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Harmony "crazy gold bulls" to "switch-on" growth

Publication: Mineweb
Journalist: Tessa Kruger

Harmony Gold says it will invest “quick-capex” in short-life, high cost assets to grow production in the current strong gold price environment, but its finger remains on the on-off switch.

The stronger gold price will translate into growth for Harmony Gold as it creates much potential to extend the lives of short-term, high cost assets and undertake virgin projects. This comes as Harmony is a company with large resources and infrastructure.

Chief executive officer Graham Briggs said today the company’s strategy with extending the lives of short-term assets was to assume a gold price of R180,000/kg (US$736.40/oz) in its planning and to invest “quick capital” in projects that delivered gold grades of 3.5g-4g/t.

Briggs said Harmony were "crazy gold bulls" but would invest capital expenditure in short-life, high costs assets that could be switched off as quick as they were switched on if the often volatile gold price faltered again.

He said there were many growth options at both the company’s surface and underground operations due to the current gold price buoyantly exceeding R200,000/kg (US$818/oz).

Surface operations that could deliver growth included the Phoenix project in the Free State, SA where current production of 500,000 t per month could be expanded to 1 million t per month and Kalgold mine (North West province, SA) which "was going to die" in a weaker price environment.

Harmony also had short-life projects in the Free State province which would have come under threat under the previous gold price scenario as costs here had always been high at R150,000-R170,000/kg ($614-695/oz).

In terms of virgin gold projects, Evander South in Mpumalanga, South Africa was a relatively shallow project that looked attractive at this stage. Drilling would take place during the current quarter to establish which areas of the project were feasible.

Briggs said Harmony owed its "great growth options" to the strong gold price and the company’s large resource.

Grades Challenge

Harmony Gold has completed the restructuring of the company to a more healthy state, but it still has to tackle the issue of mining lower underground grades of 4.81g/t in the last quarter compared to its average underground grade of 5.5g/t.

Briggs said Harmony was still experiencing a mine call factor problem and the company would increase its work on this factor over the next quarter to get results. He stressed it would involve zero cost to improve the grade mined that was generally 0.6g/t lower than it should be.

Although the company did work on the problem over the last quarter by changing its mine structure, it was still partially a ”people’s problem“, said Briggs.

The CEO said all Harmony operations would be profitable during the next quarter and the company would have a major focus on cost control and production now that the "rest was done".

Harmony today reported its cash operating costs increased by 9.2% to R145,514/kg ($596/oz) in the last quarter.

A higher received gold price of $944.40/ounce and a more favourable rand/dollar exchange rate of R7.43/$, amounted to higher revenues of R2.3bn ($302m) compared with R2.1bn ($276m) and a net profit of R164m ($21m) compared with a net loss of R195m ($25m) in the previous quarter.

Harmony alluded to the fact that it is getting closer to being in a position where it can pay dividends to shareholders, by saying "shareholders might soon ask for dividends". However, management said they didn’t foresee dividends being paid in the current financial year.

Annual report

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Investor brief

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

(PDF - 6.5MB)

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