Harmony Gold Mining Company Limited (NYSE:HMY) Q4 2024 Earnings Call Transcript September 5, 2024
Operator: Welcome to chorus call.
Peter Steenkamp: Good. Can we start? Good morning. My name is Peter Steenkamp. I am the CEO of Harmony. And it’s a pleasure to be here today presenting the Full Year Results for the Financial Year that ended on the 30th of June 2024. Please note that note of the Safe Harbor statement. And allow me to start with a short update on Harmony and our strategy. Harmony is a gold mining specialist with a growing international copper footprint. We also produce small amounts of silver and uranium and we have over 74 years of gold mining experience in South Africa and we have been operating for over two decades in Papua New Guinea. Our Mineral Resources and Mineral Reserve declaration of close to 137 million ounces and 40 million ounces of gold and gold equivalents, respectively, positions Harmony as a significant global mining company.
Currently, our diversified portfolio of operating assets include nine underground mines, two open pit mines and a significant tailings and retreatment business. Surface retreatment is a great ESG story with a potential for another 100 years of hydro mining across South Africa. And at present, over 90% of our current production comes from South African gold. Now based on the current planning parameters, we expect approximately 20% of future production to be copper within the next 10 years. Now copper production will be from our Tier-1 Wafi-Golpu project in Papua New Guinea and the Eva Copper project in Australia. These copper projects will be transformational, moving Harmony further down the global cost curve and does diversify it into your future facing metal.
Our excellent FY ‘24 results perfectly demonstrate the benefits and the value we have created for all our stakeholders. This is what we call Mining With Purpose. Australia is aimed at producing safe profitable ounces and improving margins through operational excellence and value-accretive acquisitions. All decisions are underpinned by our four strategic pillars, namely responsible stewardship, operational excellence, cash certainty and effective capital allocation. Major capital is being allocated towards the higher quality assets namely Moab Khotsong and Mponeng, as well as key projects that will lower our risk profile such as Eva Copper and Wafi-Golpu. This ensures we continue growing our reserves and delivering improved margins at high profitability, especially at these high-grade assets.
We continue to invest in our optimized assets or the red quadrant, which we will recall was the old Harmony and to maintain flexibility and ensure optimal cash generation over the life of the assets. Investing in our existing assets is essential to fund – for funding our growth paths for the future. Harmony has adopted a proactive approach to safety through use of leading indicators. Our focus have shifted towards the integration and sustainability of a safety culture and we are emphasizing the importance of personal ownership of safety in the workplace. While we have implemented comprehensive systems and controls, it ultimately remains our responsibility as Harmonites to work safely at all times. We have a centralized operational risk management team providing support to all operations and are using leading indicators to help drive further safety improvements.
Q&A Session
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The digitalization and modernization we have real-time dashboards to monitor and continue improve these leading indicators. We are currently monitoring over 9 million golden control data points. This ensures we prevent significant unwanted events before they occur. And as a company, we have embraced a culture of learning and strive for continuous improvement. Our cultural transformation journey has reached about 80% completion to-date. And we are progressing this through regular visible self-leadership engagements, along with other safety awareness initiatives across the operations. We continue to equip our teams through ongoing leadership development and training. I’m confident that we have the correct safety strategy in place and firmly believe that zero loss of life is possible.
In the past financial year, Harmony delivered an exceptional combined performance across each operations. This achievement was a result of clear strategic intent and successful execution enabling us to deliver above plan and capitalize on higher gold price. This results in a record year for the company. We aim to excel at what we do and I believe that we achieve this goal. As I touched on the previous slide, safety is embedded in our strategy. And the last time injury frequency rate per million ounces of work for FY ‘24 was at 5.53. This has remained below the six for three consecutive financial years and indicates we are on the right track. We are delivering on our ESG commitments evident in our 1.2 billion employee share ownership scheme and our expanded renewable energy program.
Gold production increased by 6% to 1.56 million ounces beating our upward revised guidance. Underground recoverd-grades also exceeded the guidance, improving by 6% to 6.11 grams per tonne. Our cost remained under control with all-in sustaining cost coming in at ZAR 901,000 per kilogram, which was well below the guidance. In dollars, all-in sustaining cost decreased by 4% to $1,500 per ounce and operating free cash flow increased by over 100% to a record of ZAR13 billion or US$681 million at a margin of 22%. This was driven by high recovered grades and strong gold prices. As a result, our balance sheet has strengthened further and is in a net cash position of ZAR2.9 billion or US$159 million. Now headline is earnings per share increased by 132% to 1,852 South African cents or US$0.99 per share.
In line with our dividend policy, we are paying a full year dividend of 94 South African cent or $0.05 per share. This demonstrate confidence in our planning as we aim to reward our shareholders alongside our growth aspirations. Our FD Boipelo Lekubo will unpack the financials in digital a little bit later. So responsible stewardship is embedded in our operating model. Our sustainable development strategy aims to reduce risk while maximizing opportunities leaving a positive impact through shared value creation. As a result, our actions, we continue to receive positive external recognition for our embedded approach to sustainability and disclosure transparency. We have been included in the FTSE4Good Index for the 7th consecutive year. Our inclusion in the Bloomberg Gender Equality Index for six consecutive years demonstrate that we embrace gender diversity and inclusivity and treat all our employees fairly.
Our best practice water management strategy has once again resulted in a Score A from the CDP. As you can see, Mining With Purpose is what we are all about. Now growing our quality ounces is critical for long-term success and longevity. We continue to invest in converting resources to reserves while striking a balance between capital intensity and shareholder returns. Harmony has a globally significant mineral resource and reserve base. We have demonstrated that the reserve conversion still one of the most cost-effective ways of creating value. There is therefore a substantial opportunity to continue investing in this exciting gold copper story. Our mineral reserves increased by around 2% on the back of Mponeng extension. And Eva Copper is expected to underpin further resource conversion into once study is complete.
Our production profile has been significantly decreased, de-risked and further future production will come from a combination of South African surface and underground gold Papua New Guinea copper and gold and Australian copper. As we target growth, we will only pursue those opportunities that meet our strict investment criteria and improve the quality of our portfolio. Further expansion would either be through the acquisition of a late0-stage Project all preferably through the acquisition of a producing asset at immediately cash flow positive for Harmony. Any new investment opportunities must first of all lower our overall risk profile, improve our margins, deliver meaningful returns, extend our production profile with quality ounces and of course remain affordable through the cycle.
The acquisition of Mponeng, Moab Khotsong and Mine Waste Solutions were transformational. When we acquired these assets, we had hoped that we would be able to extend the life of these assets. Now after comprehensive studies, these acquisitions all received approval for extension. We are pleased that the first deposition of the Kareerand round extension at Mine Waste Solutions or mega tailings retreatment operation will happen in October. This project extend the life-of-mine of mine extension to 14 years and encouragingly the streaming contract concludes towards the end of this calendar year. Once this end, we expected to see a 20% uplift in the gold price received from Mine Waste Solutions. The extension projects that Moab Khotsong and Mponeng are progressing well and we have extended the lives of these mines to at least 20 years.
Decline work at work at Moab Khotsong and the development of the carbon leader section of Mponeng are underway. We have also commenced rehabilitation of the Tau Tona shaft pillars which we will be mine through Mponeng. These projects have added a combined 5.2 million ounce of gold reserves and we ensure a steady state production at each mine of over 200,000 ounces at the recoverable grade of 9 grams a tonne. As a result, these high-grade mines will continue delivering excellent margins at a all-in sustaining cost for many years to come. The feasibility study updated Eva Cooper is also progressing well. Due to its importance that Eva Copper project has been given prescribed project status. And the Queensland government has provided 20.7 million Aussie dollars in Conditional Grants Funding to help accelerate the project.
Early works have commenced, and we are continuing with the resource drilling. Subject to the feasibility study outcome, Eva Copper is expected to produce between 50,000 and 60,000 tonnes of copper per annum and 14,000 ounces of gold over its 15 year life-of-mine. The all-in sustaining cost is anticipated to be in the middle of the global cost curve. At Wafi-Golpu, negotiations between the state negotiations team Harmony and our JV partner are ongoing as we work to convert the signed Memorandum of Understanding into a mining development contract. Capital expenses necessary for the ounce replacement and growth as we maintain and improve the quality of our portfolio. As we invest across all these assets we expect total capital expenditure for FY ‘25 to increase to ZAR 10.8 billion or just $106 million.
Despite this increase, total capital intensity remains low at approximately ZAR 250,000 per kilogram or $415 per ounce based on the FY ‘25 production guidance. Again, this slide will – this is just in US dollars. And we just make sure I’m going to see them. Yeah, I’m like it’s Slide 16. Let me break this down to operation. Although Harmony is in a period of higher capital expenditure, we have a balance between growth and flexibility. Most of our major capital continues to be allocated to high-grade underground projects such as Moab Khotsong and Mponeng as well as our high-margin loader surface retreatment operations. Sustaining capital is also increasing mainly as a result of an increase in development meters across the underground mines to maintain feasibility and you will notice that the increase is mainly at our four optimized underground operations.
But also factoring in inflationary increases in cost in line with our planning parameters. We are increasing our spend on information technology as part of our ongoing upgrades. And there’s also ongoing management of our tailing storage facilities in the mines of utmost importance is going to bring harmony in line with the global in standard of tailings management. This is the same slide just in US dollars. So, our continuous investment across all our operations will ensure that we not only improve our margins, but remain a sustainable 1.4 million ounce produced well into the future. As we mine out our optimized assets represented by the red section, you will notice that the quality of our ounces improved driving the margins either over time.
Our portfolio also has a long life, but the potential for further life-of-mine extensions especially at these higher gold prices. As I mentioned, our international projects introduced a significant copper into the production mix. Beyers Nel, our Group Chief Operating Officer will now take you to the operational results. So over to you, Beyers.
Beyers Nel: Thank you, Peter. The strong results in this reporting period were due to our ongoing investment and commitment to operational excellence. This has underpinned our success and enabled Harmony to take advantage of the high gold prices. However, everything we do starts with safety and I must emphasize that is not negotiable. A safe mine we argue is a profitable mine. Harmony has a healthy organizational culture which we believe is a true differentiator amongst our peers. Operational flexibility and predictability in our planning ensure we consistently deliver the tonnes alongside higher quality ounces. We have achieved guidance for the ninth consecutive year now if we factor in the COVID revision. We are continuing to invest in productivity enhancements and infrastructure reliability to reduce stoppages and maintain momentum.
Our underground recovered grades have improved remarkably and productivity enhancements would ensure we deliver the required square meters each month. As Peter said, Mponeng and Moab Khotsong and Hidden Valley outperformed in FY ‘24 on the back of excellent grades. We do however expect lower grades at Hidden Valley while Doornkop production will be lower after we revised our plans to ensure safe ounces. Our stable and predictable cost structure has moved us down the global cost curve. Not only have we benefited from having a Rand cost base. But the Five Year wage agreement ensures fixed labor escalations are predictable. Our power supply from ESCOM is also regulated with further savings expected from our Renewable Energy Program. The strong partnerships we have built with our stakeholders ensure we remain the partner of choice enabling us to continue operating successfully.
Our substantial Mineral Resource base of almost 137 million ounces presents an abundance of opportunities to grow our Mineral Reserve through internal investments and Greenfields projects. Earlier, Peter touched on the safety strategy and the work being done to continuously improve our leading indicators. It requires a daily commitment and we are confident that we will ultimately achieve our goal of zero loss of life. The emphasis on improving our leading indicators has ensured our lagging indicators are trending in the right direction and we have seen a remarkable improvement in that since 2016 when we started. Although our Group lost time injury frequency rate remains below 6 at 5,53 per million hours worked we have lost the lives of seven of our colleagues during the financial year and we extend our deepest condolences to the families of our lived colleagues.
Clearly, more needs to be done and more will be done to ensure each and every employee returns home safely every day. Through operational excellence and good mining discipline, we have improved recovered grades, delivering consistent production growth. Our investment in Mponeng and Moab Khotsong is the primary driver behind the consistent higher underground grades we are now achieving. At Hidden Valley, the recent outperformance was a result of the high-grade Big Red ore body, which we have now mined through as planned. Recovered grades at our surface operations have also improved driven mainly by Mine Waste Solutions. While 96% of our revenue is from gold, our byproducts play a important role in offsetting some of our costs. 3% of our revenue is from silver produced at Hidden Valley and 1% is from uranium mined at Moab Khotsong.
Silver production increased by 39% to a record 3.7 million ounces generating revenue of ZAR 1.7 billion. Uranium produced – production rather increased by 13% to 590,000 pounds generating revenue of just under ZAR 900 million. Our South African high-grade operations in Mponeng and Moab Khotsong have introduced high-grade quality ounces to the portfolio. Average recovered grades from these mines exceed 9 grams per tonne with production over 15,000 kilograms at an operating free cash flow margin of 32%. Both mines delivered an impressive performance in FY ‘24 exceeding their plans across all operational metrics. And as we head into the new financial year we will focus on major extension projects at these mines. To that end ZAR 2.2 billion has been allocated towards these decline projects for FY ’25.
Harmony’s investment in quality ounces has resulted in record operating free cash flow this financial year. We can attribute some of this to the gold price. However the real driver has been the improvement in margins on the back of our mines achieving their plans. Total operating free cash flow for the Group increased by 111% to ZAR 12.7 billion or US$681 million. Allow me now to touch on each of the quadrants to illustrate our confidence in our cash flows going forward. Our South African high-grade operations namely in Mponeng and Moab Khotsong have introduced high-grade quality ounces to the portfolio. Average recovered grades from these mines exceed 9 grams per tonne with production over 15,000 kilograms at a operating free cash flow margin of 32%.
Both these mines deliver an impressive performance in financial year ‘24 exceeding their plans across all metrics. As we head into the new financial year, we will focus on major extension projects at these mines. To this end, ZAR 2.2 billion has been allocated towards these decline projects. The South African optimized portfolio consists about 7 underground mines and contribute close to 40% of our total production or 19000 kilograms of gold. While margins are typically lower, these mines still generated 2 billion in operating free cash flow and play critical role in funding our growth strategy. In order to ensure optimal free cash flow generation over the life-of-mine, it is necessary to maintain flexibility to achieve our plans and reduce costs.
Capital at these – capital expenditure at these operations is therefore predominantly sustaining capital for ongoing development. Our focus remains on ensuring that these mines achieve their planned targets especially Doornkop and Target 1 with studies under way to potential – for the potential extension of Tshepong North. Our South African surface operations delivered a phenomenal performance with production increasing by 21% to around 9,000 kilograms. This now represents 11% of Group production with all-in sustaining costs decrease to just over ZAR 700,000 a kilogram illustrating how profitable these operations are at current gold prices. These operations generated ZAR 2.6 billion in operating free cash flow at a margin of 25% in FY ‘24.
As Peter said, we are pleased that the legacy streaming contract comes to an end before the end of the calendar year. Once this ends, we expect the gold price received for gold sales of Mine Waste Solutions to increase by around 20%. This is expected to generate over ZAR 900 million in additional cash flow for the Group. The extension of the ’ Kareerand tailing storage facility will continue into FY ‘25 and we have around ZAR 1.8 billion earmarked for capital expenditure at our surface operations. Further feasibility studies are underway to determine whether we can create another mega tailings retreatment operation in the Free State where we have 5.7 million ounces in resources in our old talings dams. We believe there’s good potential to re-mine our old tailings dams in South Africa for possibly another hundred years.
Our international portfolio which Hidden Valley is currently the only operating mine delivered a standout performance in FY ‘24. Hidden Valley generated over ZAR 2 billion in operating free cash flow at a margin of 35%. Production increased by 17% to over 5,100 kilograms. As mentioned earlier, having mined through the Big Red orebody, grades will be lower in FY ‘25 now that we have commenced with stage 8 stripping. This is all in line with the mine’s life-of-mine plan. We are busy conducting studies to determine whether the life-of-mine at Hidden Valley can be extended further and we are progressing the feasibility study update on either copper and Wafi-Golpu permitting SPD letter. This slide is a good summary or comparison of our operational performance across our various business units.
This illustrates the Harmony portfolio has changed significantly over the past eight years having de-risked with vastly improved profitability. Boipelo Lekubo, our Financial Director will now discuss our financial performance for the past financial year. Boipelo, over to you.
Boipelo Lekubo: Thank you, Beyers. Harmony delivered an excellent financial performance, and outstanding earnings growth in the FY ‘24 on the back of the information shared by Beyers and Peter. Group revenue increased by 25% to ZAR 61 billion on the back of the higher production and the excellent gold price. Net profit increased by 78% to ZAR 8.7 billion, while the rolling 12 month EBITDA increased by 54% to just under ZAR 19 billion. As mentioned in our trading update, Target North has been impaired by ZAR 2.8 billion. Adjusting for this headline earnings per share increased by 132% to 1,852 South African cents. Strong operating free cash flows resulted in our balance sheet shifting further into a net cash position and as at 30 June 2024, we had a net debt cash position of ZAR 2.9 billion.
This is just how financials translated into dollars. Group revenue increased by 18% to $3.3 billion and headline earnings were up 122% to US$0.99. Harmony has a balanced capital allocation framework, which Focuses on five core areas namely ongoing safety and production, production optimization rather as we aim for zero loss of life, maintaining a strong balance sheet and a net debt to EBITDA below one times which is what we’ve done, organic and inorganic growth which improves the quality of our portfolio and returning capital to shareholders in line with our dividend policy. We’ve delivered a consistent increase in revenue over the past three years and headline earnings per share has also increased by over 700% in the past eight years on the back of our acquisitions and investment in quality ounces.
Moving on to costs. The majority of our costs remain predictable and manageable. It is split between labor, consumables and electricity, sustaining capital represents only 10% of our total all-in sustaining cost as you can see. And we’ve not seen any major changes in the split year-on-year. Going forward, we anticipate cost escalations to remain predictable and in line with planned inflationary increases due to our own cost base. Cash operating cost as I’ve mentioned remained well under control. In Rand per kilogram terms, cost increased only 3% as a result of annual salary escalations, electricity tariff hikes and higher royalties. Byproduct credits from silver and uranium increased by 91%. In US dollar per ounce terms, cash operating cost decreased by 2% to $1262 an ounce.
The 5% depreciation of the Rand against the US dollar helped drive cash operating cost per ounce lower in dollar terms. Based on our FY ‘25 planning parameters, all of our asset groupings have a life-of-mine margin of over 20% and just to highlight that this is at a gold price of ZAR 1.25 million a kilogram. We spend capitol to ensure we remain a profitable 1.4 to 1.5 million ounce producer well into the future. Capital expenditure remains well sequenced and at current gold prices, all of our Group projects are comfortably funded through internal cash generation and available facilities. With double-digit margins, we remain well-positioned heading into the new financial year. Our FY ‘24 total capital intensity was also low at around ZAR 210,000 a kilogram or $350 an ounce.
As Peter mentioned earlier, capital expenditure will increase in FY ‘25 that capital intensity however remains affordable at ZAR 250,000 a kilogram or $415 per ounce based on our FY ‘25 production plans. Apologies I moved too early. We are also protecting margins through an effective hedging program. We typically hedge between 10% and 30% of production over 36 months as per our 30 2010 amended program limits. Harmony has been in a net cash position since the beginning of this calendar year. Through financial discipline, we built a strong balance sheet, which as mentioned earlier is now in a sizable net cash position of ZAR 2.9 billion. Financial flexibility places Harmony in a strong position to continue on its growth trajectory. This is just the same slide in US dollar terms.
With over ZAR 12 billion or $600 million in headroom made up of cash and undrawn facilities, our balance sheet remains quite robust. Solid cash flows and balance sheet strength have once again allowed us to pay a dividend while pursuing our growth aspirations. Our final dividend payment is 94 South African cents per share or US$0.05 per share. We’ve delivered a geared year-on-year dividend increase meaning that our dividend increase exceeded the increase in the gold price. Total cash returned to shareholders in FY ‘24 is close to ZAR 1.4 billion. This clearly demonstrates confidence in our plans and our cash flows. Allow me to hand back to Peter to conclude.
Peter Steenkamp: Thank you, Boipelo and thank you Beyers. And so in conclusion, let me just get the slides to move. Harmony has followed a conservative approach to planning. We believe this is proven given the nature and location of our operations. Most what we achieved in 2024 – of the FY ‘24 was due to Mponeng and Hidden Valley far exceeding the plans. As part of FY ‘25 planning cycle, we have guided in line with our mine plans. As we progress with our risk assessed life-of-mine plans, we believe that our orebodies can confidently deliver between 1.4 and 1.5 million ounces in FY ’25. Underground recovery grades are expected to be above the 5.8 grams per tonne. And all-in sustaining cost expected to be between ZAR 1.02 and ZAR 1.1 million rand per kilogram.
So let’s break down the cost guidance. This slide illustrates the drivers behind the higher all-in sustaining cost for FY ‘25. Now these include; lower guided production alongside with higher developed capital spent across the underground mines. And we also factored in annual inflationary increase of about the 8.7%. Using the original FY ‘24 all-in sustaining cost guidance of ZAR 975,000 per kilogram as a reference point, this increase is in line with the annual mining cost inflation. The FY ‘24 all-in sustaining cost was much lower than guided due to Mponeng and Hidden Valley exceeding their annual production plans. We believe that the guided all-in sustaining cost is realistic and we remain confident at Mponeng may well exceed these plans again this coming year.
Harmony remains a solid investment and offers a compelling gold copper story. We have a lower risk profile and safety remains our top priority. ESG is embedded in our operational model through a clear sustainable development strategy. We continue developing our skills and have an experienced management team with a strong succession pipeline in place. A search for my successor is well underway as I will be retiring at the end of this calendar year. Operational excellence means our key operation metrics have improved and we are maintaining good momentum at all our mines. We continued driving better efficiency through the various business improvement initiatives, while project execution discipline remains critical given our significant pipeline.
Our production profile is long and diversified and we have a significant gold copper resource base with excellent reserves conversion potential. Through our new business team, we have – are continuously identifying growth opportunities that we can potentially lower our risk and increase our margins. We are hoping to introduce near term copper through our Eva Copper Project and of course permit at Tier-1 Wafi-Golpu Copper gold periphery. Our balance sheet is strong and flexible and our capital allocation framework balances our growth aspirations alongside shareholder returns. In closing, I would like to a special thanks to my team for their dedication and commitments towards achieving our goals. And I really want to make that point that we have a team that we’ve put together, has been together for a very long period of time and I’ve got the utmost respect for the mining team that we have here in Harmony.
I would also like to thank our unions for their continued support and some of them are here today. We remain grateful for our – to our Board, shareholders and other stakeholders for enabling us the position Harmony as a specialist gold producer with a growing international copper footprint. I will now hand over for questions and thank you. Janet, if you can just control that. Any questions?
Q – Bruce Williamson : Hi, Peter, good day and team, as well. Bruce Williamson, Integral Asset Management. Could you just share some thoughts on your underground operations where you had an improvement in grades? I mean, was that just naturally transitioning through higher grade or did you plan and target higher grade areas? Or is that just a bigger focus on cleaner mining producing stoping with and avoiding excess waste?
Peter Steenkamp : No, I think the major drive for that was really acquiring much high-grade assets in Mponeng and Moab Khotsong. So that in itself was a – I think it was a right decision for Harmony to then buy it and then we also very grateful that we were able to do that at the time. The Mponeng, when we bought, it was at grades were not where it is today, but there was always this – we’re going to mine and as you know, sequential extraction that we have you mine from one side to the other side. And we all – AngloGold Ashanti always told us that we’re going to get into very, very good grades and we managed to get into that grades. And we’re going to be there for that that period now for quite a number of years. So it is on the back of them actually mining into the higher grades, Moab has been the grades that we always had.
But I think it’s also a massive drive on quality and operational excellence that we try to put in place in all the operations. So we are obviously very strong. Harmony has got a great meeting on every operation every week and we all – our internal auditors just walked in and she’s actually auditing it for us. So she making sure that we get – making sure that we actually do it and it is probably recorded. So we have a very strong grade discipline to get it right. So we don’t drop the ball in terms of quality and stuff like that. But we are in a – these new mines that we bought was a game changer for us.
Leroy Mnguni: Hi, Peter. Leroy Mnguni from HSBC. I’ve got a few questions, but I’ll ask some of them and then just move to the back of the line. So, if you look at your FY ‘25 guidance, actually, if we take it a step back in FY ’24, you beat your initial guidance quite substantially. If you look at your FY ‘25 guidance, is there some optimism that there are certain parts in the portfolio where you are hoping to do a bit better than what you planned? So in other words is it how conservative is that guidance? And then, what Beyers was saying about the old tailings opportunity in the Free State 5.7 million ounces, that sounds pretty exciting. I wonder if you can give us just a bit of color. I know the study is ongoing but just high level, would you need to build another plant there?
How do the grades compare to your current tailings, retreatment operations? And then the third question, your CapEx has increased quite substantially both for FY ‘25 and even more so for FY ’26. If you could please just unpack what the drivers are for the increases in your medium-term CapEx guidance?
Peter Steenkamp: Okay, thank you, Leroy. So let me start with this. I mean, this slide actually explain it quite a lot. I mean, last year, we’ve guided when we started at 975,000 kilograms. We managed to get at 901 and the big driver for that was obviously better production. So it was higher grade and better the – 6% better than planned in terms of the production. Now we don’t plan to stop trying to do that and we think we can. We obviously are – we’re very strict in our – on our planning parameters. I mean, we as Harmony never been in the thing that we overpromise and under deliver. We believe that we need to be conservative in our planning. But also be conservative in a sense of being stretched and making sure that people do the right thing.
But then if you put all of that together, you get to this number and we don’t want to guide now where we are in the beginning of the year that it will be a different number. But having said that, our production at the moment and Floyd is sitting here. He is the operations – Executive Operating Officer and we are in a very, very good momentum in all operations. We are doing well. We’re doing as well as we did last year so far. And we talked about Doornkop, which we just choked back a bit because we just wanted to make sure that we have enough hoisting capacity. We will do all the project work and the hoisting of that, so that is a constraint that the bottleneck in Doornkop and we want to make sure that that is right that people don’t – that we do all of that safely.
So we floated back a bit for the year and for the – until we are going to get the projects are done, but that’s about 10% of the Doornkop – 10% to 15% of the Doornkop production that we’ve choked back. But other than that, I think we will have cost inflation of about 8%. We are lucky that we have now long-term agreements with our unions. We have obviously the Eskom increases are still hanging in the balance. And we are already busy with the 53 megawatt that we’ve bought. The other EPC contract that has been put together to start with the renewables for the new 100 megawatt plan that we’re building. So we are in the process of building that, that will not come in this financial year. And so and then of course also our sustaining CapEx on the back of the better performance, we have to do more development because we have to follow a very strict process in terms of understanding to create a proper flexibility in the business.
We call the iceberg management that we have to increase the production volumes and you have to obviously increase development with that. And then, of course, the other one is there is a little bit of work to be done on tailings facilities. We are also doing a lot of work in terms of our IT systems and also the threat of so-called cyber attacks and things like that are real and we have to work and make sure that we are in the right space. But I think all in all, being conservative, we will beat our guidance. I mean, we’re not confident in saying that. We will beat our guidance and we will be there. There’s no reason that at this point in time that we shouldn’t be there. There is nothing in the horizon that say, so we cannot. On the Free State, Free State is exciting.
It’s actually two, there’s Free State and also West Wits. Free State is obviously we’ve got massive amount of like we talk quite a number of years of resources there that we can convert into reserves. Most likely we will entail a partial building of a plant, but there’s also obviously – we are retreating in the Free State that at the moment. We’ve got the central plant and Phoenix as we call it the old Harmony plant that is got converted into tailings retreatment. But we believe that we can – this Mine Waste Solution big mega tailings facility retreat is way to go. The constraint in the Free State will always be water. So it will never be as big as Mine Waste Solutions because of the water constraints that we have here. And so, we – but we are very excited about that and obviously the West Wits equally excited about that.
So – but the feasibility study is underway. So it will be most likely a nice sizeable plant and attaining retreatment things, not maybe the size of mine resolutions, but close to that. So but really excited about that. The capital slide, Boipelo, can you just see what number is that slide?
Boipelo Lekubo: 16.
Peter Steenkamp: 16, let me try and get back to that because it’s easier to talk off the slide because then we can unpack it properly.
Boipelo Lekubo: And just I mean, Peter, to add before you unpack 25, just remember Leroy, 24 Mponeng deepening was not included there. So there’s about a billion extra. I mean, yeah from 24 to through the 25.
Peter Steenkamp: Yeah, so that’s a billion. We already started now a little bit of early works, but I mean, it will the full swing will be in – this is in this year. That’s not a very fast thing. So let me try and get to that. There you are. But let’s get to that one. I mean, you can see that and it’s put in a Rand per kilogram terms. You see the sustaining CapEx, we talked about the sustaining CapEx the more development, the board of that compared to what we’ve delivered on in the previous year and obviously you look at the – it was about ZAR 4 billion to ZAR 5 billion. But the big jump is really that billion Rand that we’re going to spend more on growth capital and that isn’t the Mponeng extension. It’s going to really well as far as the model is concerned.
That will be steady state. The same we will keep on developing, developing the declines. And but then of course Mponeng extension will be a big number there. I mean, the rest is small as the same. I mean, they are even very capital is really just the first stripping just as what we plan to do in this year compared to the previous year. But the ZAR 10.8 billion I will say is a big number. And it is – even Harmony has never spent that amount of money in one year. But we think we’ve got the plans to do it because especially on the on the Golden side. And you can see last year we were managing our projects was very well managed with what the sit in the guidance and what we actually effect achieved was very much in line. And I’m very, very pleased with the work and Beyers’ leadership, but also Floyd and the way that we actually had put together our project execution of project office capabilities in Harmony at the moment, we’ve done a lot of work to improve and improve our skills and that is part of the projects.
And I’m glad to see that our projects actually and I mean Mine Waste Solutions that we are going to start delivering put more in the first in October. It’s a testimony to a very good project management project that we’ve put in place and actually building that in time and also in digest. So great, great achievement. So big numbers. So – we – but we are confident that we will be able to do it. Adrian?
Adrian Hammond: Peter, yeah, I Adrian Hammond SBG Securities. Peter, you’ve been instrumental in reshaping this company probably key reason for its rewriting and others are just like to commend your disclosure and your guidance has improved substantially for especially for self analysis. Thanks very much. But you’re a lot of Key Man risk, I would say how long do you intend staying with the company and do that? What is your succession plan? And then, secondly, if there’s something that’s on your To-do list, what’s the most important that you’d like to do complete before you leave? And then Boipelo you are sitting a lot of cash. What are your intentions with that cash? You’re going to be generating some more. I appreciate you’ve got everything coming up but, you could also increase your liquidity through debts and how do you how do you think about the capital structure of this company going forward? Thanks.
Peter Steenkamp : Okay, Adrian, yes. My intention is to step down at the 31st of December, so starting the New Year as a retirement person in time and we – I’m very we are well, and obviously it’s about a four months still there to be done. So the Board will make a decision and actually bring it to the market at the right time. It’s well advanced in terms of finding my successor. I just want to make the point that we have – this was never a one man show. It is always a team effort and I’ve with a team that I’ve put together with myself and Beyers actually started together in 2016. You will recall at the time the CEO has retired and the Chief Operating Officer resigned at the same time. So we had to start from scratch as a team.
And we’ve been a strong team together. And obviously also with all the other executives that we had, Marian has been here for a long time, Boipelo joined us later after Frank left. And we’ve been – Mashe who has been with us all the time. I mean, the team is so strong. I’ve got no. problem in my time that this team will take this company to flying heights going forward. So net effect I think, younger the better. What’s the thing I still want to do before I retire? Wafi-Golpu permit. Wafi-Golpu permit if I can get that right. Then I would say that I have to dig every box that I wanted to dig that’s the one. And hopefully we will we can, I don’t know but we don’t say a lot about that. But we really want to get over that line. But to get that mining development contract signed.
And then we can start that massive, and massive, massive exciting project that is ahead of Harmony that we will have. We are now in a much better position we have ever been to be able to execute that project and to actually participate in that project. I mean, we dig down to 60 we most likely it was like a dream to participate there now we are in a position to do that. So that’s what I would like to get right. And Boipelo you can maybe on the capital side.
Boipelo Lekubo: Yeah, all the cash. I mean, yes, granted Adrian, we are sitting in a nice position of a ZAR 12 billion headroom that’s cash and available facilities. One should appreciate that we’re in a high CapEx phase. I mean, as you can almost ZAR 11 billion and we’ve also got either copper aluminum. I mean, if FID should be expected during next year. It’s a two-year build, so it’s short. The last time we were at the markets, CapEx was sitting at $600 million. Obviously, that was a year and a half ago. So the world has moved on inflation et cetera. So you will expect that that number is bigger. So before we can come to the market and commit on what that capital is, I think it’s prudent that we maintain our dividend policy of 20%, which we’ve done.
So, it’s always a balance when you look at these things especially in our case. Yes the gold environment is favorable at the moment. But we have been through tough times. So, you always have to maintain that that level head around all these things.
Peter Steenkamp: Any more questions? Do you have any online Jared?
Jared Coetzer: Actually on the Chorus call we have any coming through there?
Operator: Thank you. We have no questions on the lines.
Jared Coetzer: Peter, team I’ve just got a question from [Indiscernible]. Just can you unpack a little bit in terms of the grade evolution over the next 2 to 3 years?
Peter Steenkamp: Yeah. We – one was – if you don’t look at a long-term plan for Harmony, I mean, we are in good grades now for Mponeng and the current life-of-mine before we go to the deepening part of that which is will be in the high grade or will be the same. More as long as we mine the middle mine, it will be a good grades and obviously when we are getting into the into the [Indiscernible] project as a as we get. And I think the first time it’s about two to three years home now. We will be in the [Indiscernible] project will be good grades again. Then we are actually supposed to mine out our high – low-grade assets. Like for instance, Masimong. Now Masimong had a two-year life-of-mine plan since I’ve started here.
And it still have a two year life-of-mine. This year we signed another two year life-of-mine. So it is there. But I mean, it’s going to be a day that we have to call it a day at Masimong. And that is the kind of lower grade asset that we have. The next mine is we’ve got a three life-of-mine at Kusasalethu. And we think it’s possibility to add good grades to extend that because we’ve got some drilling results that’s fairly good provided that that creates a sustainable future for us. We can potentially extend that. But that’s obviously a much higher grade asset. So yes. I’m quite confident that the grades that we have now we want above 5.8 underground grades will got sustained itself for quite a number of years now. So and we are developing the higher margins or the higher grade assets for the long-term.
Jared Coetzer: Thanks Peter. Just question from Rene Hochreiter. I think you’ve answered the question on Wafi-Golpu already but which is in terms of timing. But perhaps on Target and thoughts on the project done there that’s complete and when we see Target becoming cash flow positive again?
Peter Steenkamp: Yeah, no, we got that project over the line and it was a difficult project to execute because of not necessarily the project itself, but because of Environmental conditions and other kind of issues that we run in. it is a – Target is a very difficult mine and you sense that way it was actually set up right from the beginning. And in the sense of how you ventilate it, how you cool it down. So we had to build fish plants and put fish plants on surface. Try and get this cooling down and making sure that we get the mine done. But it’s all done now. The crashes is down at the bottom. It’s working well. We are driving downhill now to do our crashes rather than four kilometers uphill. And we are in the process now of creating the flexibility to solid drilling to make sure that we get ahead of time and set to make sure that we have the things.
But I’m very comfortable at Target will be a great mine going forward. Not high grade, but good volumes and a mine that we will mine going forward. And there is obviously a lot of potential to that block what we call block 12, which is the Old Paradise part of the fence that was many years ago it was part of the four different fence, that was part of the Anglo wall future, which we’re going to get a part of that as part of our infrastructure. We will be able to mine it and but that’s still a little bit in the future, but I mean Target can still have, currently, I think it’s a six or seven year life potentially it can be a 10 year life going forward.
Jared Coetzer: Thanks Peter. Question from [Indiscernible] Truffle Asset Management. On Uranium, is that FY ‘24 base sustainable and is there potential to do more from a uranium perspective?
Peter Steenkamp: Yeah, the only uranium plant we’ve got is the one at Moab. So we use all the sources that we potentially can put through there to get uranium for us. Unfortunately, we don’t have uranium plants on any of the other things at the end of the operations. Yeah, so, I mean, what we have at the moment is that uranium is also flexible in terms of where you are or what your mine normally is a very – highly correlated to the grades. Because of the good grades we are currently mining at Moab we also have good uranium grades. And so, we – but certainly for the next number of years it will be the same and as we go into [Indiscernible] we will be there’s also uranium associated with that. Uranium became very significant because of the price increase that happened over the last number of – I think we bought Moab it was $26 of $23 a pound. Now it’s sitting at close to $90.
Jared Coetzer: Thanks, Peter. And then last question from [Indiscernible] Capital. In terms of new business and expansion opportunities, what are the plans for Harmony in terms of geography? And what projects could we potentially look at higher gold prices, internal projects or existing projects?
Peter Steenkamp: Well, I think this slide actually shows it all as I’ve got no slide 18 there on. So people can looking at that. We showed you that we can potentially be about 1.4 million ounce producer for a long period of time. We got 20, 38, and I don’t think many mining – gold mining companies got this profile ahead of them. Yes, we have to develop surface – SI surface projects but we own the ounces so we can develop them. So it’s not that we don’t have only and obviously it is also on the back of Eva and Wafi-Golpu being bought that’s the part at the top there. So what we are trying to say is that we haven’t lot of – enough projects in front of us to be able to sustain Harmony for the current production levels. And obviously we are, but we will also be – also looking at the opportunities that potentially can come away like Eva that we manage to buy.
I think it’s a fantastic project. I think it’s a fantastic project that came to us at the time. And I think we will be constantly looking for that. So our new business team under Johannes Van Heerden in the Brisbane office or constantly looking at opportunities for us to be able to do it. But I want to emphasis whatever we buy going forward need to be better quality. Now current average all-in sustaining cost of Harmony this year is at $1,500 an ounce. There’s not a lot of assets above $1,500 an ounce available for sale. Neither are they are obviously usually expensive. So developing our own as property the right way to go and for that reason our project capabilities and delivering projects also keen for Harmony and which we – I think we are on the right track to set as far as that’s concerned.
Jared Coetzer: Well, Peter, I think we are done. Thank you.
Peter Steenkamp: Thank you. Thank you a lot for being here most likely my last results presentation. I still vividly remember the one in the other boardroom there the first one when I joined Harmony in 2016. It was a tough day. It’s much better today.