Harmony Gold Mining Company - H2 2024
September 5, 2024
Transcript
Operator (participant)
Welcome to Chorus Call.
Peter Steenkamp (CEO)
Good. Can we start? Good morning. My name is Peter Steenkamp. I'm the CEO of Harmony, and it's a pleasure to be here today presenting the full year results for the financial year that ended on the thirtieth of June, 2024. Please note, take note of the safe harbor statement, and allow me to start with a short update on Harmony and our strategy. Harmony is a gold mining specialist with a growing international copper footprint. We also produce small amounts of silver and uranium, and we have over 74 years of gold mining experience in South Africa, and we have been operating for over two decades in Papua New Guinea. Our mineral resources and mineral reserve declaration of close to 137 million ounces and 40 million ounces of gold and gold equivalents, respectively, positions Harmony as a significant global mining company.
Currently, our diversified portfolio of operating assets include nine underground mines, two open pit mines, and a significant tailings treatment business. Surface retreatment is a great ESG story, with the potential for another 100 years of hydro mining across South Africa. At present, over 90% of our current production comes from South African gold. Now, based on the current planning parameters, we expect approximately 20% of future production to be copper within the next 10 years. Now, copper production will be from our tier one Wafi-Golpu project in Papua New Guinea and the Eva Copper Project in Australia. These copper projects will be transformational, moving Harmony further down the global cost curve and diversify it into a future-facing metal. Our excellent FY 2024 results perfectly demonstrate the benefits and the value we have created for all our stakeholders.
This is what we call mining with purpose. Our strategy is aimed at producing safe, profitable ounces and improving margins through operational excellence and value accretive acquisitions. All decisions are underpinned by our four strategic pillars, namely responsible stewardship, operational excellence, cash certainty, and effective capital allocation. Major capital is being allocated towards the higher quality assets, namely Moab and Mponeng, as well as key projects that will lower our risk profile, such as Eva Copper and Wafi-Golpu. This ensures we continue growing our reserves and delivering improved margins and higher profitability, especially at these high-grade assets. We continue to invest in our optimized assets or the red quadrant, which you will recall was the old Harmony, and to maintain flexibility and ensure optimal cash generation over the life of the assets.
Investing in our existing assets is essential for funding our growth paths for the future. Harmony has adopted a proactive approach to safety through the use of leading indicators. Our focus has shifted toward the integration and sustainability of a safety culture, and we are emphasizing the importance of personal ownership of safety in the workplace. While we have implemented comprehensive systems and controls, it ultimately remains our responsibility as Harmonites to work safely at all times. We have a centralized operational risk management team providing support to all operations and are using leading indicators to help drive further safety improvements. Through digitization and modernization, we have real-time dashboards to monitor and continue to improve these leading indicators. We are currently monitoring over nine million grade and control data points. This ensures we prevent significant unwanted events before they occur.
As a company, we have embraced a culture of learning and strive for continuous improvement. Our cultural transformation journey has reached about 80% completion to date, and we are progressing this through regular visible felt leadership engagements, along with other safety awareness initiatives across the operations. We continue to equip our teams through ongoing leadership development and training. I'm confident that we have the correct safety strategy in place and firmly believe that zero loss of life is possible. In the past financial year, Harmony delivered an exceptional combined performance across each operations. This achievement was a result of clear strategic intent and successful execution, enabling us to deliver above plan and capitalize on higher gold price. This results in a record year for the company. We aim to excel at what we do, and I believe that we achieved this goal.
As I touched on the previous slide, safety is embedded in our strategy, and the lost time injury frequency rate per million ounces worked for FY 2024 was at 5.53. This has remained below the six for three consecutive financial years and indicates we are on the right track. We are delivering on our ESG commitments, evident in our 1.2 billion employee share ownership scheme and our expanded renewable energy program. Gold production increased by 6% to 1.56 million ounces, beating our upward revised guidance. Underground recovery grades also exceeded the guidance, improving by 6% to 6.11 grams per ton. Our costs remained under control, with all-in sustaining costs coming in at ZAR 901,000 per kilogram, which was well below the guidance.
In dollars, all-in sustaining costs decreased by 4% to $1,500 per ounce, and operating free cash flow increased by over 100% to a record of ZAR 13 billion or $681 million, at a margin of 22%. This was driven by higher recovered grades and strong gold prices. As a result, our balance sheet has strengthened further and is in a net cash position of ZAR 2.9 billion or $159 million. Now, headline earnings per share increased by 132% to ZAR 18.52 or $0.99 per share. In line with our dividend policy, we are paying a full-year dividend of ZAR 0.94 or $0.05 per share.
This demonstrate confidence in our planning as we aim to reward our shareholders alongside our growth aspirations. Our FD, Boipelo Lekubo, will unpack the financials in detail a little bit later, so responsible stewardship is embedded in our operating model. Our sustainable development strategy aims to reduce risk while maximizing opportunities, leaving a positive impact through shared value creation. As a result, our actions, we continue to receive positive external recognition for our embedded approach to sustainability and disclosure transparency. We have been included in the FTSE4Good Index for the seventh consecutive year. Our inclusion in the Bloomberg Gender Equality Index for six consecutive years demonstrate that we embrace gender diversity, inclusivity, and treat all our employees fairly. Our best practice water management strategy has once again resulted in a score A from the CDP.
As you can see, mining with purpose is what we are all about. Now, growing our quality ounces is critical for long-term success and longevity. We continue to invest in converting resources to reserves while striking a balance between capital intensity and shareholder returns. Harmony has a globally significant mineral resource and reserve base. We have demonstrated that the reserve conversion is still one of the most cost-effective ways of creating value. There is, therefore, a substantial opportunity to continue investing in this exciting gold, copper story. Our mineral reserves increased by around 2% on the back of Mponeng extension, and Eva Copper is expected to underpin further resource conversion into reserves once the study is complete.
Our production profile has been significantly decreased, de-risked, and further, future production will come from a combination of South African surface and underground gold, Papua New Guinea copper and gold, and Australian copper. As we target growth, we will only pursue those opportunities that meet our strict investment criteria and improve the quality of our portfolio. Further expansion would either be through the acquisition of a late-stage project or preferably through the acquisition of a producing asset that immediately gets cash flow positive for Harmony. Any new investment opportunities must, first of all, lower our overall risk profile, improve our margins, deliver meaningful returns, extend our production profile with quality ounces, and of course, remain affordable through the cycle. The acquisition of Mponeng, Moab Khutsong, and Mine Waste Solutions were transformational.
When we acquired this asset, we had hoped that we would be able to extend the lives of these assets. Now, after comprehensive studies, these acquisitions all received approval for extension. We are pleased that the first acquisition of the Kareerand expansion at Mine Waste Solutions, our mega tailings treatment operation, will happen in October. This project's extend the life of mine, of Mine Waste Solutions to 14 years, and encouragingly, the streaming contract concludes towards the end of this calendar year. Once this end, we expect to see a 20% uplift in the gold price received from Mine Waste Solutions. The extension projects at Moab Khutsong and Mponeng are progressing well, and we have extended the lives of these mines to at least 20 years. Decline work at Moab Khutsong and the development of the Carbon Leader section of Mponeng are underway.
We have also commenced the rehabilitation of the TauTona shaft pillar, which we will be mined through Mponeng. These projects have added a combined 5.2 million ounces of gold reserves, and will ensure a steady state production at each mine of over 200,000 ounces at a recoverable grade of 9 grams a ton. As a result, these high-grade mines will continue delivering excellent margins at our all-in sustaining cost for many years to come. The feasibility study update at Eva Copper is also progressing well. Due to its importance, the Eva Copper Project has been given Prescribed Project status, and the Queensland government has provided AUD 20.7 million in conditional grant funding to help accelerate the project. Early works have commenced, and we are continuing with the resource drilling.
Subject to the feasibility study outcome, Eva Copper is expected to produce between 50 and 60 thousand tons of copper per annum, and 14,000 ounces of gold over its 15-year life of mine. The all-in sustaining cost is anticipated to be in the middle of the global cost curve. At Wafi-Golpu, negotiations between the State Negotiation Team, Harmony and our JV partner, are ongoing as we work to convert the signed memorandum of understanding into a Mining Development Contract. Capital expenditures necessary for ounce replacement and growth as we maintain and improve the quality of our portfolio. As we invest across all these assets, we expect total capital expenditure for FY 2025 to increase to 10.8 billion, or just under $600 million.
Despite this increase, total capital intensity remains low at approximately ZAR 250,000 per kilogram or $415 per ounce, based on the FY 2025 production guidance. Let me break this down per operation. Although Harmony is in a period of higher capital expenditure, we have a balance between growth and flexibility. Most of our major capital continues to be allocated to high-grade underground projects such as Moab Khutsong and Mponeng, as well as our high margin, low-risk surface retreatment operations. Sustaining capital is also increasing mainly as a result of an increase in development meters across the underground mines to maintain flexibility, and you will notice that the increase is mainly at our four optimized underground operations.
We're also factoring in inflationary increases in cost, in line with our planning parameters. We are increasing our spend on information technology as part of our ongoing upgrades, and there's also ongoing management of our tailings storage facilities. It remains of utmost importance while bringing Harmony in line with the global industry standard of tailings management. This is the same slide, just in U.S. dollars. So our continuous investment across all our operations will ensure that we not only improve our margins, but remain a sustainable 1.4 million ounce producer well into the future. As we mine out our optimized assets, represented by the red section, you will notice that the quality of our ounces improve, driving the margins higher over time.
Our portfolio also has a long life, but the potential for further life of mine extensions, especially at these higher gold prices. As I mentioned, our international projects introduce a significant copper into the production mix. Beyers Nel, our Group Chief Operating Officer, will now take you through the operational results. Over to you, Beyers.
Beyers Nel (COO)
Thank you, Peter. The strong results in this reporting period were due to our ongoing investment and commitment to operational excellence. This has underpinned our success and enabled Harmony to take advantage of the high gold prices. However, everything we do starts with safety, and I must emphasize that is not negotiable. A safe mine, we argue, is a profitable mine. Harmony has a healthy organizational culture, which we believe is a true differentiator among our peers. Our operational flexibility and predictability in our planning ensure we consistently deliver the tons alongside higher quality ounces. We have achieved guidance for the ninth consecutive year now, if we factor in the COVID revision. We are continuing to invest in productivity enhancements and infrastructure reliability to reduce stoppages and maintain momentum. Our underground recovered grades have improved remarkably, and productivity enhancements will ensure we deliver the required square meters each month.
As Peter said, Mponeng and Moab Khutsong and Hidden Valley outperformed in FY 2024 on the back of excellent grades. We do, however, expect lower grades at Hidden Valley, while at Doornkop, production will be lower after we revised our plans to ensure safe ounces. Our stable and predictable cost structure has moved us down the global cost curve. Not only have we benefited from having a rand cost base, but the five-year wage agreement ensures fixed labor escalations are predictable. Our power supply from Eskom is also regulated, with further savings expected from our renewable energy program. The strong partnerships we have built with our stakeholders ensure we remain the partner of choice, enabling us to continue operating successfully. Our substantial mineral resource base of almost 137 million ounces presents an abundance of opportunities to grow our mineral reserve through internal investment and greenfields projects.
Earlier, Peter touched on the safety strategy and the work being done to continuously improve our leading indicators. It however requires a daily commitment, and we are confident that we will ultimately achieve our goal of zero loss of life. The emphasis on improving our leading indicators has ensured our lagging indicators are trending in the right direction, and we have seen a remarkable improvement in that since 2016, when we started. Although our group lost time injury frequency rate remains below six, at 5.53 per million hours worked, we have lost the lives of seven of our colleagues during the financial year, and we extend our deepest condolences to the families of our late colleagues. Clearly, more needs to be done, and more will be done to ensure each and every employee returns home safely every day.
Through operational excellence and good mining discipline, we have improved recovered grades, delivering consistent production growth. Our investment in Mponeng and Moab Khutsong is the primary driver behind the consistent higher underground grades we are now achieving. At Hidden Valley, the recent outperformance was a result of the high-grade Big Red ore body, which we have now mined through as planned. Recovered grades at our surface operations have also improved, driven mainly by Mine Waste Solutions. While 96% of our revenue is from gold, our byproducts play an important role in offsetting some of our costs. 3% of our revenue is from silver produced at Hidden Valley, and 1% is from uranium mined at Moab Khutsong. Silver production increased by 39% to a record 3.7 million ounces, generating revenue of ZAR 1.7 billion.
Uranium production, rather, increased by 13% to 590,000 pounds, generating revenue of just under ZAR 900 million. Our South African high-grade operations in Mponeng and Moab Khutsong have introduced high-grade quality ounces to the portfolio. Average recovered grades from these mines exceed 9 grams per ton, with production over 15,000 kilograms at an operating free cash flow margin of 32%. Both mines delivered an impressive performance in FY 2024, exceeding their plans across all operational metrics. And as we head into the new financial year, we will focus on major extension projects at these mines. To that end, ZAR 2.2 billion has been allocated towards these decline projects for FY 2025. Harmony's investment in quality ounces has resulted in record operating free cash flow this financial year.
We can attribute some of this to the gold price, however, the real driver has been the improvement in margins on the back of our mines achieving their plans. Total operating free cash flow for the group increased by 111% to ZAR 12.7 billion, or $681 million. Allow me now to touch on each of the quadrants to illustrate our confidence in our cash flows going forward. Our South African high-grade operations, namely Mponeng and Moab Khutsong, have introduced high-grade quality ounces to the portfolio. Average recovered grades from these mines exceed nine grams per ton, with production over 15,000 kilograms at an operating free cash flow margin of 32%. Both these mines delivered an impressive performance in financial year 2024, exceeding their plans across all metrics.
As we head into the new financial year, we will focus on major extension projects at these mines. To this end, ZAR 2.2 billion has been allocated towards these decline projects. The South African optimized portfolio consists of our seven underground mines and contribute close to 40% of our total production, or 19,000 kilograms of gold. While margins are typically lower, these mines still generated ZAR 2 billion in operating free cash flow and play a critical role in funding our growth strategy. In order to ensure optimal free cash flow generation over the life of mine, it is necessary to maintain flexibility to achieve our plans and reduce costs. Capital expenditure at these operations is therefore predominantly sustaining capital for ongoing development.
Our focus remains on ensuring that these mines achieve their planned targets, especially Doornkop and Target 1, with studies underway to potential, for the potential extension of Tshepong North. Our South African surface operations delivered a phenomenal performance, with production increasing by 21% to around 9,000 kilograms. This now represents 11% of group production, with all-in sustaining costs decreased to just over ZAR 700,000 a kilogram, illustrating how profitable these operations are at current gold prices. These operations generated ZAR 2.6 billion in operating free cash flow at a margin of 25% in FY 2024. As Peter said, we are pleased that the legacy streaming contract comes to an end before the end of this calendar year. Once this ends, we expect the gold price received for gold sales at Mine Waste Solutions to increase by around 20%.
This is expected to generate over ZAR 900 million in additional cash flow for the group. The extension of the Kareerand tailings storage facility will continue into FY 2025, and we have around ZAR 1.8 billion earmarked for capital expenditure at our surface operations. Further feasibility studies are underway to determine whether we can create another mega tailings treatment operation in the Free State, where we have 5.7 million ounces in resources in our old tailings dams. We believe there is good potential to re-mine our old tailings dams in South Africa for possibly another 100 years. Our international portfolio, of which Hidden Valley is currently the only operating mine, delivered a standout performance in FY 2024. Hidden Valley generated over ZAR 2 billion in operating free cash flow at a margin of 35%.
Production increased by 17% to over 5,100 kilograms. As mentioned earlier, having mined through the Big Red ore body, grades will be lower in FY 2025 now that we have commenced with stage 8 stripping. This is all in line with the mine's life of mine plan. We are busy conducting studies to determine whether the life of mine at Hidden Valley can be extended further, and we are progressing the feasibility study update on Eva Copper and Wafi-Golpu permitting, as Peter alluded. This slide is a good summary or comparison of our operational performance across our various business units. This illustrates the Harmony portfolio has changed significantly over the past 8 years, having de-risked with vastly improved profitability. Boipelo Lekubo, our Financial Director, will now discuss our financial performance for the past financial year. Boipelo, over to you.
Boipelo Lekubo (CFO)
Thank you, Beyers. Harmony delivered an excellent financial performance and outstanding earnings growth in FY 2024 on the back of the information shared by Beyers and Peter. Group revenue increased by 25% to ZAR 61 billion on the back of the higher production and the excellent gold price. Net profit increased by 78% to ZAR 8.7 billion, while the rolling twelve-month EBITDA increased by 54% to just under ZAR 19 billion. As mentioned in our trading update, Target North has been impaired by ZAR 2.8 billion. Adjusting for this, headline earnings per share increased by 132% to ZAR 18.52.
Strong operating free cash flows resulted in our balance sheet shifting further into a net cash position, and as at 30 June 2024, we had a net debt cash position of ZAR 2.9 billion. This is just our financials translated into dollars. Group revenue increased by 18% to $3.3 billion, and headline earnings were up 122% to $0.99 per share. Harmony has a balanced capital allocation framework, which focuses on five core areas, namely, ongoing safety and production optimization rather, as we aim for zero loss of life. Maintaining a strong balance sheet and a net debt to EBITDA below one times, which is what we've done. Organic and inorganic growth, which improves the quality of our portfolio, and returning capital to shareholders in line with our dividend policy.
We've delivered a consistent increase in revenue over the past three years, and headline earnings per share has also increased by over 700% in the past eight years on the back of our acquisitions and investment in quality ounces. Moving on to costs. The majority of our costs remain predictable and manageable. It is split between labor, consumables, and electricity. Sustaining capital represents only 10% of our total all-in sustaining costs, as you can see, and we've not seen any major changes in the split year-on-year. Going forward, we anticipate cost escalations to remain predictable and in line with planned inflationary increases due to our rand cost base. Cash operating costs, as I've mentioned, remained well under control. In rand per kilogram terms, costs increased only 3% as a result of annual salary escalations, electricity tariff, tariff hikes, and higher royalties.
Byproduct credits from silver and uranium increased by 91%. In U.S. dollar per ounce terms, cash operating costs decreased by 2% to $1,262 an ounce. The 5% depreciation of the rand against the U.S. dollar helped drive cash operating costs per ounce lower in $ terms. Based on our FY 2025 planning parameters, all of our asset groupings have a life of mine margin of over 20%, and just to highlight that this is at a gold price of 1.25 million rand a kilogram. We spend capital to ensure we remain a profitable 1.4-1.5 million ounce producer well into the future. Capital expenditure remains well sequenced, and at current gold prices, all of our approved projects are comfortably funded through internal cash generation and available facilities.
With double-digit margins, we remain well-positioned heading into the new financial year. Our FY 2024 total capital intensity was also low, at around ZAR 210,000 a kilogram or $350 an ounce. As Peter mentioned earlier, capital expenditure will increase in FY 2025, but capital intensity, however, remains affordable at ZAR 250,000 a kilogram or $415 per ounce, based on our FY 2025 production plans. Apologies, I moved too early. We are also protecting margins through an effective hedging program. We typically hedge between 10% and 30% of production over 36 months, as per our 30-20-10 amended program limit. Harmony has been in a net cash position since the beginning of this calendar year.
Through financial discipline, we built a strong balance sheet, which, as mentioned earlier, is now in a sizable net cash position of ZAR 2.9 billion. Financial flexibility places Harmony in a strong position to continue on its growth trajectory. This is just the same slide in U.S. dollar terms. With over ZAR 12 billion or $600 million in headroom, made up of cash and undrawn facilities, our balance sheet remains quite robust. Solid cash flows and balance sheet strength have once again allowed us to pay a dividend while pursuing our growth aspirations. Our final dividend payment is ZAR 0.94 per share or $0.05 per share. We've delivered a geared year-on-year dividend increase, meaning that our dividend increase exceeded the increase in the gold price. Total cash returned to shareholders in FY 2024 is close to ZAR 1.4 billion.
This clearly demonstrates confidence in our plans and our cash flows. Allow me to hand back to Peter to conclude.
Peter Steenkamp (CEO)
Thank you, Boipelo, and thank you, Beyers. So in conclusion, let me just get the slides to move. Harmony has followed a conservative approach to planning. We believe this is prudent, given the nature and location of our operations. Much of what we achieved in FY 2024 was due to Mponeng and Hidden Valley far exceeding their plans. As part of FY 2025 planning cycle, we have guided in line with our mine plans. As we progress with our risk-assessed life of mine plans, we believe our ore bodies can comfortably deliver between 1.4 and 1.5 million ounces in FY 2025.
Underground recovery grades are expected to be above 5.8 grams per ton, and all-in sustaining costs are expected to be between 1.02 and 1.1 million rand per kilogram. Let's break down the cost guidance. This slide illustrates the drivers behind the higher all-in sustaining cost for FY 2025. These include lower guided production alongside with higher developed capital spend across the underground mines, and we also factored in annual inflation increase of about 8.7%. By using the original FY 2024 all-in sustaining cost guidance of ZAR 975 thousand per kilogram as a reference point, this increase is in line with the annual mining cost inflation. The FY 2024 all-in sustaining cost was much lower than guided, due to Mponeng and Hidden Valley exceeding their annual production plans.
We believe that the guided all-in sustaining cost is realistic, and we remain confident that Mponeng may well exceed these plans again this coming year. Harmony remains a solid investment and offers a compelling gold, copper story. We have a lower risk profile, and the safety remains our top priority. ESG is embedded in our operational model through a clear, sustainable development strategy. We continue developing our skills and have an experienced management team with a strong succession pipeline in place. A search for my successor is well underway, as I will be retiring at the end of this calendar year. Operational excellence means our key operational metrics have improved, and we are maintaining good momentum at all our mines. We continue driving better efficiencies through the various business improvement initiatives, while project execution discipline remains critical, given our significant pipeline.
Our production profile is long and diversified, and we have a significant gold, copper resource base with excellent reserves conversion potential. Through our new mining business team, we are continuously identifying growth opportunities that we can potentially lower our risk and increase our margins. We are hoping to introduce near-term copper through our Eva Copper Project and, of course, permit the tier one Wafi-Golpu copper-gold porphyry. Our balance sheet is strong and flexible, and our capital allocation framework balances our growth aspirations alongside shareholder returns. In closing, I would like to give a special thanks to my team for their dedication and commitments toward achieving our goals.
And I really want to make that point, that we have a team that we've put together, that's been together for a very long period of time, and I've got the utmost respect for the mining team that we have here in Harmony. I would also like to thank our unions for their continued support, and some of them are here today. We remain grateful to our board, shareholders, and other stakeholders for enabling us to position Harmony as a specialist gold producer with a growing international copper footprint. I will now hand over for questions, and thank you. Jared, if you can just control that.
Jared Coetzer (Head of Investor Relations)
Any questions?
Bruce Williamson (Analyst)
Hi, Peter. Good day, and to the team as well. Bruce Williamson, Integral Asset Management. Could you just share some thoughts on your underground operations, where you've had an improvement in grades? I mean, was that just naturally transitioning to higher grade, or did you plan and target higher grade areas, or was that just a bigger focus on cleaner mining, reducing stoping width and avoiding excess waste?
Peter Steenkamp (CEO)
No, I think the major drive for that was really acquiring much higher grade assets in Mponeng and Moab Khutsong. So that in itself was, you know, I think it was a right decision for Harmony to then buy it, and then we're also very grateful that we were able to do that at the time. The Mponeng, when we bought it, was, the grades were not where it is today. But there was always this, we're gonna mine, and as you know, sequential grid extraction that we have, you mine from one side to the other side. And we all, you know, AngloGold Ashanti always told us that we're gonna get into very, very good grades, and we managed to get into that grades. And we're gonna be there for that period now for quite a number of years.
So it's on the back of them actually mining into the higher grades. Moab has had the grades that we always had. But I think there's also a massive drive on quality and operational excellence that we try to put in place in all the operations. So we're obviously very strong. You know, Harmony has got a great meeting on every operation, every week. And we have our internal auditor just walked in, and she's actually auditing it for us. So she's making sure that we actually do it, and that it's properly recorded. So we have a very strong grade discipline to get it right, so we don't drop the ball in terms of quality and things like that.
But we are in a, you know, these new mines that we bought was like a game changer for us.
Leroy Mnguni (Analyst)
Hi, Peter, Leroy Mnguni from HSBC. I've got a few questions, but I'll ask some of them, and then just move to the back of the line. So if you look at your FY 2025 guidance, actually, if we take it a step back, in FY 2024, you beat your initial guidance quite substantially.
Peter Steenkamp (CEO)
Yeah.
Leroy Mnguni (Analyst)
If you look at your FY 2025 guidance, is there some optimism that there are certain parts in the portfolio where you're hoping to do a bit better than what you planned? So in other words, is it, you know, how conservative is that guidance? And then what Beyers was saying about the old tailings opportunity in the Free State, 5.7 million ounces, that sounds pretty exciting. I wonder if you can give us just a bit of color. I know the studies are ongoing, but just, you know, high level, would you need to build another plant there? How do the grades compare to your current tailings retreatment operations? And then the third question, your CapEx has increased quite substantially, both for FY 2025 and even more so for FY 2026.
If you could please just unpack what the drivers are for the increases in your medium-term CapEx guidance?
Peter Steenkamp (CEO)
Okay, thank you, Leroy. So let me start with this. I mean, this slide actually explained it quite a lot. I mean, last year we guided when we started 975,000 kg. We managed to get at 901. And, you know, the big driver for that was obviously better production. You know, so it was higher grade and, and better, 6% better than planned in terms of the production. Now, we don't plan to stop trying to do that, and we think we can. We obviously are very strict on our planning parameters. I mean, we as Harmony never been in a thing that we overpromise and under-deliver.
We believe that we need to be conservative in our planning, but also be conservative in the sense of being stretched, making sure people do the right thing. But then if you put all of that together, you get to this number, and we don't want to guide now, where we are in the beginning of the year, that it will be a different number. But having said that, our production at the moment, and Floyd is sitting here as operations executive operating officer, now we are at a very, very good momentum in all operations. We're doing well. We're doing as well as we did last year so far. And we talked about Doornkop, which we just choked back a bit because we just wanted to make sure that we have enough waste capacity.
We do all the project work and the wasting of that, so that is a constraint, that's a bottleneck in Doornkop, and we want to make sure that that is right, that people don't. That we do all of that safely. So we choked it back a bit for the year and, you know, until the, you know, get the projects over done. But that's about 10% of the Doornkop, 10-15% of the Doornkop production that we've choked back. But other than that, I think, you know, we will have cost inflation of about 8%. We are lucky that we have now long-term agreements with our unions. We have, obviously, the Eskom increases are still hanging in the balance. We are, you know, already busy with the, you know, the 53-MW that we've built.
The other EPC contract that has been put together to start with the renewables for the new 100-MW plant that we're building. We are in the process of building that, and that will not come in this financial year. And then, of course, our sustaining CapEx on the back of the better performance, we have to do more development because we follow a very strict process in terms of understanding to create proper flexibility in the business. We call the iceberg management, that we have to increase the production volumes, and you have to obviously increase development with that. And then, of course, the other one is there is a little bit of work to be done on tailings facilities.
You know, we're also doing a lot of work in terms of our, you know, IT systems, and also, you know, the threat of so-called cyberattacks and things like that are real, and we have to work and make sure that we are in the right space. But I think all in all, being conservative, we will beat our guidance. I mean, we are confident in saying that. We will beat our guidance, and we will be there. You know, there's no reason at this point in time that we shouldn't be there. There's nothing in the horizon that says we cannot. On the Free State, Free State is exciting. It's actually two, there's Free State and also West Wits.
Free State is obviously we've got massive amount of like I talk quite a number of years of resource resources there that we can convert into reserves. Most likely will entail a partial building of a plant, but there's also obviously we are retreating in the Free State at the moment. We've got the Central Plant and the old Phoenix, as we call it, the old Harmony plant that is converted into tailings retreatment. But we believe that we can you know this Mine Waste Solutions big mega tailings facility retreat is the way to go. The constraint in the Free State will always be water, so it will never be as big as Mine Waste Solutions because of the water constraints that we have there.
We're very excited about that, and obviously, the business is equally excited about that. But the feasibility study is on the way. It will be most likely a nice sizable plant, and a tailings retreatment things. Not maybe the size of Mine Waste Solutions, but close to that. Very excited about that. The capital slide, Boipelo, can you just see what number is that slide?
Boipelo Lekubo (CFO)
Yeah, that is sixteen.
Peter Steenkamp (CEO)
Sixteen.
Boipelo Lekubo (CFO)
Yeah.
Peter Steenkamp (CEO)
Let me try and get back to that, because it's easier to talk off the slide, because then we can unpack it properly.
Boipelo Lekubo (CFO)
I mean, Peter, to add before you unpack 2025, just remember, Leroy, 2024 Mponeng deepening was not included there. So there's about ZAR 1 billion extra-
Peter Steenkamp (CEO)
Yeah.
Boipelo Lekubo (CFO)
I mean, yeah, from 2024 to the 2025.
Peter Steenkamp (CEO)
Yeah. So that's a billion.
Boipelo Lekubo (CFO)
On capital.
Peter Steenkamp (CEO)
We already started now, but a little bit of early works, but I mean, the full swing will be in, this is in this year. It's not a very fast thing, so let me try and get to that. There you are.
Boipelo Lekubo (CFO)
Yeah.
Peter Steenkamp (CEO)
Let's get to that one. I mean, you can see that, and let's put it in rand per kilogram terms. You see the sustaining CapEx, we talked about the sustaining CapEx, the more development, the more of that, compared to what we've, what we delivered on in the previous year. And obviously, you look at the- it was about ZAR 4 billion-ZAR 5 billion. But the big jump is really that billion rand, that we're going to spend more on, on growth capital, and that is the, the Mponeng extension. It's going very well as far as the market is concerned. That will be steady state, you know, the same, we keep on developing, developing the declines. But then, of course, Mponeng extension will be a, a, a big number there. I mean, the rest is more or less the same.
I mean, they are, you know, the Hidden Valley capital is really just at the first stripping, just as what we planned to do in this year compared to the previous year. But, 10.8 billion, I always say is a big number. It is, you know, Harmony has never spent that good amount of money in one year. But, we think we've got the plans to do it, because especially on the, on the golden side, and you can see last year, we were managing our projects, was very well managed. With what we set in the guidance and what we in actual fact achieved, was very much in line.
And I'm very, very pleased with the work and Beyers' leadership, but also with Floyd, and the way that we in actual fact put together our project execution of project office capabilities in Harmony at the moment. We've done a lot of work to improve and improve our skills in that, in that part of the projects, and I'm glad to see that, you know, our projects actually. I mean, Mine Waste Solutions that we're gonna start delivering, we're gonna put boarding the first in October, is testimony to a very good project management project that we've put in place and actually building that in time and also in budget. So great, a great achievement. So it's a big number, but we are confident that we will be able to do it. Adrian?
Adrian Hammond (Analyst)
Peter, yeah, hi, Adrian Hammond, SBG Securities. Peter, you've been instrumental in reshaping this company, probably key reason for its re-rating. And I'd also just like to commend your disclosure and your guidance has improved substantially for, especially for the south side analysts, so thanks very much. But you're, you know, you're a lot of key man risk here, I would say. How long do you intend staying with the company, and do you have... What is your succession plan? And then secondly, if there's something that's on your to-do list, what's the most important that you'd like to do, complete before you leave? And then for Boipelo, you're sitting on a lot of cash. What are your intentions with that cash? You're gonna be generating some more.
I appreciate you've got Eva coming up, but you could also increase your liquidity through debt and how do you think about the capital structure of this company going forward? Thanks.
Peter Steenkamp (CEO)
Okay. Adrian, yes, my intention is to step down on the thirty-first of December, so starting the new year as a retirement, a person in retirement. I'm very... We are well, and obviously, there's about four months still left to be done, so, you know, the board will make a decision and actually bring it to the market at the right time. It's well advanced in terms of finding my successor. I just wanna make the point that we have, this was never a one-man show. It was always a team effort. And, you know, I've with the team that I've put together, myself and Beyers actually started together in 2016. You will recall, at the time, the CEO retired and the Chief Operating Officer resigned at the same time.
We had to start from scratch as a team, and we've been, you know, a strong team together. You know, and obviously also with all the other executives that we had. Marianne has been here for a long time, Boipelo joined us later after Frank left. Mashego who's been with us all the time. I mean, the team is so strong, you know. I've got no problem in my time that this team will take this company to flying heights going forward. As a matter of fact, I think, you know, the younger, the better. What's the thing I still wanna do before I retire? Wafi-Golpu mine permit.
If I can get that right, then, I would say that I've ticked every box that I wanted to tick. That's, that's the one. And hopefully, we will, we can, I don't know, but, we didn't say a lot about that, but we really want to get over that line. But to get that, Mining Development Contract signed, and then we can start that massive, exciting project that is ahead of Harmony. That will have... We are now in a much better position we've ever been to be able to execute that project and to actually participate in that project. I mean, in 2016, we most likely, it was like a dream to participate there. Now, we're in a position to do that.
So that's what I would like to get right. And Boipelo, you can maybe on the capital side.
Boipelo Lekubo (CFO)
Yeah, all the cash. I mean, yes, granted, Adrian, we are sitting, you know, in a nice position of a ZAR 12 billion headroom, that's cash and available facilities, but one should appreciate that we're in a high CapEx phase. I mean, as you can, the, you know, almost ZAR 11 billion rand, and we've also got Eva Copper looming. I mean, yes, FID should be expected June next year. It's a two-year build, so it's short. You know, the last time we were at the market, CapEx was sitting at $600 million. Obviously, that was a year and a half ago, so the world has moved on, inflation, et cetera. So you will expect that, that number is bigger.
You know, before we can come to the market and commit on what that capital is, I think it's prudent that we maintain our dividend policy of 20%, which we've done, so it's always a balance when you look at these things, especially in our case. Yes, the gold environment is favorable at the moment, but we have been through tough times, so you always have to maintain that level head around all these things.
Operator (participant)
Any more questions? Do you have any online, Jared?
Peter Steenkamp (CEO)
Yeah, on the Chorus Call, do we have any coming through there?
Operator (participant)
... Thank you. We have no questions on the lines.
Jared Coetzer (Head of Investor Relations)
Okay, Peter, team, I've just got a question from Yandré Pieterse at Visio. Just can you unpack a little bit in terms of the grade evolution over the next two to three years?
Peter Steenkamp (CEO)
Yeah, we one must understand if we want to look at the long-term plan for Harmony, I mean, we are in good grades now for the ongoing, and the current life of mine, before we go to the deepening part of that, which it will be in the high grade, will be the same. Moab, as long as we mine the Moab mine, it will be good grades, and obviously, when we get into the Zaaiplaats Project as we get, and I think the first time is about two to three years from now, we will be in the Zaaiplaats Project, will be good grades again. Then we are actually supposed to mine out our low, our high gr- low-grade assets, like, for instance, Masimong.
Now, Masimong had a two-year life of mine plan since I've started here, and we still have a two-year life of mine. This year we signed another two-year life of mine, so it is there, but, I mean, there's gonna be a day that we have to call it a day at Masimong. And that is the, you know, the kind of lower grade asset that we have. The next mine is we've got a three-year life of mine at Kusasalethu. We think it's the possibility to, at good grades, to extend that, because we've got some drilling results that is very good. Provided that that creates a, you know, a sustainable future for us, we can potentially extend that. But that's obviously a much higher grade asset.
So yes, I'm quite confident that the grades that we have now, you know, we're on above 5.8 underground grades will sustain itself for quite a number of years now. And yeah, we are developing the higher margins or the higher grade assets for the long term.
Jared Coetzer (Head of Investor Relations)
Thanks, Peter. Just a question from René Hochreiter. I think you've answered the question on Wafi-Golpu already, just in terms of timing, but perhaps on Target and thoughts on the project, you know, now that it's complete, and when we see Target becoming cash flow positive again.
Peter Steenkamp (CEO)
Yeah. Now, we got that project over the line. It was a difficult project to execute because of not necessarily the project itself, but because of environmental conditions and other kind of issues that we ran into. It is a, Target is a very difficult mine in the sense that way it was actually set up right from the beginning, in the sense of how you ventilate it, how you cool it down. So we had to build fridge plants and put fridge plants on surface to try and get this cooling down and making sure that we get the mine done. But it's all done now. You know, the crushers is down at the bottom. It's working well. We're driving downhill now to do our crushers rather than four kilometers uphill.
We are in the process now of creating the flexibility to stope drilling to make sure that we get ahead of time, et cetera, to make sure that we have the things. But I'm very comfortable that Target will be a great mine going forward. Not high grade, but you know, good volumes and a mine that we will mine going forward. And there's obviously a lot of potential to that block, what we call Block 12, which is the old Paradise part of the Vaal. That was, many years ago, part of the four different Vaal. It was part of the Anglovaal future, which we're gonna get a part of that as part of our infrastructure. We will be able to mine it and...
But, that's still a little bit in the future, but, I mean, Target can still have, currently, I think it's a six or seven-year life, potentially can be a 10-year life going forward.
Jared Coetzer (Head of Investor Relations)
Thanks, Peter. A question from Lebo Mofokeng, Truffle Asset Management. On uranium, is the FY 2024 base sustainable, and is there potential to do more, from a uranium perspective?
Peter Steenkamp (CEO)
Yeah, the only uranium plant we've got is the one at Moab, so we use all the sources that we potentially can put through there, to get uranium for us. Unfortunately, we don't have uranium plants on any of the other things, at the end of operations. Yeah, so, I mean, what we have at the moment is that, uranium is also, you know, flexible in terms of where you are or what you mine. Normally, it's very highly correlated to the grades. Because of the good grades we're currently mining at Moab, we also have good uranium grades. So we, but, just certainly for the next number of years, it will be the same, and as we go into Zaaiplaats, we'll be, you know, there's also uranium associated with that.
Uranium became very significant because of the price increase that happened over the last number of... I think when we bought Moab, it was $26 or $23 a pound. Now, it's sitting at close to $90.
Jared Coetzer (Head of Investor Relations)
Thanks, Peter. And the last question from Teleki Teleki at Mianzo Asset Management. In terms of new business and expansion opportunities, what are the plans for Harmony, in terms of geography? And, what projects could we potentially look at higher gold prices, internal projects or existing projects?
Peter Steenkamp (CEO)
I think this slide actually shows it all. I've got now slide 18 there on it for people who can looking at that. Which shows you that we can potentially be about 1.4 million ounce producer for a long period of time, about 2038. And I don't think many mining, gold mining companies have got this profile ahead of them. Yes, we have to develop surface. It's like surface projects, but we own the ounces, and we can develop them, so it's not that we don't own them. And obviously, it's also on the back of Eva and Wafi-Golpu being built. You know, that, that's the part at the top there.
So what we're trying to say is that we have enough projects in front of us to be able to sustain Harmony for the current production levels. And obviously, but we will also be looking at the opportunities that potentially can come our way, like Eva, that we managed to buy. I think it's a fantastic project that came to us at the time, and I think, you know, we will constantly be looking for that. So our business team, and Johannes van Heerden in the Brisbane office, are, you know, constantly looking at opportunities for us to be able to. But I want to emphasize, whatever we buy going forward need to be better quality.
Now, current average all sustaining cost of Harmony this year is $1,500 an ounce. There's not a lot of assets above $1,500 an ounce available for sale. And if there are, they're obviously usually expensive. So, you know, developing our own is probably the right way to go, and for that reason, our project capabilities and delivering projects are so key for Harmony, and which we, I think we are on the right track as far as that's concerned.
Jared Coetzer (Head of Investor Relations)
All right, Peter, I think we're done.
Peter Steenkamp (CEO)
Thank you. Thank you. Thank you a lot for being... Most likely my last results presentation. I still vividly remember the one in the other boardroom there, the first one, when I joined Harmony in 2016. It was a tough day. It's much better today.