Johannesburg - Harmony Gold has acquired 100 percent of Hidden Valley, a gold and copper project in Papua New Guinea, after buying out its partner, Newcrest Mining, Australia’s biggest gold producer for $1 (R14).
Harmony, which owned 50 percent of Hidden Valley, rose 2.07 percent to R48.28 a share on the JSE yesterday on the news of its acquisition of Newcrest Mining’s 50 percent stake for $1. However, the shares closed at R46.93 - 0.78 percent lower on the day.
Harmony’s chief executive, Peter Steenkamp, said the project would contribute 180 000 ounces to its production a year and would need about $180 million to invest in the project.
Production profile
“We believe that Hidden Valley has the potential to contribute approximately 180 000 ounces of gold per annum to Harmony’s production profile at an all-in sustaining cost of less than $950 an ounce within the next three years,” Steenkamp said.
Newcrest and Harmony pulled the plug on an attempt to sell the mine after they could not find a successful bidder to take over the battling mine, which impaired R466m in the year to June.
The company said yesterday that the acquisition of 100 percent of the mine was in line with its overall aspiration to increase its annual production profile to 1.5 million ounces within three years.
“Acquiring 100 percent of the Hidden Valley mine and its surrounding exploration tenements meet our acquisition criteria,” Steenkamp said.
“After the initial investment phase Hidden Valley will generate strong free cash flows, which could be applied to the development of the Wafi-Golpu project and our exciting exploration portfolio in Papua New Guinea,” Steenkamp added.
The deal will be finalised pending approval by South Africa’s regulatory authorities.
As at the end of June, Hidden Valley had an estimated mineral reserve of 1.4 million ounces of gold at 1.6 grams a ton and 27 million ounces of silver at 31g a ton, resulting in total gold equivalent ounces of 1.8 million ounces at 2g a ton.
Mine life
The estimated mineral resource included 4 million ounces of of gold at 1.6g a ton and 73 million ounces of silver at 29g a ton.
“Mining the stage five and six cutback will extend the current mine life by seven years and require an initial capital investment of approximately $180m,” said Steenkamp.
Rene Hochreiter, a mining analyst at NOAH Capital Markets, said Harmony could grow Hidden Valley if it was able to raise the $180m. “In my model, I see them (Harmony) turning the project around. I believe that Harmony can make money from the project. It is a good investment as South African mines are running out of reserves.”
Upon completion of the deal, Harmony will assume all liabilities and expenses related to the Hidden Valley joint venture and mine, including all closure, rehabilitation and re-mediation obligations, with effect from August 31.
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