Banele Ginindza
HARMONY Gold’s Golpu project in Papua New Guinea would take a chunk to fund over the next six years, chief executive Graham Briggs said. But it was a leaner and more profitable venture that would save the group blushes, compared with the South African operations.
Harmony investors should embrace plans for the $2.3 billion (R27bn) mine even though it would cost more than the firm’s market value, Briggs said, according to Bloomberg.
Speaking at the announcement of results of a pre-feasibility study for Golpu, a gold and copper deposit jointly owned with Newcrest Mining, Briggs said on Monday that the pre-feasibility study had shown that at peak production between 2024 and 2029, Harmony’s share of production would be 500 000 ounces of gold a year, in addition to the 1 million ounces that would be produced from local operations.
“The pre-feasibility has shown that it (Golpu) is much leaner and focuses on a higher grade of ore with much better returns, higher grades and more profitability,” he said.
Harmony’s share of capital expenditure over the next six years is $785 million. Briggs said this would be affordable in the early stages but tougher during the last three years.
“But it is still a much smaller quantity of capital expenditure than we looked at two years ago,” he said.
Harmony, which expects completion of the feasibility study at the end of next year, will fund the project with cash generated from its other operations until 2018, when it will consider debt financing.
But the returns will be worth it when factoring in copper sales, as well as costs – each ounce of gold will earn $2 900 compared with a spot price of $1 213.
Harmony, which gets most of its production from ageing South African mines, has tumbled 25 percent in the past year, compared with a 2.3 percent decline in the gold price.
The internal rate of return for the project, which will start production in 2020, would be 17 percent, Harmony said. The first stage of Golpu will have a mine life of 27 years.
Market response
The market’s response to the pre-feasibility was rather lacklustre. The share price fell 1.36 percent in early morning trade on Monday, before rising 1.61 percent to close at R20.18.
Briggs said it was too early to worry about it or that it reflected the true sentiment towards the group’s plans.
He said the slight loss had more to do with the gold price falling over the weekend than a reflection on Harmony. “There is high value in Harmony, it may take people time to realise that. I don’t expect immediate changes” he said.
Briggs conceded that 2014 had been volatile, with low production and disruptions. There was a fire and rockfall accident at the Doornkop operation in February that killed eight workers, leading to its extended closure. The group faced flooding of the shaft bottom at the Joel operation, and a slower turnaround and technical issues at the Kusasalethu mine.
Kusasalethu is in the first 20 days of a 60 days section 189 notice. The firm is looking to restructure through voluntary retirement, retrenchment and the redeployment of workers.
As such, it will probably face-off against the Association of Mineworkers and Construction Union (Amcu), infamous for the almost six-month strike it held in the platinum sector, where it pressed for a new basic wage of R12 500.
Amcu has over the year gained a majority of about 70 percent workers’ representation at the group’s operations. “Any negotiating is going to be tough. It is particularly tough in tough economic times. It is going to be tough for both parties,” Briggs said of the upcoming interaction with Amcu, expected in the second quarter of the upcoming year.
Harmony would not at present pen the Amcu factor into its books, but was wary of the strategy the union would come up with. Briggs said the section 189 process, in its early days, was fairly amicable.