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Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Good afternoon, ladies and gentlemen, and welcome to the Harmony Gold conference call. At this time all participants are in a listen-only mode. Later we will conduct a questions and answer session and instructions will follow at that time. If anybody should require assistance during the conference, please press star then zero on your telephone touch pad. As a reminder this conference call is being recorded.
I would now like to turn the conference call over to your Chairperson. Please go ahead, sir, and I shall be standing by for questions.
BERNARD SWANEPOEL, CHIEF EXECUTIVE, HARMONY GOLD MINING: Thank you very much and good morning, good afternoon, ladies and gentlemen. My name is Bernard Swanepoel. I am the Chief Executive of Harmony. I am also joined by Frank Abbott, our Chief Financial Officer, and [inaudible], our marketing director. It is quite a lengthy presentation today for which I apologize. There are quite a few issues we need to address. Obviously it was the end of a quarter and the end of a financial year. I also want to start off by dealing a little bit with the current challenges facing us as a company and the way in which we have set about tackling and towards the ends we will briefly discuss the merger with ARMgold and how that is proceeding. I am paging through the slides which some of you have received by Faxed, those of you who have requested it, and others have downloaded from the Web site.
The first slide, of course, highlights what we are at Harmony and that is leveraged, un-hedged, pure exposure to gold, mainly in South Africa. The next slide titled The Perfect Storm and the sub title of, what are our challenges. I mean a whole host of factors have come together to create quite a challenging environment for us. People oversimplified and said all about the strong South African Rand. I remind you that we are still faced by the royalty changes, the proposed royalties in this country which will make a significant difference to us depending on the outcome. But those are external factors. Internally factors more under our control of course is the high wage settlement that the industry reached with its unions recently, an increase where in a country where inflation is heading towards 6% and other cost items as part of the settlement probably adding another 2% to that as well.
We have been in protracted negotiations with our union in the free state. The implement to continuous operations. I will deal with that a little bit later and explain what I mean by continuous operations. We have arguably not been as successful in our geographical diverse affects as we have been in acquisition and gold strategy in South Africa. We certainly have had for the last eight months now great problems at our Elansrand operation. I have a few slides to share with to you try to give you some comfort that we are actually winning the battle there. Of course one of the challenges in our industry right now in South Africa is to retain good people.
I am going to move on to the next slide and I am still dealing with this so-called Perfect Storm which is in the making. I want to give you a better plan to give you some feel for what we are doing to not only supply but to prosper in these times. Obviously strategically we will focus mainly on significant gold acquisitions. That is where our track record is at our best. That is where our past performances has indicated a real core competency. I think the last six months have forced us to do some self soul searching and I think we understand our strength and the application of that as it relates to the South African scenario. We will certainly continue at opportunities to rationalize our asset portfolio. We have a whole host the strategic investments in South Africa, in Australia and in Russia. And that's continuously under review. We certainly do not intend to overpay for Avgold. In the end we may have differing opinions on what the real value of Avgold is but right now in South Africa there seems to be a general acceptance that we will come in at some stage and just pay a premium to whatever the share price. The share prices has run up dramatically. And can I remind you all that Avmin recently gave an indication of value on the table when they placed Avgold shares at a level of 6.50 Rand. And right now the price is clever to the nine range. We have no intention of overpaying for Avgold. Significant as well we intend to sustain our CAPEX and that I put a little rider on it and it will be for as long as possible. Under the current scenario we foresee that we will be able to sustain it indefinitely. But of course dropping the gold price and the further strengthening of the South African Rand basically could impact all that. There's all nice to have bells and whistles CAPEX for the profile and therefore each of the Rand we spend is we believe in the best interest of the future of the company. Operations, of course, there are a couple of things we are busy with. Firstly, we must see that the merger with ARMgold continues to be implemented successfully. It's not a huge exercise for us but again if we get it wrong that could cost us in terms of other production, lack of focus, et cetera. The strong Rand has certainly made us rediscover some of the things we were based at in the past, opportunities to reduce cost is popping up everywhere and I think our teams are nicely excited about that. But we need to increase productivity to offset the ridiculously high wage increase that we had to implement. That's not an overnight exercise. But over the last three years we've invested huge amounts of money in our people, in the training and restructuring the organization, removing levels out of the hierarchy and we truly believe that it's now time for to us harvest. Just last night we reached an agreement with the unions of Free Gold to implement continuous operation. And this will see us increase the number of working days in the Free Gold operations from just over 270 days a year to something much closer to 350 days a year. Of course, if you set your capital for so many extra days there will be an increase of volume of gold, the margin will decrease in cost and all in all that really can be really good for the company. Once successfully implemented Free Gold the challenge for us will be to reach agreements with the other regions and the unions in the regions and to roll it out.
How unique our reserve management system and I will ask to adjust the recovery grade be it with a lag of some six to eight weeks by merely pushing up the [inaudible] and mining according to that we certainly intend to make a 5% adjustment to our capital initially and to our recovery grade, that's two to three months from now from doing that.
What I am trying to share with you here are the challenges facing us are significantly tougher. Overall significant in the strengthening of the Rand. However, this management team has cut its teeth at Harmony in times much, much tougher than this. This looks like a significantly challenging period quite honestly I think prior to this an area or a time where we have to stay focused, get back in the trenches and sort out the things that aren't right. And let me remind you that in times of low margin, the acquisition opportunities in South Africa present themselves and it's exactly in these times that we formed the company.
Sorry to have taken up so much time on those two slides. The rest will go a lot faster. I wanted to give you a broad overview of the issues facing the company and perhaps leave you with a sense of the management team has been through tougher times than this one and we can certainly not only weather the storm but come out much, much stronger again.
The next slide is titled Highlights and talked about the final dividend of 150 cents per share. I know …