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SAFM special report podcast: Graham Briggs - CEO, Harmony Gold


Publication: SAFM
Journalist: Barry Sergeant

Barry Sergeant puts Graham Briggs on the spot.

Special report podcast: Graham Briggs - CEO, Harmony Gold

BARRY SERGEANT:
I'm in Johannesburg and I'm speaking with Graham Briggs, chief executive of Harmony Gold. Graham, your quarterly results, were they in line with expectations that is third quarter 2010? Well, calendar that is, it's your first quarter of the financial year.
GRAHAM BRIGGS:
Yes Barry they were, I think all the news that was in and around Harmony has been well publicised. The only one factor that probably people didn't fully appreciate was the Wits Gold transaction that we did and that created a mark-to-mark improvement of about R273m. So, that was probably a little bit where the market didn't expect it but otherwise all the factors were in line.
BARRY SERGEANT:
Okay, let's talk a little bit about the rand that is such a well-known subject but just let's have a look at the impact on some of your numbers. Your gold price received for the quarter was USD1224.00/ ounce compared to the June quarter USD1219.00, practically unchanged but if you look at the rand numbers, your quarter for September was about R287 000/ kilogram compared to nearly R300 000 for the June quarter. What sort of impact overall has the rand made on Harmony and where do you feel that is going to be going forward?
GRAHAM BRIGGS:
Barry, it's very difficult to plan our lives around something as external as this but I think consensus is that the rand is going to be stronger for longer. So, this quarter we had a deterioration in the price we received for our gold of close to 3% but the rand is forever changing with the gold price and so the rand /gold price is also changing. I believe today it's closer to R305 000/ kilogram.
BARY SERGEANT:
Right, right.
GRAHAM BRIGGS:
A little bit of moving parts Barry but we have to really plan for the longer term and that's what is more important to us. So, it's difficult to plan around short-term movement in the exchange rate.
BARRY SERGEANT:
Looking at the other side of the equation on the cost side, where were you on your longer term trend line when it came to South African costs rand/ ton and rand/ kilogram?
GRAHAM BRIGGS:
Rand/ kilogram and rand/ ton both affected mainly in this last quarter because of the once-off increases and those once off increases are really seasonal. Maybe one should talk about them, electricity prices, this was a full quarter with the new electricity price and two months of winter tariffs. So, electricity was actually, in this quarter, 18% of our costs. Our prediction for the year is 16% of our costs. Then we had the increase in wages July 1 as well.
BARRY SEGEANT:
Okay, you made some brief comment on the updated mining charter, just for the record, what is your position on your equity BEE holding at this stage because it is one of the highest in the industry. What sort of number are you working on?
GRAHAM BRIGGS:
We're working on 36%, Barry.
BARRY SERGEANT:
That's probably the highest among the gold companies?
GRAHAM BRIGGS:
I don't know but I should imagine it might be.
BARRY SERGEANT:
All right. Well, let's get on to what continues to be big, big news for Harmony Gold, we're talking about Papua New Guinea and specifically the Golpu strike. Your partner there Newcrest, Australia's biggest mining company and even bigger in gold that is, biggest gold mining company, even bigger now that it's merged with Lihir. Your 50/50% partner there pre-empted you October 21, a few days back, by announcing, they report ahead of you on the quarterlies, by announcing that the target had been upgraded at Wafi-Golpu, from 20 million ounces of gold to 30 million ounces and that the copper target has been booted up from four million tons to eight million tons. I don't think there's any question that if one looks at this century that has got to be classified as the biggest virgin gold strike globally?
GRAHAM BRIGGS:
I reckon it probably is, Barry. The reporting season, obviously, gets one company before the other. However, we all have consensus on this particular deposit and what we're doing around it and continue to explore as while we're in the pre-feasibility stage. So, with the step out of the drilling going northwards on this deposit, we've got an increased target. The latest hole that we drilled had quite phenomenal results over nearly 800 metres, 799 to be exact, with very good grades and so that hasn't been factored into the current declaration yet. So, it's giving a target estimate fully knowing that there is definitely going to be an upgrade
BARRY SERGEANT:
Right, now, PNG is, for those that are new in the area, so to speak, it is a historic copper-gold mining district in big terms. We're talking about mines like Acari and the historic Bougainville mine. I think one of the important factors here, surely, is that Harmony and Newcrest already have experience in PNG at Hidden Valley, which in fact is only in the process now of commissioning building up to full production. Tell us about what that experience is going to mean to how you approach the Wafi-Golpu project?
GRAHAM BRIGGS:
Barry, the very important thing about being in any country, I guess, is knowledge of the country, knowledge of how to navigate various things including politics and landowners are big in PNG. Also, having people on the ground and having exploration geologists and the like on the ground so that you can do things. We've been there since 2003, now Newcrest have joined us now just around two years ago. So, both of us have got good exposure to PNG and we're able to do things on our exploration sites, which we own 100%. After acquiring them six months later, we were already drilling on a site. Now, that's quite a feat in the jungles of PNG and you have to know what you're doing, you have to have the right logistics and the right support to be able to do that. Building Hidden Valley was quite a big struggle but at the same time, of course, it's the first gold mine that has been built for many years in PNG.
BARRY SERGEANT:
What is your, at full production, on 100% basis, bearing in mind that it is part of the 50/50 agreement with Newcrest, what is the projected output for Hidden Valley gold and copper and silver?
GRAHAM BRIGGS:
Hidden Valley is planned at around... plate production of about 280 000 ounces per annum and probably around 3.5 million ounces of silver, no copper coming from that. At the moment it's got a life of 14 years. Again, if you go back a few years, we actually did the feasibility study, the first feasibility study on six and a half year life and only 2.6 million tons throughput. Whereas at the moment that has a throughput of 4.2 million tons. Barry, it's got an opportunity of actually upgrading and we continue to explore in that area.
BARRY SERGEANT:
If I recall, the capital cost there was relatively modest, about USD140m or so?
GRAHAM BRIGGS:
No, it was quite a bit higher than that. I can't give you an accurate figure on that. About USD700m, I think, in total capital
BARRY SERGEANT:
USD700m, okay.
GRAHAM BRIGGS:
Yes.
BARRY SERGEANT:
If we go back to Wafi-Golpu, the numbers there, and of course they're very much preliminary, if I understand it correctly, you're looking at a pre-feasibility study by the end of next year 2011 but the kind of numbers that are being mentioned at this stage are somewhere between 100 000 - 200 000 tons of copper per year and 400 000 - 700 000 ounces of gold per year. The other number, which has been mentioned, is capital cost, on a 100%, of around about USD3bn, are those number ballpark at this stage?
GRAHAM BRIGGS:
Those are ballpark and they are accurate, so yes.
BARRY SERGEANT:
Okay, looking at the capital cost, your balance sheet at this stage and it has improved significantly over the past two to three years, how would you look at funding your portion of Wafi-Golpu? It's a lot of capital.
GRAHAM BRIGGS:
It's a lot of capital, Barry and our expectation is that the first big slug of capital would probably happen in about 2014 and continue for, let's say, three years. So, three maybe four years. So, in 2014 we could be faced a capital, us as Harmony, of around USD300m. The apparent thing on our South African operations is most of our capital is behind us and our production is building us in South Africa from mines like Pakito and Doornkop and Kusasalethu. So, these assets in South Africa are going to be generating nice cash, positive results and therefore they will provide some of that funding. The other means that I've eluded this today is really looking at the whole funding because people are asking these questions that on good projects like this, there's good funding available. There are a lot of people that are prepared to fund good projects.
BARRY SERGEANT:
Sure, you don't see any further sacrifice of equity, I think that's implied by what you're saying?
GRAHAM BRIGGS:
Certainly not, that's not even in our minds, in the thinking at the moment. We will during the pre-feasibility stage really release some sort of information as to how we think the whole funding will work. Really the pre-feasibility stage will show also the sequencing of that and when we'll need the most cash and so on.
BARRY SERGEANT:
Right, when Hidden Valley is running at full bore and humming away, what sort of free cash flow do you expect it to produce on an annualised basis?
GRAHAM BRIGGS:
Our portion would probably be, what, USD40m or so. I'm not 100% sure, Barry but it would have quite a bit of free cash.
BARRY SERGEANT:
All right, so that is something which could come to the party as well in funding Wafi-Golpu?
GRAHAM BRIGGS:
Yes, for sure, no, it will.
BARRY SERGEANT:
Graham, just to close off with, one of the other factors you mentioned in today's presentation was your exploration success, is there any...Wafi-Golpu has very much taken up centre stage but any other particular successes or milestones that you want to mention on the exploration front?
GRAHAM BRIGGS:
Barry, we continue in the joint venture to do quite a bit of exploration. We find things in the Hidden Valley region, nothing that we've included in the resource category yet but we continue o have some nice successes there. The whole Wafi-Golpu region, remember it is not just a single deposit, it consists of several deposits. So, we continue to do as much drilling as we can do there. Our limitation really is on being able to drill as much as we can. This year we planned, in the joint venture, 47 000 metres of drilling and we've got a similar amount next year.
BARRY SERGEANT:
Right.
GRAHAM BRIGGS:
Then on 100% we are drilling on our assets near Mount Hagen in the Highlands as well. So, we continue to do exploration there as well as geophysical exploration with choppers and so on. A very exciting region.
BARRY SERGEANT:
Absolutely. Well Graham, thanks very much indeed. No doubt we're going to catch up with you after the December quarter, thanks once again.
GRAHAM BRIGGS:
Thank you Barry.

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