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Harmony starts to deliver


Publication: Miningmx
Journalist: Brendan Ryan

Harmony's Wafi/Golpu copper/gold project in Papua New Guinea (PNG) keeps getting bigger and better, according to latest exploration results released in the December quarterly results.

Continued drilling has extended the already huge deposit, throwing up what Harmony CEO Graham Briggs described in his presentation given in Cape Town on Monday as more "phenomenal" intersections.

One of these returned copper grades averaging 2.03% over a vertical depth of 595m, and gold grades averaging 1.65 gram per tonne (g/t) over a depth of 914m. Included in that average was 482m of copper mineralisation grading 2.4%.

"We have failed dismally in closing this orebody off which is very good news, but we now have to rein in the geologists to firm up the numbers for the prefeasibility study and the development of the exploration decline shaft," Briggs said.

Wafi/Golpu is a 50/50 joint venture between Harmony and Australian gold major Newcrest. Briggs said management would "put some firm boundaries down" during the current March quarter, "otherwise the mining guys are going to get frustrated".

Briggs said the prefeasibility study would look at an ore body of 600 million tonnes (mt) to 800mt, but said: " I would not be surprised if it turns out bigger."

On current planning, the prefeasibility study is due for completion by the end of this year with construction scheduled to begin in June 2014 and first production slated for January 2016.

Capital cost of the project is estimated at $3bn, and Briggs said there were various ways in which Harmony could fund its $1.5bn share of that.

"A good project is easy to fund and funding is not a problem to worry about. The optimal funding mix will be decided as part of the feasibility study.

"One of the options is a five-year copper loan or forward sale involving a third of our share of the production, which has the potential to raise around $1bn."

Turning to South Africa, Briggs said the overall quarterly numbers masked the real performance delivery now coming through from the new mines in which Harmony had invested heavily, such Doornkop, Phakisa and Tshepong.

Gold production dropped 4% to 10,055kg in the December quarter (September quarter – 10,471kg) but despite this, cash operating costs were reduced by 5% to R216,595/kg (R228,658/kg) while cash operating profit rose 33% to R867m (R652m).

Briggs said: "We have been able to control costs even when things have not gone well on some of the mines. We expect gold production for the next two quarters to be better than the December quarter levels as production builds up on the new operations."

A key number in the income statement for the three months was a R179m "insurance credit", which helped bump up net profit for the quarter to R296m (R105m).

Financial director Hannes Meyer said this resulted from financial provisions made previously which had not been needed as operations on the group’s mines had performed better than expected.

Despite the good news over the past six months when management revealed the first set of high grade results from Wafi/Golpu, the Harmony share price has persistently refused to respond and actually dipped in early trading on Thursday morning to R79.

Briggs told Miningmx: "Some 75% of our shareholders are institutions who give us a lot of credit for what we have achieved in PNG. I think that our other shareholders are finding it difficult to recognise our changing profile in South Africa, because it’s being masked by the average numbers.

"We are replacing old mines with new mines and have closed down eight shafts over the last year, but the new mines are not fully commissioned yet which makes it difficult to see the changes. Investors eventually will start to see that as we continue to deliver."

The writer owns shares in Harmony.

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