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Cash-flush, dividend-mulling Harmony Gold looks to 2,2m oz a year


Publication: MiningWeekly.com
Journalist: Martin Creamer

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JOHANNESBURG (miningweekly.com) – After succeeding in reversing five years of losses and hearing the sound of cash in the till, an upbeat Harmony Gold CEO Graham Briggs spoke on Friday of the company’s ramp up towards the production of 2,2-million ounces of gold a year post 2012, as well as the possibility of paying a long-awaited dividend.

Briggs said, after delivering third-quarter results to March 31, that the company would have R1,6-billion cash on hand from the end of the month and was already net-debt free. In the company's 2008 financial year, it produced 1,55-million ounces of gold from ten South African underground mines and two surface operations located primarily on the Witwatersrand Basin.

“There’s nothing like hearing the sound of cash in the till. It’s been hard work and a long time coming,” Briggs said of the unhedged company that has a fair cash flow, growing project pipeline and which achieved a 42 % margin of profit for the quarter.

“It’s geared for gold bulls. We’ve got lots of projects, so we’ve got lots of opportunities, and having money in the bank is simply great,” Briggs told Mining Weekly Online.

On the company’s pondering of a dividend policy for the future, Briggs said that Harmony had quite a mixture of shareholders, some who wanted dividends and others who did not want them.

Some bought the share for the growth and volatility of its share price, and others to put their children through varsity one day with the help of dividends.

“We’ve got this decision to make, about how and when we pay dividends, and we need to bash out a dividend policy, and get the board happy with that,” Briggs told Mining Weekly Online.

Harmony currently has no net debt and by the end of May will have no debt at all, probably opening itself to longer-term criticism of having a lazy balance sheet.

But Briggs defends the position in these uncertain global times: “These days, the world is very unpredictable. Every day, there’s a new financial issue, which makes it prudent to have cash and be debt free.”

If a big new project opportunity arises that needs to be funded, Briggs will look to obtaining project finance.

“We’re not saying that we’ll never have debt again, but we don’t want to have debt as an ongoing part of our business,” he said.

In the current global uncertainty, he rejects reliance on a “big, black, very expensive cloud of debt” hanging over the company.

Instead, he will use the cash that the company is generating to ramp production up to 2,2-million ounces of gold a year post 2012.

The company has been spending significant capital for a long time on the likes of its promising Phakisa project, which has completed the tough task of commissioning difficult ice plants and equipping new shafts, and is now getting down to orebody development, in a slow build-up to full production.

Considerable capital has also been spent at Harmony’s Hidden Valley project in Papua New Guinea, where the company's Australian partner, Newcrest, is on a 50% earn-in arrangement.

“Hidden Valley’s going to be a star mine,” Briggs promised Mining Weekly Online of the mine that will be commissioned in June, with final commissioning of the overland conveyor in September.

Although Hidden Valley’s planned production is 275 000 oz/y, Briggs is confident that more will be wrung out of its high-grade orebody.

Then, there is also the organic growth offered by the Evander South project in the Mpumalanga province and the St Helena tailings project in the Free State.

The Doornkop and Elandsrand projects will be in full production in 2012 and higher grades from the Tshepong decline, the Bambanani shaft pillar and the Evander 8 decline projects are expected, all helping to lift total annual production to the aimed-for 2,2-million ounces a year.

On the problem Evander and Joel mines, Briggs said: “Evander – the old Winkelhaak mine – has been very problematic. Historically, Evander has been under-capitalised. There are more than seven kilometres of declines in Evander’s No 8 shaft. It’s quite a nightmare, and we’re spending a lot of effort to improve the ventilation. We’ve just put a raise-bore hole down there to 24 level and there are many improvements coming through, but these things take time."

On problems at Joel, he said: “A lot was done in the past at Joel. We went into the north shaft some years ago, didn’t put a lot of capital into it, and the shaft was never properly equipped. Joel works very well, but, every now and then, it needs quite a bit of maintenance.

The latest results of the development of the Joel orebody on 129 level are reportedly excellent.

"There’s a good orebody down there,” Briggs assures.

While the company achieved a margin of R123 000/kg in the March quarter compared to 84 000/kg in the December quarter, the stronger rand will probably result in the margin returning to the lower percentage of the December quarter.

“The prediction for the quarter we are in – the June quarter – is probably around R250 000/kg, much like the December quarter. We are anticipating a margin similar to the R84 000/kg of the December quarter. We should improve during this quarter with production, so our margins will probably not be as good as the last quarter with the high gold price, but still a very good margin,” Briggs assured Mining Weekly Online.

Harmony Gold produced a lower 349 801 oz of gold in the March quarter, or 10,8 t, 3,4% down on the December quarter, but headline earnings were up 5% and the cash operating profit was at R1,2-billion.

With the proceeds of the sale of uranium assets to Rand Uranium – in which Harmony still holds 40% – five years of accumulated Harmony losses have at last been reversed.

There was a R72,5-million decline in capital costs as capital expenditure reduced, production and cash operating cost results improved at Elandsrand and the cash operating cost increase was held at 2%.

The past quarter saw the gold price at record highs above R300 000/kg and $900/oz.

"We have positioned the company in such a way that we are able to deliver on our promise of paying a dividend in future. Our focus now remains on achieving our overall targets and delivering consistent results," Briggs said.

“Gold has become a currency rather than a commodity - a good reason for us to remain bullish about the gold price.

“We believe that the uncertainty in world-wide markets will support a stronger gold price. Gold remains a safe investment, as can be seen with exchange traded funds continuing to increase their gold stockpile and from China’s recent announcement that it has increased its gold reserves by 75%.

“We’ve been a gold producer for the past 60 years and we believe that we have the correct mix of assets to benefit from stronger gold prices. Harmony is well leveraged against the gold price with no hedging and an uncomplicated structure, and we are working towards increasing gold production to benefit from the higher gold prices.

“We’ve completed our planned capital raising, exploiting favourable market conditions by issuing a second tranche of shares for cash in the open market,” Briggs added.

On the US class action against Harmony Gold, Briggs reported that, during January, a motion was filed to dismiss an amended complaint, which the plaintiff has opposed.

Harmony will be filing a reply memorandum in further support of its motion, and expects a decision in the next six months.

Annual report

Integrated annual report 2016
Integrated annual report 2016

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Investor brief

Harmony Investor brief, Sep 2017
September 2017 -
Harmony Investor brief

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