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Harmony before and after the 2011 transformation

Publication: SA Mining

Harmony is entering a new era as it prepares for a five-year makeover. Laura Cornish spoke to CEO Bernard Swanepoel about Harmony's upcoming transformation.

Harmony's success has been its ability to reverse the fortune of old gold mines, returning them to profit. While its leveraged operations still contribute to profit, thanks primarily to today's high-riding gold price, the gold-mining giant will not rely on them to take the company to the next level.

Although the company's current growth and development projects alone are enough for the company to realise a dynamic change, it is definitely not the beginning and end of this company's reform, says Swanepoel, Harmony is currently in an enormous growth phase, spending more money on exploration than ever before. Already the company has doubled its exploration capital expenditure, from R32m in the 2005 December quarter to R60m in the 2006 December quarter.

"Thanks to such a good gold price lately, Harmony has finally been able to take that step and start investing money in exploration," adds Swanepoel. Swanepoel says that exploration will be confined to South Africa and Papua New Guinea (PNG). "Harmony really understands the geology in the two countries, and I believe that there is still huge mining potential." The majority of the exploration will be brownfields, with specific focus on South African quality assets - Target North and Evander South.

In PNG, Harmony's exploration is centred around the development of the Wafi/Golpu deposits. The value of gold mining has yet to be realised in this country, says Swanepoel, but, with the interest of mining giants, such as Barrick and Xstrata, this will soon change.

"Wafi/Golpu is going to be both a serious gold producer, and a very likely a world-class copper producer, and will add some 350 000oz of gold equivalent to Harmony's production," notes Swanepoel. The final pre-feasibility study for the deposit should be concluded in September this year, at a total cost of about R18m, the total project will cost in the range of between $800 and $1bn. Because of the copper-rich nature of Golpu specifically, Harmony will consider taking on a partner for the project - one with good copper skills, refining and offtake exposure.

However, if Swanepoel feels his company can self-manage the deposit, it will go it alone. Locally, Harmony's leveraged operations comprise Bambanani, Joel, West shaft, St Helena, Harmony, Merriespruit, Unisel, Brand and Orkney. "Because Harmony's strength lies in its ability to keep the cost per ton down, these 'old ladies' have had a much better running than anyone would have anticipated," says Swanepoel. And although all the leveraged assets remain part of the Harmony portfolio, some of the mines may not form part of the long-term strategy for "good, long-life, profitable, low cash-cost mines". "Right now, the Harmony assets are like an assortment of toys" says the CEO, and investors want a clearer, less varied range of productive ore bodies. By 2011, Harmony is going to be made up 80% of what Swanepoel calls "quality assets".

The opencast Kalgold will likely reach the end of its life within the next 18 months, while some of the growth assets, specifically Doornkop and Elandsrand, will move from a growth profile to a quality asset. Over the next two to three years, Harmony could consider selling some of the leveraged assets to small juniors who can run small assets more effectively, says Swanepoel. "These are companies such as Pamodzi Gold, looking to do a 'Harmony take 2'." Harmony gets regular approaches for its older assets, particularly Orkney. Then there is the company's interest in Russia - and the strong possibility of selling the Harmony uranium assets (dump re-treatments) to Russia's Renova billionaire, Viktor Vekselberg. The deal would likely see Renova exchange certain gold mines and prospects with Harmony, although the two deals would be completely separate.

Harmony will send engineers and geologists to Russia to evaluate the assets before a deal is finalised. The mega dump-processing projects should enter into feasibility stage within the next year or so. Three major processing plants will be situated at Randfontein, Evander and Virginia. The "Ergo 2 look-alike" project alone could contribute significantly to Harmony. "It will cost a fraction of the price of building a gold mine, but will produce the same amount as a gold mine," says Swanepoel - some 400 000oz per year.

Harmony's cash operating profit for the December quarter was down to R755m from R891m in the September quarter, due mainly to increases in working costs and lower recovery.

Annual report

Integrated annual report 2016
Integrated annual report 2017


Investor brief

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

(PDF - 6.5MB)

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