Suitable targets: Harmony Gold CEO Peter Steenkamp is looking for mines. Picture: FREDDY MAVUNDA
Suitable targets: Harmony Gold CEO Peter Steenkamp is looking for mines. Picture: FREDDY MAVUNDA

Harmony Gold and its partner signed an agreement with the Papua New Guinea government to clear the way to secure a mining permit by the middle of 2019 to start the Wafi-Golpu copper and gold mine.

Harmony and its partner, Australia’s Newcrest Mining, released an updated feasibility study in March 2018 showing the cost to bring the mine into commercial production would be about $2.8bn. The mine would produce an average 202,000oz of gold and 130,000 tons of copper a year.

Securing the memorandum of understanding (MOU) between the companies and the Papua New Guinea government gives a solid timeframe for the work that needs to happen to complete the permitting process and result in the issuance of a special mining lease by the end of June 2019.

“This MOU is an important step in progressing the permitting of the Wafi-Golpu project,” said Harmony CEO Peter Steenkamp

“It provides a framework of key terms to be included in the mining development contract and other related agreements with the state, including provision for stability to underpin the significant long-term investment required to develop and operate the project,” he said in a statement.

The government has the option to buy a 30%  interest in the project, reducing the mining companies’ stakes to 35% each and bringing a reduction of the capital they need to invest in the project.

Analysts have long quizzed Harmony’s management at every opportunity about how the company intended funding its $1.4bn, or R20.2bn, share of the project assuming a 50% ownership of Wafi-Golpu. Harmony’s market capitalisation on Tuesday morning was R12.5bn.

Management has said it would unveil its thinking around funding options early in 2019, but that these could include bringing in a partner on its share, offtake agreements on the copper and possibly even a sale of its stake.

Harmony’s 14% empowerment partner, African Rainbow Minerals (ARM), which is hunting for copper opportunities, has been rumoured to be a potential partner in Wafi-Golpu, but it is highly questionable whether ARM would enter a copper/gold venture at such an early stage where there are high levels of risk both in project execution, capital overruns and commissioning uncertainties.

“Our joint understanding of the terms and timeline that we are working towards as set out in the MOU is central to the commencement of the initial work programme,” Steenkamp said.

Harmony and Newcrest are securing approvals for early work, including developing underground access to do sub-surface drilling of the deposit, and to build a bridge over the Markham River to give access to the site.