Peter Steenkamp. Picture: MARTIN RHODES
Peter Steenkamp. Picture: MARTIN RHODES

Harmony Gold faces an alarming drop in production in the next five years as it moved to reassure investors that it had a stream of projects that would fill the gap before its large Wafi-Golpu copper and gold mine in Papua New Guinea returned output of more than 1-million ounces a year.

According to Harmony’s data, it will maintain annual output for the next five years at or about its 1.5-million ounces target, which it is close to meeting with its new Moab Khotsong mine in SA that it bought from AngloGold Ashanti for $300m and the $175m restart of its Hidden Valley mine in Papua New Guinea.

But then production falls off a cliff as it closes at least four old SA mines and the gold coming from tailings retreatment diminishes quickly. This will leave the company with what CEO Peter Steenkamp called “a gap” on Tuesday as output falls to below 500,000oz in financial 2026 just as the Wafi-Golpu mine starts, rapidly replacing SA as Harmony’s key source of gold from 2029.

Steenkamp played down the looming gap, pointing out a number of projects in feasibility studies. These include a three-year, low-capital expansion of Hidden Valley to take its life to 10 years, the extraction of high-grade pillars at Moab Khotsong and its sister mine Great Noligwa, and the Zaaiplaats extension project at Moab.

Graphic: KAREN MOOLMAN
Graphic: KAREN MOOLMAN

“I’ve been with Harmony for many years and we’ve always had a five-, six-, seven-year horizon in front of us and we’re still here. We’ve always managed organic growth or mergers and acquisitions to extend our lives of mines. We’ve done it with Moab Khotsong and the recapitalisation of Hidden Valley,” Steenkamp said.

“It’s not something that worries me … that we won’t find the opportunities to extend the lives of our mines,” he said.

IT’S NOT SOMETHING THAT WORRIES ME … THAT WE WON’T FIND THE OPPORTUNITIES TO EXTEND THE LIVES OF OUR MINES.

The Wafi-Golpu project has become increasingly important for Harmony, and Steenkamp said he expected an investment decision by the Harmony board and that of its equal partner, Newcrest Mining, by June 2019 as soon as they received mining permits from the Papua New Guinea government.

The updated feasibility study put a $2.825bn price tag on developing a mine, processing plant, deep-sea tailings and export facilities for copper. Harmony would have to pay for half of this — R20.4bn at current exchange rates, nearly double its market capitalisation — money it simply does not have.

Harmony was starting work on funding options to pay for its portion of the Wafi-Golpu capital to give the market an indication of what its plans were, Steenkamp said.

The Papua New Guinea government has the option to buy a 30% stake in the mine, which would reduce the cash call on Harmony. There has long been speculation that Harmony’s empowerment partner, African Rainbow Minerals, could buy a stake in Harmony’s share of Wafi-Golpu, which would ease the funding burden.

Debt will be reduced in the next two years, CFO Frank Abbott said.

Harmony has run up R4.9bn net debt in the year to end-June from R887m a year earlier.

seccombea@bdfm.co.za

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