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Harmony drops plan to list Evander

Source: Business Day
Journalist: Allan Seccombe

Harmony Gold, which has cut its 2012 production target by 200000oz, has scrapped plans to separately list its Evander assets as it pushes ahead on the Wafi- Golpu project in Papua New Guinea that is likely to be its next new mine from 2016.

Harmony has lowered its 2012 output forecast to 2-million ounces after it shut six unprofitable shafts in the past year and has a seventh that will be closed if it does not meet targets.

Its Hidden Valley mine in Papua New Guinea is not yet firing on all cylinders, having started commercial production in May. It is treating weathered rock and has had a lot of silver through the plant, which “flooded” the carbon used to extract gold.

Hidden Valley, in which Harmony has a 50% stake, would generate about 105000oz of gold this year instead of the planned 140000oz , Harmony CEO Graham Briggs said yesterday.

Harmony floated the idea earlier this year of hiving off its Evander assets, which include some of the oldest shafts in the group, as a way to fund expansion programmes around the mines east of Johannesburg.

“There are quite a lot of boxes to tick for an IPO (initial public offering) and a separate listing process. Evander doesn’t tick them. It would have been a very difficult listing if we did it,” Mr Briggs said.

Evander was the most costly operation in the June quarter. Production declined 4% quarter on quarter to 577kg and costs rose 11% to R283,939/kg.

The Evander South project was not as robust as first thought, with a feasibility study showing the project costing R2,5bn instead of the less than R2bn Harmony had expected, and the grade over 10 years languishing below 4g/ton instead of the predicted 4,5g, he said. More drilling would be done to increase the resource at Evander South.

Two other projects, Libra and Poplar, needed more work to bring them to an investment- decision level. Libra, a tailings treatment project at Evander, could cost R1,2bn if a dedicated plant was built. Another option would be converting part of the existing plant to treat tailings, Mr Briggs said.

Gold analyst Steve Shepherd, of JPMorgan Cazenove, said there were cost pressures from a 7,5% annual wage hike from last month and higher electricity charges, including winter tariffs, that would put pressure on the smaller operations.

Harmony produced 2,2% less gold in the financial year to end- June compared with a year earlier, coming in at 1,429-million ounces, or 44433kg. The cost of producing that gold rose 16% to R195,162/kg.

SA’s third-largest gold producer paid a dividend of 50c a share, a cash outflow of R215m.

“This year is going to be a good year and the following year even better. Our shareholders deserve a bit of credit,” Mr Briggs said.

Harmony, which will produce 1,7-million ounces of gold next year at a cost of R195000/kg, posted adjusted headline earnings of 49c per share, nearly 85% lower than a year earlier. The adjustment was for employee termination and restructuring costs.

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Harmony Investor brief, Sep 2017
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