Ferdi Dippenaar, Harmony
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Harmony cash burn to continue
David McKay
Posted: Wed, 28 Sep 2005

[miningmx.com] -- HARMONY Gold, the South African gold producer, would continue to burn cash after capital expenditure until next year when it expected to be cash flow positive, said commercial director Ferdi Dippenaar.

“We will be burning cash in this [September] quarter and in the next [December] quarter, but we will be cash flow positive in the March quarter,” he said. Dippenaar was speaking at the Denver Gold Forum.

Earlier this year, Harmony had forecast this year it would be cash flow positive by September, a target predicated on meeting total cash costs of R75,000/kg. Cash costs were now estimated to be R79,000/kg for the remainder of the year, Dippenaar said. “It’s a conservative estimate because if we fail the market is going to kill us.”

In an interview with miningmx, Dippenaar said that “theoretically” the company would not be required to sell the rest of its R2bn worth of shares in Gold Fields. Capital expenditure for 2006 is estimated to be R1.56bn: “It’s going to be a capital-hungry year,” he said.
It's going to be a capital-hungry year
Total project capital expenditure was estimated to be R1.1bn of which about a third would be spent on starting development of the group’s Hidden Valley mine in Papua New Guinea. Against this, the company has about R1.8bn on its balance sheet having removed most of its short-term debt and a convertible loan. Interest from these debts cost the company about R400m last year.

“Without that interest we’ll be in a much better position to take advantage of the improved rand gold price,” Dippenaar said.

Commenting on the failure to meet the targeted cash positive date, Dippenaar said the restructuring had taken much longer than expected. There was also a revenue loss on a four day strike. Closure of a hedge book in December, which had cost R60m/quarter, would also take pressure off the company.
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About R900m of project capital expenditure was on the group’s South African mines, but there was fresh evidence Harmony was seeking offshore ounces after opening an office in Peru. “It’s early but focused, active exploration,” he said.

“The South African gold mining environment is declining regardless of what the gold price is. And we don’t expect that to be reversed,” Dippenaar said.

During the crash of the rand from 2001 to 2002, a period that delivered bumper profits for the South African gold sector, the industry grew only 0.1%.