Ladies and gentlemen, welcome to the conference call on Harmony's acquisition of Mponeng and Mine Waste Solutions from AngloGold Ashanti. All participants will be in listen-only mode. There will be an opportunity to ask questions when prompted. If you should need assistance during the call, please signal an operator by pressing star and then zero. Please note, that conference is being recorded. I'd like to hand the conference over to Mr. Peter Steenkamp. 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 Phillip Tobias, Mashego, Nqaku, Beyers, also Marian and Max that is with us on the call. We're going to refer you to the presentation on growing our quality ounces, acquiring Mponeng and Mine Waste Solutions, which is on the Harmony website, also on the homepage, if you just have that presentation in front of you. If we go to slide two, please take note of our safe harbor statements, specifically as many of the information here is really the AngloGold Ashanti information. On slide number three, talk about the transaction details. The assets that we acquire is in Mponeng mine, which also includes the Savuka and TauTona areas.
The above infrastructure reserves is 3.1 million ounces at just about 11 g a ton, with a total resource of 46 million ounces. Mine Waste Solutions, which is a trailing treatment reserve of 4.8 million ounces. If we look at the annual production of those assets, it's about 250,000 oz of Mponeng and 100,000 oz of Mine Waste Solutions. That will be added to our annual production going forward. The purchase price is a cash consideration of $200 million, plus deferred compensation of 260,000 oz if we produce more than 250,000 oz. For every ounce, more than 250,000 oz per annum, we will pay $260 an ounce produced at Mponeng above infrastructure, that includes TauTona and Savuka.
That consideration is good if you look at the AngloGold Ashanti plan to be worth $100 million. There's also a consideration for any ounces that we produce below infrastructure. Below infrastructure is if we continue with that project, about $20 per ounce, it will be below infrastructure. The $200 million cash will be funded from cash and available facilities. Obviously the next steps that's still outstanding would be Competition Commission approval and also Section 11 transfer of the mining rights from the DMRE. We anticipate the transaction to close at the end of June. We did have 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 four. The acquisition of Mponeng and 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 these operations and also of Mine Waste Solutions. It will improve our portfolio mix of surface and underground ounces. As part of this transaction, we actually get a huge amount of surface ounces and real opportunities as far as that's concerned. From a financial perspective, it's quality ounces that will increase our margins. Our all-in sustaining cost will improve through efficiencies and cost reduction measures, as we've seen with Moab Khotsong. From a geographical perspective, there's quite a lot of synergies and economies of scale that will add with existing operations and also regional consolidation opportunities that will take place as part of this transaction.
If one moves to slide number five, which just shows us where Mponeng is situated next to our Kusasalethu operations. I think importantly is that we create quite a lot of opportunities through the surface. As part of this bigger complex, we will have three plants, Savuka plant, Mponeng plant, and also the Kusasalethu plant, then most likely only need one underground plant to continue, and that will free some plant available to be able to use for surface ounces. How would that actually impact on our production profile? That is on slide number six. I'll take you back to FY 2016 when we started with this whole program of ours, and you can see that we have grown the ounces to 1.4 million and now to 1.8 million ounces.
If we have to include Wafi-Golpu, and we only use 35% of Wafi-Golpu and [Tvibittol], you can see that we will have at least above a 1 million ounce producer for quite a while, up to 2027. It gives us quite a long longevity and obviously gives us an opportunity to extend our mines. Slide seven, I think, is quite important if you want to look at the reserves that we have available in our operations. The first thing is that Unisel Masimong, in the next 6-18 months will come to an end. Mponeng and Mine Waste Solutions reserves there are really in the red block there. What we also get through the two acquisitions that we have is a resource just below infrastructure of Kusasalethu and also in Mponeng which is quite substantial.
If you look at both of them are over 8 million ounces and a half of them are very high grade, over 10 g a ton. Slide number eight gives us just the production. We think about 2016, where we were just about 1 million ounce producer. Then we added in the last few years, we added 80% of that. Obviously of late is the 350,000 oz that we do with Mponeng and Mine Waste Solutions that we acquired with that take us up to 1.8 million ounces. Slide number nine also gives us then the quality of our assets. You can see we used to run about five grams a ton, with Mponeng to get up to about 5.6 g a ton. With Mponeng into the play, it should go up to about 6 g a ton.
As we continue, it will actually have a 1 g a ton difference where we were in 2016. Slide number 10 really talk about the surface production profile. I think that's quite significant because this doesn't include all the potential synergies that we can take out of that thing. We have quite a lot of synergies in the Orkney area, where the Mispah plant can come into play. We also have quite a lot of synergies in Savuka and also Mponeng plant with the Kusasa-related plants in that area. We will be now close to a 200,000 oz producer just from surface sources. That will continue until FY 2028. Certainly, we believe that that is the tip of the iceberg. We can simply continue going forward on that. That will be a significant part of our production will be those surface sources.
Slide 11, I just want to explain this slide. It's really to show you what will happen if we go above infrastructure, the calculation of the deferred compensation per ounce. If you look at that, if you look at 250,000 oz per annum, we pay no compensation. As the production increase, in AngloGold Ashanti plan, the maximum production will be around 350,000 oz. It can go up to about $60 per ounce in terms of payment. That is kind of what we believe is the maximum that we will pay. If you look at the current price, that's actually a very small percentage of the current price. If you want to look at the AngloGold Ashanti plan, at the moment, they do 250. In the future, they will go up to 350.
If we get to that level, we'll obviously pay this type of deferred compensation to them. In creating the long-term value is really on slide 12. 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 build gold, which obviously put Gold Fields in a better space for us. The stronger cash flow should result in stronger scrip. If we move on and we say looking ahead, if we look at the first second half focus for FY 2020, our strategy is still to really produce safe, profitable ounces. We're on slide 14 now. Go through operational excellence. The key focus is to improve the safety 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. Also to hedge to manage the short-term volatility. Effective capital allocation. In this next quarter of the year, we'll secure the Wafi-Golpu permit, and we will pursue the M&A. Like we said, we'll complete the Mponeng and Mine Waste Solutions transaction and obviously complete Hidden Valley's access to stage 6. From our responsible stewardship, maintaining strong stakeholder relationships still up front there. I must say, I was very encouraged by the support that we had from organized labor this morning and also from government when we had discussions with them. We continue to be a responsible corporate citizen in good governance and environmental management is up there. On slide 16, we just talk about the Harmony investment case.
We're now a 1.8 million producer in FY 2021, a responsible gold mining company with experienced credible management team. We've got quality growth prospects and attractive returns, obviously leverage to the Rand gold price. We are quite a Rand hedge stock. We'll take any questions if there are any. I'm pretty sure there's quite a lot. I see we've got quite a lot of people on the line to listen to this conference.
Thank you very much, sir. Ladies and gentlemen, at this time, if you'd like to ask a question, you're welcome to press star and then one. When it's your turn, please tell me your confirmation tone. Following this process, stay in the question queue. If you decide your question have been addressed and you wish to withdraw your question, you're welcome to press star then two and it's your turn to remove yourself from the question queue. Just a reminder, if you'd like to ask a question, you're welcome to press star and then one. The first question comes from Ed Stoddard of Daily Maverick.
Oh, yeah. Hi. Good morning. How are you?
Hi, Ed. Fine. Yourself?
Good. I just want to ask a question about the possibility of, in the future, mining below infrastructure. I'm just curious, we all know Mponeng is the world's deepest mine. It's 4 km deep. If you were to sink additional capital into the mine and extend it five, would that also mean deepening it in a vertical sense or will it just be horizontal?
Ed, thanks for the question. At this point in time, we've made no decision on going down below infrastructure. We look at the mine and we bought the mine. The price we paid for it was all above infrastructure. Obviously, there's a massive resource below infrastructure. We offered that $20 million, $20 per ounce, should we continue that. Most likely, if we ever expand to the lower part of that, it would be the extension of the current declines.
It will not be a vertical shaft or anything like that. It will be adding one or two or three levels below that. Again, we haven't done anything. We looked 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 Bambanani, Nami, Joel, Tshepong, Phakisa. We've done quite a lot of declines in our life, and I think we're quite good at extending declines at a reasonable price. At this point in time, we haven't included 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 infrastructure part of it.
Okay, thanks. Sorry, 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. There's a huge reserve below infrastructure, and really you're adding a level per level. It's a different block of ground. It's just that the lowest level of the mine is stopped at the grade east now. You can continue to refit, continuing underground, and it's very high grade there.
Great. Thanks.
Thank you. Ladies and gentlemen, just a reminder, if you'd like to ask a question, you're welcome to press star and then one. Next question comes from [Peterson Jenny up in the views.]
Hi, Peterson. Morning. As a follow-up to what you said just now. How far deeper are you prepared to go if you're saying there's a huge resource and there's good grade underground? Just another question, what are you going to do differently to get this asset to last, given that it's gold mining, underground gold mining, more challenging. Lastly, do you think you got a good deal out of this enterprise? Is this what you expected and is Harmony going to be the last man standing in the South African gold industry?
What we're saying is, obviously this mine has been well-mined. It is quite a safe mine. It's a 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. If you want to look at what we've done at Moab, we've been able to rationalize the mine a lot. We've actually been able to extend the life of mine. We've able to bring in more of the reserves into play. Anglo had 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, looking at the right profits.
We won't do too much different to the mine, I think it's a very good mine. Mponeng mine is a mine, if you extend it with a level or two, will probably not be much different to where we are at this point. From that perspective, it is great. If one looks at the price, I think it's a fair price. It is what we were prepared to pay for the mine. We think it's a fair price. Obviously, it's a two-pronged approach.
The one is the $2 million in cash, which I don't think will extend our balance sheet too much. Then the second part of that will be the deferred payment, if we mine over 250,000 ounces. 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. Above that, we also get a huge amount of surface sources that will last for many, many years. That's also a very good part of the deal that we're getting.
Okay. Does that answer your question?
Do you see yourself as the last man standing in South African gold industry? At 1.8 million ounces, you are now the biggest producer, right? By volume.
By volume, we are definitely the biggest producer. I'm not sure what the life of mines or the other mines are and what they're going to invest, but we obviously focus on the assets that we have. We don't think it's a bad thing to be the last man standing. We're still a gold producer in South Africa with many years ahead of us. Our Doornkop and our Tshepong operations, potentially our Zaaiplaats extensions, potentially Mponeng extensions would be mines that can continue for many years to go forward. We're quite happy with the portfolio of mines that we have.
Thank you.
Thank you. Our next question comes from Mark du Toit of Oyster Catcher Investments.
Go ahead, Mark.
Morning. Yes. We'd like to just ask about the funding for this transaction, and maybe after that, you can also expand on possible funding for the Golpu mining as well.
Frank, would you care to answer?
Yes, thank you. If you look at the price, we've got to pay $200 million cash, and then after that is a royalty to the extent that we mine more than 250,000 oz a year. We don't foresee a problem in funding it from our current facilities and from our cash resources, the $200 million. Yes, we're very excited. The permitting at Wafi seems to be on track again, but that will take some time. We do believe that the cash flow from this operation would actually support us in funding Golpu. We don't see a problem with. 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 René Hochreiter of Noah Capital Markets.
Hello. Morning. Can you hear me, Peter?
Morning, René. Yes, thank you. We hear you.
Good. Thank you. Congratulations on doing 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 rand per ton cost that Anglo was achieving?
I'll check with Murphy. We just got the.
René, can I talk to you about the dollar an ounce, which was the last number that they had for 2018?
Yeah.
In 2018, they were actually around $1,200 an ounce at $210,000 per ounces that they produced for that year. Obviously, for the financial year 2019, they're going to be releasing their results in the next two weeks, so we don't have the final results.
Okay. You don't have a rand per ton number for me?
No, unfortunately, I don't have that at this point in time.
We do have it, René. I think offline we can supply that to you.
We obviously don't have it in front of us as we speak.
All right. What sort of stay in business tactics were they?
René, they were actually mining for cash. If you go and look at their, obviously for the normal development and things like that, remember they've got two levels that they're still mining at the bottom of the mine, and that requires development and raising. Other than that, there's not too much. All the other infrastructure is sunk capital. Obviously, there's also, as part of the life of mine, there's what they call the ++++++++ , which we will evaluate if we will continue with their plan or not. We got note of their plan. Certainly something that we'll have to see if that's a viable plan going forward. At this point in time, they spend some money there. We're not sure if we're going to continue with that plan. We'll evaluate it the moment we are actually on site.
Okay, fine. I'll look forward to those numbers. Thanks a lot.
Thanks, René.
Thank you, ladies and gentlemen. As a reminder, if you would like to ask a question, you are welcome to press star and then one. The next question comes from Peter Cromberge of Mergermarket.
Hi, good morning, Peter.
Morning, Peter.
Hi. Get an idea of what your gearing is expected to be post the transaction? You've indicated you'd be looking at a mix of cash and existing debt. Your gearing post the deal?
If we could just answer that question again.
Yes, thank you. When we bought Moab, our gearing was 1.2. I think our gearing headed to EBITDA is sitting at 0.7 now. After the acquisition, we would increase that to 1.5. At the current gold prices, we think that gearing would come down very quickly in the next two years.
Okay, thanks. Just to make sure, you said post deal, 1.5 net debt to EBITDA?
Yes, we are.
Okay. Thanks very much.
Thanks, Peter.
Ladies and gentlemen, just a final reminder, if you'd like to ask a question, you're welcome to press star and then one. When touched in turn, please listen for the question queue. The next question from Tanisha Hyberg of Reuters.
Go ahead, Tanisha.
Hello.
Hi, Tanisha. We hear you now, yes.
Hi. I wanted to find out, do you have any plans in terms of cost reductions to reduce jobs at all, or job numbers be staying the same?
Tanisha, what we have is, obviously, we've had a mine that is we take the mining as a going concern. We think the mine is well-staffed and everything else. There's no need for really job losses over the time. What we've seen at Moab Khotsong over time, we looked at, especially on the management structures, how we look at the management structures, and we had a different way in terms of manning our mines. We had quite a lot of redundancy in that area. I just want to remind you that AngloGold Ashanti went through quite a big restructuring process prior to us taking over the mines or this transaction taking over. There's been a huge amount of people that was go in also. We don't foresee no forced reduction in labor at all.
Maybe just to explain, Tanisha, if you have been following the AngloGold Ashanti story, 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 will continue to look for opportunities. For example, on the SAP system, we are on the Oracle, and we know that even with Moab Khotsong, we had to cut off the SAP, and we went into Oracle, which is more cost-effective. Those are the opportunities that we'll be looking at and also potential synergies. We've got Kusasalethu there within about four or 5 km . We'll also have to look at that regional consolidation opportunities, which will most probably lead to some savings.
Sorry, Tanisha, I'm not sure if you got a follow-up question. I can't hear you.
Tanisha, it's Marian here. If you could just drop us an email, we'll respond to your question. We just can't hear you on this particular line.
Great. Thank you. Next question comes from Wilhelm Hertzog, Rozendal 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 put forth for the transactions 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 that a safer 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 Wafi-Golpu discussion still is in the future. We're really looking at terms of where we are. I think our intent was always to say that you would like to be in a position to build as biggest possible stake that we can possibly find within Wafi-Golpu. What we are looking for is opportunities to extend our life of mine. Our South African operations also have certain mines that actually are really at the end of their life, and we need to close them down, so we need to extend that life of mine too, going forward. Every one of these assets actually standing on its own feet, it's a good investment case. It's a payback period of a short period, and we're really looking at three and a half to four years of payback period.
We look at the Moab Khotsong asset, we've done very well in the year and a half that we had it, and a huge amount of half of the money has already been paid back. We are in a very good state as far as that's concerned, and we have the reserves and resources going forward. The same I think we will have with Mponeng. We look at these in isolation. Yes, it will absolutely put us in a much better state if we have good cash flows, mines that actually are of better quality and it will get us the biggest possible bite at Wafi-Golpu that we can afford.
We, again, Wafi-Golpu is something that's standing as its own leg. We always said that we would like to get to the point where we have the SML in our hands. We know what that thing is going to say, what is our exposure, and then we'll find the right funding strategy and plan for that at the time. At the moment, it's quite difficult to do that because we don't have the SML in hand.
Sure. Okay. Thank you.
Gentlemen, we have no further questions in the queue. Any closing comments?
Okay. Well, thank you very much for joining us. I think this is quite an exciting play in Harmony's life. Over the past two years, Harmony has added over 500,000 quality ounces per annum through the acquisition of Moab Khotsong [and also in very end we think and now also minely solutions. Acquisition really has the potential to overall and increase cash flow margins. We are really excited about this operation, we also know that AngloGold Ashanti is also very well maintained mine . We are excited that we have real quality asset in our control. Thank you very much for joining us.
Thank you very much ladies and gentlemen, thank you for joining us you may now disconnect your lines.]