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Harmony's nice little earner lies in a billion tonnes

Publication: Miningmx
Journalist: Allan Seccombe

A billion tonnes of tailings dumps could be a new high-margin source of gold in either a R500m or an R800m venture, said Harmony Gold CEO Graham Briggs, adding it was undergoing a feasibility study.

The low grade material would reach the yet-to-be adapted St Helena plant at a grade of 0.14 grams/tonne, but this is what Harmony is achieving at its other surface treatment operation Project Phoenix, which generated 224kg of gold at a cash operating cost of R106,000/kg or 7,200 oz at a cost of $424.

The Free State dump treatment project has not yet been brought before the board, which would need to decide on a seven-year life of project at a cost of R500m or a 20-year life option at a cost of R800m, which factors in new tailings facilities and environmental and water permits.

The St Helena plant will have to be reconfigured to handle a million tonnes of material a month, delivering 140 kg of gold and revenue, at a current price of R200,000/kg, of R28m/month. The cash costs are expected to be similar to those of Phoenix, which means the project could be a nice little earner of R168m/year.

Harmony has a fairly stiff capital expenditure at its South African operations in the next couple of years before winding down from R2.8bn in 2008/09 to R1.4bn in 2012/13, when ongoing capex makes up more than half the expenditure.

Capital inflows from a joint venture with Australia’s Newcrest in Papua New Guinea as well as the sale of its Randfontein uranium assets and Cooke shafts to Rand Uranium will go towards paying down entirely its R4bn of debt.

Harmony reckons the Hidden Valley mine in Papua New Guinea will come into production around June. This, Briggs said, is a target date Newcrest is unhappy about and is looking for ways to bring it forward.

The biggest hold up is finding skills for the project in a remote part of Papua New Guinea.

It is an open question of when Harmony could pull the trigger on processing the Free State dumps, but with a 50% margin, providing the rand gold price stays around R200,000/kg it should be a fairly easy investment decision to make. The tricky bit will be whether to make it a seven year or 20 year operation, with the latter posing a lot more hurdles.

Any further corporate activity is likely to take place in the “growth area” rather than the operational areas, Briggs said. This signals an end to asset disposals.

"We will continue to look for value opportunities on partnering some of our assets that have not been approved by the board as new projects for the 2009 financial capital programme," Briggs said.

The current environment where companies, particularly juniors, are struggling to raise funds for exploration and development, presents Harmony opportunities for possible acquisitions, he said.

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