Earnings Call: H1 2021

Feb 23, 2021

Good morning. Thank you for joining us for our interim results for the six months ending the 12/31/2020. We continue to present our results on a virtual platform due to the COVID-nineteen standard operating procedures currently in place. Mining is all about people, and I do miss seeing each other of you in person. I do hope that you in the various that we through the various vaccine programs becoming available worldwide that we will able to see each other in person again in the not too distant future. Joining me today is Boipele Lokubo, our Financial Director Mashehe Mashehe, our Executive Director and then also the Investor Relations team under the leadership of Marianne Van der Waalte. Please take note of our safe harbor statement and competence person report statement. Moving to Slide three. Harmony creates and delivers value by successfully delivering on its purpose and strategic objectives. In so doing, we work towards ensuring the long term sustainability and profitability of our business. This, in turn, enables us to invest in the employees, in society, to contribute to the economy and to share the value created with all the stakeholders. During the first six months of financial year 2021, our strategic pillar served as a road map to achieve exactly that, value for all. We continue to support our own employees and stakeholders during the trying 19 times. And we have been assisting communities with food packages and ensuring all our employees are able to go to work, knowing that we are making every effort to ensure that their safety and and who they get in contact with are all in place. We continue with the production under strict guidance of the DMRE and brought Harmony to new heights while enduring one of the most difficult calendar years in my entire mining career. Challenging times bring people together and build character. This was especially true for the Harmony family. Harmony delivered on outstanding set of numbers for the first half of the financial year, in line with our strategy of producing safe profitable ounces and increasing our margins. These results are a true reflection of how Harmony is transformed and derisked its business. While the majority of gold still comes from underground, we have increased our production and cash flow from higher margin, lower risk surface sources operationally to approximately 30 of our total production. To illustrate just how effective the company has been for the last six months compared to the six months ended on the 12/31/2019, I will touch on each of the strategic pillars six months from the operation. As far as responsible stewardship is concerned, we are now in Phase two of embedding a proactive safety culture focused on leadership and behavior. Our health initiatives combined with the COVID-nineteen standard operating plans were embedded in all our operations and actually make sure that we have a sustainability in our operations. We ranked first in the ESG disclosure among South African mining companies. We are a Food Chief of Good constituent. We included in the Bloomberg Gender Equality Index. And we're glad to say that we are runner-up in the Sunday Times Top 100 Companies Award in 2020. On the operational excellence side, we had a 65% increase in production profit to ZAR6.8 billion from the ZAR4.1 billion previously, with a 5% increase in underground recovery grade to 5.58 gram per tonne from 5.29 grams a tonne, with an 8% increase in gold production, with a 42% increase in total mineral resources and a 20% increase in total mineral reserves. On cash certainty, we had a 69% increase in operating free cash flow with our profit margin to 22% from the 13% previously, With a 336% increase in net profit to billion. We had a 58% reduction in net debt, down only to ZAR580 million from the ZAR1.4 billion in the previous six months. And with 31% increase in gold prices received to close to ZAR900000 a kilogram. We had a million gain on the derivatives. And our headline earnings per share increased by 211% to point seven five. So our net debt to EBITDA ratio at the moment is at 0.1x. On the effective capital allocation side, we successfully integrated the Mponeng and mine waste solutions. We have now three months of production in our production results here. We have a strong pipeline of organic projects to drive production profile and margin expansions. And we declared the interim dividend of ZAR one point one zero. This slide simply shows the same information in ounces and U. S. Dollars. On the responsible stewardship, I do want to stand a little bit still there. Safety is a foundational value at Harmony, and it is at most important that we ensure a safe production with all our operations. Risk management is an essential step in ensuring that our employees and working areas are safe at all times. Harmony remains committed to the elimination of work related injuries and fatalities. We continue to address specific causes of work related events resulting in injury and loss of life, focusing on improving our safety in general and embedding a proactive safety culture. It remains a continuous journey of engagement, training, creating awareness, learning from each other and caring for each other. We started our safety journey in 2016. A number of our mines have recorded some significant safety milestones and are seeing progress as we have worked on to embedding a proactive safety culture. Our total injury and accident frequency rate has improved over the past decade and is now at seven point six nine per million hours worked as we strive towards a goal of zero loss of life. Despite this program, the group fatality injury frequency rate regressed in the first half of FY 'twenty one, increasing to zero point one three per million hours. The graph on Slide eight shows the total injury rate accident frequency rate, which indicates that we are moving in the right direction towards achieving our goal of zero loss of life and zero harm. While we have not achieved the safety results proportion to the efforts that we put in place, we are indeed seeing an improvement in our numbers. Mining, as I said earlier, is all about people. We have to ask ourselves whether we'll be prepared to send our own children down on family members to go and work at the Gold Harmony mine. Now I would do that because I know that every effort is made to ensure a safe working place. We care about our people, and we are, therefore, spending a significant amount of time and money to develop our leaders' capabilities and also their credibility. Embedded practices throughout the company stipulates that we expect of each person, but we also challenge unsafe routines and unsafe habits. We are running various safety awareness campaigns throughout the company. We have reduced Harmony app in conjunction with the Internet with both contained and delivered regular safety messages. Impactful safety days are held, beliefs are shared on the safe behavior, and we are continuously addressing Harmony's overall culture. All this ensures that Harmony's personal values are aligned with the Harmony value and culture of safe working areas. Positively impacting each and every Harmony employees' thinking and approach to safety is fundamental to achieve our goal of zero loss of life. Creating a proactive safety culture throughout the company is a continuous journey, which we will live every day throughout the positive reinforcement, ensuring each and every Harmony employee has embraced a positive and permanent approach to safety. From the outset, we established a multidisciplinary team to ensure compliance and alignment of all the COVID related processes. Harmony developed and implemented a standard operating procedure to assist in the prevention and transmission of COVID-nineteen at its operations in South Africa and PNG. Employees who were scheduled to go home for the successive season were required to sign a registration form, and full screening was conducted. A return to work process is designed and implemented to ensure a safe return of all employees to the working place. About 7,000 of our employees traveled outside South African borders over the December 2020 period, all of whom were allowed to return through the borders provided they were able to produce a negative COVID-nineteen test results. As of 02/19/2021, about zero point two percent of workforce tested positive for COVID-nineteen with ninety four active cases. We warned the forty employees that have lost their lives due to pandemic and continue to urge all our employees, their families and communities to remain vigilant as we battle the second wave of the pandemic. Harmony is committed to playing an active role with our social partners to help with the vaccine rollout. While the South African government is primarily responsible for funding the vaccine rollout, it is a single and is a single buyer. Almiry will play an important role by accelerating the vaccine program on all our mines and host communities. As guided by the Department of Health, our healthcare workers and other frontline workers will receive vaccines first, followed by our remaining employees as per our internal COVID-nineteen vaccine rollout plan. We will continue to prioritize our health care initiatives, particularly those relating to occupational and lifestyle diseases despite the current challenges presented by COVID-nineteen. I do want to talk a little bit about Unicell. Operating the deepest mines in the world is often viewed as unsafe and costly. However, there is more to our business than just mining underground mines. ESG may have become more popular over the last few years, but has always been part of Harmony's DNA. Unicell is actually a case in point. We closed the mine in October. The mine started producing in June 1978 and was originally designed to close in 1991. Omni took over Unicell in 1996 and extended the life by a further twenty four years. Not only was this mine profitable, but by doing that what we know best, we extended the lifeline to the communities and families who were all at risk of mine closure. This perfectly illustrates the sustainability in ESG It's something that we are committed to doing in all our operations. UNICELL is a clear demonstration of our expertise in not only mine life extension, but also in turning operations profitable again, thus, in turn bringing sustainable jobs for communities and much longer longevity for the area that we operate in. We have illustrated similar ESG successes at mines that we currently mine and will apply the same skills and know how to the newly acquired assets. It is evident that from these external recognitions that we are certainly making a meaningful impact on ESG perspectives. A successful ESG strategy delivers positive shareholders' return, and we are committed to deliver on both of these. Harmony was a runner-up in the Sunny Times Top 100 companies in 2020. This award acknowledged Harmony as a GSE listed company for creating wealth and value for shareholders over a five year period. The CRRA or the Corporate Registered Reporting Awards is a global award, and Harmony was amongst the top 10 companies for the best integrated report, best environmental, social and governance, ESG report and the best carbon disclosure report. Harmony also ranked first in the ESG disclosure for mining companies in South Africa based on the recent study conducted by the rights Risk Insights and Instinctive Partners. The research was based on ESG metrics using Risk Insights' own ESG rating tool, which analyzed public available disclosures, integrated reports and media coverage. Standard Bank recognized Harmony as a top gender empowerment company last year, and we were once off included in we were once again included in the FTSE for Good Index and the Gender Equality Index of Bloomberg. We will continue doing what we know best, which leads me to the next section on operational excellence. Higher gold production was due to the inclusion of Mponeng and related assets into our in our portfolio and achieving our operational plans at the majority of our mines. We have successfully integrated Mponeng and mine waste solutions into our portfolio and have already seen an increase in grade, production and cash flow since we took ownership of these assets on the October 1. Our South African operations produced close to a tonne of gold more than we had planned for the six months to December. We have enhanced our existing portfolio by adding higher grade underground assets. We will see a 5% increase in underground recovered grade compared to the last reporting period. The gold price continues to be volatile, which means that we've managed what we can, which is safety, production and cost. The slide shows that in the current spot, 90% of our production remains profitable. Harmony overall all in sustaining costs for the months to December in 2020 was 80% higher at 715,000 a kilogram compared to the six months to December in 2019. It was mainly due to the higher royalties that we were paid, the inclusion of the acquired operations, labor costs and what increased as a result of higher revenues and the COVID-nineteen related expenses. Capitalization project at target one to bring infrastructure closer to the mining areas is continuing, but unfortunately, we had pillar failures and backfill dilution into two of our massive stubs, which impacted on the grade and the volume. We have adopted a revised plan, which will take into account the delay caused by these events. We expect this to be resolved by the Q4 in FY 'twenty one. Through astute acquisitions, we have managed to expand our cash margins. Moab was the first the most profitable operation, followed by Mineway Solutions and then in Puneng. Pomowani, with its higher grade and our surface sources being lower risk and with high margins, both continue to impress. This chart illustrates that the lower risk surface source operations produced excellent cash flows margins and are an important part of our business. To illustrate the previous slide slightly differently, you will note that the strategy acquiring higher grade assets, combined with the steady performance in our existing mines, has resulted in a strong operating free cash flow margins. And yes, you may argue that the gold price has shifted, and of course, it did. But as gold miners, we ensured that we're going to benefit from not just the gold price, but also the asset mix and higher production. The integration of Mponeng and Mine Waste Solutions and related assets into our portfolio is expected to increase the group resources by 43% to 169,800,000 ounces and the group mine mineral reserves by 20% to 43,800,000 ounces from the 36,500,000 ounces it was previously. So it's quite a healthy situation to be in. Over the past five years, we have diversified our asset base through increasing grade and adding lower risk, higher margin operations to our portfolio. You may still be tempted to call us marginal, but our surface sources now represent 27% of our total asset portfolio versus 50% before, which means production from these assets will drive our rand per kilogram lower. You may have to rethink your description of our assets. In addition, newly acquired assets, which are much higher grades than our current portfolio, adds approximately 275,000 ounces to 282,000 ounces for FY 'twenty one based on the nine month production figures as well as the potential of other services and services synergies, which will be discussed a little bit later. We have therefore updated our guidance from the original 1,260,000 ounces to point 3,000,000 ounces for FY 'twenty one to the new guidance of 1,560,000 ounces to 1,600,000 ounces of gold production for this financial year, with an all in sustaining cost between ZAR 700,000 to ZAR 7 and 20,000 per kilogram. Average expected grade is expected to be higher too at 5.64 grams per tonne. We will also refer to the guidance slides in the Annex section of this presentation for detailed production grade and capital guidance on each of our operations. If we look at the six months ended December 2020, only you will note that only 60% of our total cash flow is generated from underground operations. Adding more surface ounces to our portfolio post the recent acquisitions, therefore, de risk our assets portfolio to some extent as they are safer to mine, lower risk and increase our overall margins due to the lower all in sustaining cost, which in turn increase our operating cash flow. Harmony is now one of the largest processes of tailings and surface ore deposits globally after our position of the mine waste solutions and related assets. While the newly acquired assets will present opportunities for both services and surface synergies in the regions we operate, have identified several opportunities, which could potentially contribute an overall 10% reduction in cost per kilogram. Some of these include repurposing and optimization of marginal ore deposits, and tailings storage facilities, logistics and plants in the Vale area, cross utilization of workshops, unlocking significant value synergies and scale through regional consolidation, enhancing the services from our water treatment plants and reducing our operational footprint in the regions where we operate. The extent to which we can achieve synergies in these regions will only be understood once we have done our further feasibility studies as part of our planning cycle. We will be able to provide more detail on cost and other ounces once we have completed our planning cycle in August of this year. Bob Povere will now take the presentation from here to talk about cash certainty and capital allocation. Thank you, Peter, and good morning to all. After the strong results, headline earnings per share for the six months ended thirty one December twenty twenty increased to 775 SA cents per share or 48 US cents compared with the headline earnings per share of 249 SA cents or 17 US cents per share for the previous period H1 FY '20 '19. Basic earnings was up 288% to US966 dollars with the 24% difference between headline earnings per share and basic earnings attributable to the gain from bargain purchase. This gain contributed a 191 SA cents to the earnings per share. The drivers behind the increase in earnings was primarily due to the following. Firstly, a 336% increase in net profit to ZAR 5,800,000,000.0 or USD $356,000,000 for the first half of FY 'twenty one compared to ZAR 1,300,000,000.0 or USD 91,000,000 in the six months ended thirty one December twenty twenty. As Pete already mentioned, this was a result of an increase in the average recovered underground grade and higher production from our underground operations, of course, supported by a higher average rand per kilogram gold price. Three months production from the newly acquired assets was also included. Secondly, a 69% increase in operating free cash flow margin to 22% from 13%. The $9.00 2,000,000 gain on derivatives was attributable to the gain on our foreign exchange derivatives and silver hedging contracts. Profits and losses from gold derivatives contracts form part of the revenue line. The result of all of this was a 58% reduction in net debt to ZAR $580,000,000, down from ZAR 1,400,000,000.0 for the comparable period. Slide 25 is similar to the previous slides just in U. S. Dollar terms. Slide 26 is a very good illustration of our financial discipline over the years. If you track the black line, you'll see that we're able to keep net debt to EBITDA at lower than 1x throughout most of the past five years. And most notably, this was during our growth phase. All things staying the same, we should be cash positive by the March this calendar year. Slide 27 similarly represents the same just in U. S. Dollar terms. On Slide 28, we illustrate that the inclusion of the newly acquired Mponeng and related assets strengthened our operational cash flow significantly, contributing 41% to our total operating free cash flow. Gross profit increased by 136% for the six months ended December 2020 compared to the six months ended December 2019. '70 percent of our operational cash flow now is from higher quality assets and services sources, reaffirming Peter's earlier statement that Harmony is no longer a marginal operator. Moving to Slide '29. Harmony continues to enjoy favorable commodity and foreign exchange pricing on the unhedged portion of its exposure, while locking in higher prices as part of its derivative program when available. For the current period, we realized a net gain of ZAR902 million or USD56 million compared to a ZAR157 million or USD11 million gain for the six months period to December 2019, mainly due to a stronger rand to U. S. Dollar exchange rate. Since the inception of the derivative programs in the 2016 financial year, these programs have realized net gains of ZAR159 million or USD 10,000,000. Going forward, we'll be more selective before entering into hedges, only hedging when a margin of 25% above cost and inflation can be locked in. One thing I do want to emphasize is that our policy still remains in place, that being hedging up to 20% of our gold exposure over a twenty four month period. Silver is 50% exposure over a twenty four month period and ForEx at 25% exposure over a twenty four month period. I think this revised way of how and when we hedge is quite nicely illustrated in the graph that you see on the left. If you look at the current market forward of 8 and 50,000 per kilogram, in order for us to achieve that 25% margin above cost, we would have to track the red line. So clearly, given where that forward curve is, we would not be hedging at these levels. On Slide 30, we break down the headroom we have created for ourselves as of 12/31/2020. We've been able to create a significant cash position while still managing to repay a sizable portion of our debt. If we take into account the available facilities plus cash at hand, we estimate we have just over ZAR 7,000,000,000 available to deploy before dividends, leaving us with a myriad of options to apply our capital in a manner that funds growth but also creates shareholder returns. And that will lead me to the next section on capital allocation. Slide 31 is just the same slide in U. S. Dollar terms. Turning to effective capital allocation, We remain good stewards of financial capital and in particular, how we allocate it. We've repaid most of our debt with a 58% reduction in net debt to ZAR $580,000,000 or USD 40,000,000 in December 2020 from ZAR 1,400,000,000.0 or 95,000,000 in June 2020. Net debt to EBITDA is at a very low 0.1 times. In terms of reinvestments, we've reinvested some of our capital and added safer quality ounces to our portfolio through taking full ownership of Hidden Valley, reinvesting in the assets and acquiring Moab Khotsong, Mponeng and related assets in the past three years. At the same time, we managed to create total shareholder return through a significant uplift in the share price and reinstated a dividend, and I'll touch more on the dividend in later slides. We strongly believe that we will remain well positioned to benefit from higher gold prices to secure shareholder returns, but also to fund our growth ambitions. We will only spend capital where we believe it will secure future returns. Our pipeline of projects are therefore aimed at firstly lower risk projects with a focus on safety and overall risk impact, improving margins, thus replacing marginal ounces with quality ounces and reducing costs. Thirdly, generating returns through applying an IRR of more than 15% and paying dividends as and when our net free cash flow allows us to do so lastly, affordability through weighing up capital intensity against group cash flow projections and requirements. On the right hand side, you'll note that we have a number of projects that we wish to pursue, but only the ones that meet our criteria will make it through the various approval gates. Wafi Golpu is and will remain an important game changer for Harmony. As we wait for the special mining lease to be obtained, we'll pursue some of these organic projects. And when the SML is secured, we'll seek a separate funding solution for Wafi Golpu. Slide 35 illustrates that our strategy has translated in shareholder returns. We mine gold, remain hands on with our operations, manage our financial risks and others able to benefit from higher gold prices as and when they arise. Since introducing our growth strategy in 2016, Harmony's market cap has seen a mammoth 472% increase. Moving on to dividends on slide 36. Harmony has reviewed its existing dividend policy and is too pleased to confirm a more definitive policy aimed at paying a return of 20% of net free cash generated to shareholders. The new policy is aimed at being which is three very important things. Firstly, more predictable secondly, meaningful and thirdly, sustainable. While the dividend policy is reviewed every two years, the payment of a dividend will be at the discretion of the board and will be decided on every six months. When declaring a dividend, the Board will take the following into account in terms of their discretion. Firstly, future major capital expenditure, our net debt to EBITDA not being greater than one times, obviously, solvency and liquidity requirements in line with the South African Companies Act as well as our current banking covenants. As such, we are pleased to announce that Harmony has declared an interim dividend of ZAR 110 per share on the back of our strong free cash flow generation. This translates to a dividend yield of 1.5% to 2.5% per share. You'll note from the pie charts that even at very different gold prices, we are still in a position to pay a dividend alongside our growth aspirations. With that, Peter, I'll hand back to you to conclude. Thank you, Boipelo. The exceptional performance achieved in the first half of FY 'twenty one substantiates the growth strategy that we set out to pursue in the beginning of twenty sixteen. Through astute acquisitions, we have successfully added quality ounces and derisked our asset portfolio. Harmony is no longer a marginal gold producer, but an emerging market mining specialist. We have transformed into a company capable of creating value throughout the cycle. We have optimized our existing portfolio and improved our asset mix and continued to make decisions that benefit all stakeholders. We have acquired assets and lengthened their life of mines when no others no longer want to do. All of these assets have resulted in better margins, which have been able to lock in throughout the effective hedging strategy. These effective business practices have allowed us to create a robust yet flexible balance sheet with a war chest of available cash and facilities to deploy in both opportune and uncertain times. All of this has been done to ensure that we deliver positive shareholders' returns through the sustainable mining practices, whether it's lower gold price, COVID or airborne outages and the like. We will deliver through the good times and the bad. Harmony is a different company than what you once knew. I hope you have noticed that. This is what Harmony of twenty twenty one looks like. Marginal assets are being mined out and replaced with higher grade assets and surface sources that have lower risk and higher margins. Now how to mine sustainably and adding life of mine also adds significant to the values on the surrounding communities, government and other stakeholders. We get ESG. We know how to operate in emerging market countries. Our conservative approach to debt has positioned us well to be net cash positive towards the March year. Stability at our mines and good momentum have secured and we can secure long term operating free cash flows. We continue to be leveraged to the rand gold price. Wafi Golpu is part of our future and remains a game changer. The copper credits, and I'm not sure if you've seen the copper price today, but this copper credit could result in Harmony becoming a quartile cost producer. There are various ways in which to grow the company further, especially when our hands on management style can sustain our operational performance. A pipeline of organic projects and surface sources options with margins protecting through the hedging means that we all share in the upside in the form of share appreciation and dividends. In short, we are now able to produce at about 1,600,000 ounces of gold, add to that future quality ounces from our pipeline of projects, then combine the leverage exposure to rand per kilogram gold price with a robust balance sheet and a deployable and meaningful war chest. What you now see is a company that can and will remain well positioned to take advantage of the higher gold price with delivering positive shareholder returns throughout the cycle. This concludes the presentation. I will now hand over to Max to allocate the questions received in the webcast. Thank you very much, Peter and Wiggila, for that. For the Q and A, I want to start with the questions that are on the webcast. So the first one that comes through Can everybody hear me? Yes. Okay. Good. So the first question is from Deleki from Returning Capital. Quite a number of questions, but I'll just touch on on a few. Pierre, this one's for you. He says let me see here. The d time projected jaw shaft, has it brought forth any improvement in grade so far? And can you please elaborate at the historical and present face grade, belt grade, recovered grade? Yeah. And that's the question at jaw. So just repeat the first part of your sentence, the question. The decline projected at Joel, has it brought about any improvement in the grade at all? Yes. Joel, we, in actual fact, are starting the first we got the first race line we started mining. Unfortunately, where we started the mines, it was a little bit not necessarily grade was a problem, but there's really stoping width. We actually expected much higher stoping width in that area. The second race line is through, and we're now probably in better grade. And that will create a mine that will run for another seventeen years. Thanks, Peter. He's got a follow-up question here. He says a couple of questions. Sorry. The overall cost and percentage of the ongoing development as part of the production cost have been increasing has it been increasing or decreasing over the last three quarters at the shaft? Going forward, what do you expect it to be? I think they should also know the percentage of ongoing development Yeah. And the production costs, sir. Yeah. Ongoing development or what we call sustainable capital as we call it in our terms, is really development that we do. Obviously, going through COVID, we kind of cut back on the development because the first teams that we brought back, we put them back into our operations. So we're now getting back to the normal levels of development that we had prior to COVID. So if you compare it quarter to quarter, you will see quite an increase as far as that's concerned. But it's certainly now on the levels that will be going forward. And yes, I mean, our business, we have to develop to ensure that we have the flexibility to mine. We do it through a very rigorous, what we call, iceberg management. Obviously, the development is the underpin of what we actually have at the end of the day as face length available to be mined. And that's a very, very powerful tool in Harmony. Thanks, Peter. The next question is from Arnold Van Kraan from Nedbank. He says here the quality and scale of our asset profile has been enhanced with the acquisition of Muarapotong and Nat in Pune. However, we still carry several smaller high cost and loss making assets, which may seem to show a lot of promise but often seem to fall short. Is it not time for you to cut out these loss making higher cost ounces and put all your resources and focus onto the larger, higher quality assets? Yes. And that's precisely what we've done, and that's why we closed Unisel. We still have Mponeng mine available for another one point years to be mined. It will be mined at a profit. At the moment, we're getting very good grades and very good profits out of the mine. Then Mponeng will also close. Mponeng is our star asset. Mponeng will be obviously the next to close down. The other assets, both Joel and Target, which I think at the moment is bit of a concern, both of them has got very long life. And specifically, if we do the recapitalization of Target, our studies have shown that we will have a very, very good mine operating for many years, probably another eight to ten years. And then obviously, likewise, Joel, we can continue mining there, and we can actually spend more money there. And I'm very confident that both Joel and Target will do very well going forward. Catherine from JPMorgan wants to touch on a few assets. She says basically, can you shed some color on additional the change in assumptions underpinning the change in FY 'twenty one guidance versus the December invest from the investor briefing book. So we basically changed guidance for now recently. And she could appreciate if you could maybe touch on Tsepong, Moabhotong, Durango, and Kusasa led to. Just those guidance ranges. Okay. Yes, I think what we've done is, obviously, we had six months of production behind it, so we take that in consideration. We also had to obviously bring in Mponeng and mine resolution into our guidance. But those are fairly small to my knowledge. They are not really significant. I mean the one mine that we did have a significant change in the guidance is really target. Target, we as we said, we have our two high grade masses. Obviously, that is a mechanized mining operation. And both of them had troubles where the pillars failures and the backfill of adjacent stopes actually run into the areas. And that we have to now redevelop. But we'll be out of that by the end of this year. Peter. Ruplu, I think this next question is for you. In terms of this is from Arnold Van Kline again. Thank All in sustaining cost increases were substantial. It seems the outlook for cost inflation remains high. Are you carrying a large component of fixed costs associated with the importing assets and regional infrastructure? And how much of these costs can you remove from the system and by when? No. So if you look at the all in sustaining cost per kilogram, if you may, I mean, we did have some unplanned costs in terms of the COVID costs. And then with the higher gold prices, yes, we benefit from the revenue, but the royalty expenses is also quite significant. So about R15,000 per kilogram is attributable to the royalty. And obviously, I mean, as I say, we benefit from the revenue. With Mponeng, it's only been three months that we've had Mponeng in the fold, but we do expect to benefit from the synergies, etcetera, and probably reduce about 10% of that cost going forward. So in the total production cost, you know, year on year, it's fairly in line with what we expected. K. But, Adrian Hammond from Standard Bank wants to know if there's any further thinking on your interest in Goldpu and the means of funding it. No. So at the moment with Goldpu, what we did indicate is that the environmental permit was granted, which is quite a significant step in terms of, you know, going forward with the SML negotiations. So next step is the SML. And only once that is concluded will we start to have a look at what that funding package will look like. So it's it's early days in terms of the funding of Golpu. And then just to add further, if you self fund Golpu, does that not conflict with your new dividend policy? As I say, Golpu is still far out. I mean, bearing in mind, once we do get the SML, there's a five year significant development period for that. So the the looking at the new dividend policy, I I wouldn't be too concerned about Golpu. Thank you very much. Do we have any further questions from the guys on the webcast? Oh, the guys who've dialed in. Sorry. Yes. We have a few questions. The first question we have is from Shalin Modi from UBS. Congrats on a good set of results and congrats on securing a new dividend and reinstating a dividend policy. Couple of questions from my side. Just in terms of your hedging policy, I know I brought stuff with you earlier on the call, but so the way I understand it now is, you know, if prices are rising, you know, from versus where we are today, then you'll start hedging. But if prices continue to rise, then effectively, you're gonna start taking in in hedge losses as a result. But if prices fall from today, you're actually gonna you you you won't hedge, and therefore, you're actually just taking the full exposure to the gold price. I'm I'm just really trying to to understand the the reason for the change to the dividend policy sorry, to the hedge policy. Maybe maybe if you can just talk to that a bit. Then in terms of Mponeng and actually Tipong, both of these are kind of key assets for you. You know, the all in sustaining cost of these assets are around R800,000 a kilo. What are your plans with each of these assets to to kind of bring down the cost over time if if you can? And, you know, how how does that how how will that work? And what time frame are we looking at? Thanks. Actually, maybe I'll start with the hedging. I mean, what we must understand is that with the hedging, this is really around our strategic intent around cash certainty. When we started with the program in 2016, it was really about securing margins in order to repay our debt. We did that. We undertook a significant growth pass, which we do not believe we would have been able to do were it not for those gains that we realized with the hedge. So where we are now, if you look at where Harmony is, we want to be a little bit more selective in terms of limiting those opportunity cost losses. So and bearing in mind that we only hedge 20% of the production. So on 80%, you benefit from full spot. You would have noted in the graph that I had, given where the current forward is at 850,000 a kilogram, we want to lock in a 25% margin. That would mean the gold price currently should be at the 900 levels plus in order for us to lock in those good margins. We published our hedging table as of the December 31. You'll note that the average price on that book sits at about 8 and 92,000 a kilogram, which is higher than spot. And that's exactly what you want to achieve. I mean, in a low gold price environment, we suffer considerably more than our peers simply because of the nature of Harmony's business. So we are quite happy that the new way in which we are looking at hedges will address the challenges that we saw in the past. So so a follow-up question on the hedge then is if you if you were to continue the old hedging plan, effectively, you'd be protected to the town site even from today's level, but on the new plan, you're not. And then the second thing is if prices rise from today, say say we go into another bull cycle for gold, then you'll actually limit your full upside. So so the actual question is why not just not have a hedging program at all, I. E, just don't hedge? No. I mean it goes back, Shilin, to protecting to needing the cash when having the cash when we need it most. So we are trying to lock in, in the event that the prices come down, then we've locked in at least an attractive margin on 20% of our hedges. If we would remember also specific thing that we introduced in this new way in which we had is the inflation on our cost. So what you would have seen rather in the way the program ran in the past is that our cost base crept up to the hedges that are now maturing. So you're locking in losses effectively into the future. So in trying to lock in a margin above that cost that's inflated, then, you know, you will benefit in the future. Okay. Thanks. Maybe if we can move to the Mponeng and the Chippang question. Thanks, Killin. Yes, both in Mponeng and Tshepong. Let me just start with Tshepong First. I mean Tshepong, obviously, has been one of our long life assets and one of our assets that we believe has got a very strong future going forward. Where we have Tshepong at the moment has got the two different sections, which is Tshepong North, which is the old Tshepong and then obviously, Pakesha. We are going to go into much better grades in Pakesha going forward. We're in actual fact mining towards better grades, and we expect that to happen going forward. So Pung North was really affected by the double fatality we had in last year. And that had quite an impact in terms of our Section 54 standing, for us getting grips with what happened there and also then to get the mines back into production. So Tsepung has got a it's always going to be a tough mine to mine. It's all about volume, getting the volumes right, making sure it gets right in place because it is a 5.5 gram tonne kind of ore body that we're mining there. But it's always been a very productive ore body, and the teams there perform very well. And we believe that grade is going to improve going forward in the next few years that will actually, in fact, get Zupong going. As far as Mponeng is concerned, we took it over. We actually looked at the plan ahead, and we actually completed that plan quite handsomely in terms of the plan that was actually on-site at the time. We are busy with the restructuring or replanning of Mponeng Mine. Mponeng Mine is a mine that we believe has got a huge amount of potential. There's a huge amount of reserves ore body above infrastructure that is untouched at this point in time, which we believe we can bring it to the plan. But that obviously takes a lot of studies, takes a lot of feasibilities. And going through this planning cycle that we're in at the moment to get to our New Year plan, we signed off on all of those plans. We will come back to them remark in terms of what we believe Penang will deliver to us. But having said Penang, I mean, we're quite happy what we got. We got a very good mine, very good NIC infrastructure, good NIC ore body that we are very happy with. And a team of people, that is a fantastic team of people that we got from AngloGold Ashanti. So do you think we can expect the cost at both of these mines, all in sustaining cost at both of these mines, to stay flat or decline over the next, say, twelve to eighteen months? And then I've got one follow-up question for that. Yes. I think we as far as Mponeng is concerned, we should be able to cut back on the cost. I mean there's a huge amount of cost currently still in there that is fees that we pay for Anglo for the service that they actually rendered to us. They are currently running services because we haven't migrated all the systems yet. As a matter of fact, we've done, in the last week, quite a lot of work on that, and we will now be, by the end of this month, be in a situation that we're fully on the Harmony systems. And that will bring a cost down. So but as far as Tropom is concerned, certainly, we believe that the rand per kilogram all in sustaining cost can come down. Okay. Thanks. And then one of the comments you made in the presentation is that you're gonna replace some of your more marginal ounces with more quality ounces. Can you kind of give us an idea of how that plays out? The the reason I asked this is, you know, if you look at your life of mine profiles on on slide 47, in the next five years, like, four or three or four of your mines deplete, So how should we be thinking about this? Yes. We obviously have two fairly big decisions to make going forward. The one is the XIPLAS project. And we've done now a lot of studies. We actually will take it the outcomes of that study to the Board in the near future. And we'll bring you up to speed in terms of where it is. That's obviously a fairly high grade ore body, high quality ore body. We obviously have the other big decision we have to make is what to do with Mponeng mine with all the pillars that we inherited. There's quite a few shaft pillars there that's of very high quality. There's also, obviously, deepening opening, which probably is a little bit further down the line. But I think the most best low hanging fruits are really on surface sources. There, we inherited quite a few plants that currently we think we can free up to do tailings retreatment. At the moment, they are doing marginal ore dumps or waste dumps, as we used to call them in the past. So that will come to an end, and then we can free them up. The one in the Vale area is Kopanong plant that is available. There's a Myspa plant that we had that we bought as part of Moab Khotsong. And if you look at the Besbitch, the Elk Grove plant, most probably will can become available for retreatment because we will have enough space at the Mponeng plant to do all this underground sources, both Kusarzaletu and Mponeng. And then also converting the Sivuka plant, the old recent deep levels plant, so through the tailings retreatment. So we can actually create quite a lot more in tailings retreatment. They are normally very low capital costs and good payback times. It depends on all about your tailings facilities and what have available. So we're excited about those kind of opportunities that will come our way. And certainly, that will be replacing high margins with, obviously, some of the costs that we currently have with high cost operations. Yeah. Sorry, guys. I think in the interest of time, we'll take maybe one more question from the guys who dialed in. I see there's more questions that have come through by the webcast. The investor agency will handle those separately and get back to the guys. So I think we can have maybe one more question from the guys who dialed in. Sure. Not a problem. The next question we have is from Arnaud Franccan from Nedbank. You very much. Peter, just a question on your grade profile. So overall grade has increased, but if you look at the existing base, and I'm at Slide 14, grades have been declining since 2018. So my question is, is that largely a function of the gold price? Because the promise was always that the grades would increase. And I also pull that back to your previous comments on Tse Pong and my question on that, that was read out on the webcast, where we always have the forecast of higher grades, improvements and all that, but we don't seem to get there, which again, begs the question, given all the optionality you have, is there not a possibility or opportunity to just do what you did at Kusasolei for Zupong. In other words, increase the grade, cut down the lower margin ounces, the lower grade ounces, take the mine life, for example, from 20 to fifteen years, but then at least you know you've got more certainty on delivering that. So there are a lot of questions in that, but it's really about your ability to deliver on your targets and ability to deliver the high grades. Yes. Thanks, Arnold. Yes. Obviously, we go through a very rigorous planning process every year, and we use an assumption of a gold price exchange rate, etcetera, to do that. If we look at the South African operations in total, it's really about the mix. Some of the high grade stuff. First of all, one of the very high grade pellets we mined was Bommenani. Bommenani is the shaft pillars has a very high grade portion that we started mining. And now as we're mining going forward, we're actually mining into the lower grades. And that obviously had an impact as far as that's concerned. So Pung, we actually have a very nice pay shoot, a very well defined pay shoot that we have to mine in. So what we do is we mine and then we grade more levels and then we can mine into that pay shoot again and then we mine to the peripherals of the pay shoot. So that also had an impact. Joel also had a quite a big impact on the grade that we've mined for that game. But overall, in terms of what we've planned and what we've mined is on track. As a matter of fact, where we mine at the moment in terms of our planning parameters, we are mining for phase grades that is higher than the plan, just slightly higher than the plan. So I don't think we have an issue that will obviously be up and down going here and there. We had much higher grades at the time when we mined a few years ago. And as we mine in different parts of the ore body, we go to different grades. But they're all part of the plan. Nothing of that is out of kilter with the plan. Arnold, this I there's was the second part which I missed, which I maybe just need to Yeah. The the second part is really just is there a an opportunity or something to do let's call it a Kusasereti, where you just cut down the life of mine and target higher grade ounces. And I know at the current gold price, it almost seems counterintuitive, but maybe the gold price doesn't go up forever. Yes. Arnold, I think, obviously, when the price change, we will make different plans. But certainly, where we are now, the plan that we have is the best plan that we can possibly put in for, but it also gives us a highest NPV for the operation. So we're there. I think that concludes it now, Marianne. So thank you very much for joining us. We really appreciate that. We appreciate your time. And obviously, we are available for questions. The team and myself, I've met quite a lot of people that secured appointments to to speak to William Daupela. Thank you very much.