Good morning, and thank you for joining us today for this Financial Year 2022 Results. This is the first in-person results presentation in three years, so it's great to put on a suit again. Actually, to come and stand here is fantastic. I'm delighted to see you and welcome those who have joined us virtually or by phone. Please take note of our safe harbor statement. Let me start by unpacking the past 12 months, and importantly set the stage for where we are heading as a company. As South Africa's largest gold producer by volume, we have a responsibility that extends beyond mining.
We are a company dedicated to the well-being of our people and our stakeholders. Nowhere was it more evident than the compassion and care we gave to our employees throughout the COVID pandemic. By living our values and delivering on each of our four strategic pillars, we will continue creating shared value through sustainable mining. Integrating risk-based decision-making underpins all decisions at Harmony. We believe our purpose as a company is to transform the resources we mine into hope, opportunity, and prosperity.
It is an ongoing creation of shared value which maintains our social license to operate. We call this mining with purpose. The events leading up to and including FY 2022 have affected all businesses and people across the globe. Yet despite the various headwinds, we managed to deliver 46 tons of gold or approximately 1.5 million ounces, meeting our revised production guidance. Underground grade was close to guidance at 5.37 grams per ton, while all-in sustaining cost came in slightly above guidance. It was mainly due to the challenges experienced at Hidden Valley.
Considering the levels of disruption, delivering so close to guidance has been a great achievement. I would like to thank each Harmonite for making this possible. We continue to benefit from the higher gold price received, with average just under eight hundred and ninety-five thousand rand a kilogram for the year. As we progress our projects, we approved capital of ZAR 8 billion in CapEx, on which ZAR 6.2 billion was spent in FY 2022. This was due to the postponement of capital at Zaaiplaats and Kareerand. At Zaaiplaats, we are yet to finalize the detailed studies.
We were yet to finalize this detailed study outcome, and that Kareerand project was postponed due to regulatory approvals that were delayed, which all have been obtained now. We also took the tough decision to restructure Tshepong, which we'll discuss in more detail later. Production profit was ZAR 9.5 billion, and our operations generated ZAR 2.9 billion in operating free cash. I am pleased to announce that we have declared a final dividend of ZAR 0.22 per share. Harmony has undergone a remarkable transformation since its growth strategy began in 2016.
Having integrated Mponeng, Ngodongha, and Ulungwa and related assets, we are now 1.5 million ounce specialized gold producer. Production comes from a diversified and de-risked asset mix, namely South African underground, SA surface, and international. Embedded sustainability drives integrated risk-based decision-making at Harmony. We have improved the safety of our stoping areas by installing support and permanent steel netting, and we have commenced phase I of our renewable energy supply program in efforts to decarbonize.
Harmony has maintained a strong balance sheet with ample liquidity for deployment. Looking at FY23 and beyond, safety remains non-negotiable as we focus on successfully executing on our key projects, delivering operational excellence through our S300 program, growing our margins, and advancing our copper footprint through our Tier 1 Wafi-Golpu asset. A strategic decision was taken during the most recent planning cycle to redirect capital to high-grade underground assets and high-margin surface operations.
This will help deliver on our strategy of safe, profitable ounces and increase the cash conversion from reserves. Growth and replacement of ounces will be achieved through the ongoing investment in our organic pipeline and progressing our feasibility projects. Inorganic expansion in Africa and Southeast Asia will also be considered, provided it meets our investment criteria. Improving safety, delivering meaningful returns, active cost management, and growing our ounces are key focus areas. Today's presentation will focus on these four points.
A safe mine increases shared value and ensure the safety of our people remains number one priority. Initiatives such as our Thibakotsi transformation journey and other bottom-up safety interventions have embraced and are well resourced. Returns will be driven through the execution excellence, productivity improvements, and allocating capital to higher grade and higher margin operations. Harmony has always had a firm grip on cost, and we continue to manage those inputs that are in our control. Inflation is not new to us.
An annual 8% inflationary increase was used to prepare our life of mine plans. We are comfortable that the three-year wage agreement, alongside our energy efficiency initiatives, will ensure that we remain in control of costs. Lastly, growth is aimed at increasing margins and replacing and growing our ounces. This will happen through organic growth, exploration, and M&A as we progress our copper footprint through the tier one Wafi-Golpu project. Now I don't move forward. There we are. Okay, let's start with update on safety.
Our various safety initiatives, such as the Thibakotsi cultural transformation, alongside with a robust risk management framework, are starting to yield results. Over the past year, we have achieved some extraordinary safety milestones as a company, and indeed as an industry. We are seeing an increase in white flag or accident-free days, and traditional high-risk activities such as fall of ground and rail-bound equipment both demonstrated significant improvements. Harmony had a zero fall of ground loss of life incidents in the second half of the financial year. It's the first time ever.
Our lost time injury frequency rate, or LTIFR, as we call it, is standing below 6 per 1 million hours worked for three consecutive quarters, another first for Harmony. The LTIFR for FY 2022 ended at 5.9 per million hours worked compared to the 6.46 per million hours worked in FY 2021. Given the hard work which has gone into improving safety, the regression in our year-on-year lost time injury frequency rate was disappointing and unacceptable. We continue to engage all our stakeholders and ensure full commitment to prioritizing safety.
Not having a single incident on a, in our mine is possible. We have several days on which each and every person working at our mines return home safely and unharmed. Every effort is made to turn incident-free days into weeks into months, and months into years. Sustainability is embedded in all we do. All aspects of ESG are considered in decisions that we make. Harmony continues to demonstrate true sustainability in how we care for our people. The pandemic reminded us of how important the family is.
We often refer to Harmony as a family, and the pandemic has reinforced the importance of caring for one another. No jobs were lost during the pandemic, and we spent over ZAR 1.2 billion in ensuring our people were vaccinated and kept safe. That is a full run rate. We have taken significant steps in our decarbonization journey with phase I of our renewable energy program underway. Our goal is to be net carbon zero by 2045. We have secured a ZAR 1.5 billion green loan to help fund phase II of our renewable program.
Our other energy efficiency and demand side management initiatives have resulted in ZAR 1.4 billion in savings since 2016. We promote and encourage diversity throughout Harmony, evident in our inclusion in the Bloomberg Gender-Equality Index for the fourth consecutive year. FTSE Russell upgraded Harmony's ESG rating from a 3.4 to a 4, and we are again included in the FTSE4Good Index. This now places us in the top 10% of the FTSE industry classification super sector. On our second focus area is obviously delivering on meaningful returns.
Capital is prioritized across safety and production and organic and inorganic growth, return cash to shareholders, and maintaining a strong balance sheet. We have clearly defined hurdles in which we evaluate our current and potential projects. Our pipeline of project exploration and pre-feasibility studies aimed at driving growth are listed on the slide. All projects need to lower our overall risk profile, including safety and climate change, improve margins, and generate returns. Execution excellence will ensure that we clear these hurdles and create value.
This in turn will create new opportunities to deploy capital and in time generate higher year-over-year returns. High returns will attract new capital, and so the cycle continues. Organic growth is fundamental to delivering long-term value. In 2016, this was our production profile for our portfolio, and the flag indicates where we are now in FY 2022. The orange area is where we were prior to investing in Hidden Valley and acquiring Moab and Mponeng. This is the production profile as it looks today. A key consideration is the potential.
If we look at what we then have did is, we acquired Hidden Valley, which is the gray area there. We then acquired Moab Khotsong, which is a darker gray area, excluding Zaaiplaats. If we look at what Zaaiplaats will add to that profile, it is a light gray area. That is obviously the project that's currently in execution. That is what Mine Waste Solutions bring to the fore. I mean, that is what we bought from Anglo at the time. Then Kareerand and other surface sources actually add that little pink area there. That's also currently in execution.
In execution, we have long-term about 600,000 ounces of production going forward. That is the Mponeng mine that we bought, and this is the production profile of Mponeng mine if we add it to that production. If we agree to the deepening of Mponeng, this is what we will add to that, is that dotted area there. If I can maybe just show it on the slide here, that dotted area there. That has obviously not been approved yet, and currently in feasibility study. This is what Wafi-Golpu will bring to the fore. Obviously, this is 35% of Wafi-Golpu.
You add all that together, we will be around about a 1 million ounce producer, going forward. That is Kili Teke. It's another project that we look at. It's a satellite ore body close to Hidden Valley that potentially can come into our portfolio and be added to the Hidden Valley thing. That is the kind of profile that we have as far as organic growth. Based on our FY 2023 planning parameters, the potential is that it will be potentially lower ounces, but better quality and higher margins as these high grade projects actually come online.
That will actually be the all-in sustaining cost that will be driven down by these actual projects that can come online that obviously are much better quality than we had before. Through these acquisitions, we now have a higher quality portfolio than we did in FY 2016. 90% of our operational free cash generated comes from our acquired assets and the SA surface operations. Only 10% of operational free cash flow in FY 2022 came from our older or existing underground assets.
These assets will start returning cash once the projects are completed, and that was quite a big bang from a very good Kusasalethu related to a Target 1 that didn't perform well, because we had a, you know, we're still busy with recapitalization. I now like to spend a bit of time on the operational metrics before unpacking key capital decisions and the Tshepong restructure. Tons milled increased by 9% to 54 million tons. It was a 3% decrease in our gold production to 46 tons of gold. Underground grades decreased slightly to 5.37 grams per ton.
Our capital expenditures in FY 2022 was 21% year-on-year, but lower than we had planned due to postponement of the capital projects. We generated ZAR 2.9 billion in free cash, down 55% due to the lower production and higher capital. Our all-in sustaining cost increased by 16% and was slightly higher than guided due to the Hidden Valley overland conveyor belt failure in January. Our FY 2023 guidance is to produce 1.4 million -1.5 million ounces at an all-in sustaining cost lower than ZAR 900,000 a kilogram. Our underground grade is guided to be between 5.45 and 5.60 grams per ton.
This is the same slide, just in US dollar and imperial conversions. In FY 2021, we announced that we would enter a higher CapEx cycle due to the key projects. We are spending money today to enhance margins tomorrow. Total capital spent in FY 2022 was lower than the guided due to the Kareerand and Zaaiplaats delays. Major CapEx will, however, increase in FY 2023 financial year now that these projects are underway. Capital expenditure will remain elevated throughout to the end of FY 2022. 2024, I mean.
Development capital, including sustaining capital, increased 21% in FY 2022, and we made good progress in development meters across all mines. Capital is spent where it matters, as is demonstrated by this chart. Development grades, the grades at all our underground operations have been trending higher, and are positive picture of the future with all our underground mines. Sorry, I just wanna get back to that slide. As we expected, higher grades at Moab, Khotsong, and Mponeng stand out head and shoulders above other assets.
We really are on very good grades at this point in time. Therefore, redirecting capital to these assets will generate better returns on capital. As I mentioned in the previous slide, Mponeng and Moab Khotsong are our high-grade assets with reserve grades above 8 grams a ton. As part of our capital reallocation strategy, shifting capital from a 5-gram per ton mine to an 8-gram a ton mine will deliver significantly higher returns simply because of the higher grades. Our older assets continue to serve as well, but to drive down the all-in sustaining costs and open up margins, it is prudent to prioritize our capital.
The decision to restructure the Tshepong operation was not an easy one, but was a necessary one. We have split Tshepong operations into Tshepong North and Tshepong South, or the Tokisa mine as we used to call it. Due to the various geotechnical and geological complexities affecting volumes and grades, a decision was made to make the mines smaller but more profitable. We have reduced the geographical footprint and concentrated mining to three levels, ensuring improved face grade. The Sub 75 project is on hold, and we have shifted employees to the Zaaiplaats Decline project.
The life of mine has decreased from 19 to 7 years, but under the new plans, Tshepong North will generate positive cash in FY 2023, and therefore deliver a higher net present value. This is a mine plan for the Tshepong North Basal Reef before the restructuring. Now, we have highlighted, and I think that's important, those are the areas that we have in the old plan, up there and out there, which is very, very far from the shaft station, which is here. Very difficult. Ore bodies really broken up and certainly, you know, very difficult mining. A lot of dilution.
The first thing is to stop this mining and stop that and say, because we don't think it's profitable any longer. Move those crews to this high-grade pillars that is out here, which we call the haulage pillars, which is right next to the station, obviously higher grade and obviously easier to get. Then obviously the Sub 75 is this area here, which is currently on hold and potentially can come back into the plan. We implemented a similar strategy at Kusasalethu, which happened to be our most profitable mine in FY 2022.
Harmony Gold production is now split across a more profitable and de-risked portfolio. 27% of production now comes from our high-grade assets. 18% of the production is from our high-margin surface sources, while 8% is from Hidden Valley. The remaining assets accounting for 47% of our production and have a vital role to play in generating returning cash back to Harmony and shareholders. Over the life of mine, all our assets are expecting to deliver positive free cash, and an average free cash flow margin of approximately 25%.
Okay, the next focus area is cost management. Harmony has always managed the cost well, and investing in grade will drive all our all-in sustaining costs lower over time. Our experience in operating high inflation environment allows us to plan at 8% cost inflation. We experienced a below-inflation increase of 6% in the fixed wage due to the three year wage agreement that is in place, of which we're now in the second year. Our total labor costs were higher at 8% due to incentives and other variables which we can control. Total labor has decreased from the 60% - 58% of the total cash costs in South Africa.
Electricity, which accounts for 80% of our costs, increased 13% due to the annual tariff escalations. We are managing this through a renewable energy program and other energy efficiency initiatives, which I mentioned earlier, delivered ZAR 1.4 billion in savings since 2016. Consumables such as general stores, chemicals, diesel, explosives increased by about 10%, and we are fortunate to have a limited exposure to diesel in South Africa. Our mines affected by the higher diesel prices are Hidden Valley, Kalgold and the mechanized mine, Target 1.
In South Africa, 30%, 33% of the increase in our cost was due to the full year in production costs from the Mponeng and related assets compared to the nine months in FY21. The COVID-19 costs in FY22 were ZAR 480 million, and we expect this cost to fall substantially in this year. In FY22, the margins from Mponeng, Moab and the surface operations ensured a production profit of ZAR 9.5 billion. Our Joel Mine returned to profitability in quarter four, while Target 1 recapitalization optimization project will be completed at the end of this year.
Kusasalethu returned over ZAR 800 million in free cash to the business. We have implemented additional cost controls at Hidden Valley to reduce the risk of another conveyor belt failure. This will ensure that the mine operates at plan. Production and costs at Hidden Valley normalized in the fourth quarter of FY22. Looking a little further towards FY24, many of our projects will be complete. We expect the all in standing cost margins to improve and all our mines to be profitable. In addition to our investment in grade, investing in our people is vital to delivering meaningful returns.
There is a clear link between execution, excellence, and productivity. Our business improvement team is busy with a project called Safe 300 or S300. Now, S300 aims to safely increase the average productivity of crews to 300 square meters per crew per month. Now, some of our crews are already mining at 700 square meters, so there is a significant opportunity to improve overall productivity. This circle represent key S300 initiatives. Combining the Thibakotsi cultural transformation journey with technologically advancements, we will improve the human dimension of safety and productivity.
S300 is humanity at work. It's about developing the human part of our business to achieve the art of the possible. Lastly, I would like to touch on our growth before handing over to our financial director, Boipelo, to discuss the financials. Many of you are familiar with the slide illustrating the key margin catalyst over the coming years. This year we closed Bambanani. Masimong and Kusasalethu will reach the end of their life at the end of FY 2024. However, the reduction in ounces will not result in increased costs. As production comes down, we also realize a significant reduction in capital expenditure and costs.
The Mine Waste Solutions capital, major capital project will be complete in FY25, and at the same time, once the Franco-Nevada streaming agreement ends, there will be an additional 25,000 ounces available at prevailing gold prices. This translates to around ZAR 500 million in additional revenue in real terms. The result of these catalysts is more profitable ounces and improved margins as we position Harmony for the transformational Wafi-Golpu project. Harmony has significant resources with many opportunities to convert to quality reserves.
The year-on-year reduction was mainly due to changing of life of mine plans at Kusasalethu and the sale of Kili Teke during the course of the financial year. Many of our studies, such as the deepening of Mponeng, will result in a sizable conversion. We are also exploring opportunities to process the Free State tailings. These tailings have a resource base of 5.7 million ounces and potential for the retreatment of about 60,000 ounces per annum for almost 100 years. During FY22, gold and gold equivalent reserves decreased by 6% to 39.8 million.
Apart from that, there was mined during the year, the Tshepong restructuring resulted in some ounces moving out of reserves to resources. Harmony now has a higher quality ounces that improve conversion to reserves. This in turn will drive higher cash conversions and value creation in the long term. Now over to you, Boipelo. Thank you very much.
Thanks, Peter. Morning, everyone. As Peter mentioned, it's definitely good to be back in person to see everybody else again. Just in terms, the geopolitical events rather leading up to and including FY 2022 affected almost all businesses, including ours. Harmony benefited from a 5% increase in the average gold price received, while a ZAR 500 million realized hedge gain helped drive the 2% increase in revenue to ZAR 43 billion from ZAR 41 billion. Operating free cash flow margins declined to 7% for the year due to the lower production.
We recorded a net loss of ZAR 1 billion in FY 2022 compared to a net profit of ZAR 5.1 billion, and that's mainly due to Hidden Valley and the impairment losses that we recognized. I'll touch on this in the next slides. Normalized for once-off items, headline earnings per share decreased 49% to ZAR 4.99 from ZAR 9.87. Our balance sheet remains strong, with net debt to EBITDA steady at 0.1x, and we've refinanced our funding and have ZAR 8.2 billion in cash and available undrawn facilities. Our new funding lines are now linked to sustainable KPIs, which is a first for Harmony, so we're quite proud of that.
I'd also like to remind our shareholders that we have appointed Ernst & Young as our new external auditor for FY 2024, and this is subject to shareholder approval at our next AGM. We again would like to thank PwC for their support over the many years. As Peter mentioned, the decision to restructure the Tshepong operations was necessary to deliver higher returns going forward. Of the total ZAR 4.4 billion impairment, 3.6 was attributable to Tshepong on the back of increased costs and capital and higher discount rates.
There was also reclassification of reserves at Tshepong North. There were additional impairments at Moab Khotsong, ZAR 522 million, and that was due to increased costs and a higher discount rate. ZAR 145 million at Kusasalethu as a result of reduced production rather, due to safety considerations, and Bambanani because of the early closure. You'll recall that Bambanani, we had written off in our interim results. Of the above impairments, ZAR 333 million was recognized against goodwill. It's important just to point out that the ZAR 522 million of Moab, the bulk of that is goodwill.
Just lastly, I'm pleased to announce that we'll be paying a final dividend of ZAR 0.22, and this is in addition to the interim dividend of ZAR 0.40 per share, and takes the full year yield to around 1%. The payment of the dividend demonstrates confidence in our plans and our ability to pay a dividend alongside our growth aspirations. Normalizing cash flow for the operational setback at Hidden Valley, there would have been ample or there is rather ample room to reward our shareholders. Thanks, Peter. Back to you, just to conclude.
In conclusion, thank you Boipelo, and thank you for all our shareholders for their ongoing support with enabling Harmony to achieve these goals. The solid platform we have built places Harmony in a strong position to deliver operationally. Our journey is not yet complete as we progress our copper story and grow our margins. Production is split between our high-grade underground assets. Those underground assets optimize for cash generation and our high margin SA surface business and our international business currently in PNG, but with plans to expand.
This is our equity story in four parts. Delivering on our strategy, or delivering on our strategic pillars will ensure that we create long-term value for all our shareholders and stakeholders. Effecting positive change and maintaining our trust is what we call mining with purpose. I thank you. I will now take any questions from the audience for those who have dialed in and posted questions on the webcast.
Can you hear me? Is it coming through? Great.
Arnold.
Yeah. Morning, everyone. It's Arnold Van Graan from Nedbank. Peter, two questions. The first one is your productivity initiatives, S300. I mean, you're looking to achieve what's sort of 10%-15% increase in productivity there. Can you just talk us through it in more practical terms? Let's say mining terms. How you gonna achieve that and what it all means? That's the first one. And then you had some permitting delays at Kareerand. Can you just talk us through that? What's causing that? I'm basically trying to figure out what role the authorities and the DMR is playing in these delays, if any. Thank you.
Yeah. I'll take the second part of the question first, and I'll ask Beyers maybe just to comment on that. If you can just give the mic to Beyers, please, to share. The delays was we submitted a application, and then we had quite a lot of delays in terms of actually getting the application done. So we had to resubmit the application. You know, that actually took them much longer than we thought. That application went right in the beginning when we started just taking over from AngloGold Ashanti.
We would, you know, obviously, as we've known the asset a lot better with the application quality of the asset improved. Resubmitted that, and obviously there's always time delays and it's, you know, three months and four months that have to be considered before we actually get it over the line. Yes, it was a little bit of a disappointment because, I mean, we could have. You know, it would've been great if we got it right.
We've got all regulatory authority or approvals now we are going, and I think it's only the safety officer, the one thing that's dam safety officer approval is still outstanding, but we're continuing with the construction of the, you know, the civil works at the moment. We've got. We're there. We, as we think, we're fully on the go. Yes, Beyers, I'll let you maybe talk through to the S300. Yeah.
Thank you, Peter. Good morning, everybody. Thanks for the question, Arnold. Productivity improvement is identified as a clear aspect of our business that we're looking to improve. Obviously, in a growth environment, productivity is a fairly cheap, you know, improvement if you can realize that. What we are doing is, at the moment, our run rate is about 260 m² per crew per month, and we're looking to improve that to S300, so it's 300 m² per crew monthly. We have got a well-resourced business improvement platform now going in Harmony that's well-resourced in the SA ExCo office.
The projects as detailed on the slide, they include things like face time optimization, shift cycle optimization, the responsible use of technologies, although we do know that we're in a narrow tabular, conventional type of environment. Faster drilling rates in order to increase that safe quality blast per day. It's not rocket science. It's real practical mining stuff. If you look at our output per crew, although the average is around 260, you know, we've got quite a big range there. I mean, you've got crews doing 200 and crews doing 700, as Peter quoted in the presentation.
It's basically moving that mean, you know, slightly closer to the 300. Yeah, not rocket science, but a well-resourced, well-equipped, safe crew with good environmental conditions is a productive crew. You know, we're working really hard on the South African operations to grow the business in the SA context around productivity improvement and driving the costs down that way with some high grades that we're also targeting. Thanks, Peter.
Yeah.
Hi. It's Desmond at Afrifocus Securities. Peter, can I just ask you, how important is Western Deep to the future of the operations? Clearly, you've made big money for it. Well, you know, substantial amount going back a couple of years ago. Just to give us a feel for how important Mponeng is going to be in years to come.
Yeah. My view is that it will be very important. Obviously, we haven't made that final decision yet. This year we're gonna spend time on doing the feasibility studies. It's not only the deepening part of the VCR that we're looking at. There's also with that deepening, we can bring a lot of the Carbon Leader in play, which is obviously, you know, will be quite great to have a little bit of that high grade Carbon Leader also in our plan. But then also looking at the TauTona Savuka shaft pillars, the extraction of that. We are looking at the moment, we're working very close to the University of Pretoria.
We actually are sponsoring the rock engineering chair there. We did a lot of work on Bambanani, the extraction of Bambanani shaft pillar in terms of trying to marry extraction rate versus, you know, the mining itself in terms of how we can manage seismicity and things like that. Now, we think that IP that we created by doing all of that will probably help us to mine those, the shaft pillars. Now, all of those are not approved yet. As you can see that in that graph that I showed, it's in dotted things.
You know, I'm comfortable that with the grades that is available at Mponeng going forward, that we most likely will give it a go. You know, again, I mean, we still have to take it through the proper approval process. Certainly a fantastic ore body that will add about 30 years of life to the current Mponeng mine, so it can be quite substantial. 30 years, sorry. 30. Yeah. The shaft pillars, if you think about, you know, Bambanani shaft pillar, the shaft pillars are about the same size as the Bambanani shaft pillar. We have four shaft pillars in Savuka and TauTona, you know, on the carbon leader and the VCR.
Now, there have been some mining in the past, and so it's not all available, but it is actually potentially three or four Bambananis that is out there. Bambanani, as you know, we closed it now. We mined about 84% of the gold there, and it was a massively profitable project for us over time, and very safe, done very safely. You know, we're confident that we've got the IP to do that mining.
Thank you, Peter. Thanks for the opportunity. Teleki from Marotori. Could you please take us through your strategies? How are you going to fund CapEx going forward? How cheaply and economically are you going to do that?
Yeah. We kind of always have, you know, the three buckets. Maybe Boipelo, we should give you the opportunity to answer that because, I mean, it's more in your field.
From a liquidity perspective, we're quite comfortable. We've got headroom of about ZAR 8 billion. I mean, you would have seen we refinanced our facilities just recently, including that green bond specifically for the renewable energy perspective, so we're quite comfortable. I think Peter unpacked it quite nicely in that capital allocation slide. We're obviously. I mean, what we've done with Tshepong as well, reprioritizing that capital to higher grade. From a balance sheet perspective, in terms of funding, we're very comfortable.
The one maybe just to add to that, Wafi-Golpu is obviously a big-ticket item. We always said that let's get through the first hurdle, get the mining license in place, and then we'll look at, you know, what the funding mechanism for that will be.
Peter, the other one I want to ask you is the drilling taking place at Target North. Are we still gonna see some results from this drilling in the next year or so?
Yeah. We still, Jaco, what time do you? We actually are getting to the end of that drilling program, so we are very close to bring it. It's probably by, I think the start of next year, you, Jaco, around about that time, we will be bringing the results. Yeah, we're drilling there and, yeah, so we're quite happy to continue drilling there.
Still, Jared Coetzer saying he's busy with the deflections nowadays, so that, yeah, so some good results coming out there. As soon as those are out, we'll-
Yeah. We just wanna complete the final drill holes as the program had it, and then we'll come back to the market and say what we found there.
Peter, I've got a question on the webinar from Martin Creamer. What do you foresee for Harmony as a future miner of copper? When will copper begin, and what value do you see coming out of copper mining in the years ahead?
Yeah. We do see ourselves as a gold, copper play. Obviously, we have Wafi-Golpu as a major more a copper mine than a gold mine. We will, you know, by necessity, if we continue with Wafi-Golpu, be part of a copper story. We certainly are also looking at potential copper growth in, you know, and, as a company, very keen to progress that. Thanks.
Any further questions? I think we're good. Thanks very much.
Thank you very much, and thank you for joining us.
I just wanna check, telephonically, have we got any questions coming through?
There are a few questions, sir. The first question we have is from Patrick Mann from Bank of America.
Thanks very much for the opportunity. Good morning. Two questions please. The one is just on strategy. If I look at your sort of inorganic growth strategy, you talk about looking for lower risk profile assets. But then obviously, if we look at your current results, the sort of core of the portfolio has come from, you know, in Mponeng and Moab, where you've recently acquired these in South Africa. I'm just wondering, going forward, have you written off, you know, in buying or looking at any inorganic opportunities within South African underground mines? Or is that still an option on the table? That's the first question.
The second question is just on dividend policy and your cash flows. If I look at this year and add ZAR 2.5 billion of CapEx, and we're going into this high CapEx phase, that would pretty much take, consume all of Harmony's cash flow for this year. Should we be thinking about it that, you know, likely we're gonna see low or zero dividends for the next couple of years in this CapEx program? Or alternatively, I also see you've paid a bit more than 20% of free cash flow this year. Could you maybe, you know, use that as a guideline, but still attempt to pay a dividend? Just maybe a bit more how you're thinking about dividends in a high CapEx phase of your business. Thank you very much.
Thank you, Patrick. I think we'd better take the second part. I'll take the first part of the question, which is really about our you know our growth within South Africa. Again, we will grow. We are not you know obviously I think we demonstrated that we are very keen to invest in South Africa because we are investing a lot of money in South Africa at the moment. Certainly if it's a quality asset, we will certainly continue doing that. We will not just grow for growth's sake. I mean, if we can't increase the value of the portfolio by acquiring a specific asset in South Africa, we won't do that.
Now, you know that is a thing. I mean, that is important. Obviously, we also take into consideration things like safety, you know, and also, you know, other sustainability, things like, for instance, carbon emissions and things like that. I mean, our key thing is that everything that we buy, everything that we do must be a better quality asset than we had before.
Yeah. I think from a dividend perspective, when we went out with the policy, we said 20% of free cash, and obviously subject to the discretion of the board, and that takes into account major capital, our net debt to EBITDA being, well, less than one. What we wanted to do, obviously, we declared the interim dividend of ZAR 0.40. Yes, we did utilize cash in the second half, but that was mainly due to the blow-out that we had at Hidden Valley in the first half of the year. If we normalize for that, then we wanted to.
Well, obviously, we've got confidence in our plans going forward, and we wanted to demonstrate just that consistency in being able to pay a dividend. We were quite comfortable in declaring that 22. Yes, if you try and work it out, it will be more than the 20% of free cash that we do guide. I think going forward, we would want to. Yes, there is a lot of capital going forward, but it's just for the one year and that will normalize eventually FY 2024, et cetera. I mean, I don't wanna guide what the dividend would be, but I think the key message is that, you know, just that consistency.
Thank you, Boipelo.
Any other questions telephonically?
The next question we have is from Adrian Hammond from SBG Securities.
Hi, Peter and Boipelo. Yeah, a couple of questions. I think firstly for Boipelo, your guidance. I'm quite impressed with your ambitious cost guidance, 57%-77% year-on-year. How do you reconcile that with current inflation, which is trending north of 10%? Is that a function of lower tons and higher grade? On your investments for renewables. Your plans for green loan. I mean, you're taking this on book, as I understand. Your peers are taking it off balance sheet.
Is this what is your rationale behind that, given that Harmony is quite a marginal producer? And then on your Kili Teke assets, what do you expect to fetch from that? And then, just for Peter. Just curious about Project Zaaiplaats, and to understand why you're deciding to go for this project, given it's almost goes against your strategy here, which is to go for high margin, where Zaaiplaats represents a much deeper, higher risk asset. Thanks.
Should I go first?
Yeah.
I think just on the renewable, Adrian, remember the phase I is a PPA, the 30 megawatts, so that's off balance sheet. Then obviously phase II then is where the green loan kicks in. We actually interrogated it quite carefully, and it's cheaper for us, we believe, for the phase II to do that on balance sheet as opposed to off balance sheet. That's just on the renewable. With regards to the cost, I wouldn't say ambitious, I think it's quite realistic, the ZAR 900,000 that we're guiding. Yes, kilograms do have obviously.
I mean, what we experienced with Hidden Valley, so we did have a drop in production, which influenced the rand per kilogram cost. I mean, again, I think we have to contextualize. If you look at Harmony, it'll always be 77%, which is labor, electricity, and contractors that we cannot do away with. Labor, we're quite comfortable. We've got the three-year wage agreement. Electricity is around 13%. Then what we have to manage is obviously consumables. We're quite comfortable with what we've guided.
Yeah. I think, also, I mean, we did take some of the high-cost mines out.
Yeah.
I mean, the Bambanani is a very high cost mine, and those kind of things is now behind us, and we're closing down. Obviously, Kusasalethu is another very high cost mine in the future that will close down.
Yeah.
Yeah, that is second. Speaking of Zaaiplaats, Adrian, yes, Zaaiplaats is a. I mean, it is deeper. You know, we always bought Moab with the intention to develop Zaaiplaats. I mean, it is a third of the ore body of that mine that was never mined. I mean, there is obviously the top mine and the middle mine that we are currently mining. Then there is another third of the ore body that was below infrastructure, below the 100 level, that could have been mined. You know, we bought the mine with the intent to, in actual fact, develop that if it makes sense.
I think the work that we've done in terms of mining safely. We talk about, you know, we're still netting every stope face that we operate now. Our management of seismicity, I think we've learned a hell of a lot in the last year or two through, you know, mining the Bambanani shaft pillar and, you know, other areas of Kusasalethu, Mponeng, etc. I think we do have. We know how to mine these deep-level mines, and it's obviously very high grade. I mean, that ore body runs over nine grams a ton. That is a significantly beautiful piece of reef there that still need to be mined. We want to mine it safely. We want to mine.
We believe we can. Yes, it is a, you know, a project that I think should be done in South Africa, not only for all other things, but also just for job creation and other kind of things, but also is a very profitable asset for us. I think in the previous year, we presented, you know, all the metrics of the project in terms of why it's such an important project for us to go, and then we certainly would continue it. At the moment, we actually doing quite well there. We really have the support crews, our crews that we developed over many years in sinking declines. They are top-notch. I don't think there's anybody that can do it better than they can. We've got them there at Zaaiplaats basically developing those new declines.
Thanks, Peter. Any more questions online? On the call-in side, any questions? Good. All good. All right. Thanks so much, Peter. Thanks.
Okay. Just for me then to thank you. Thank you very much. It's so good to have a person-to-person meeting again. Like I said, it's had been quite a few years, and it's great to be back to normal or close to normal environment that we operate in again. Thank you.