Hidden Valley mine not pulling weight
Harmony Gold says it is on track to meet its full-year targets even as the controversial Papua New Guinea operation aggravates the production decline
Harmony Gold’s nine-month output fell compared with the previous year, with setbacks during the March quarter at some of its older South African assets and its Hidden Valley mine in Papua New Guinea.
But it said it was on track to meet its full-year production target of 1.05-million ounces.
Harmony said its production for the first nine months of the 2017 financial year to June was 812,000oz at a cash operating cost of R439,669/kg. A year ago, it reported cash operating costs of about R455,000/kg in its March quarter. In the same nine-month period a year earlier, Harmony generated 828,686oz of gold from mines in SA and Papua New Guinea. It achieved 260,227oz in 2016’s March quarter, a traditionally slow production time for South African miners.
The standout disappointment in the Harmony stable was the Hidden Valley gold and silver mine. In 2016, Harmony took full ownership of the mine, raising eyebrows among analysts, who said it did not have a track record of sustained profit.
In the March quarter, gold output at the mine drifted down to 26,235oz from 30,350oz in the December quarter. The all-in sustaining cost grew to $1,254/oz from $1,139/oz against a received gold price of $1,221.
Hidden Valley posted a negative 71% operating free cash flow margin, the largest of any of Harmony’s mines. Harmony’s older mines — Unisel, Joel and Target 1 — posted negative cash flow margins, with Unisel the highest at negative 25%.
Harmony is investing $70m in the current financial year at Hidden Valley and will invest a further $110m in the 2018 financial year. Johannes van Heerden, who heads Harmony's operations in Papua New Guinea said looking at just the bottom line numbers did not give a true reflection of the project's performance.
"We are ahead of our reinvestment plan and the plan is better than we had proposed," he said, adding the production profile at the mine in recent quarters was entirely in line with Harmony's expectations as it started accessing better grades at the opencast mine.
"This is a capital project and it's actually doing well," he said.
In a February presentation of its interims, Harmony management went all out to convince investors and analysts it had made a wise decision at Hidden Valley and talked up its potential. Harmony has to invest $180m to get the mine back into commercial production of 180,000oz of gold and 3-million ounces of silver from June 2018.
Harmony CEO Peter Steenkamp said at the time that Harmony needed to get to a critical mass of 1.5-million ounces of gold output a year from about 1-million ounces now.
In SA, the Masimong and Tshepong mines reported the highest March quarter operating free cash flow margins of 19% and 15%, respectively.
Harmony said that in 2017, its March quarter output was 7% lower than a year earlier and that its all-in sustaining costs were R529,409/kg.