AngloGold Ashanti plc (AU) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the conference call on Harmony's acquisition of Mponeng and Mine Waste Solutions from AngloGold Ashanti. [Operator Instructions] Please note that this conference is being recorded. I'm going 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 with [ BLL ], we've got Phillip Tobias, Mashego, [ Jaco ], Beyers and 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 and also on the homepage, if you just have that presentation in front of you. So if you go then to Slide 2, please take note of our safe harbor statements specifically as many of the information here is really the AngloGold Ashanti information. On Slide #3, we talk about the transaction details. The assets that we acquired is Mponeng mine, which also includes the Savuka and TauTona areas. The above infrastructure reserves is 3.1 million ounces at just about 11 grams a tonne, with a total resource of 46 million ounces. And then also Mine Waste Solutions, which has a tailings retreatment reserve of 4.8 million ounces. And if we look at the annual production of those assets, it's about 250,000 ounces of Mponeng and 100,000 ounces of Mine Waste Solutions. So 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 ounces (sic) [ $260 per ounce ] if we produce more than 250,000 ounces. So for every ounce more than 250,000 ounces per annum, we will pay $260 an ounce produced at Mponeng above infrastructure. That includes TauTona and Savuka. That's the consideration that's been viewed, if we look at the AngloGold Ashanti plan, to be worth around about $100 million. There's also a consideration for any ounces that they produce below infrastructure. Remember, we -- the below infrastructure is -- if we continue with that project of about $20 per ounce, that will be below infrastructure. The $200 million cash will be funded from cash and available facilities. And 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, and we anticipate the transaction to close 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 their support for this transaction. If we move to Slide 4. I mean 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 those 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 which will increase our margins, and our all-in sustaining costs 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 in economies of scale with existing operations and also regional consolidation opportunities that will take place as part of the transaction. If I move to Slide #5, which just shows us where Mponeng is situated, next to our Kusasalethu operations, and I think importantly that we create quite a lot of opportunities through the surface. But as part of this bigger complex, we will have 3 plants: Savuka plant, Mponeng plant and also the Kusasalethu plant, and then most likely only need 1 underground plant to continue. And that will free some plants available to be able to use for surface sources. So how would that actually impact 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've grown the ounces to 1.4 million and now to 1.8 million ounces. And we have improved Wafi-Golpu, and we here used 35% of the Wafi-Golpu attributable. You can see that we will have at least about a 1 million-ounce producer for quite a while up to 2027. So this gives us quite a long lead [ integrity ] and obviously give us an opportunity to extend our mine. Slide #7, I think, it's quite important. If you want to look at the reserves that we have available in our operations. And, I mean, the first thing is the Unisel and Masimong in the next 18 -- 6 to 18 months will come to an end. And Mponeng and Mine Waste Solutions reserves, they are really in the [ late block state ]. But what you also get through the 2 acquisitions that we have is a resource just below infrastructure of Zaaiplaats and also Mponeng, which is quite substantial. If you look at -- both of them are over 8 million ounces and both of them are very high grade, over 10 grams a ton. Slide #8 gives us just the production. We think about 2016 where we were just about a 1 million-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 we're getting with Mponeng and Mine Waste Solutions that we acquired with that legacy, up to 1.8 million ounces. Slide #9, we can see that -- then the quality of our assets. And you can see where we used around about 5 grams a tonne, with the -- we can go up to -- at 5.6 grams a tonne. And with Mponeng 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 ton difference, where we were in 2016. Slide #10, really talk about the -- our 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 since because we have quite a lot of synergies in the Orkney area, where the Mispah plan can come into play. And we also have quite a lot of synergies in Savuka and also in Mponeng plant with the Kusasalethu plant to look at that area. But we will be now close to a 200,000-ounce producer just from surface sources, and that will continue in total FY '28. And certainly, we believe that this is the tip of the iceberg. We can certainly continue going forward on that. So that will be a significant part of our production, will be the surface sources. Slide 11, I just want to explain this slide. It's really to show you what will happen if we go [ the bell free ] infrastructure calculation of the deferred compensation per ounce. And if you look at that, we look at 250,000 ounces per annum. We'll pay no compensation. And as the production increase, and in either AngloGold Ashanti plan the maximum production will be at some 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 -- as I mentioned, that we will pay. And if you look at the current price, it's actually a very small percentage of the current price. So if you we look at the AngloGold Ashanti plan, at the moment they do 250,000. In the future, they will go up to 350,000. And if there's -- if we get to that level, we will obviously pay this type of deferred compensation duty. I mean creating the long-term value is really 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 build Golpu, which, obviously put Golpu in a better state for us. And the stronger cash flow should result in stronger scrip. So if we just move on we're looking ahead. If we look at the first -- second half focus for FY '20. Our strategy is still to produce safe, profitable ounces. We are on Slide 14 now. First, through operational excellence, the key focus is to improve the safety and increase our productivity. I mean that's part of our strategic pillars that we do. The second strategic pillar is cash certainty. Repaying our debt is still a big focus at this point in time. And then also to hedge to manage the short-term volatility. Effective capital allocation. In this next year, we -- or the next part of the year, we'll secure the Wafi-Golpu permit. And we will pursue the M&A and, like we said, we will complete the Mponeng and Mine Waste Solutions transaction and obviously complete Hidden Valley's access to Stage 6. Again, from a responsible stewardship, maintaining strong stakeholder relationships is still up front here, and I must say I'm very encouraged by the support that we had from organized labor this morning and also from the government that we -- when we had discussions with them. And we continue to be a responsible corporate citizen and good governance and environmental management, just to update. On Slide 16, we just talk about the Harmony investment case. We are now a 1.8 million producer in FY '21, a responsible gold mining company with experienced, credible management team. We've got quality growth prospects and attractive returns and obviously leveraged to the rand gold price or a rand hedge stock. We'll take any questions if there are any, and I'm pretty sure there's quite a lot. So I'll -- I see we've got quite a lot of people on the line to listen to this conference.

[Operator Instructions] The first question comes from [ Eadit Starda ] of [ Cobry Maverick ].

Look, I just wanted to ask a question about the possibility of in the future mining below infrastructure. I'm just wondering. So we all know Mponeng is the world's deepest mine. It's 4 kilometers deep. If you were to sink additional capital into the mine and extend its life, would that also mean deepening it in a vertical space or will it just be horizontal?

Thanks for the question. At this point in time, we've made no decision on going down below infrastructure. Yes, we look at the mine and we bored the mine, and the price we paid for it was all above infrastructure. Obviously, there's a massive resource below infrastructure and that we offer that $20 million -- $20 per ounce should we continue with that. If -- 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 shop, anything like that. So it will be adding 1 or 2 or 3 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, Joel, Tshepong, Phakisa. We've done quite a lot of declines in our lives, and we're quite -- I think we're quite good at extending declines at a reasonable price. But at this point in time, we haven't included that. That will come -- as we did in the division, 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 above infrastructure part of it.

Okay. Can I just add -- or can I 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 there's a huge reserve below infrastructure. And really, you're adding a level per level per level. It is not a -- it's a different block of ground. It's just that the lowest level of the mine is stoped at the way it is now. So you can continue -- the reef is continuing the -- underground, and it's very high grade, that.

[Operator Instructions] The next question comes from Felix Njini of Bloomberg News.

Just as a follow-up to what you said just now, how far are you prepared to go if you're saying there's a huge reserve and a 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 is 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 South African gold industry?

Yes. I mean what we're saying is -- I'm not saying we -- obviously, from the -- so this mine has been well mined. It is -- there's 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. If we look at what we've done and what -- we've been able to rationalize the mine and that we've been -- actually been able to extend the life of mine. We're 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 far as possible probably at the right profits. So we won't do too much different to the mine. I think it's a very good mine. Mponeng mine is a mine, and you extend it with the level to, well, probably not be much different than where we are at this point in time. So from that perspective it is great. If one looks at the price, I mean, I think it's a fair price. And we didn't really know what we were prepared to pay for the mine, and we think it's a fair price. Obviously, it's a 2-pronged approach. One is the $2 million in cash, which I don't think will extend our balance sheet too much. And then the second part of that will be the deferred payment if we mine over 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 really up -- over 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.

And Felix, does that answer your question?

And do you see yourself as the last man standing in South African gold industry? I mean you -- at 1.8 million ounces, you are now the biggest producer, right, by volume.

Yes, by volume, we are definitely the biggest producer. I'm not sure what the life of mine of the other mines are and what they're 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 Doornkop with our Tshepong operations, potentially our life loss extensions, potentially what we are -- putting extensions with great mines that can continue for many years to go forward. So we're quite happy with the portfolio of mines that we have.

The next question comes from Mark Du Toit of OysterCatcher Investments.

Yes. This is actually just to ask about the funding for this transaction. And maybe also expand on possible funding for the Golpu mining as well.

[ Katerin ], would you care to answer?

Yes, thank you. We -- if you look at the price, we could have buy $200 million cash and then after that is the royalty, to the extent that we mine 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 million. And yes, we were excited, the permitting at office seems to be on track again. But that will take some time. So we do believe that the cash flow from this operation would actually support us in funding Golpu. So we don't see a problem with the -- that we can have a sort of capital requirements from both operations. We think this will support our South African operations.

The next question comes from Ren Hochreiter of NOAH Capital.

Well, congratulations on doing the deal. I hope it all comes to fruition and positively helps your cash flow. I'd like to build model though. What is -- what was the last rand per tonne cost that Anglo was achieving?

Let me just -- I'll check with Phillip. The -- we just got the...

Rene, can I talk to you about the dollar an ounce, which was the last released number that they had for 2018?

Yes.

I mean it was 2018, there were actually around $1,200 an ounce at 265,000 dollars -- ounces that they produced for that year. So we'll see for the financial year 2019, they're going to be releasing their results in the next 2 weeks. So we don't have the final results.

Okay. But you don't have the rand per tonne number for me?