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Edited Transcript of HAR.J earnings conference call or presentation 20-Aug-19 8:00am GMT

Q4 2019 Harmony Gold Mining Company Ltd Earnings Call

Johannesburg Aug 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Harmony Gold Mining Company Ltd earnings conference call or presentation Tuesday, August 20, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Boipelo Pride Lekubo

Harmony Gold Mining Company Limited - CFO

* Frank Abbott

Harmony Gold Mining Company Limited - Financial Director & Director

* Peter William Steenkamp

Harmony Gold Mining Company Limited - CEO & Director

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Conference Call Participants

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* Adrian Spencer Hammond

SBG Securities (Proprietary) Limited, Research Division - Research Analyst

* Arnold Van Graan

Nedbank Capital, Research Division - Analyst

* Patrick Mann

BofA Merrill Lynch, Research Division - VP & Research Analyst

* Prince Mopai;All Weather Capital;Equity Analyst

* René Carlo Hochreiter

NOAH Capital Markets (Pty) Ltd - Mining Analyst

* Brendan Ryan;Miningmx

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Presentation

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Peter William Steenkamp, Harmony Gold Mining Company Limited - CEO & Director [1]

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Can we all settle down please. Good morning, ladies and gentlemen, and welcome to our year-end results for financial year '19. A special word of welcome also to André Wilkens, our Executive Director. André, thanks for joining us here today. And very big welcome to all of you. Please take note of our safe harbor statements. This is the agenda we're going to follow, as we obviously start with safety. And I think before we start with safety, I would like us to all stand up for a moment of silence to commemorate our fallen colleagues that we had in Harmony last year. Thank you very much. And then before we continue, can we just take the safety briefing quickly from the manager.

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Unidentified Participant, [2]

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Good morning, everyone. My name is [Monjezi], I'm part of the security team, and I will take you briefly through our safety procedure. Should there be any emergency like an conflict or fire incident that we cannot be able to deal with them internally, we are expected to leave the premises and go to our assembly point. To do so, we can either use our marked fire escape like that one or the one which is here. That one will take us straight through the steps to the reception area and this one will take us behind. The aim is to leave safely the premises and go to assembly point which is the courtyard. The courtyard building is to the left of this hotel. Should there be any injuries or sicknesses or illness, we have officers who are well trained to assist any delegates. But if those are complicated injuries or illnesses, we have a sister in-charge on property. She can be contacted from desk there. Our quarterly drill was done last month, meaning any alarm or emergency will be treated with utmost emergency. Our alarms are monitored 24 hours by our security team, meaning any alarm or sound we hear, we have to act immediately. Nextly, you must need to know our many facilities, the smoking area is to the left, you can use our terrace. Our terrace door is at the end of this passage and our bathrooms are to the right of this building. And this is that. Any questions? That will be all. Thank you.

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Peter William Steenkamp, Harmony Gold Mining Company Limited - CEO & Director [3]

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Thank you very much, [Monjezi]. Thank you, and let's just start. This is the agenda we will be following, starting with safety. It is really for Harmony is about creating a safety culture. And we spent a little bit more time this time around on safety and maybe just enlightening you in terms of what we're doing as far as safety is concerned. Onset is to ensure a safe production by preventing fatalities and embedding a proactive safety culture. Emphasis really on the pro-activeness of the safety culture. That is underpinned by passionate and active leadership, effective risk and critical control management, something that we spend an enormous amount of time and effort on in the last few years. Effective safety management systems, again, something that we haven't had for quite a while and we actually embedded quite a lot of that in the last -- in this year that we finished. And then ongoing organizational learning and then also the proactive culture and an engaged workforce. And by doing that is actually the world-class type of a workforce that is really, really engaged as far as safety is concerned. So what is our safety journey? We started in FY '16 with very specific safety journey. First of all, we had the 4-layered risk-based management approach, that is typical of any mining company very -- mining companies in the world have the same 4-layered risk-based management approach. We implemented safety systems, which I believe is world-class at this point in time. Leadership and line management received training in proactive risk management. Extremely important for us to get everybody in line, and when we talk about lines right down to the team leaders, down to the -- in the mines. And then focus on addressing behavior to achieve our goal from 0 fatalities. And that's really the one that is we currently are implementing to focus on how we're going to change behavior to achieve our goal of 0 fatalities.

Our journey is to ensure a safe working place, and we do it through a typical -- when we started, we were a very dependent kind of organization. We're management driven, protected management enforcement of rules, which is typically the way we win. And we want to move all the way to independent, which analyze the value of safety is really internalizing every organization and care for ourselves. And then, obviously, at the end of the target to get to team interdependent, which probably all the way -- every mining company wants to get to. In this way, we help one another to conform as we are brothers' keepers. We've got an inclusive, just and transparent culture, and that is a journey. It's not something that's unsolvable, it's not something that you're going to get to that right overnight. But it's a journey that we need to follow going and is what we really would like to get into place in the next few years.

Having said that, if you look at our safety trends, the last financial year was the best performance of Harmony as far as lost time injuries are concerned. Obviously, lost time injuries also includes the fatalities in the stat. It was a business actually -- although we had a very small incremental improvement, if you want to look at the -- we had to take over more percentage, LTI rates were much higher than our current Harmony rates, and we incorporated and improved on our rates. Unfortunately, as far as fatals are concerned, we're still not there. And that is a focus area for Harmony, and which we really need to get our hands around it through all our stakeholders, for all the participation of everybody in our organization to ensure that we get our fatality rates down, and we can get back to the 0 fatalities that we strive for.

Well, FY '19 highlights. Just to remind you all, our strategy is safe products, profitable ounces and increasing our margins. We added another pillar to that. We also used to have operational excellence, cash certainty, effective capital allocation at pillars, but we added now responsible investment as part of that. If you look at what we delivered in the last year as far as operational excellence are concerned, we delivered in line with our production guidance. And this year, it was tough to deliver to our production guidance because we had some underperforming assets. We had a 17% increase on gold production and 2% increase in underground recovered grade. On the cash certainty, our hedges continue to be successful. We secured our cash flow margins, and we made ZAR 477 million the hedge and through our cash flow. And we will continue with that very disciplined hedging program that we have.

In terms of effective capital allocation, the Moab Khotsong and Hidden Valley proved to be quite a good investment for us. We made close to ZAR 1.4 billion of free cash flow out of those 2 operations. And then in terms of responsible investment, recognition received for the year, that is the past, we are constituent of the FTSE4Good Index. Our CDP scores for climate change was A minus; and for water, it was a B. And we were included into the -- 2019 Bloomberg Gender-Equality Index. It's I think for a gold-mining company, is no mini feat.

This year is really about letting down Moab Khotsong and Hidden Valley into our operations, and both of them had quite a big impact in terms of operation. If we look at underground grade, you see we haven't had Moab Khotsong in our portfolio, our grade would have been 5.1 grams a tonne, it actually increased to 5.59. Our production, it's quite -- a 49% increase. But if you look at where we were before we had these 2 assets, at a 30 tonnes of gold now to 44.7 tonnes of gold. Our all-in sustaining cost would have been 585; now because we had these 2 operations in our operations, we got 550. And if you look at our operational free cash flow, it significantly improved the operational free cash flow. That's the same figures, just in dollar terms, and really we're looking at $122 million that we have in terms of our -- obviously, our production is 1.438 million ounces.

Since I've joined Harmony, one of the biggest thing we want to produce is really to build our credibility in terms of delivering on our guidance. And this year, we managed to do it again. If we look at that, this is probably one of the toughest years, as I said before. To get that, we had a very, very bad performance at Tshepong mine, and we had to make it up from the other mines. We actually had that performance reviewed. So we are very pleased. In the beginning of the year, we said that we had 1.2 tonnes of gold -- or below, not 1.2 tonnes of gold -- 1.2 million tonnes of -- 1,000 tonnes of gold -- 1,200 tonnes -- I'm sorry I'm confused now. A 1,200 kilograms down on our performance. We do -- this will be making it. Yes, we -- and really I want to take my hat off for our operations teams and the leadership of the higher and be honest to be able to deliver on that. It has been -- it's been a tough year, and we've managed to deliver on that guidance. This is just a journey as far as underground grade is concerned. For 7 consecutive years now, Harmony has been able to improve its underground grade. So we're really very happy for that.

Just in terms of our free cash flow, obviously, the first 2 is Moab Khotsong and Hidden Valley, that is ZAR 1.3 billion, close to ZAR 1.4 billion that we had as far as performance is concerned. Bambanani had a good performance. Surface operations, Kusasalethu had a very good performance during the course of the year. And then, obviously, we had Target, Joel and Tshepong that didn't perform well. And on Target, we are in the process of moving the crushers down to the bottom of the mine, where the operations are currently taking place. Our current turnaround time as per any of our mines, ore is traveling 4 kilometers to get to the crushers. And one of you that recognize underground mechanized mine, you know that, you know that, that is actually unsustainable. So we are busy with the movement of the crushers down the mine. And we are very focused then during the course of this year or the end of this financial year, we would be very close in finishing that project. The Joel decline is getting to its end. It's been a project that was, at one stage, delayed, not due to the fact that we -- for the stockpile by the company. We continued with that Joel decline. After this financial year, Joel will be back to its normal job and perform very well. In this financial year, we're going to be running at a loss. And then, obviously, Tshepong is the one that we extensively reported on here previously. And Tshepong operation, I'm glad to say that we've got the flexibility back. We are now -- we done all the development, we've done all the equipping of the panels, and our performance in Tshepong is really encouraging at this point in time. That's the same, just in U.S. dollar terms, the same slide.

Growing our margins. I just want to take you back in terms of what the journey to increase our margins to date. If we look at FY '16, when I started, and I think we just operated, we appointed Beyers and Phillip, led different roles in Harmony. We really worked on stabilizing the South African operations to about 1 million ounce of performance. We introduced a hedging strategy, where we really looked at locking in margins. We can -- locking the good margins, we'll do that. We repaid our debt during the course of that year. And then we also started in terms of -- when Phillip was brought into the team to look at how we can actually get ourselves to 1.5 million ounce producer.

In FY '17, we acquired and recapitalized Hidden Valley. Remember, we did that transaction when the mine was basically mined out, and our partners didn't want to reinvest in that. We just started doing it on our own, and we did that and we recapitalized Hidden Valley and started with that. And we delivered in that year also more safely and more stable and predictable production.

FY '18, we acquired and integrated Moab Khotsong. We completed the reinvestment in Hidden Valley. And it also maintained quite good momentum in our South African operations. FY '19, Moab Khotsong and Hidden Valley, where they significantly boost our profits and our cash flows. And we delivered in line with our production guidance of 1.45 million ounces. Focusing going forward, obviously, the permitting, funding and the building of Golpu -- Wafi-Golpu is important to us. Especially on the permitting side, getting the permits done, increasing the margin of our current operations and obviously, evaluating organic and M&A opportunities that is expected from itself during the course of the year. But I think importantly is that most of our operations now are really performing much better than they performed in the past.

Just move one back. One of the things that's always come to mind when we spoke about Harmony is what is our growth or where are we going to grow with the lift that we had in front of us. So I just want to maybe take you through our organic growth projects that we have within Harmony. The first one that we have the Great Noligwa shaft pillar extraction. That's been approved by the board. We actually started with that work now. It's really mining the old Great Noligwa shaft pillar. It's quite a big pillar and we're going to do that going forward. I'll talk about it a little bit later. Then we have the permitting phase. We have got Wafi-Golpu. Then we have the Central Plant is in the end of its feasibility study. On prefeas, we have Kalgold expansions, quite a lot of work that we've done there in terms of the exploration there. The electromagnetic surveys that we've done in the area, really something that excites us quite a lot. There's quite a lot of opportunities, we believe, there, and where we've drilled now, we've found some really good grades, and that may be a much bigger mine going forward. Then also the Mispah Tailings reclamation, we have the Mispah plant available in the Great Noligwa area. That plant, we can easily convert into a retreatment plant and then do the Mispah Tailings or do some tailings retreatment in the area. Hidden Valley extension, we're actively working on that. And the thing that's really had an impact in Hidden Valley is really the tailings facilities. We don't have enough tailings facilities for the next stage. But we think we've got some plans to be able to get around that and actually have some areas available, especially all the market particularly used for tailings and we'll look -- working on that. And then obviously Zaaiplaats, which is an underground mine is an extension or deepening of the current Moab Khotsong mine. And certainly that mine is a high-grade mine. It's a mine that we are working on in terms of how we want to develop that. And we think we've got good ideas as far as that's concerned, and we'll come back to you, at the moment we have finalized it. And then in the concept studies, we also got the Joel plant. During the course of this year, we closed the Joel plant down and moved those all back to Harmony one plant. So the Joel plant tailings facilities are also an opportunity in that area.

And then Target North, we are actually busy with the exploration drilling at Target North to firm up the ore body there. And certainly, we've stopped that in 2007. We've restarted that now, and we're quite excited about what we possibly can get there.

Great Noligwa pillar extraction project. Just a little bit about that. Key for us is the safety of that pillar extraction. I would like to remind the audience here that -- we didn't -- we try to lose track in terms of how many shaft pillars we remove. But it makes about 25 shaft pillars that we expected in Harmony's plant.

We complied into 3 gold when Harmony was a joint venture there, also Anglo is very close to 50 shaft pillars that we expected in our history. So I've been working on shaft pillars personally in my life. Most of my career, I was busy extracting shaft pillars. And Great Noligwa is another one of those. A big amount of time and effort has gone into the safe extraction of Great Noligwa. For that vision, it will not be a total extraction, it will be a partial extraction. We had a lot of expertise as far as that's concerned, as I said before. And it actually is the right time to do it now. Because you had to do it while the Moab Khotsong plant is still going. So you get the maximum extraction. If you look at the Moab Khotsong mine, as we speak, since we took it over from Anglo, we already extended the life of mine with 2 years through what we call isolated blocks mining and obviously, also the shaft pillar extraction. Those are the metrics as far as that's concerned, close to 8.3 tonnes of gold that we're going to recover there at 6.8 grams a tonne, it's not as high-grade as I thought it would have been, but 6.8 grams a tonne is not too shabby with very good IRRs, and the cost would be less than $950 an ounce which is also an investment criteria.

I don't know why it's jumping, twice hovering. I think I'll also just give you some update in terms of the Wafi permitting. First of all, Wafi-Golpu is still a Tier 1 asset. The project has the potential to deliver substantial benefits to all stakeholders the moment that the mine is built. After targeted permitting last -- time lines have not been achieved. And you all know, there was a change of guard as far as the Prime Minister and his cabinet is concerned in PNG, and we need to give the new Prime Minister some time just to settle down and actually get himself -- get his mind around how we're going to take the country forward. I personally have met up with, not only land owners, but also the Minister of Mines, Treasurer and the Prime Minister. And I got the assurance from all of them after I visited, myself and Michelle were there, and that they are really keen to get this project going, and they really need to sort out their own internal teams in terms of how they want to take you forward. So I've got no doubt that this will -- it will get some traction in the near future, but we'll give you some time lines the moment we've got them available in terms of where we think Wafi-Golpu will deliver the -- yes or no.

Just to give you a appetite for the mine. If we want to look at the -- and this is at the gold produced -- or the gold price of $1,500 per ounce, which was -- when we put this presentation together was the prevailing price. And you can see the margins in Harmony is close to that $300 an ounce over 1.44 million ounces if we look at last year's performance. Wafi-Golpu, although it's only 1.4 -- of 400,000 ounces. It's actually got a margin of over $1,000 an ounce. So it's an unbelievably profitable mine if it's running. And -- so that reason, it is a very, very -- we look at that as a very precious property journey. Boipelo, if you can?

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Boipelo Pride Lekubo, Harmony Gold Mining Company Limited - CFO [4]

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Thank you, Peter, and good morning, ladies and gents. Just on the back of our strategy of producing safe profitable ounces and improving our margins, we've invested approximately ZAR 5 billion over the 2017 and 2018 financial year in quality growth on Hidden Valley and Moab Khotsong. When we look at our debt levels, we reduced debt quite significantly during the 2016 financial year. Benefiting from a high price -- a higher gold price environment, and that subsequently rose to 1.2x, obviously, following the -- that investment in quality growth. And where we are today, given the strong earnings that we're generating from Hidden Valley and Moab Khotsong, we're sitting at a level of 0.9x, and I'll touch on the debt in following slides. Harmony is well positioned to take advantage of the high gold price environment that we find ourselves in. And what we've tried to illustrate is the all-in sustaining cost margin scenario at varying gold prices. In FY '19, you'll see that we generated a return of 7%, and what we pictured based on FY '20 guidance is the all-in sustaining cost margin at a gold price of ZAR 640,000 a kilogram as well as ZAR 750,000 a kilogram. Obviously, FY '20 depends on whether we meet our production guidance, but really the points that we're trying to illustrate is that a change in the gold price has quite a significant impact on our all-in sustaining cost margins.

So given the gearing that we have, what does this mean for our year-to-date. And we ended the year with a net debt position of just under ZAR 5 billion. Should current gold price environments holds, we would expect to completely repay the debt. And given a more conservative gold price of ZAR 640,000 a kilogram reduce at least substantially.

And we're very pleased to share with you today, that we just yesterday, signed the agreement for new USD 400 (sic) [USD 400 million] facility. That was successfully led by Nedbank and ABSA. This effectively replaces the existing $350 million facility. In terms of the key terms and conditions of the facility, it's split between a $200 million term loan and a $200 million revolving credit facility. That tenure is 3 years with the option of extending it by a year within a 12-month period. The margin for the term loan is 3.05%, and that of RCF is 2.9%. And just to note that it is 10 basis points cheaper than our existing facility. This facility was oversubscribed. So I think it's safe to say that, for us, it indicates that we've got good support from the financial institutions.

When we look at capital allocation, our priorities are very clear. First and foremost is debt repayments. We're targeting a net debt-to-EBITDA ratio of below 8x. And as I've illustrated in the previous slide, given the current price environment forecast, we'll meet that, and this will obviously improve balance sheet flexibility. The permitting of Wafi-Golpu is extremely important for us. Peter touched on this. Safest for me to say that Wafi-Golpu is a significant game changer for Harmony's future. All of this, obviously, at the bottom of it, increasing the margins for us is key. And we continuously are evaluating organic growth and safe value-accretive M&A opportunities, and I'll expand on this pillar in the next slide. In terms of the third pillar that I spoke about, we've adopted a very disciplined approach towards how we evaluate projects and it's effectively interrogated on the 5 key areas that you see. Obviously, firstly lowering the risk profile of our portfolio is extremely important. And in that, again, Peter touched on safety, safety is a nonnegotiable priority. Whatever we look at, ounce replacement and growth should -- is aimed at increasing margins as well as generating higher returns. Affordability is also a key area that's interrogated. And lastly, project management, which is really crucial for enhancing project return and ensuring operational momentum. I think all of this ultimately is aimed at addressing our strategy of producing the safe profitable ounces and increasing returns. For us, it's not a growth at all cost. At the end of the day, we are ensuring that we generate value for shareholders and each project or opportunity that we evaluate will be addressed both or interrogated rather on the strict criteria.

And with that, I'll hand over to Frank Abbott to take us through the financials.

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Frank Abbott, Harmony Gold Mining Company Limited - Financial Director & Director [5]

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Thank you, Boipelo. Good morning, ladies and gentlemen. Our financial results for the year. What we've got is we've got extracts from our income statement. And you'll see that our production profit for the year was ZAR 6.5 billion compared to the ZAR 5.3 billion the year before. And the main difference comes from Hidden Valley ZAR 2 billion and also from Moab Khotsong ZAR 649 million. Our South African operations didn't do as well as the previous year because were down by ZAR 1.4 billion. The impairment of assets for ZAR 3.9 billion, which was down from the year before, ZAR 5.3 billion. I'll explain the impairment on the different slide. Amortization and depreciation is up to ZAR 4 billion. The main reason for that is the amortization and depreciation at Hidden Valley, which is because of the short nature of the mine. This has to be written off either that period, which we've capitalized demand. You can see the foreign currency impact was positive. This is gains on derivatives and our U.S. -- on our U.S. borrowings. It was a small change compared to the year before. This gives us a net loss of ZAR 2.6 billion, which was 42% better than the year before. And if we add back the impairment, we -- such as the headline earnings of ZAR 1 billion, which is 40% better than the year before. This is just the same statement in U.S. dollars. What you've got here is the payment exercise. You can see the gold price we use it to 585,000. If we use 640,000 per kilograms, our impairment would have been ZAR 300 million. So there's not quite a big difference across that we use for our impairment calculations. Now what happens is the -- we look at our life of mine models, which is based on the current resource. But of course, there's the shorter-term models, which run for the duration of the life of these mines, and they have been, in total, mining payment to our life of mine models. So all the impairments were in the area, which we call our resources, which will also value. We decided to take a more conservative approach as the grades were lower based on the areas that we actually selected to put into those models. And then, of course, there would also increase costs and capital expenditure all to exploit the resource base.

This is just a slide, where we look at the Hidden Valley depreciation. This is a total depreciation for Hidden Valley full-year '19. You can see this is the portion which is for plant and equipment, and that you can see is sort of split equally over the next number of years. I think this is the depreciation from Stage 5. So you can see we're depreciating Stage 5 over this period and over that year. Then we start depreciating 6 -- Stage 6, and that would be for the following years. So you can see that the annual depreciation is really high for Hidden Valley. The green line actually shows the capital expenditure. Sorry -- during the same period, you can see our capital expenditures coming down significantly. So although we've got very high depreciation over this period, our cash flow are going to increase while our capital expenditure reduces. This is the same slide in dollars.

And this is a slide, where we look at our all-in sustaining costs. Our all-in sustaining costs has increased to 8% year-on-year. If we look at this, and at ZAR 508,000 at the kilogram, which sustaining cost including Moab and Hidden Valley, that increased with 8% to be ZAR 550,000 per kilogram for the current year. Now to compare this, that was quite difficult. This is not quite apples-to-apples because of the inclusion of only 1 month of Hidden Valley and 4 months of Moab. So what we've done is we see that if we actually look at the all-in sustaining cost, excluding Moab and Hidden Valley for the previous year, that was ZAR 525,000 a kilogram. The impact of the Moab operations has moved down our unit cost by 5.2%, Hidden Valley by 1.6%. And then with -- our cash cost increase for all the other operations, excluding Moab and Hidden Valley of 6.5%. Now the 6.5% represents the electricity increases and wage increases over this period. And then we lost 5% due to not achieving our production, which we have to achieve and support. And that led to the ZAR 550,000 a kilogram. This is done in U.S. dollars. Thank you, ladies and gentlemen. I'll give back to, Peter.

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Peter William Steenkamp, Harmony Gold Mining Company Limited - CEO & Director [6]

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Thank you, Frank. In the next part of our presentation is really about the responsible investments, and please bear with me, it is quite a busy slide. With ESG increasingly become extremely important in terms of reporting and also what we shared with our shareholders. And our shareholders are increasingly asking us more questions about ESG. So from an environmental responsibility point of view, first of all, the energy efficiencies we committed to legacy demand management. And we've actually -- it's quite a presentation on its own. But there's quite a lot of work that's been done in the last few years in terms of energy efficiency. If you want to look at our rent this time kilowatt hours used per rent per tonne we managed to drop within the last 2 or 3 years with 5%. Revenue itself being ahead is an impact in terms of water, electricity increases could have had with us. And we still are targeting quite a lot of work as far as that is concerned. Because we believe we just started to scratch on the things. Although, the low hanging fruits are obviously getting less and less. But we certainly have quite a big team under our executive in charge of engineering. If you look at this energy, and we're really talking about having electricity on the Moab. As we run the fence whenever we need them, not when times that we shouldn't -- when nobody is underground and things like that. Pump, when we need them and pause in the nonpeak hours and those kind of things.

As far as water conservation is concerned, we built 3 water recycling plants in last few years, and that obviously gives about a 50% saving in water usage. Of course, we recycle the water, and we've got 3 of them at this point in time. A big effort is going into land restoration in Harmony. We have rehabilitated 45 shafts to date. We also -- what we got ahead of the bio-energy project developed through -- to actually grow something on impacted land, which is quite successful. We are quite happy with our farming skills. And with Melanie's good guidance there, we've been -- we've done quite well successful concerned. And then obviously, we have very stringent tailings dams management. And as a matter of fact, from a tailings dam perspective, we've done very well with all our dams. So we have got all of our dams that are going to give us any concern. As a matter of fact, we've got a clean sheet on all of them.

As far as social responsibility is concerned, it's obviously health and wellness. We've got a -- like what we have with the proactive safety culture with a similar one with proactive health culture. I think we've got a very unique health model in Harmony that was developed under leadership of Abré van Vuuren and also Dr. Tumi. This is really world class. And I think many people are now following our lead as far as that is concerned. It is really about bringing health care to the people, actually manage their health, not only sickness. We've done away with all the hospitals when people need to go to hospitals, they go to a private hospitals, where proper case is given to them, but we have doctors that on every site, actually know the health -- the position of every one of the employees. Then we also obviously have Project Ku-riha, where we now silicosis and also to get people to get the money that's outstanding for them as far as silicosis is concerned. And lung diseases that Project Ku-riha is also running under leadership of Abré van Vuuren comprised by mine workers and to get the money out there and also look after them.

From a community development perspective, we report 54% increase in spend in the last year. Really, with the Moab Khotsong also coming to play, but we're really looking on social labor plans. And we've got a memorandum of agreement with various stakeholders in PNG also, how we do with it concerned.

Education, I mean, not many of you know about the Harmony Bridging School. Harmony Bridging School is a school that brought many people from disadvantaged areas into a Bridging School university. Many of them is working for us today. There's also many of them already good successful graduates in South Africa. So that Bridging School has been running for many years, and we're still continuing with that. Then Virginia Sports Academy, also one of our -- I think one of our success stories. 3 of the current plays comes from Matjhabeng. And there's also quite a few of those people came out of playing in (inaudible). There's also quite a lot of them playing in the (inaudible). So also had one person came from that school. So that's a very successful school. We revamped it 2 to 3 years ago. And we are very happy to say that, that school now as together, they are taking the free state schools rugby by storm and obviously the football. And then, obviously also the Tutu desk initiatives in PNG is very, very popular in PNG. Those countries have some of those schooling facilities are very, very low and Tutu desk is very, very helpful tool to teach people.

From governing responsibility, obviously living our values is important. We have taken a leadership. And what we've done in Harmony now is start a leadership academy. Our leadership academy is from -- not only from executive level, but is all the way down to the team lead level. So that leadership academy is operating on all those different levels, trying to create the kind of culture that we need for just culture and also a safe culture. Then gender equality and transformation is always big in our minds. So gender diversity strategy that we have in place, obviously quite difficult for gold mining company underground to get women mining engineers to continue working there, but we have quite a lot of success as far as that's concerned. And then obviously effective risk governance and management. And again, we really -- when we look at our risk, especially our insurance risk, we're better than the average in the world as far as that's concerned. So we're already quite happy with the work that we've done there.

In conclusion, the global economic risk support a higher gold price. We have a lot of pressure now on interest rates all over the world, potential inflations in the world, the trade wars. All of these things that happened from day-to-day. So the global economic risks supports a higher gold price. If you want to look at the gold price in the last couple of months, we saw that the gold price in U.S. dollar terms went up by 17% and the gold price in rand per kilogram tonnes went up by 25%, and that is from the 1st of May to now. But look at what Harmony share price have done during that same period. And that is really where we, as a company, are really geared to benefit from these economic risk type of situations running the gold price, we can exponentially, we can see quite big growth in the share price.

But so does an evolving global mining industry, we want to look at what's happened in the last few years. Last year, is that the evolving mining landscape, but if we look at the industry 5 to 10 years from now, they will be producing cliff for gold mining. And this is Citi Bank version of what is -- if you look at 5 years now, we talked about the 13% decrease in production 10 years out to 47% decrease in production of growth. So that plus -- that is the reality for all of us and certainly something that we need to deal with and what we need to look at how we're going to develop in this area to operate.

So the undeveloped ore bodies are getting increasingly deeper. That's another reality that we have to face. And then obviously, these mergers by major gold mining companies have also shaken up the industry. And certainly something that we need to see how it's going to pan out in the course of this year as these mergers actually get embedded and as these measures are now fixing their portfolios that they have. And obviously shareholders also seeing high returns all the time.

So what is Harmony's advantage in this evolving global mining landscape. First of all, we've got the Tier 1 project in our portfolio. We've got a pipeline of organic opportunities, which I shared with you a little bit before. The other thing is we've got excellent stakeholder relations, which can unlock future opportunities. And stakeholder relations, not only in South Africa, but also in Papua New Guinea. And we believe the model that we can take, we can take to any other country that we're going to. We really value the inputs and different stakeholders. And Harmony had a very, very good run as far as stable -- labor conditions are concerned and stable stakeholder condition is concerned. And we are large gold producer, over 1.5 -- 1.4 million ounces, highly geared to the rising gold price environment.

Our focus areas for FY '20. First of all, we stick to our safe profitable ounces and increasing our margins on the 4 strategic pillars. As far as operational excellence is concerned, we have to improve our safety performance. I say, we've got the support of all our stakeholders, every employee at Harmony. We've had very, very extensive safety days of, like, we had very extensive leadership interventions with our employees, but we have to improve our safety performance, and that's one of the things that we and myself, Beyers and the rest of the team are working very, very hard on. We drive to increase our productivity and efficiency and that's bottom line statements, but, I mean, we have to create an able environment for our teams to perform well. One of the things that we built with the systems we've put in place, we actually in fact know what's happening in each one of those panels, how this performs, and we can in actual fact proactively greater environment for us to perform much better. And we plan to produce 1.46 million ounces with an all-in sustaining cost of about ZAR 579,000 a kilogram in the next year.

On the cash certainty, we focus on repaying our debt. We will continue with the hedging strategy. I mean, this is the time to hedge. If you think about it, we don't hedge more than 20% of our production in general, and we will continue with that hedging strategy. You can look at this quite a significant hedges margins we can lock up at this point in time, and we'll continue with that.

Effective capital allocation, securing of the Wafi-Golpu permitting and funding is important, very important to us that we get it done during the course of this year, and obviously evaluating organic growth and value-accretive M&A opportunities if they arise.

And from the responsible investment perspective, we need to maintain strong stakeholder relationships throughout the engagement and collaboration with our stakeholders, and something that we are very proud of and we will continue doing going forward. And we need to demonstrate our responsible corporate citizenship in good governance and environmental management.

So what's our investment case? We are here to benefit from the higher gold price. We see it at more than 1.45 million ounce producer, a responsible mining company with experienced credible management team, with quality growth projects, leverage to the gold price and the rand hedge stock. That is -- that is the end of my story. So thank you very much. We will take questions.

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Questions and Answers

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Patrick Mann, BofA Merrill Lynch, Research Division - VP & Research Analyst [1]

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It's Patrick Mann from Bank of America Merrill Lynch. Just wanted to ask on evaluating of organic growth and value-accretive M&A opportunities. I mean, can you -- is it possible to make a positive investment case for something like a Zaaiplaats in South Africa, where you're going deeper and you have electricity inflation, wage inflation, and obviously looking to improve your safety record over time. I mean, how much of a role does that play? And then just on the M&A opportunities, mining Target 3 doesn't -- changes your mining license effectively when you transfer a property. My understanding is Moab Khotsong would not be able to go in the way or be transferred in the way that it did under the previous iteration under this iteration. So is that also a roadblock to doing any more M&A in South Africa?

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Peter William Steenkamp, Harmony Gold Mining Company Limited - CEO & Director [2]

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Thanks, Patrick. Well, obviously, we've been quite attentive when we put out what is our criteria and how we want to look at it, and safety is one of the things that obviously have been in our minds. And obviously we will not take on a mining operation, we believe we cannot mine it safely. Having said that, if I look at where Harmony is over the time, very few of the accidents that we had, fatalities were really related to Tshepong and mining it and there's other things that played a part. The -- I'm talking about seismicity and there's kind of accidents that we have. But safety is a big concern. It will be one of the big things that we will have to look at. I mean, if you look at our open cost operations, we've got 2 really big ones. One is Hidden Valley, the other one is Kalgold. Kalgold had no fatalities in its history. Hidden Valley had very, very good run as far as that is concerned and had 1 LTI for the year. So these are certainly very, very safe operations and certainly something that will have a very big impact over a very big weighting in terms of our mind for making a decision on the things. Looking at -- obviously, the iteration of the mining chart, that will make transactions more difficult. And obviously need to be funded -- factored into the price and also factored into your -- because we'll look at acquisitions that might give us bigger margins. Now these things are not -- this make it more difficult, we will not do those acquisitions. So we will evaluate it on the rules of the day and then make a call in terms of which is the right decision to invest or not. The -- I don't think it's probably make it possible, but it will probably make it much more -- it will have a big impact in terms of our decision.

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Brendan Ryan;Miningmx, [3]

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Brendan Ryan, Miningmx. A year ago, you told us that one of those things that had to be sorted out during financial '19 was the funding plan for Wafi-Golpu. Now clearly, that's been pushed out by the further in delays. But are you in a position to give us some more -- some concrete guidelines as to how you will fund development of this mining at this point?

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Peter William Steenkamp, Harmony Gold Mining Company Limited - CEO & Director [4]

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Brendan, at the moment, our focus is really on the permitting. I mean, that is what we have to resolve. Because the permitting will tell us the fiscal regime. In fact, it obviously -- how much equity stake was in the mine, et cetera. That will also give us an, obviously, foundation to make a decision. I'm not sure, Frank, if you would like to comment anything on the funding solution. But certainly our focus is really on the permitting. At the moment, we've got the situation in our hands. We know what we have, and we are going to actually make plans.

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Frank Abbott, Harmony Gold Mining Company Limited - Financial Director & Director [5]

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I'll just conclude with what Peter has said. I mean, we need the certainty to talk to the banks and to sought after funding.

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Brendan Ryan;Miningmx, [6]

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One quick follow-up. Your share price, as you pointed out, is doing rather well, and whatever has happened in the past, frankly, has been very quick to raise money by issuing shares. I was wondering if you're planning any rights issues or issues of shares or funds coming up soon.

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Peter William Steenkamp, Harmony Gold Mining Company Limited - CEO & Director [7]

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At this point in time, no. I mean, if you look at -- we relatively showed where gold the price is, take a fairly conservative view on the gold price, I think the 640 is kind of conservative. That will give us ample time to restart it and we have got very good gearing as far as that's concerned.

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Arnold Van Graan, Nedbank Capital, Research Division - Analyst [8]

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It is Arnold from Nedbank. I've got 2 questions. So the first one is around your strategy with Eskom and rising electricity costs. What are you doing about that? What are your plans? Does that include IPPs? And can your ore bodies withstand that additional cost and capital requirements? In other words, can your ore bodies pay back the capital needed to put in that if it is necessary? And then my second question is around illegal mining. We normally see a sharp increase in that when you go past all that now. So how is your battle with that? Are you winning it? Are you seeing an increase activity on your mines? And what are you doing to address that?

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Peter William Steenkamp, Harmony Gold Mining Company Limited - CEO & Director [9]

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Arnold, yes. On electricity, obviously, we're working with the process that we have to try and reduce our consumption. And what we've been able to do is not to have a very high level of increases. We talk about CPI. So we managed to keep it round about that level, not be having this very high because of our demand management. And we have applied for a private solar system and we have not received from it yet because that 30 megawatts is in free state. Obviously, our focus is on the long life assets and the plants because the plants will continue to mine forever and re-mining and other kind of things. So we can continue with those to get long-term contracts in place. So that is -- we are obviously as wise as anybody else in terms of where we are with the electricity situation in South Africa. Having said that, we work very hard and very close with the Eskom management to ensure that our operations are working. And we've certainly only had, I think, about 3 or 4, 5 days of electricity-related impact on our operations, when we had that stage 4 load shedding in the country. And then that we've been able to -- we have enough power available to deal with it. The -- and that was quite minimal because we are really focusing on waste, not letting waste that we do to go -- keep the reef tonnes effect. And on the legal mining, I mean, our programs' really is to accelerate the retention of the shops. That is really the area where illegal miners get the food and the supplies and also go down the mines in redundant shops. And we've done very well as far that's concerned. I think we're doing much better than we're doing now than we had in the past, and we simply have done -- we're also seeing quite big support from the South African police in terms of actually working out the illegal miners, and we had quite a lot of successes of late last couple of months of actually 6 or 7 months, where we -- illegal mining got a much higher profile within the justice system and also the policing system. And for that reason, we believe that we are winning. And obviously, as we're winning the free state, the guys will move to other areas, and we're seeing that they're moving to places like Moses Motlhageng area, which never had illegal mining and we know also that Evander in those areas where illegal mining is now becoming a problem there.

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Unidentified Analyst, [10]

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[Karung Guni] from HSBC. I just -- if you could maybe elaborate a bit more on your impairment assumptions because your gold price has gone up about 9% in rand terms, but you still needed to impair. Could you talk us through what your forecast inflation or what your cost assumptions are when you did for impairments? And maybe just elaborate on how much of that is carbon tax-related? And also just give us an estimate of what your outlook is on carbon tax impact for your business, please?

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Peter William Steenkamp, Harmony Gold Mining Company Limited - CEO & Director [11]

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Boipelo, would you take that, please?

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Boipelo Pride Lekubo, Harmony Gold Mining Company Limited - CFO [12]

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We've, in fact, elaborated on quite a bit of this in our notes on financials. I'll refer you to notes 9, where we pretty much indicated what our assumptions are as well as assumptions that we've applied towards carbon tax. We would not be at liberty to share the actual quantum on carbon tax, obviously because there are a couple of things that are still debatable. But we've just indicated what sort of assumptions we've applied in addressing the carbon tax impact. Obviously, just again, the planned gold price was ZAR 585,000 a kilogram. And at current levels, there wouldn't be an impairment, but that is not an indication of a reversal of an impairment next year. And as Frank elaborated, you need to look at our impairment rather in 2 distinct boxes. Our current life of mine plants, our net present value in fact increased there. Our resource-based models, looking at the areas that we're mining now, had an impact on grade, cost as well as the carbon tax, which then has an impact on the recoverable amount. So which then obviously affects cash flows and results in impairment. So I don't know if that answers your question? I can't see who I'm talking to.

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Unidentified Analyst, [13]

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It does. And then just one more question on your capital allocation priority, if you could do that quite rapidly, what are your thoughts in terms of returning the dividends to your shareholders?

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Boipelo Pride Lekubo, Harmony Gold Mining Company Limited - CFO [14]

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I mean, it was quite clear. Our second pillar was Wafi-Golpu. Obviously, it still remains. Yes, there is a delay of the permitting, but that is certainly our priority as well as evaluating opportunities as we set out in that criteria. So at the moment, those are our priorities.

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René Carlo Hochreiter, NOAH Capital Markets (Pty) Ltd - Mining Analyst [15]

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René Hochreiter, NOAH Capital. I just want to get handle on your growth going forward. Your 5.59 grams per tonne underground grade, is that directly comparable to the 5.83 that you've got in your reserve?

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Peter William Steenkamp, Harmony Gold Mining Company Limited - CEO & Director [16]

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Yes. We actually had given quite a guidance of -- I'm not sure if I actually am correct, it should be in that booklet, slide 49. Slide 49. So we actually give guidance on -- with the reserve guide is 5.83%. And then in terms of the grade guidance is 5.59, and is broken down with all the different operations in terms of underground grade.

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René Carlo Hochreiter, NOAH Capital Markets (Pty) Ltd - Mining Analyst [17]

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You've been increasing your grade for quite a number of years now. So is that the limit that you could increase due to the 5.8 grams a tonne?

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Peter William Steenkamp, Harmony Gold Mining Company Limited - CEO & Director [18]

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Well, we probably could, at some stage, go very closer to the reserve grade. But, I mean, that is probably more or less, it will be where we are now. If I look at what we're going to do going forward, I mean, we're going to -- in the year from now, we mine up Unisel and Masimong. Masimong is a lower grade mine, 4.5 grams a tonne, and Unisel is about 5 grams a tonne. So it should -- overall grade should then increase. If we take those 2 operations out of not buying them any longer.

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Prince Mopai;All Weather Capital;Equity Analyst, [19]

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Prince from All Weather Capital. Peter, I don't know, I mean, given Anglogold Ashanti's total strategy assay operations, how far are you in talks, if there's any? How much will you be willing to pay for the assets and how would you fund for those?

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Peter William Steenkamp, Harmony Gold Mining Company Limited - CEO & Director [20]

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Yes. Obviously, those questions, nobody can answer. Let me just get to the point that -- I mean, we're looking at any opportunities that's available, not only in South Africa and all the other areas that we say we will we'd like to -- installation area and also in South Africa. And we would like to have every one of those opportunities and see if it fits our criteria and if we can get it at the right price, we would consider it.

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Unidentified Analyst, [21]

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[John Christo]. Can you give us some idea of life of mine? I am not sure about the life of the various assets across...

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Peter William Steenkamp, Harmony Gold Mining Company Limited - CEO & Director [22]

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Yes. I'm not sure if it's also in this Slide 50, in the appendix it's -- I'm actually going to get through that slide and maybe -- there's life of mine on all different operations on the right-hand side, there you can see the few ones that we are now really obviously are Unisel and Masimong. And then we have, Bambanani is another 4 years from now. We're using planning gold price of 585 in this model. So that's the one that's has been used. But we don't necessarily -- we won't adjust the gold price on short-term gains and the things, so we'll keep the 585 to determine the rest.

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Unidentified Analyst, [23]

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What about exploration? What about the exploration in these operations?

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Peter William Steenkamp, Harmony Gold Mining Company Limited - CEO & Director [24]

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Yes, we obviously -- that list of organic programs are available that I shared with you. So many of those will come into play during the course of the time. Obviously, Zaaiplaats, obviously, is a deeper mine, but it's a very high-grade mine. Zaaiplaats is especially where we believe the shafts should be going is the start-up with a fairly high-grade market. That may be a project that we will approve. We haven't got to the finality as far as that's concerned looking at the prefeasibility on that.

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Unidentified Analyst, [25]

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If my memory serves me correctly, the Zaaiplaats mine is a difficult mine.

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Peter William Steenkamp, Harmony Gold Mining Company Limited - CEO & Director [26]

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Yes, remember, we just -- the Moab Khotsong has got 3 distinct blocks. They call the upper mine, the middle mine and Zaaiplaats. So that was the original Moab Khotsong ore body. And again, I think when -- remember, when it was still very young and far east, it was supposed to be 1 block, and it eventually became 3 different blocks, of which the Zaaiplaats block is the one that is now down and it needs about leak line systems, probably 4 or 5 levels of leak line or a 1,100 meter vertical shot to explore it.

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Unidentified Company Representative, [27]

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I think we must check on the line if there's any questions.

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Operator [28]

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So we have a question from Adrian Hammond from Standard Bank.

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Adrian Spencer Hammond, SBG Securities (Proprietary) Limited, Research Division - Research Analyst [29]

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Peter, I have got a couple of questions for you. Firstly, just if we could talk about the sustainability of your portfolio, some time ago, you gave us an outlook for production that include Golpu. Obviously, that's been pushed out some way and I'd expect that won't be built for maybe 8 or so years. How do you think about keeping production steady going forward with these new advances in the project?

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Peter William Steenkamp, Harmony Gold Mining Company Limited - CEO & Director [30]

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Adrian, yes, I think if you look at the slide, I'm not sure you can see it, slide #50, it really goes for the life of mines of our current operations. And you can see the longer life operation there is Tshepong operations and Joel and Doornkop.

Having said that, and obviously we never given up on what we go through, but we're certainly sure that we're going to push that permitting and developing of it as fast we can. But we're also looking at M&A opportunities. We'll not just pause this going forward. And I think we've shown that the Moab transaction and also with the Hidden Valley that we can do it responsibly and provided that this is -- we get right asset at the right price, we will certainly look at that.

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Adrian Spencer Hammond, SBG Securities (Proprietary) Limited, Research Division - Research Analyst [31]

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Do you think Golpu is a good fit for Harmony?

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Peter William Steenkamp, Harmony Gold Mining Company Limited - CEO & Director [32]

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Golpu, like I said, is a game-changer for Harmony. And certainly where we are, we really would like to participate in that project because it's a good project. So it is certainly something that we believe we can do. We've got the goodwill of the community and the goodwill of the country on our side, and we also have partners that actually understand blockading very well. So we believe that is a very, very good project.

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Adrian Spencer Hammond, SBG Securities (Proprietary) Limited, Research Division - Research Analyst [33]

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And then just on your carbon tax, to come back to that, is that something that was elected or was it legislated? And do you expect to see all companies following suit?

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Boipelo Pride Lekubo, Harmony Gold Mining Company Limited - CFO [34]

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That was definitely legislated in June. So it is effective. So I can't comment on other companies. But yes, that was legislated.

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Peter William Steenkamp, Harmony Gold Mining Company Limited - CEO & Director [35]

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I see most companies have taken a kind of worst-case scenario sort of into their models.

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Adrian Spencer Hammond, SBG Securities (Proprietary) Limited, Research Division - Research Analyst [36]

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And then just lastly on -- how much production did you lose last year on safety strategies?

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Peter William Steenkamp, Harmony Gold Mining Company Limited - CEO & Director [37]

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Full of late is -- Adrian, but we can give you the figure. We actually recorded it in our book report quarter-by-quarter. Our safety, we actually had 3 very good quarters as far as safety is concerned. We actually lost it in the last quarter, where we had 6 fatalities in the last quarter. An unfortunate part of that was that there were 3 incidents at Doornkop and 3 incidents at Tshepong operations. And obviously that creates quite substantial stoppages, which at the time, Doornkop was best performing gold mine in the industry -- in the history of gold mining in South Africa of the 4 million fatality-free ships and Tshepong had 2 fatalities in quick succession. So that mine has been -- the last quarter was a very bad quarter for that particular mine in the sense, subsequent also to the Tshepong operations, where there was 2 different, 1 at Tshepong and 1 at Phakisa that had a impact on the operation. But I know we can give you that figure to give you clarity.

I think that concludes the questions. Thank you very much for joining us. Please feel free to talk to the executives up here, that is if you have any questions. And thank you again for joining us.

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Unidentified Company Representative, [38]

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So if there's any analysts that have any more questions, please go to Lauren and Herman Perry who'll help you guys and answer all your questions. And anybody in the media who has questions for Peter, must please come to me and then we'll organize a meeting. Thanks.