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Harmony’s mountain of tailings to the rescue as bullion price turns down

Publication: Mining Weekly
Journalist: Martin Creamer

Precious-metal prices are hard to predict these days.

The day before Harmony Gold presented its full-year results in the 12 months to June, the gold price slumped and looked like settling below R200 000/kg for the first time since December.

The mention of the gold price in rands per kilogram is done deliberately to tie in with a positive sentiment Harmony Gold CEO Graham Briggs expressed with alacrity, namely that the fifth-largest gold company has an opportunity to more than preserve its margin of profit in troubled times, thanks to a legacy left by miners long gone.

The material in question is a billion tons of surface tailings in the Free State that Briggs says can be turned to account at the low cost of R100 000/kg, quite a turn-up for the books.

He says the company has an abundance of tailings to turn to account, but none as noteworthy as the billion tons at St Helena, which could be processed at a rate of 12-million tons a year over a period of 20 years.

More than enough to put the halo back on the Free State ‘saint’, which has given all of its owners a fair share of problems.

Briggs says feasibility studies are being undertaken and no decision has been taken as yet.

“But it’s a low-labour, good cash-cost business, no doubt about it. The billion tons would certainly last a long time,” Briggs says.

But declining gold price notwithstanding, Briggs is intent on keeping Harmony’s growth projects in full swing.

Harmony has already invested R4,9-billion in the five Phakisa, Doornkop South, Tshepong North, Elandsrand and Hidden Valley growth projects.

“In bad times, it is obviously tempting to stop capital expenditure, but we continue to spend at high level,” Briggs says.

Most of them have been worked on for years and are virtually three-quarters done.

“We’re within two years, in most of those projects, of actually getting good production, and that’s where our focus remains,” says Briggs, who has been in the saddle now for just on a year.

“The decision some years ago was to grow organically, and we have continued to do that,” he says.

Whether organic growth alone will hold true when turbulent times like these create merger-and-acquisition (M&A) opportunity remains to be seen.

The Harmony of the past was voraciously acquisitive and was all about ‘buying’ and not ‘building’.

But even if in the next five years Harmony does continue to grow only organically and not at all by either acquisition or exploration, Briggs says the company remains on track to be in a position to produce at a rate of 2,2-million ounces of gold a year by 2012.

While he is enthusiastic about the full suite of Harmony growth projects, one that he singles out for particular mention is the Phakisa project, in the Free State, which has begun producing.

Although its start-up production is still nothing to write home about, it will only be dishing up low grades for a short while, says Briggs.

“It’s really going to be a magnificent mine,” he says of the Free State fledgling.

He says Phakisa’s “great orebody” will eventually operate at a grade of 7,5 g/t – much above the company norm.

“We have been spending money in the right places. Our shafts are seeing more success,” Briggs says, following the company’s net R245-million loss in the 12 months to end-June, compared with the R382-million net profit for the previous 12-month period.

Another project that is coming in is Hidden Valley, in Papua New Guinea.

“Ramp-up there is very quick – it’s really getting over the mill teething problems that is taking up the time,” says Briggs.

Going through the Hidden Valley plant will be 4,3-million tons a year and gold production for the next financial year will be of the order of 270 000 oz.

It will come at a moderate capi-tal cost of only $15-million for Harmony in the next financial year, while its Australian partner, Newcrest, picks up the remaining $300-million.

Total Production Outlook

Harmony expects to stand still on 48 t overall group gold production in the 12 months to June 30, 2009.

“In kilograms, it will be just over 12 000 kg a quarter,” says Briggs.

Harmony’s official view on the gold price is that it will not fall below R180 000/kg.

“But I am very bullish on gold. I think the price is going to take off,” he says.

Harmony has declared a gold-ore reserve of 50,5-million ounces and a gold-ore resource of 253,6-million ounces.

Harmony CFO Frank Abbott reported a cash operating profit for the year of R2,5-billion, which amortisation, depreciation, impairment and other factors reduced to the net R245-million loss.

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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