Harmony back in black, eyes Golpu advancement

Harmony Gold and partner Newcrest Mining look for further profits out of PNG

Natasha Odendaal | Mining Weekly | 05.02.2016

Shares in dual-listed Harmony Gold surged some 15% on the Johannesburg bourse on Thursday after the gold mining group turned the corner in the second quarter of the current financial year, posting positive earnings after a prolonged period in the red.

Harmony achieved headline earnings of R74-million for the three months to December 31, a jump of more than 100% on the headline loss of R523-million reported in the quarter to September.

Headline earnings a share reached 17c, compared with the headline loss a share of 120c in the September quarter.

“We ticked all the boxes [this quarter . . . and] revealed a solid set of results for the second quarter of this financial year,” new CEO Peter Steenkamp said in Sandton on Thursday, presenting his first set of results after five weeks at the helm.

Harmony’s production profit increased 84% to R1.29-billion quarter-on-quarter, as the average gold price increased 7% in rand terms to R507 490/kg, or $1 109/oz.

Revenue for the quarter under review increased 10% to R4.57-billion, attached to a 3% increase in gold sold to 289 323 oz during the second quarter.

Gold production increased 2% to 287 074 oz and underground grade was 7% higher, with the majority of Harmony’s operations producing higher kilograms and generating net free operational cash flow.

Despite a traditionally weak March quarter, owing to late start-ups post the December quarter and the upcoming Easter holidays, Harmony’s guidance for the full year of 1.1-million ounces would be maintained.

“Higher production means that Harmony’s cash flow is strengthened, our margins are growing, we are able to repay our debt and [we are able] to fund Golpu. The higher rand per kilogram gold price is simply an added bonus,” said Steenkamp.

During the period under review, all-in sustaining costs for all operations decreased 7% to R434 834/kg in the December quarter, compared with R466 061/kg in the September 2015 quarter. This translated into a 15% decrease to $950/oz.

Further, cash operating costs for the quarter decreased 6% to R360 153/kg and 15% to $787/oz.

The group had also repaid R1.12-billion of its debt and reported net debt of R2.52-billion as at end-December.

EXPLORATION

Now all eyes were on Papua New Guinea (PNG) as exploration activities rated high on Harmony’s “creating future value” agenda.

Harmony and its joint venture partner Newcrest Mining completed the feasibility study for Stage 1 and the prefeasibility study for Stage 2 for the Golpu project in December, with the outcomes expected to be released mid-February.

Harmony said discussions continued with PNG’s government on the appropriate terms to progress the premining development agreement, the completion of which would add more certainty to the development of the mine.

The greenfield copper-gold Golpu project was expected to expose Harmony to a one-billion-tonne resource, comprising 9.3-million tonnes of copper and 20.2-million ounces of gold, providing the group with a heavier exposure to copper than its mature South African gold assets.

Stage 1 would see the development of two block caves, with first production in 2020, ramping up to six-million tonnes a year in 2024.

Stage 2 would entail the development of an additional block cave.

Harmony noted that it had sufficient funding for the first three years of development; thereafter, the directors would seek out the best option for further funding.

Meanwhile, drilling activities had been accelerated at Harmony’s other exploration site, the Kili Teke copper-gold deposit, also in PNG, which was thought to be another Golpu.

The Kili Teke resource was the first new porphyry copper-gold deposit defined in PNG since the Golpu discovery in the early 1990s.

Following the declaration of the greenfield project’s maiden resource of four-million gold-equivalent ounces last year, current drilling efforts would be amplified by the addition of a second drill rig during the third quarter.

The drilling programme of the copper-gold deposit on Harmony’s 100%-owned exploration licence EL2310 showed an initial inferred mineral resource of 128-million tonnes at 0.4% copper, 0.3 g/t gold and 170 parts per million molybdenum, containing 506 000 t of copper, 1.2-million ounces of gold and 22 000 t of molybdenum.

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Filed under Exploration, Financial returns, Mine construction, Papua New Guinea

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