Harmony Gold Mining Company Limited (HAR) Earnings Call Transcript & Summary

Good day, ladies and gentlemen. And welcome to Harmony's operational update for the 9 months ended March 2020. [Operator Instructions] Please note that this call is being recorded. I would now like to turn the conference over to Peter Steenkamp. Please go ahead.

Thank you, Ari. And thank you all for joining the call. I trust that you all are safe and keeping well. On the call with me today are Boipelo Lekubo, our Financial Director; Frank Abbott, our Executive Director of Business Development; Mashego Mashego, our Executive Director of Stakeholder Relations; Marian van der Walt, Executive, Investor Relations; Philip Tobias, our Chief Operating Officer, New Business; and Herman Perry, our CFO; and Max Manoeli, from our Investor Relations team. COVID has pushed individuals and businesses to reconsider what's most important to them. While the pandemic has been daunting for millions across the world, it has spurred business to rapidly adjust to the needs of their stakeholders and their markets and to navigate shifting operations and financial challenges. There is no doubt that [ managing ] uncertainty is the current state of play. Our operational update covers the 9 months to the end of March 2020. Towards the end of those 9 months, Harmony lost 6 full days of production at its 9 South African underground mines due to the South African government's declaration in March of national disaster and consequent lockdown. Load shedding by power utility Eskom earlier in the March quarter also took its toll. Total gold production for the comparative 9 months period was 8.5% lower at 30,814 kilograms. And the average underground recovered grade was 3.6% lower at 5.4 grams per tonne due primarily to the continuous negative impact of the Kusasalethu mine's previously reported geological challenges and seismicity. I'm glad to report that there's been a continued improvement in grade at Kusasalethu, with a 14% improvement in grade to 5.08 grams per tonne reported during the March quarter. Our operational free cash flow margin more than doubled to 13% from 6% in the comparative period a year ago due almost entirely to the 21.6% increase in the average rand gold price we see for the period of ZAR 704,965 a kilogram. Operating free cash flows increased by more than 100% from ZAR 1.3 billion to ZAR 3 billion. Strategic highlights in the period include the recommencement of the Wafi-Golpu permitting discussions and the announcement of acquisition of Mponeng and Mine Waste Solutions acquisition. The AngloGold Ashanti assets remain a good fit for our portfolio. Both contribute quality replacement ounces to our reserves and resources and potential synergies with our existing service infrastructure. However, the uncertainty arising as a result of the pandemic require us to shore up our balance sheet through cash preservation. It was for that reason that we have opted instead to do a capital raise through a share issue to fund the first tranche of payment of USD 200 million. We believe it is the most appropriate alternative to the cash or debt or cash or debt mix we envisaged earlier given the uncertainties posed by the COVID-19. Our ability to preserve cash and maintain a strong, flexible balance sheet with low levels of debt will allow the company to emerge from these uncertainties in a much stronger position. Furthermore, a share issue presents an incredibly attractive opportunity for investors to invest in a robust, cash-generative gold mining companies whilst rand gold prices are trading at near all-time highs. It's with this short introduction that we open the lines for questions.

[Operator Instructions] Our first question is from Martin Creamer of Mining Weekly.

Peter, just would like to get a little bit more insight into the capital raise. What is the timetable for that? And are you looking to raise, what, $200 million? What is the rand equivalent? And how -- what sort of plans do you have for Mponeng?

Okay. Can I just -- Boipelo, can you take the first part of that question?

Sure, Peter. In terms of the time line, so the circular went out today, we will be holding an Extraordinary General Meeting of Shareholders on the 11th of June, and that will be entirely electronically, and the results thereof would be released the following day, on the 12th of June. So we did, in our release, indicate that detailed time line.

Yes. Sorry. I saw the top release, but I was dealing with the bottom one. Okay. And then I'd just like to get some insight into Mponeng, how you rate it. What are you going to do there? Can you get more out of it than the previous owners, et cetera?

Yes. Martin, it's difficult to say at this point in time. We certainly -- we've always been able to improve some of the performance of the operations. We obviously believe it's a very good operation. It's got a very good quality ore body. Obviously, have very, very good potential going forward. But certainly, in the current next 9 years of life, we believe that is a very, very good mine to mine. So we're very excited about the Mponeng mine being part of our portfolio.

And what do you normally do that makes this something that is desirable for you, but it's not something that the previous owner wants to keep? What are the factors that make it accretive for you but not for others?

No. I think, Martin, in this particular asset, there's quite a lot of synergies with our current operations, specifically on surface sources and also with things that we can do there. I think we went into quite a lot of lengths when we announced the transaction in February. And we certainly believe that this operation -- we've been quite good at mining deep-level gold mines, mining surface operations, and this certainly fits our portfolio quite well. I mean any company has got its own strategy in terms of where he wants to go. And simply from an Anglo perspective, they wanted to get out of the South African assets. But for us, it's a fantastic asset to have in our portfolio.

Our next question is from Patrick Mann of Bank of America.

I was just wondering how the ramp-up of production is going. And then given the high level of fixed costs in South African underground mining, what -- it seems to me like 50% capacity is not really high enough to cover your cost. What level of production do you think you need to get you to be sort of free cash flow breakeven?

Patrick, thanks for that question. I think just in terms of how did it go, I think better than expected so far. We obviously had the first month of the quarter behind us now. When the lockdown started, all underground operations were stopped other than care and maintenance. We managed to keep our plants going. And that reason, we've actually put quite a lot of waste into our surface plants. We also kept all the surface operations going in Kalgold. And also our mining retreatment processes were running through the whole time without the interruptions. And so in terms of where we are now, we're quite happy with where we are. We've had a better than the run rate we originally anticipated, but we are very cautious to think it's going to continue because we actually started now with a 50% of our production back at work, and we obviously need to replace some of the gold inventory that we released through the waste that we put to the plants. But having said that, I think we've been as possibly -- as good as possible in terms of getting ourselves going again. The -- what we are targeting now with our employees is that we are mining all the high-grade panels as the first step. So we actually have stoping crews back, and we have obviously, people servicing stoping crews back. We have no development crews and no construction crews in the mines as we speak. So we can get a little bit of better production by mining the higher-grade panels. And obviously, in gold mine, we always have the ability to do that, not necessarily in platinum mines. But in gold mines, you do have the ability to target the high-grade panels as the first step. We've got 50% of our people back at work. We are now obviously -- I must say that people are very keen to work, so we have a very, very good response, getting them through the screening, testing processes, also getting them properly trained and also the social distancing and all the precautions and training that we had put in place actually went quite well. We also had good support from all our stakeholders, being the different unions, we've got agreements in place that cover our conduct and obviously our SOPs. So yes, I think it is true that mining has got a very high component of that, but we also have the ability to be targeting high-grade operations. And yes, we're looking forward to see a good result out of there.

Can I maybe have a quick follow-up there? So do you need ministerial approval to go above 50%? I mean so how does that work exactly? I mean do you get to 50% and you then say, look, these are the factors -- these are the safety and -- health and safety measures we have in place, can we go up to 100%? Or does it go up in increments? I mean I suppose it's very difficult to actually read the regulations and imagine how we progress from 50% back to 100%, right?

Yes. Patrick, this is the so-called level 4 lockdown level that we're currently at. At level 4, the ruling is that open-pit coal operations can go to 100%. And obviously, mines that mine coal for Eskom can be at 100%, and all other mines need to be at 50%. So all underground mines, it's 50%. Hopefully, with the next level -- that if the next levels are announced, that some of that restrictions will be relaxed.

Okay. So we need to wait for sort of level 3, level 2...

That's correct. Yes.

Our next question is from Arnold Van Graan of Nedbank.

Two questions from my side. So the first one is just a follow-up from Patrick's question. And I guess it's probably a hard question to answer, maybe unfair question. But could you give us some sort of indication of what production level you think you could be running at the end of May, assuming we stay under level 4? In other words, 50% of underground production, 100% of open pit. What would your overall production run rate be as a total of your [ normal ] levels by the end of May? Do you have any handle on that? That's the first one. And then the second question, I see you had quite a big disruption at Hidden Valley with a mill stoppage of 14 days related to an electrical issue. So that seems quite long for an electrical issue or electrical management issue. And isn't that more fairly new, having been refurbished with the reinvestment program? I just want to try and get a sense of what happened there and why it took so long to get it fixed.

Okay. Thank you, Arnold. Thanks for the questions. On the first questions, I'm very reluctant to give any prediction in terms of what we're going to do. What I can say is that in April month, we had a -- we sold about a tonne of gold for the South African operations. We just obviously finished April month. And so we said -- we sold a tonne of gold. Obviously, that does not include Hidden Valley's gold, et cetera. So going forward, it's very difficult to say. We -- obviously, that was a -- we had no underground production. And it was by [ flushing out, like I said, liquid waste into the mills ] and keeping our plants running to create cash. So I think it is -- the production rate is a little bit higher than we expected. So we're quite pleased with that. Going forward, obviously, now we have 50% of our waste tonnes also going through the -- sort of out of plants. And I'm very reluctant to make any predictions. I think I would really like us to just [ bank the stuff ] and then keep the market informed in terms of the rate. Getting back to the Hidden Valley thing, what really happened with the Hidden Valley is that we had -- obviously trying to get PNG power to supply our power to our mine rather than to be generated by diesel machines, which obviously are very costly and very difficult logistically to get there. So we've been very successful in improving our dependency on PNG power over time. Unfortunately, PNG power had a very unreliable supply of power in that there are some spikes from time to time coming through. In this particular case, what happened is just before the end of the month, early in the quarter, just over the new year, there was a spike coming through, and it damaged the crowbar. The crowbar is actually kind of, what we say, a switching gear of the things. When we tested that crowbar, it actually tested to be okay. So the people were looking for the faults in other areas. And they were actually stripping the whole mill and all the electronics and the equipment in there. But eventually, they went back to the crowbar and saw that the thing that actually trips out the mill all the time is in the crowbar, although it tested positively for that. We had quite a lot of people we [ sent out there, top ] engineer was there, plus the OEMs, everybody else. And it just took so long to actually go back to that piece of equipment and realize that the test that was done, although it was testing that it's not the fault, the fault was actually in that particular crowbar. So we've learned from that. Obviously, it was being -- not being able to find the fault, but we had the best possible people on-site during the time even though it was over new year. I must say we had the best people there. Having said that, obviously, we learned from that. We've got -- we increased our critical space on the mine, et cetera, and making sure they don't have those spikes. It probably will have spikes going forward again, but that unfortunately was the issue that we had at the thing. So it was a very long break. What we've done is we did some of the other maintenance work that we would have scheduled later in the year as part of that time that we were gone, like for instance replacing valves and things like that. So that was not all lost, but yes, the [ roll down was a thing ]. I mean Hidden Valley, in general, there's been a fantastic performance over the time. And the mining has really done very, very well, far above the target for the year. It's -- obviously, we're a little bit lower grade at the moment. But in terms of its mining performance, it's been good.

Next question is from Adrian Hammond of SBG Securities.

Peter, what's your gut feel to get back to 100% production? And if not 100%, are you concerned about losing some stopes given your -- you've been quite idle for some time already?

Yes. Adrian, again, I think in that, there is a draft circular that's been sent around in terms of when we get to level 3, will that -- will we be able to -- it should be back at 100%. There was some comment there [ that level ] is certain at this point in time. So I think at the next level, mining could be considered to go back to 100%. I think from where we as an industry has done, we've done a tremendous amount of work to actually prepare ourselves for the COVID to return to work. We have proper PPE in place. We've got proper screening facilities in place. We're building currently testing facilities to ensure that we can test more people when it's required. So -- and we had visits from quite a lot of officials from the Health Department, from the mineral resource department. Even the minister himself had been to the mines. And from all of that, we've got very good, very good feedback. So I'm confident that the mining industry has positioned itself well to be able to deal with the issue. So I mean for that reason, I'm optimistic that we will be able to get some sort of relief in the next level, when it's level 3 or something like that. And we are really well prepared for what we believe is coming.

And two financial questions, please. Just on the hedges, I see you've rolled some forward. What was the cost of that? And what is your position on hedging, given that you continue to hedge, given sort of while we're in this rally, your positions are clearly deep in the red currently? Obviously, the more dated ones appear to be a lot better. But what is your view now given where gold prices are and where you sit with these hedges currently? And then just on the deal with AngloGold, what's the terms regarding the position on the cash balances with Mponeng and Mine Waste Solutions. And is there debt, if any, please?

Boipelo, would you take that question on hedging?

Yes, I will. I think, firstly, I'll start with what our position is now. I think until we've got certainty on our gold production, we won't be doing any further hedging at this point in time. So that's the position for now. And in terms of the hedges that we've rolled forward the cost, so there's no cash outflow so the saving on the short term, it's really just a saving on the short-term cash flow. So what happens is the loss that we were going to realize is brought into the cost of the new hedge, hence, the notion of rolling them forward. So the bank will obviously build in a funding cost in there, but we've made very sure that we're not unnecessarily penalized on that. So for the short term, it's really just a saving on the short-term cash flow. In terms of your last question, we're not assuming any debt from Anglo and no cash balances are accruing over other than obviously the rehab funds.

Our next question is from Shilan Modi of UBS.

Just a couple of questions from me. I just wanted to confirm that you are able to sell gold, given that there's no flight technically, international flights. Then could you quantify the production losses, Eskom versus COVID versus changes in grade? Yes. And then I'll follow up with another question after that.

Okay. Shilan, in terms of our gold sales, that's not an issue. Rand Refinery has been a -- they call it an essential service company. So it's been running throughout. So we sold to Rand Refinery, and then we get paid for our gold going forward. In terms of COVID, what we had, and I think that is a point also a little bit earlier which I didn't really answer, is that when we heard on the Tuesday that you're going to have drop stop on the Thursday, I think it's a Monday evening, actually, we've kind of stopped immediately at the time. And we started supporting panels right up to the [ phase ], making sure that we have proper support in all the different areas and making sure that the panels stay open for the time. Because obviously, it was announced as a 3-week lockdown at the time. So obviously, in the March quarter, we always have the slow ramp-up after the Christmas break because people come back after Christmas, and they're not used to get -- going again and safe -- to get going safely, it takes some time. So that has obviously an impact on our production. And then obviously, we have this stop or drop stop that we had right at the end when we were really at very good momentum at the time. So I would say this is probably between the two -- it's typically our March. I don't have the exact kilograms that we can attribute to that, but that is that case. What also happened during -- just before that, we had this stage 4, and then we had a very constant stage 1 kind of a 1 and 2 electric curtailment, which kind of pushed us a little bit on the back in terms of trying to get tonnes out of specific times, et cetera. So we had quite a lockup in the end of our March month of tonnes underground, which we were not able to get out. And obviously, we couldn't waste after the lockdown was in place, which, obviously, now is a good step because we can bring those tonnes out now. So we -- so it has quite a big impact. I will -- I have to get back to you, Shilan, in terms of what is the real of the things. But it was a very tough March quarter for us with all of that. We also had issues in the Golpu area with water and things like that. Instead of being water that we normally get, the pumps broke down. We have to go and assist the water board to fix the pumps and to get the water at the mines again. But it only impacted one of the mines. So -- but there was a lot of -- this is a tough quarter, without a doubt. And I think what was good about the quarter is that we saw some good improvement in grade at Kusasalethu, which was a big issue in the previous 6 months. And we saw -- incumbent operations are actually quite well during this period.

And then just in terms of the transaction, I just wanted to confirm that there's no changes to the terms of the transaction. The state of the assets may have changed as a result of this lockdown. So I just wanted to confirm that, that doesn't trigger any clauses in the transaction contract. And then the second thing was the equity raise that you guys are doing, given that you -- on the face of it, you should have quite strong cash flow generation. I do understand that Q4 might be a bit weak or there might be -- or it should be an anomaly given the low rates of production. But maybe just talk about the thinking around the equity raise. I understand in the statement you're kind of pointing to just being prudent. But maybe talk us through the decisions you went through in deciding to go that route.

Thanks for that. Frank, would you like to take that, please?

Thank you, Peter. Yes. On that, I mean, we -- with the uncertainty around the COVID, we just believe that where we previously wanted to fund it without doing any equity, we decided that it would be far better to do equity. We think the assets we're buying are very, very good. It's going to add another 350,000 ounces plus to our portfolio, and we believe that the dilution of our shareholders would be made up far more by the gold and the profits that we're going to make from this asset, especially if these gold prices last. But we don't have a crystal ball. We can't actually see in it and -- see exactly what the prices are going to be. And for that reason, we've made this decision that we'd rather stay conservative. The gold price and the currency is already a big volatility in our lives. And therefore, we decided to go for the equity raise.

I think the first part of your question, Shilan, was about the transaction. It's precisely the same transaction, nothing has changed.

Okay. Cool. Just one sort of check in case. Any issues at Mponeng post this lockdown period?

I think obviously they are also ramping up to 50% production now. So they're obviously getting back into their mines, getting them up and running again. And we obviously anticipate at the time that these transactions, CPs are all met, at that time, we should be back to kind of full production.

Our next question is from [ Adrian Rou of Traffel ].

Just 3 quick questions, if I may. So firstly following on the rights issue. As you say, there's no debt coming with the transaction. So obviously, your balance sheet, your cash flow, I mean, especially at these prices, will look a lot different once Mponeng is consolidated. So I was just wondering why -- well, it's probably the same question that's already been asked. But why do you have full rights issue for the full amount? Because I mean you're going to get a lot of EBITDA from the current assets, so you're gearing from the difference. Why not do it partially or 50-50 or something? Secondly, if you've got 50% of your people at your mines, can you actually produce 50% of your production, of your normal production level? Or what is that ratio as a general rule of thumb? 50% of your people, is that like a 40% production? Or can it be a 60% production? Or even different than that? And then thirdly, just on the cost base. So at your 50% production level, are you also at 50% of your cost base? Is there no-work-no-pay scenario? Or how do you manage the costs in that -- or in this phase 4?

[ Adrian ], thanks. I think Frank has actually answered the first part of your question in the previous questions. I mean we believe that, obviously, given the volatility, where we are and where we aren't, probably a good thing to actually to get some money from the market at the time. Just to get to back -- and I'll ask Frank to maybe elaborate on that, just at the end of the things, on the 50% of our production, of our production labor that's in place -- about 60% of our costs are labor cost. So obviously, getting back to that 50%, it is -- it will be half of that 60%. Obviously, there's others -- we want to get more than 50% of gold out of that due to the fact that we can [ double ] the higher-grade panels as the first step. So we -- it's still we want to see how we get there, but that is basically the target in terms of the internal profits, in terms of where we want to go to. So we want to get more than 50% of the gold by having 50% of labor at work. Just in terms of where we are, obviously, people that is back at work are back at salaries. We're adding full crews with the people that we've got. We actually got them back because obviously, people that are -- foreigners that are not living in South Africa are not back yet. So we actually mix and match crews and get them up and going. But -- so the people that's not at work is not paid or a kind of trickle kind of money going through to them to keep their pension funds going and their medicals and things like that. But people that not at work is not -- I pay them very much reduced. Very, very small percentage of their monies. So we're only paying people now from the stage 4, which is the 1st of May, we're only paying people that is at work. Before the 1st of May, the first spread of the thing, we actually have acquired an agreement with our unions to work back many of the shifts that we had that we lost in the first 21 days. So we have then signed an agreement with our unions in terms of payback period. So we will be -- on public holidays, very short Christmas break this year, probably only 4 or 5 days. And then the -- and then also working back on our off-Saturdays of that will be when -- we pay the people upfront. We're dealing some of that going forward. The way we normally would have had over time at a time or not working on a day, they we will now have the opportunity to mine on that specific days. So we had a quite extensive -- and I think it's one of the things we put a huge amount of effort in, is to getting all our stakeholders over the line. And because we realized, right from the beginning, if we don't get our stakeholders to run this thing with us, we're going to have a big issue going forward. It was not easy, but we managed to get everybody's consent in terms of -- well, continuing with the thing. So where we are now at this point in time, the people back at work is paying full salaries. The people not at work is paying a very much a reduced salary.

Yes. And if I can just answer on the capital raise. If we look at the last 3 years, we went through enormous growth. I mean one, we recapitalized Hidden Valley. That was the $180 million. We acquired Moab for $300 million, and we now can then line up another $200 million for the AngloGold assets opening and Mine Waste Solutions. So if you add all of that up, that's almost $700 million. And we went to the market only once, where we raised ZAR 100 million. So we've been funding this from cash flows and from debt and we've just decided, under the current conditions and the volatility, we would rather go to the equity market. Our share price has been doing very well. And raise this money -- the capital from our shareholders rather than to incur further debt.

The next question from Bruce Williamson of Integral Asset Management.

Peter and the team, yes, it's obviously pretty difficult for you guys to ramp up production safely, but what sort of interaction have you had with all your suppliers, your consumables and between the suppliers? And I mean are they in a [ solid position ] to handle [Audio Gap] and I'd guess I'd also speak to the fact that if they are not at full capacity, how sort of profitable are they? But just give us a feel for your supply chain in terms of your consumables and supplies?

Bruce, thanks for the question. I didn't get all of it, but I think I've got the most of it, it's all about supplies. Yes, obviously, those critical supplies that we need to get the mines going are very, very dear to us, and we need to always make sure that they also survive. So yes, the 50% obviously creates, for them also, a breather for them to go up. I think it's without any doubt, this industry cannot survive on a 50% production level. We need to get, as soon as possible, to the 100% production again. And obviously, we need to do it safely. And we need to do in such a way that we don't contaminate or infect our employees. And we also need to make sure that we do it in a responsible way. But certainly, the relief in terms of getting back to the 50% has been good news for our suppliers. And obviously, as a company, we need to preserve cash, and we can only -- those contracts, if we cannot fulfill especially on the -- we have to do force majeure. And obviously, we have a very good relationship with our suppliers, and we talk to them all the time, making sure that they also survive in getting through this. Bruce, I mean -- I think the pressure must be one for us to get a responsible way, as soon as possible, back to full production for underground mines.

Our next question is from René Hochreiter of NOAH.

My question is on the infection tests and antibody tests and basically, the cost of COVID. What is it going to add to the bottom line to your cost going forward? We don't know how long it's going to last, obviously, but I assume it's going to be around with the industry for a year, maybe 2 years. So I mean earlier, you said 60% of your costs are labor costs. Would COVID be, say, 10% extra costs going forward?

It may be difficult to say what is going to be. I mean, I think what we've done in so far is that obviously, we prepared back to -- I mean, the big thing was the kind of work that we had to do to sanitize, to disinfect, to have wash basins, to buy PPE, all of that we've done. There is some talk of some sort of a relief for that from some certain other sources, but I won't talk too much about that, that we can get some of that money relief on that. In terms of our -- what the cost will be, it's going to have an impact because, I mean, obviously, your whole movement of people are much lower than it used to be in the past, but we obviously will practice for that, to shift fostering and things like that, that we want to put in place. And obviously, not all of our mines are very congested in terms of getting people down. I mean, obviously, we have Tshepong operations and Moab and Mponeng operation going forward.

Your call has been placed on hold. Please wait.

Sorry, am I still on the line?

I'm still on the line, yes.

Yes, yes. I see somebody's put -- my call has been placed on hold. So it's difficult to say, René. And I think what -- all the work that we had to do to prepare the mine is done, and it was at a cost. I mean, obviously, we had to incur cost in that. And I don't know exactly how much it should be. But certainly, going forward, it will have an impact. That 10%, all that you have, it can -- very close to that, René.

Okay. Just for my information, how often are you testing your employees? Are you testing them for the actual infection? Or are you testing them for antibody? And what's the turnaround time on these tests?

Okay, René, that is -- I think where we -- at this point in time, we -- what we do is -- obviously, anybody that we brought back now, we screened them at 2 occasions. First of all was at the point of entry, as they went down to the Eastern Cape [ depression ] as was required by the regulations by the Minister. We went and tested -- not test, but to screen people at the Teba offices. So these people with high temperatures are things we didn't bring back. We brought back people and what we do is we screen everybody. People that has got any defect in terms of temperature or a [indiscernible] or anything like that, we can't put them out. And we took quite a few people that we went and sent for testing. Testing takes about 2 days. So we take these people into a quarantine facility. The test come back, they are then free to go back underground. So none of our people that came back was, matter of fact, tested positive. What we do on a daily basis now is we're screening everybody on a daily basis. Typically, what you'll have when you get to an airport, there is a temperature screen. And obviously, there's also a self-assessment questionnaire that everybody need to fill in every day in terms of how he feels everything. So that we do on a daily basis. What we're being now at the moment is that we, as an industry, as you kind of put together a process that we would like to get more test facilities on our own premises. At the moment, we do it through private labs, because we don't have the facilities in-house in Harmony, but actually trying to get our testing capabilities up much higher and our turnaround time much shorter. Because I think obviously, as the disease will be spreading going forward, we need to be very good at tracking and testing people and also have a short turnaround time to ensure that people are either positive or not positive and we can get them back to do work. So we are, at the moment, doing that work to put things together. The initiatives just started last week, and we're fine. In Hidden Valley, we now expect already to procure the equipment to test. Everybody we take off-site, we actually test. We had, for our shift rosters, obviously, there are lower numbers of people. So we tested everybody that actually go off-site and test everybody before they get on-site. And whilst the test results are not out, we keep them in isolation at the pickup points, typically [indiscernible] airport before we them up the hill into the mine. We similarly want in Harmony to do a lot more tests because -- but unfortunately, our labs are quite congested. And at this point in time, our turnaround times, I think it's about 2 days through the labs that we do to get the results back. But with the percentage of people that we tested after that screening process has not been very high.

We have a follow-up question from Patrick Mann of Bank of America.

I mean, maybe a comment first. I think what the Mineral Council has put out and your release yesterday around your standard operating procedures for your employees is very impressive. I mean you guys have obviously put a lot of effort into the enhanced health and safety. I suppose that -- so the question leads on from that is to say, we can see all the efforts we're putting into screening, testing, sanitizing. What happens if there is a positive case on the mine? I mean, how disruptive is it going to be? Is it going to just lead to that employee being quarantined? Could it lead to like a Section 54-type situation where there's a forced closure? Or is it just the closure of the workspace? I mean it's just -- it's hard to see what operational impact a positive case would have because it doesn't seem like there's a standard procedure to deal with it. Could you help us with that?

Now Patrick, we actually have a "what if?" if it happens. And we've got really good procedures as far as we're concerned. Obviously, we need to identify the teams and the people that the person has been in contact with. And obviously is -- it will be -- if it's in a hostel, it will be the people in the hostel. The people that he's been in contact with in the last day or 2. And obviously, his crew that he works with. Those -- all of those people will be tested. And they will be obviously isolated and tested, and we do have isolating facilities available at the mine. The moment that the people that -- if they tested negative, is they will be able to go back to work. Obviously, though, there's -- positively they will then be put in quarantine. And we do have quarantine facilities available on the mine. So it is -- that is the reason why we're also keen on improving our testing capabilities because we believe that turnaround cannot be because if everybody -- on the levels of infections becomes very high, and that turnaround times is a week or more than that through the more public system. It is going to be very difficult for us to be coped with this, so to manage it properly. So for that reason, what we are so keen to get our own testing facilities in place. So we do have a whole protocol in terms of what we will follow. Obviously, tracking, tracing and obviously, understanding who he's been contact with. Underground, who has been part of his crew, getting back to the surface. It will be obviously also through the technologies that's available through cellphone tracings, and to be able to identify the people on the mine that has been part of that team. And that, obviously, we'll have to isolate those people at the time and test them first before we get them back into the mine. So we hope that it will not end up in Section 54, and the government will intervene. I have discussing extensively with the government in terms of how we will deal with it. We got them on board, and hopefully, we'll be able to get them to support us in all of this. I doubt that we will have Section 54 that will follow, if we follow procedures, obviously.

Okay. So just to be clear, I suppose what you need to do is you need to make sure that you've tested everybody that's come into contact with. So it depends on the turnaround time of tests. So I mean, if you can be sure that nobody else is positive, then you can continue as you were. But I suppose if you're struggling to complete those tests, then you might have to wait just to be safe. Is that a fair assumption?

Yes. That's a fair assumption, Patrick.

Our next question is from [ Aidan Brooks ].

Hello?

Hello. Are you now Aidan?

Sorry, is it my question, is it?

Yes.

A quick question on steps taken through opportunities with oil, noting that there's been additional costs just mentioned now in the COVID-19 and the ramifications there. But have, if any, the team taken steps with hedging oil prices at 20-, 30-year lows to minimize costs for those within the business?

Boipelo, would you take it? I know I did speak to [ Johannes ] on this, at Hidden Valley, and he was very keen on doing it. I'm not sure that we actually have done it yet.

But can they just repeat the question? Apologies, I didn't get that.

The question was on fuel prices. Have we hedged any fuel prices at the lows that we currently have, as far as fuel prices are concerned?

No, we did -- they did have a look at it, particularly the PNG team. But no, the answer is no.

Just as -- our fuel prices are really, in South African context is very small, but -- and obviously, in the PNG context, it is quite big. And I know [ Johannes ], we've talked about it about 2 months -- 2 weeks ago, we actually followed up with him. But Boipelo is saying that that's not done yet so.

Next question is from Jared Hoover of RMB.

Just 2 questions for me, please. And I know you previously mentioned that part of your cash conservation strategy is to pull back on capital and exploration projects. But can you give me an indication of the extent to which you pulled back on your SIB CapEx levels? And assuming we were to stay at Level 4 restrictions for a bit longer than one would expect, how would this sort of impact the integrity of the mines and the productivity of the mines? And then my second question is also aligned to the cash conservation strategy. I mean, obviously, you'd be looking in all places to pull back on your cash outflows. But are you potentially thinking about using this as an opportunity to right-size any of your operations or any of the infrastructure, et cetera, to make the -- to basically get the force ready for really going forward?

Thank, Jared, for those questions. I think they're all very valid. Yes. On the CapEx side, we obviously pulled back on all capital expenditure projects and those kind of things. We just stopped them. They're still stopped as we speak. And obviously, also exploration work that we've been doing, both in PNG, also in South Africa, also our Target North [indiscernible]. All of that has been stopped and the companies has been given force majeure, and we're out of those contracts for now. Obviously, on a sustainable capital, we're not spending money on capital as we speak as part of this 50% or stage 4 restrictions. We haven't called any of the development teams to continue with development. That obviously, over time, we cannot continue forever with that. So for that's for that reason that we need to try and some sort of relief as soon as possible to get to the higher levels of influence that we can bring some of that development capital, in particular, back because we have to keep our flexibility in the mine going forward. It will not have a big impact if it's a month or it's 2 months, that's fine. But if it gets longer than that, then obviously, we'll have to reconsider our mix of people that we will have underground. So -- but for now, we've stopped -- we're not spending money on any development and also for that reason, some other sustainable capital other than safety stuff that we have to do. Yes. So I mean, I hope that gives you -- I think there was a third part of your question which I didn't write down. Can you maybe just repeat that, Jared?

Yes. Yes, sure. That's actually quite helpful. And then the second one is just on your cash conservation strategy. And I just wanted to know if you might be thinking about using this as an opportunity to rightsize any of your operations? Yes?

Yes. I think not really. We don't think it's necessary in any of our operation. And at current spot prices, it will be fantastic if we can get all of our mines going back to operations. We obviously are very close to the end of Unisel mine, but we will bring them back and we will mine the final parts of the mine that we want to mine before we absorb them back into other parts of our organization, which we planned quite ahead of time. Obviously, we have to do some sort of a give-and-take to unions, too. I mean, if we now say we're going to restructure and so many people are going to lose their jobs. We've got very very [indiscernible] agreements with the unions to take us through this COVID process. And it's a little bit of give-and-take, but it's also a good financial sound decision, in the sense that we really would like to get the maximum amount of kilograms going as soon as possible. All of our mines, the mines that we talk about, this is the end of their life. They were all very profitable prior to the lockdown. So we believe that we can get them back to -- and especially on the Unisel side at least to have another 2 or 3 or 4 months of good production out of that mine before we close the mine down.

We have a follow-up question from Patrick Mann of Bank of America.

Sorry, I thought I'd just use the full hour. Apologies if I'm just slow on the -- or not that familiar with different types of equity raises. But just looking at your circular, I mean, is the general authority to issue share, that is kind of referring to the rights issue, and then the second option referring to kind of a book build or a shared statements with qualifying shareholders? Or what are the 2 different types of equity raises that you're asking for authority on? And then is it -- this $200 million that you're looking for? Or is it 20% of the company? Or -- yes, just maybe some clarification on the circular.

Boipelo, would you take that please?

Yes, sure. So Patrick, yes, it's $200 million, not necessarily. So we do refer to 20%. But I mean, given where our share price is, we think that we'd issue far less than that. It was just in terms of flexibility. And with regards to the difference between the 2. The vendor consideration placement really allows -- it would enable nonpublic shareholders, so persons related to Harmony, et cetera, to also participate. And that's specifically in relation to an acquisition. And the general authority is just the normal one that you're familiar with. Not necessarily a rights issue, but just a general placing of shares. So why do we have the two? It's really just in terms of flexibility under the circumstances. I think, firstly, with the discount for the ordinary share that may be offered. And then secondly, as I said, just to increase the number of interested persons that would be allowed to subscribe for the shares.

Okay. So what's a non-public shareholder? What -- can you give an example of this?

So for instance, I mean in our case, the most obvious one is ARM. So if ARM would want to, then they would be able to, subject to the passing of the resolution, the shareholder resolution, yes.

Our next question is from Maarten Offeringa of Federated Investors.

You noted that you have drawn down $100 million in your RCF. Could you confirm your remaining undrawn liquidity in terms of bank loans?

Yes. So that's $50 million on our U.S. dollar facility that's available. We drew down ZAR 900 million on our rand facility. So that's fully drawn.

Okay. And apologies if you touched upon this, and I missed it, but please, could you elaborate on the notion of the tangible net worth covenant realization that you're engaging in with your lenders?

Boipelo, you can take that too.

Sorry. Apologies. I was talking to myself on mute. So yes, in terms of our covenants, our tangible net worth to net debt has to be above 4. We anticipate that we'll start to experience issues with that covenant as the lockdown prolongs, so the longer we are under this 50% capacity. So we've -- and we're obviously impacted when it comes to the net debt because of the translation of our dollar rates into rand. Because the covenants are calculated in rand, it puts us under some pressure. With the depreciation and exchange rates, the tangible net worth, it doesn't really help that much there. So we are in discussion with our lenders who relaxed that covenant. And the feedback that we have thus far is positive.

Since we have no further questions from the line -- apologies, we have another question from Simon Hudson-Peacock of Investec.

Peter and team, and I'd actually just like to follow-on that -- the last question just now because the other 2 covenants on the balance sheet and the income statement do not appear to be under any kind of stress. And if you can renegotiate the third covenant, debt covenant, does that not give you the flexibility to actually use your balance sheet for the Mponeng acquisition rather than the rights issue? I do feel that the market might have forgiven a dividend passing this year, but this rights issue, I think, probably has caught a lot of people by surprise, and many investors might not feel it's necessary given that even in February, when the rand price -- rand gold price was much lower, you indicated that you were going to be able to sell funds and the acquisition. And then following on from that, let's just say you do go through with the rights issue and you raised your $200 million, balance sheet should be reasonably robust then and covenants are a long way away from being stressed. And I just wondered what your outlook would be with regards to dividend policy thereafter.

Boipelo, would you like to take that? Boipelo, we can't hear you.

Apologies. Can you hear me now?

Yes, sure. Yes. Yes.

Yes. I think we have to appreciate that at the end of the quarter, we were sitting at net debt of ZAR 5 billion. And as I just indicated, we drew on our facilities our $800 million. So that was ZAR 1.8 billion. So we are putting on debt of approximately ZAR 8 billion, which for a company of the size of Harmony, can be a bit of a stretch. Yes, I do appreciate that the other 2 covenants, given the high gold price, we are comfortable, but we are at levels of 50% of capacity, and we do not -- we are not sure when we'll be back to 100% of capacity. So it's extremely important during this time that cash preservation is key. Hence, the reason why we are adopting the approach which is more prudent to go with the capital raise for the acquisition. So I mean we believe that the acquisition is still very attractive, and it's an appropriate alternative given the uncertainties presented by COVID.

And then with regards to dividend policy going forward?

The Board continuously reviews the dividend. So -- but at this point in time, it's not something that we would consider right now at this point, but we continuously look at that. And I just want to stress, Peter, sorry, that it's not a right issue. Just on Patrick's question. I don't know if I got that point across.

Yes, yes. Thanks a lot.

It seems we have no further questions on the line. Would you like to make any closing comments?

Thank you very much, Arlene, and thank you, everybody, for joining me on this call. There is much about the future that is unknown, but I think we are grateful that we own a commodity that a natural fact will have a good price. And I doubt -- we trust going forward, we will still be there. We will continue to mine with safety and health of our employees as uppermost priority in everything that we've done. But also with the focus on being as productive and cost-effective as possible to recover from this pandemic situation at the end. We've been very, very encouraged by all the support that we had from all our stakeholders, especially from our unions, given this journey that we had, dealing with this pandemic, and we would like to thank him for that. And we'll also call in the future support as we run this journey together with them. And yes, there's a lot of uncertainties ahead of us, but we are comfortable that we've got the team to be able to manage this, all of this. Thank you very much for joining us on this call. We really appreciate it.

Ladies and gentlemen, that concludes this conference. Thank you for joining us. You may now disconnect your lines.