Harmony lays ground for ‘rapid change’
Allan Seccombe | miningmx
THE climb-down in the gold price during 2013 has had many consequences. For the likes of Harmony Gold, it has led to an adjustment in its capital planning which most strikingly affects its Papua New Guinea project, Golpu, a copper and gold deposit it shares with Australian company Newcrest Mining.
Gone is the big-bang approach to mine development in favour of a cautious, modular approach. Capital is applied in dabs rather than with a broad-brush because since the beginning of 2013, when the gold price began its precipitous $300/oz decline, it became harder to generate cash.
A consequence of the lower gold price is that the structure of gold producing companies has changed. First there were multi-billion dollar write-downs, followed by active management of non-core assets – a development driven by shareholders to a large extent. Consolidation, deconsolidation, corporate activity of all types is now being contemplated by the world’s gold producers.
That’s why Harmony is on its toes.
Its CEO, Graham Briggs, has generally avoided the question of growth by acquisition. Now, however, he is talking about opportunities that may be posed by structural industry change.
“We’ve got a fantastic copper project but investors won’t let us build that project. It will cost too much and they worry about it. Some of these things have to wait for the right investment time,” Briggs said.
Details of the revised study into Golpu, will be published in August. The Wafi portion of the project (it was originally called Wafi-Golpu) has difficult metallurgy and needs further work.
The question management and the board will grapple with in coming months is whether the Papua New Guinea project remains within Harmony or if it is spun out.
“The view is that resources go through lean years but they have excellent years as well and you need to capitalise on those years. Even in a declining commodity price environment shareholders are very demanding and that means companies will change,” Briggs said.
“Harmony has an asset in Papua New Guinea that potentially gives it big growth. How does Harmony evolve out of that? Does it evolve into two separate companies or does it stay as one company?” Briggs said.
“I can see some dramatic changes happening in the whole global gold industry and those, by nature, will affect us,” he said.
Golpu spun out?
The change in CEO at Newcrest may materialise into a revised investment strategy for that company. It may, for instance, weigh the prospect of spinning out Golpu in order to focus on cash returns from the operating assets.
Merger discussions between Barrick Gold and Newmont Mining, two of the world’s largest gold companies could result in assets being cast off into separately-listed entities as they too seek new focus.
In the case of the North Americans, it would be focus on geographical areas, with a desire to having assets in the North and South American time zones.
“There’s going to be more shareholder activism which will drive better returns for shareholders, but it will create companies with specific issues,” Briggs said.
AngloGold Ashanti, Gold Fields and Harmony all grew their international footprints by using their South African mines to fund overseas purchases and growth.
Gold Fields spun out its cash-generating South African mines to create Sibanye Gold, which is carving a niche for itself as a strong dividend payer.
“So now, a company that has growth projects and dividend paying assets may suddenly start splitting in two because there may be investors who have different time horizons,” Briggs said.
“There’s a more selective philosophy from a shareholder perspective where they’ll not just invest in gold but they’ll invest in gold with a specific profile. That’s how I see things evolving and I don’t know where Harmony will be in that,” he said.
Harmony’s executives are visiting bankers to get their views of what the global gold mining industry is doing and how its being driven and evolving.
“We have to interpret this thing to see where Harmony is going,” he said. “You’ll have different money looking for different scenarios.”
“This is a period of rapid change. There will be rapid decisions to be made and we must be prepared for whatever happens,” Briggs said.