Ladies and gentlemen, and welcome to the conference call on Harmony's Acquisition of Unfinished and Guidewire Solutions from Eniagold Ashanti. All participants will be in listen only mode. There will be an opportunity to ask questions when prompted. Please note that this conference is being recorded. I would like to hand the conference over to Mr.
Peter Stenkamp. Please go ahead, sir.
Thank you very much and good morning, everybody. With me around the table, I've got Frank Abbott, Boipelo. We've got Philip Dubayas, Mashuku, Yoku, Bayes and also Marianne and Max that is with us on the call. We're going to refer you to the presentation on growing our quality ounces, acquiring and Cullinan Minebase Solutions, which is on the Harmony website and also on the homepage. If you just have that presentation in front of you.
So if we go then to Slide 2, please take a look of our safe harbor statement, specifically as many of this information here is really the Anglo Dals Ashanti Foundation. On Slide number 3, we talk about the transaction details. The assets that we require is in Keling mine, which also includes the Zebu Karanto, Turner areas. The above infrastructure reserves is 3,100,000 ounces at just about 11 grams a tonne, with a total resource of 46,000,000 ounces. And then also, Mine Waste Solutions, which is a trading retreatment reserve of 4,800,000 ounces.
And if you look at the annual production of those assets, it's about 250,000 ounces of mwaning and 100,000 ounces of mining solutions. So that will be added to our annual production going forward. The purchase price is a cash consideration of $200,000,000 plus deferred compensation of 260,000 ounces if we produce more than 250,000 ounces. For every ounce more than 250,000 ounces per annum, we will put $260 an ounce produced at Tumkuning above infrastructure. That includes Toutonoe and Savukpa.
That the consideration is reviewed, if we look at the Anglo Gold Ashanti plant, to be worth around about $100,000,000 There's also a consolidation for any ounces that we've used below infrastructure. Remember, we the infrastructure is, if we continue with that project, about $20 per ounce, it will be related to structure. The $2,000,000 cash will be funded through cash and available facilities. And obviously, the next steps are still outstanding with the competition commission approval and also Section 11 transfer of the mining rights from Mademre. And we anticipate the transaction plays at the end of June.
We had discussions with our stakeholders. And at this point in time, we had no real issues in terms of the support for this transaction. We'll move to Slide 4. I mean, the acquisition of Penangen Mine Waste Solutions, I believe, is a natural fit for Harmony. From a strategic perspective, it meets our strategic investment criteria.
Operationally, we have a lot of experience mining deep level mines in South Africa. We believe that we will be able to extend the life of mine of this operations and also of the mine waste solutions. And we will improve our portfolio mix of surface and underground ounces. As part of this transaction, we actually get a huge amount of surface sources and real opportunities as far as that's concerned. From a financial perspective, it's quality ounces that will increase our margins.
And our all in sustaining cost will improve through efficiencies and cost reduction measures that we've seen with Mark Kutzong. From a geographical perspective, there's quite a lot of synergies and economies of scale that we'll have with existing operations and also regional consolidation opportunities that will take place as part of the transaction. If I move to Slide number 5, which just shows us where Mponenga is situated, next to our SARS and Mexico operations. But I think importantly is that we create quite a lot of opportunities through the service. But as part of this bigger context, we will have 3 plants, the Zuguka plant, the Kuneng plant and also the Kusas related plant.
And then most likely, only need 1 underground plant to continue. And that will freeze some plant available to be able to use for surface sources. So I would take actually to get back on our production profile that is on Slide 6. I'll take you back to FY 16 when we started with this whole program of ours. And you can see that we have grown the ounces to 1,400,000 and now to 1,800,000 ounces.
And we have improved Wafi Golpu and we here used 35% of Wafi Golpu attributable. You can see that we will have at least above the 1,000,000 ounce producer for quite a while up to 20 2 to 27. So it gives us quite a long liquidity and obviously gives us an opportunity to extend our mines. Slide 7, I think, is quite important. If you want to look at the reserves that we have available in our operations.
And I mean, the first thing is that Unicell Massimo in the next 18 6 to 18 months will come to an end. And then in Penangus and the Mine Waste Solutions reserves, they are really in the red loss. What we also get through the 2 acquisitions that we have is a resource just for infrastructure outside glass and also in Plunene, which is quite substantial. If you look at most of them are over 8,000,000 ounces and they are very high grade, over 10 grams of tons. Slide number 8 gives us just the production.
We think about 2016 where we were just about 1,000,000 ounce producer. And then we added in the last few years, we added 80% of that. And obviously, of late is the 350,000 ounces that do with improving and mine waste solutions that we acquired with that, it take us up to 8,000,000 ounces. Slide number 9 will complete us in the quality of our assets. And you can see we reduced around about 5,000,000 tonnes a tonne with the WAP to get up to about 5.6 grams a tonne.
And with Mung Yang into the play, it should go up to about 6 grams a tonne. So, that will as we then continue, it will actually have a 1 gram a tonne difference where we were in 2016. Slide number 10 really talks about the surface production profile. And I think that's quite significant because this doesn't include all the potential synergies that we can take out of that because we have quite a lot of synergies in the Orkney area where the Mistbark plant can come into play. And we also have quite a lot of synergies in Sivuka and the autumn Pune plant with the Khosassa later plant in the near future.
But we will be now close to 200,000 ounce producer just from surface sources. And that will continue until FY 'twenty eight. And certainly, we believe that this is at the peak of the iceberg we have seen, we continue going forward on that. So that will be a significant
part of our production will be at surface sources.
Slide 11, I just want to explain this slide, is really to show you what will happen if we go above infrastructure, a calculation of the deferred compensation per ounce. And if you look at that, if you look at 250,000 ounces per annum, we pay no compensation. And as the production increase and in East Anglobold, Ashanti plant, maximum production will be around 350,000 ounces. It can go up to about $60 per ounce in terms of payment. But that is kind of what we believe is a maximum that we will pay.
And if you look at the current price, that's actually a very small percentage of the current price. So if you look at the En La Belle Ashanti plan at the moment, it's for $250,000,000 In the future, they will go up to $350,000,000 And if there's if we get to that level, we will obviously pay this type of deferred compensation too. In creating the long term value of Ceridian on Slide 12, I mean this acquisition will really scale up our ounces, strengthening our cash flows, increase the quality of our asset portfolio, sustaining a profitable production profile and increase our cash flows to gold gold, which obviously put gold in a better space for us. The stronger cash flow should result in a stronger script.
So we just move on and we
say looking ahead, If we look at the first second half focus for FY 'twenty, our strategy is to reduce safe profitable ounces. We are on Slide 14 now. First, through operational excellence, a key focus is to improve the safe and increase our productivity. That's part of our strategic pillars that we do. The second strategic pillar is cash certainty.
Repaying our debt is still our big focus at this point in time. And then also to manage the short term volatility. Effective capital allocation, in this next year, next quarter of the year, we'll secure the Wafi Golpu permit, and we will pursue the M and A. Like we said, we'll complete the implementing and hand by solution transaction and obviously complete in and that is access to Stage 6. Again, from our responsible stewardship, maintaining strong stakeholder relationship stock up front there.
And I must say, I'm very encouraged by the support that we had from organized labor this morning and also from government when we had discussions with them. And we continue to be responsible for the system and good governance and environment and the import management is up there. On Slide 16, we just talk about the Harmony investment case. We are now 1,800,000 producer in FY 'twenty one, responsible gold mining company with experienced creditable management team. We've got quality growth prospects and attractive returns and obviously, leverage to the rand gold plus we acquired a rand headstock.
We'll take any questions if there are any, and I'm pretty sure there's quite a lot. So I see we've got quite a lot of people on the line to listen to this conference.
Thank you very much, sir. The first question comes from Ed Stoddart of Raymond Maverick.
Yes. Hi. Good morning. How are you?
Hi, Ed. I'm fine. Yourself?
Good. I just want to ask
a question about the possibility of in the future mining below infrastructure. I'm just wondering, so we all know Mapining is the world's deepest mine. It's 4 kilometers deep. If you were to send additional capital into the mine and extend it flight, would that also mean deepening it in a vertical sense or it would just be horizontal?
Thanks for the question. At this point in time, we've made no decision on going down low infrastructure. We look at the mine and we bought the mine and the price we paid for it was all infrastructure. Obviously, there's a massive resource for no infrastructure and that we offered that $20,000,000 or $20 per ounce should we continue that. Most likely, if we ever expand the lower part of that, it would be the extension of the current declines.
It will not be a vertical sharp anything like that. So we'll be adding 1 or 2 or 3 levels below that. Again, we haven't done anything. If you look at the diligence that Anglo does, we believe that it can be done a lot cheaper because we are doing quite a lot of extensions of declines. We've done Bongbanam, Ejol, Tshepong, Pakisa.
We've done quite a lot of declines in our life. And we're quite I think quite good at extending declines at a reasonable price. But at this point in time, we haven't concluded that. That will come as we do the diligence, we'll go through our normal capital allocation processes. We will look at it and rank it against other projects and see if it's worthwhile to continue.
At this point in time, we're really focusing on the self infrastructure for that quality.
Okay. Can I just ask it maybe in a simpler fashion? Is there a possibility that the mine could go deeper than it already is? Yes, it's possible.
I mean, it's a huge reserve below infrastructure. And really, you're adding a level to level to level. It is not a as it is a different block of ground. It's just that the lowest level of the mine is stopped at the grade east now. So you can continue to refist continuing underground and it's really high grade there.
Okay. Thanks.
Thank you. Next question comes from Felix Ngoney of Plymouth News.
Hi, Felix. Good morning. Just as a follow-up to what you said just now, how far deep are you prepared for if you're saying there's a huge resource and there's good grade underground? And just another question, what are you
going to do differently,
I mean, to get this asset to last given that, I mean, if gold mining, underground gold mining becomes more challenging? And lastly, do you think you got a good deal out of this enterprise? Is this what you expected? And Ramon going to be the last man standing in the South African gold industry?
Yes. I mean, what we're saying is, I'm not saying, obviously, from this mine has been well mined. It is quite a safe mine. It has very good infrastructure. We don't think we'll do much different than the current operations.
We obviously have a different cost structure to Anglo. When we look at what we've done at Moab, we've been able to rationalize the mine and not we've actually been able to extend the life of mine. We're able to bring in more of the reserves into play. Anglo has a view of mining for cash. We will have a different view.
We'll probably try and extend the life of mine as soon as possible at right profits. So, we won't do much difference in the mine. I think it's a very good mine. We're putting mine as a mine. And if you extend it with a level of 2, we'll probably not be much different than where we are at this point.
In time. So from a perspective, it is great. If you want to look at the price, I mean, I think it's a fair price. We are prepared to pay for the mine. And we've seen price.
Obviously, it's a 2 pronged approach. The one is the $2,000,000 in cash, which I don't think will extend our balance sheet too much. And then the second part of that will be the 3rd payment if we mine under 250,000 ounces. So, all in all, I think it's a fair price, and I think it's a fair price for both parties. Yes, we are quite happy with what we get.
And up and above that, we also get a huge amount of surface sources that will last for many, many years. So that's also a very good part of the deal that we're getting.
Okay. So that answer your question.
And do you see yourself as last month standing in the top of
the board industry? I mean, you at 1 point 8,000,000 ounces, you are now the biggest producer, right? Like, volume?
Yes. At volume, we are definitely the best to do. So I'm not sure what the life of mines or the other mines are and what they are going to invest. But I mean, we obviously focus on the assets that we have. We don't think it's a bad thing to be the last man standing.
I mean, we're still a gold producer in South Africa with many years ahead of us, our Durran Corp and our Pong operations, potentially our light loss extensions, potentially with the remaining extensions would be mines that can continue for many years to go forward. So we're quite happy with the portfolio of mines that we have.
Thank you. Thank you.
Our next question comes from Mark Ottore of Oyster Hatcher Investments.
Yes, we'd like to just ask about the funding for this transaction.
And maybe after that, you
can also expand how much more funding model goes through mining as well.
Yes, thank you. If you look at the price, we pay $200,000,000 cash and then after that is a royalty. To the extent that we mined more than 250,000 ounces a year. So we don't foresee a problem in funding it from our current facilities and from our cash resources, the $200,000,000 We're very excited. The permitting at office seems to be on track, but that will take some time.
So we do believe that the cash flow from this operation would actually support us in funding Goldfield. So we don't see a problem with the that we can have a sort of capital requirement from both operations. We think this will support our South African operation.
Okay. Thank you.
The next question comes from Rene Hoeghreiter of Noah Capital.
Hello, good morning. Can you hear
me better?
Yes, thank you. We hear you.
Good, good. Thank you. Well, congratulations on building the deal. I hope it all comes to fruition and positively helps your cash flow. I'd like to build a model though.
What was the last rent per ton cost that Anglo was achieving?
Okay. Just I'll check with Kathy. We just got there.
Rene, can I talk to you about the dollar and ounce, which was the last number that they had for 2018? Yes. I mean, 2018, they were actually around $1200 an ounce, $210,000 per ounces that they produce for that year. So obviously, for the financial year 2019, We're going to be releasing that results in the next 2 weeks. So we don't have the final results.
Okay. But
you don't have a random number for me?
No. I don't I'm quite sure I don't have that at this point in time.
But we do have it. I think offline we can supply that to you. I mean, we obviously don't have it in front of us as we speak.
All right. And what sort of stay in business CapEx were they?
They were actually mining for cash. So if you want to look at that, obviously, for the normal development, remember they've got 2 levels that they're still mining at the bottom of the mine. And that requires development and raising. And other than that, there's not too much I mean, all the other infrastructure is some capital. And then, obviously, there's also as part of the life of mine, there's what they call the Totswana blue box, which we will evaluate if we will continue with their plan or not.
We look at the note of their plan. That's certainly something that we'll have to see if that's a viable plan going forward. At this point in time, they spent some money there. And but they've not we're
not sure
if we're going to continue with it, and we'll evaluate it at the moment we are actually on-site.
Okay, fine. I look forward to those numbers. Thanks a lot.
Thanks,
The next
question comes from Peter Krumberg of Merger Markets.
Just an idea of your gear what you're gearing is expected to be close to transaction. You indicated you'd be looking at a mix of cash and existing debt. So you're gearing both the deals?
Okay. Greg will just answer that
When we bought more, our gearing was 1.2. I think our gearing led to EBITDA is sitting at 0.7 now. And after the acquisition, we would be pleased to 1.5. But at the current gold prices, we think that drilling would come down very quickly in the next 2 years.
Okay. Thanks, Frank. So just to make sure, you said post deal 1.5 net debt to EBITDA?
Yes.
Okay. Thanks very much.
Hello?
Hi.
I wanted to find out, do you have any plans in terms of cost reductions to reduce jobs at all or job numbers to staying the same?
Yes. Vinisha, what we have is obviously we've had a mine that is we think the mine is a growing concern. We think it is the mine is well especially the management structures, how we look at the management structures, and we have a different way in terms of money in our minds. And we had quite a lot of redundancy in that area. But I just want to remind you that Angled or Ashanti went through quite a bit of restructuring process prior to us taking over the mines or this transaction taking over.
So there's been a huge amount of people that was going also. So we don't foresee no force reduction in labor at all.
And maybe just to ask Anish, I mean, if you have been following the Anglo Gold Ashanti store, I mean, you remember there is a project Omega, which was basically the optimization project, and they've realized quite a lot of value on that. We continue to look for opportunities. I mean, for an example, we are on the SAP system, we are on the Oracle. And we know that even with Mab Khotsong, we had to cut off, I mean, the SAP, and we went into Oracle, which is more cost effective. So those are the opportunities that we'll be looking at and also potential synergies.
We've got to start to let you there within about 4, 5 kilometers. So we'd also have to look at that regional consolidation opportunities, which will most probably lead to some savings.
Tanisha, it's Marion here. If you could just drop us an e mail, we'll respond to your question. We just can't hear you on this particular line. Thank you. Next question comes from Ramaphtha of Desendale Partners.
Good morning, guys. Just a strategic question really. I think that for both the Moab acquisition as well as Mponeng, one of the strategic reasons for the transaction was that these are cash generative assets that will allow you to build balance sheet capacity to fund Wafi Golpu further down the line. Is it not a very high risk strategy though to engage in acquisitions to build cash to fund further investments a number of years down the line? I mean is the pace of strategy not just to run existing assets for cash and build the balance sheet in that way?
I think important is that, I mean, the profit outlook discussion is still easy in the future. So, we're really looking at where we are. I think our intent was always to say that we would like to be in a position to build as a biggest possible spike that we can possibly find within Wafi Golpu. So, what we are looking for is opportunities to extend our life of mine. We also have our South African operations also have certain mines that actually are really at the end of the life.
And we need to close them down, so we need to extend that life of mine too going forward. So, these are every one of these assets actually standing on its own feet. Actually, it's a good investment case. It's a buyback period of a short period. And we're really looking at 3, 3.5 to 4 years of buyback period.
When we look at
the more of that
zone asset, we've been we've done pretty, very well in the year and a half that we had it. And there is a huge amount of well, half of the money has already been paid there. So, we are in a very, very good state as far as that's concerned. And we have the reserves and resources going forward. So, the same logic we will have with Mponeng.
So, we look at these in isolation. Yes, it will obviously put us in a much better state if we have good cash flows, mines that actually are at a better quality and people get us the biggest best possible fight at Wafi Golpu that we can afford. But we again, again, the Wafi Golpu is something that's turning as its own mix. We always said that we would like to get to the point where we have the HMO on our hands, we know what the thing is to say, what is our exposure, and then we'll find the right funding strategy and plan for that every time. At the moment, it's quite difficult to do that because we don't have the SMO in hand.
Okay. Thank you.
Chancellor, we have no further questions in the queue. Do you have any closing comments?
Well, thank you very much for joining us. I think this is quite an exciting play in Harmony's life. Over the past 2 years, Harmony has added over 500,000 ounces quality ounces per annum through the acquisition of Moab Khotsong and also then in the area that we think and now also in mine waste solutions. So we really acquisition really has the potential to improve our overall recovery rate and increase our cash flow margins. We are very, very excited about this operation.
We also know that buying a mine from AngloGold Ashanti is always a very well maintained mine. We've been on-site, we've looked at the mine, and we are excited that we have a real quality asset in our portfolio. Thank you very much for joining us.
Thank you very much, Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines.