optimize the mine and exit going forward, the mine will be in a much better shape. Cost control, I think our order sustaining costs for FY'21 as I said was ZAR723,000 a kilogram, marginally more than our cost than guidance for FY'21 was between 700 and 720, two contributing factors for the higher all-in sustaining costs was COVID-19 and royalties, which each added around 2% of our all-in sustaining costs. These two 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 the cost to be as high as in FY'22 as this includes a number of ones of such as establishment of clinics, installation of temperature ranges of all operations, and just the general management of COVID. And 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 all-in sustaining costs for the plant at ZAR765,000 to ZAR800,000 a kilogram to cater for the inflationary increases and increases of electricity cost in South Africa. Our wage negotiations are currently underway. And we expect the agreement in the first quarter of FY'22. Just in terms of our cost variances between FY'21 and '20, you can see in the slide here, it was a function of numerous items, but predominantly the inclusion of Mponeng and related assets into our numbers, and this added around ZAR5 billion to our cash costs that is in normal numbers. It's also worth noting that FY'20 costs were lower than anticipated due to the lock downs and impact of the pandemic. We did see a normalization of cost in this year. Other items which increased were consumables, general stores and maintenance of about ZAR305 million, support costs were ZAR133 million really with the introduction of steel nets in all our operations, high grade of stopes of high stopes, explosives is about ZAR83 million. And then contract is contract, we added Kalgold to increase ZAR171 million as we mined more waste. And then like electricity mainly due to the annual tariff increases that we saw. Look at our production guidance for the year coming in FY'20. We expected the production to increase to just under the 50 tons of gold across all our operations. This translates to around ZAR1.589 million ounces. This is an increase in production between 3% and 4%. Of the note is really the reduction in surface sources as we've mined out many of the surface sources that was particularly at the Kopanang plant that was surface sources which put under care and maintenance. The next slide is really the same just in ounces, on same slide. And then the slight improved grades as we also improving our grades. Concentrate in the expected grade FY'20 will be around 5.57 gram per ton from underground operations in South Africa. Also strategic plus effective capital allocation, I would like to spend some time here discussing our new projects in FY'22. You know how many involved 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 accretive acquisitions, dearest our portfolio while also improving quality of our assets. We have reduced our debt, placed ourselves in a strong position to extract further value through exploration and development of Irish projects. We will be committed additional capital to these projects in FY'22 as we invest into the future of growth. On the right hand side of the slide, we have listed the projects that meet the capital investment criteria. A number of diversions to 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 our money. The substantial value in our portfolio and these projects allow us to do what we excel in. And that is the mine responsible at the benefit to all of us. I want to look at the next slide is really a slide about our growth resources 28.4 million ounces to our resources, which has resulted in a 90% increase year-on-year. And if you look at reserves, suddenly 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 Zaaiplaats, Mponeng, Mine Waste Solutions and Hidden Valley extension. FY'22 capital guidance, our total CapEx will this be increasing from ZAR5.1 billion in FY'21 to ZAR8 billion in FY'22. Sustaining CapEx will represent 71% of the ZAR5.7 billion, while the major growth capital will be 29% or ZAR2.3 billion in FY'22. The breakdown of major capital expenditure can be confusing here was the majority of the major capital being allocated between Zaaiplaats and Mine Waste Solutions, and Zaaiplaats will be funded by Mponeng, Mine Waste Solutions and invaluable group cash flow. The same split can also be seen here in U.S. dollar. It is important to emphasize that we are investing in a high grade long life assets. We have de-risked our portfolio through the surface and higher grade longer life assets. And there is all these 88% of the free cash flow generating FY '21 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 reengineering portfolio, attracting more value from these assets is therefore essential. And the capital we previously allocated to Moab Khotsong and Hidden Valley has been paid back and we are expecting the remainder of our investment in Mponeng related as to be pre-paid in a FY'22. At Mponeng, ZAR1.7 billion of the ZAR3.3 billion, acquisition price has been paid back already with only nine months' worth about ZAR1.6 billion outstanding. When we look at the Zaaiplaats project that we just approved I mean this is the key numbers is 225,000 ounce per annum producer. We will have a grade of over nine grams a ton, a 24-year life of mine, and a pre-tax real IRR of about 19%. But this is a long lived asset, and the asset that certainly would, which then is in good state over many, many years, it is a more in itself has been a very, very good asset for us, very, very profitable, and we expect Zaaiplaats to be equally profitable going forward. Just in terms of how Zaaiplaats ore body look like and you can see the left hand plan the you can see more ore body was really three distinct, different ore bodies, the one being the upper mine, which really mind out to greater legal of mine, most of that was mine after a great legal of mine. And then the middle of mine, the mine that we currently mining and you can still see what is left in the middle of mine. And then the very big Zaaiplaats ore body, and that's actually the biggest part of the ore body for Moab Khotsong. And again, its right in the suite spot as far as grade is concerned. So we're very comfortable that this mine will be a good mine for us going forward. When they look at Mine Waste Solutions, again in a close to 1 million 100,000 ounces per annum, a very good all in sustaining cost of ZAR571,000 a kilogram, IRR of 43%, a 16 year life of mine and it's really about next slide will actually show you the area on the top you can see the green area that is where Mine Waste Solution plant is. On the right hand side you will find the Kareerand tailing facility is really about extending the tailings facilities for to cater for the next 16 years life of mine. And then we will mine the comp the duration will further Mine Waste Solution complex and also the waste complex, the waste complex is the area we'll move in first that is the higher grade of the tailings dumpsters available. And LP mix it with a Mine Waste Solutions part of it, but that is the mine that we have to do. But we really have to know, extend Kareerand to be able to mine the next 16 years, and it's actually it's quite a no brainer of a project. And then we will look at Hidden Valley and is really just the extension of another 2.5 years of the current life of mine is really in the back of using the market but as a tailing facility because the big constraint is retaining a placement because we get to the end of the current tailing facility life of mine. And it's a good mine with a good cutback, good management team. And we are retaining obviously our workers for a strategic for possibly deployment later on into Wafi Golpu. Just a feel for those of you that has not been to in valley, this is how the splits look like, you can see the cutback on the right hand side will be stage eight, which is last cutback. Right and left hand corner you will find the TSF no matter, but this now will be the TSF2, and the plant the processing plant at the right there. If when they look at the that is a Hamata Pit, we will build a wall and then obviously use a tailings to go into that output that we've mined. So, yes, now I will hand over to Boipelo, to take us through the next part of the presentation.

Thanks, Peter. FY'21 has indeed been a fantastic year for us, and we delivered an exceptional financial performance. earnings per share increased by just under 700% to 923 South African since from a loss in FY'20 over EBITDA increased 64% to ZAR9.8 billion from ZAR6 billion in FY'20. The higher production combined with a 16% higher RAND kilogram gold price resulted in a net profit of ZAR5.6 billion in FY'21, compared to a loss of ZAR850 million in FY'20. We expanded our operating free cash flow margin to 16% in FY'21, a 23% increase year-on-year. We realized a ZAR1 billion gain on derivatives in FY'21. In FY'20, we saw a loss of ZAR1.7 billion. 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, we will note that we've managed to reduce our net debt by a further ZAR819 billion 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 1 times. What is also noticeable to note is the blue bars, which indicates the EBITDA, and is 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're created flexibility, and now have ZAR7 billion or $500 million 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 ZAR0.27 in FY'21, and this combined with our interim dividend, of ZAR1.1, results in a dividend yield of 2.4% based on our share price on August, 27. We're confident in our ability to pay a dividend alongside our growth aspirations as we are in a strong position to fund CapEx from our cash. Thanks very much. And I'll hand back to Peter.

Thanks, Boipelo. Okay, so let me conclude. The Harmony of FY'21 is very different from that of old. The Harmony is positioned for -- in FY'22 and beyond, and has a solid building block in place to ensure that we mine sustainably throughout the cycle. We have optimized our existing operations, and we have integrated the 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 reengineered our portfolio, and de-leveraged our balance sheet to create optionality and pay a dividend alongside growing the company. We are geared to rank gold price with rand cost but U.S. dollar revenue. As a 1.6 million ounce gold producer, we are expending our margins through organic growth and our new exciting projects. We have a tier 1 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. And we thank you very much. And we'll now be taking questions.

And 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 SBG Securities.

Good morning, Peter. Good morning, Boipelo. I have a few questions. Firstly, just 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 an all-in 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? And secondly, I want to know if you considered the Mponeng B120 project, and 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 ? 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 ZAR8 billion 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, in order for us to grow the company we need to spend this CapEx, and the dividend will follow suit. But I must add that in assessing these projects, et cetera, the discussion of a dividend does still feature, so it's important to still keep that in mind when you assess our response on dividends.

And so that is still flexible. I mean I noticed the footnotes in your slide, that you -- although your policy, you say, is quite clear, you still consider future CapEx spend, so it's not so clear.

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

Well, thank you.

Adrian, to your Mponeng question, let me just -- just repeat that again because of Mponeng, is that correct?

Yes, into the .

Okay. Yes, 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 Savuka and Tau Tona, and then what we call the , which the Tau Tona Blue Block is the area that AngloGold Ashanti and 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 has got higher grades than, for instance, that 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 and that goes with that. And then, obviously, the deepening of Mponeng is certainly something that's on the court in the long-term. And at the moment we don't because we have nine-year life of mine left in our current -- with even the pillar directions that we want to do. So, since obviously something that will come a little bit later. But yes, I mean deepening the mine will actually add another 30 year of life at a very good profit to Mponeng. So, we're very happy what we experienced at Mponeng. We've got fantastic people there, very, very good 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 NUM even after taking over where, obviously, has had a much bigger site in Mponeng. But having said, I mean we obviously work with all the different unions. And so we are busy with negotiating. We have got all the major unions in around the table, being NUM, , and also , and 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 Mnguni from HSBC.

Hi, thanks for the opportunity. My first question is just around the Tshepong impairment. It seems to be driven by a 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 producer 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 operation. So, if you could just elaborate a bit on exactly what's driving that, and if it will return in , please?

Thanks for that. First of all, Tshepong, every year we do -- as we upgrade our ore models of geological models and also our grade models, we obviously do a life of mine plan. And so, in Tshepong's case, I think 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 grades to improve going forward as we get to the needs of the ore body. So, that is still in place. I think impairment is really about the life of mine, looking at the life of mine, and also some changes in terms of certain blocks that we taken out and said, we'll not mine, 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 is what's really on the -- can you just remind on the second part of that question?

Production…

On surface, yes. Surface sources, the biggest change from last year to this year is that we're actually going to take the Kopanang plant offline from surface sources, and the Kopanang plant has actually run out of surface orders to be mined. So, what we've got left now we will do through the grade lever plant and not through Kopanang. So, Kopanang mine plant is coming to an end, we don't carry maintenance. And then obviously, as we go with the surface sources, we start with the higher grade first and then lower grade. So, there's no chances of actually bringing surface sources back going forward. I mean, what we have as surface sources is what we've got. And what we can do going forward is that we will bring in plant to actually model surface orders in the basement area. But as far as the river area is concerned, those surface sources are completed. So and the end of that high levels of surface sources at AngloGold Ashanti but we always knew that, we always knew we are only going to have a few months of that going forward. Kopanang plant obviously is now up again 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 re-treatment, and that feasibilities at this point of time is ongoing.

Right, 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 like first two. And I'll follow-up with a few more. So, my first one is relatively easy, you've given us a mine by mine asset split for FY'22, but can you give us an indication of what the total CapEx for the mine solutions TSF Extension is for Hidden Valley and for Zaaiplaats and just remind me what your gold price is that you're using to calculate your IRR. I'll leave it there for now and follow-up with a few more?

Okay, the total CapEx spend on major CapEx as we call the project capital for Zaaiplaats will be ZAR4.5 billion but that will be spent over a very long period of time as we create new levels, we start mining and so we'll continue, there's about 10 year time that we're going to build all the declines to the bottom of the declines area. Kareerand extension is ZAR3.2 billion. That will be about a four year. Four year obviously we starting now with a soil preparation and everything else that will be what capital spend in the first year or so. Hidden Valley is what's the number of Hidden Valley is about ZAR1.4 billion, ZAR1.4 billion again that will be spent as we do the CapEx back over the time so it is ZAR1.4 billion. So those are the capital spends that we have. And the final part of the equation is ZAR800,000 a kilogram was used in the calculation of the integration everything else, kilogram was used, ZAR800,000 a kilogram.

Thanks, Peter. I mean just high level that seems like quite a high number to you. Do you plan to have a sensitivity at a slightly lower gold price across what your IRRs might look like maybe I'd say 600, 650.

Yes, we used I think with 700,750 and 800 and 850 and obviously 900 that we've put into that, obviously we always do sensitivities on these things. And even if the gold price do drop, I think these projects are still worth while to continue because I mean long-term they are low all-in sustaining cost operations. So they certainly go and if we go to like a ZAR700,000 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 all, call it an unsuccessful bid for Golden Globe in Australia. So, obviously, there's a lot more CapEx coming up in FY'22. So my question is, is this CapEx that you're spending in South Africa and Papa 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 prove that production profile gap between 2026 and 2030?

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

Okay, so fair to say that that M&A is something that is constantly in focus. And then I mean, maybe once you go past these two sort of big CapEx years 2022, '23 we could potentially see something if it meets your hurdles.

We will, certainly we will always be on the lookout for something.

Okay, and then one more question for 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 depth, the level you need to spend to keep the production profile at about 1.4 million ounces?

Yes, I think it's a bit of both. We certainly have a lot to 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 was not at work. So, kind of like, 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 flexibility. And we've got all of that is an account in our plants going forward. But we do want to create more flexibility and do some more development. But it's also some of the operations actually getting to the end of their lives, which is like it will take some development still, because it has got about three year life, but then, three years from now there will be no development on that mine, there will only be the harvesting of the final part of the ore body. So, it's a bit of that. So yes, so it's a quite a jump, but it's because of the underperformance of both in the previous year and then a 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 plant.

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 the more contractors offset COVID impacts and then may be question for Boipelo, just like to get a sense of what sort of cost inflation you as a South African, a lot South African gold producers experiencing now for a normalized rented time basis, so factoring in power, diesel, labor, et cetera. What sort of inflation numbers are you experiencing? And then just perhaps a follow-up from Jared around are there opportunities you used to sometimes to do with great ambitions to explore further and diversify the portfolio. 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 it first, and then the third question and then you can take the second one. On the labor and contractors, I didn't know we haven't actually increased our labor comp -- our contractor complements to make us a week. We in actual fact, last year closed down Unisel, so we absorbed that labor into our operations, and we now back to normal levels, we obviously the next mine that we will close is , which got about 2000 people on the mine, and we obviously also hope that we can absorb them into operations by open-ended voluntary separations and things like that, so we done that forced retrenchments. So we've very stable as far as that's concerned, our contractor labor has been very stable. In terms of the landscape has changed, obviously, the gold price is quite an influence in terms of being able to find the kind of right assets and pay the right price for that. But we still have the ambition to go into Africa, we still have the continent of Africa now. We still - we are looking for opportunities in Southeast Asia. We will also look at some Australia as possible, but that obviously very expensive, and opportunities in South Africa, nothing of that is of the cost. And we at the moment, we believe that we've got very good projects, and we are very excited about our ability to deliver on these projects and actually deliver, that's a good challenge for us. But certainly looking at opportunities that will come away, but we had probably an opportunity in the past that we had a company that wanted to change that they've used as far as the stage is concerned, and that obviously suited us. Going forward, we're not sure what's going to happen, but I think there's also some opportunities are still available for us. But the African -- continental African 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 most marginal globally given your new guidance. And typically when costs go up so much when folks have cost savings? So are there opportunities within the group to remove costs going forward? And, yes, I think so, with that in mind with gold prices start to fall. What options do you have to offset that case? Thanks.

Yes, I think Adrian if I can maybe just take the first part of that question. I think, obviously, we -- there has been quite a lot of things have got -- headwinds as far as cost is concerned, the one is obviously the electricity cost was ever increasing. And we 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 cost year-on-year and what we plan going forward. And our absolute cost is going up with only 5%, I've talked about operational cost that is really in the capital and the things that debt, and 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 a portfolio that we've got. We've got certain assets, and we want to get better quality assets and actually mining a better quality as it has been -- and that will create obviously the margins that we need to go forward and be able to go through these fluctuations in a gold price. So it's really on taking these kinds 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 cost, we've done this so huge about work that we're doing to try and de-bottlenecking all our operations to include proof of productivity, in our we call our business improvement strategies and one day when we have Investor Day I think it is worth your while to can see in what we are doing as far as that is concerned. So it's a lot of that work has been put in place, but really it's about actually getting the higher quality assets into our portfolio making a biggest part of the mix, and making sure that we drive our margin. Boipelo, would you like to take some of that?

You covered on the inflation aspect, Adrian.

In the past, your average inflation has been about 10% and given the dynamics of the past in any change to it.

Yes, 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 than electricity. Peter touched on the electricity. I mean, there is that large increase and we can avoid that. But we try and manage it with through managing consumption, renewable, etc. We're in the middle of wage negotiation as 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, etc. Those will generally be managed within normal inflation 4% to 5%.

Thanks, Boipelo.

Peter, I think that's all the time. We need to wrap things up.

Yes, I just want to say, thank you very much for joining us today. I really appreciate that. Again, I think, like I said in the 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 to 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 negotiation soon, and then obviously get some stability as far as that is concerned too. So, thank you very much for being with us today. And we really appreciate your presence. Thank you.