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Cash-flush Harmony has tough quarter Posted: Thu, 23 Apr 2009 [miningmx.com] -- HARMONY GOLD, which is now debt free and has a substantial cash pile, had a tough quarter from its underground operations, with gold output down and unit costs up slightly. Growth is likely to come from internal prospects rather than acquisitions after a look around the market failed to yield much in the way of targets, Harmony CEO Graham Briggs said. Briggs described the quarter as challenging for its underground operations, with slight improvements at its surface. "We had a difficult quarter in terms of production, but financially it was satisfactory. For our balance sheet, it was an excellent quarter," Briggs told Miningmx. He was unable to say anything more specific due to Harmony being in a closed period ahead of releasing its March quarter results on May 8. However, in a presentation to analysts, Briggs said there had been a slow start to operations after the Christmas break, with the Evander mine having two underperforming shafts, Bambanani recording reduced output and Joel's production falling due to shaft repair work. Virginia, the group's largest source of gold, also experienced decreased output, but no reason was given. Harmony is unlikely to pay a dividend to its shareholders in the current financial year despite its strong balance sheet, he said. Asked about the prospects for a dividend payment, he said: "It's certainly optimistic, but not in this financial year." The striking news from Harmony is that it is debt free. This comes after it received the final payment from Pamodzi Resources Fund for a 60% stake in the Rand Uranium venture it shares with Harmony as the minority partner. Harmony has also raised more than R900m via a share issue. "The combined effect of the above is that Harmony is net debt free," Briggs said. The total R2.7bn received from Pamodzi Resources Fund and the funds from the equity issue will repay Harmony's convertible bond due in May and eradicate short-term debt. Harmony will have a cash balance of R1.5bn afterwards. Not much out there for a fussy buyer "The operations are turning around. They are in a comfortable situation, but they're still not where we want them to be yet. We'll be able to fund our own capital. We won't have to borrow money for that," he said. This clears the decks for Harmony to advance potential projects existing within the group's asset portfolio - including the St Helena tailings and Evander South projects - as well as look for acquisitions. Harmony has higher grade production coming in from expansion projects at Elandsrand, Doornkop and Phakisa, which will boost production to 2.2 million ounces by 2012 and lower the company's cash costs. "If there are any opportunities of growing new projects of our own or looking at acquisitions, we will be in a position where we can look at them with the knowledge that we can afford them," he said. Harmony has done a number of due diligence studies, but Briggs says the group has been "fairly fussy" about what it wants. It is looking for assets with cash costs lower than those within the Harmony stable, as well as relatively long lives. "The reality is that we just haven't found anything we can seriously look at. We have done desktop and site due diligences, but there's not much that's available. The good projects and good mines are not for sale," he said. Gold companies have been able to raise money towards projects, unlike their peers in other commodities like base metals. This cuts off an avenue for potential predators. "Acquisitions are not looking very optimistic. In organic growth, potential exploration opportunities are there," he said. Harmony has been conducting an environmental impact assessment on the St Helena tailings treatment project in the Free State and is drilling its Evander South project, with four holes completed.
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