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Company-changing Wafi-Golpu not for sale: Briggs


Publication: Business Live
Source: www.businesslive.co.za
Journalist: Sherilee Lakmidas

Harmony Gold Mining’s stake in the Wafi-Golpu project in Papua New Guinea is not for sale, Harmony CEO Graham Briggs said on Monday. "I am sure there are many companies lining up for our stake in the project," Briggs said in a telephonic interview with I-Net Bridge/BusinessLIVE.

"But it’s not for sale," he said.

One of those queuing up to buy the stake is Harmony’s partner in the project Newcrest Mining, the world’s third largest gold producer.

Newcrest CEO Greg Robinson told reporters on a conference call on Monday that if Harmony wanted to sell his company "would be happy to buy it".

And it is easy to see why. The project has been hailed by analysts as a game changer.

Last month Harmony said the resource was 57% bigger than previously thought.

One of the largest deposits of its kind, Golpu now hosts a resource of 869 million tons, containing 19.3 million ounces of gold and 9 million tons of copper.

Held equally by Harmony and Newcrest, the AU$3 billion to AU$4 billion copper-gold project is expected to begin production in 2017.

The project should yield between 600,000 and 800,000 ounces of gold and between 300,000 and 500,000 metric tons of copper.

Papua New Guinea represents Harmony’s geographical diversification away from its historical South African base.

While Papua New Guinea makes up only 8% of the company’s production, this will change with the addition of Wafi-Golpu. Of the company’s resources 10% is attributed to Papua New Guinea but on the basis of gold equivalent resource ounces, it makes up 21% of their total.

The bulk of the Wafi-Golpu capital is forecast for Harmony’s 2014 financial year but for next year the company sees capital expenditure at much the same levels that it was in 2011.

Harmony planned to spend 3.5 billion rand but it only spent 3.1 billion rand in its 2011 financial year; it expects capital expenditure to be between 3.7 billion and 3.8 billion rand in this financial year.

Financial director Hannes Meyer said the company secured a US$300 million facility, which would ensure that the company has money to spend on Wafi-Golpu over the next three years.

He said the company might consider issuing corporate bonds in three or four years as spending on the project increases but he said he did not see the need to issue bonds in the immediate future.

With the Wafi-Golpu prefeasibility due to be completed this year, Briggs said his biggest decision in the coming year was likely to be how to take the project forward.

But Briggs insists that SA is still an exciting place to be. However, there is still a great deal of work to be done.

Harmony on Monday reported a fiscal fourth-quarter net loss of 42 million rand, or 10 cents a share, compared to net income of 238 million rand, or 55 cents, the previous quarter after writing down the value of mining assets.

Headline earnings for the three months to end June fell to 30 cents a share from 91 cents in the prior quarter.

Production was 3% up at 326,394 ounces in the quarter, from 316 909oz the previous quarter. Operating profit was 5% higher at 901 million rand from 855 million rand previously, mainly due to the 6% increase in the average Rand gold price received to R329,536/kg.

Quarter on quarter, cash operating costs in R/kg terms were 12% higher at 242,851 rand/kg, mainly due to higher electricity and stores costs, as well as the inclusion of Target 3 which reached commercial production during the quarter.

The quarter’s results were disappointing given that Harmony’s rivals have all posted better results and improved cash flows on the back of the higher gold price.

Gold Fields (GFI) last week reported a 15% increase in earnings on higher production and a stronger gold price while AngloGold Ashnati (ANG) said earlier this month that its earnings had soared 68% after it closed out its hedge book and cashed in on the full benefits of the rallying gold price.

As Steve Shepard of JP Morgan pointed out during the company’s results presentation, one of the company’s biggest challenges is improving its grade.

The company’s current underground grade of 4.60g/t is still some way off its reserve grade of around 6g/t.

"We have a lot of projects building up at the same time," said Briggs, explaining the challenge of reaching the reserve grade.

"It would be great to get those grades at these prices," he said, adding that the company has not lost sight of its 2 million ounce target.

Harmony’s full year production dropped 9% to 1.3 million ounces in its financial year to end June due to safety stoppages and underperformance in some shafts.

Briggs said the company’s growth projects should take the company close to this target by 2015.

But he said the focus remains on getting the profitability and sustainability of the operations right before they go galloping off after a target.

Analysts are not so sure and while most had a "hold" on the stock, one said he had a "sell" on the share because the company’s future looked very vague.

At 15:30 shares in Harmony had lost 3% or 3.07 rand and were trading at 95.96 rand on the JSE.

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