Harmony streamlines ops, targets growth

Allan Seccombe | Tue, 26 Jan 2010 09:59
[miningmx.com] -- HARMONY Gold, which has shut down four marginal shafts in three months, said its December gold output has fallen but this was offset by a higher received gold price as it gears up for production at newly acquired assets and advances an exploration project in Papua New Guinea.

In a presentation released before the publication on 8 February of results for the three months to end-December, Harmony said it produced fewer ounces from both its underground and surface operations in the period. Cash operating costs came down with the end of winter power tariffs, but the rand per kilogram cost was slightly higher because of reduced production.

There was an 11% increase in the rand gold price received, which led to “significantly higher profit,” the company said. Harmony did not release actual numbers.

Harmony shut the Brand 3 shaft in November, followed by the Evander 7, 2 and 5 shafts in the following two months, citing depleted ore bodies and a strategy of cutting high-cost ounces out of its production profile. Workers from these mines have been shifted to Harmony’s growth projects with others facing retrenchment.

The closed shafts account for around 85,000 oz of gold, a reduction that Harmony has factored into its medium-term production target. Some 2,100 jobs are affected by the Evander decision, but slightly more than half will possibly go to growth projects at Doornkop and Phakisa, said CEO Graham Briggs.

Another shaft Harmony is taking a close look at and could potentially close in the next six months is Harmony 2 shaft at Virginia, said Briggs.

"If we thought the gold price was going up we would make different decisions. These are very difficult decisions to make but they are ones we are making based on our view of the gold price and costs," he said.

A proposal by power utility to hike rates by 35% a year over the next three years -- something industry in South Africa is vehemently opposing -- would increase Harmony's electricity payments to R3bn a year from R900m now, he said. There would be knock-on effects for other inputs like steel, cement, labour and chemicals.

Looking ahead, Harmony highlighted two growth areas. These are the assets it acquired from the liquidators of Pamodzi Gold’s President Steyn mines and the exploration targets at Wafi-Golpu in Papua New Guinea where it intends reaching commercial production at its Hidden Valley mine this quarter.

Harmony has set a production target of 2.2 million oz/year by 2012, with a number of internal growth projects kicking into production between now and then. It produced 1.46 million oz in the 2009 financial year.

Harmony has paid R125m for the rock dumps and plant at President Steyn in a deal that’s gone unconditional. It is paying a further R280m for the mines once that transaction becomes unconditional, possibly this month, bringing the total purchase price to R405m.

Harmony says it will extract 800 kg of gold from breaking down and recycling the President Steyn gold plant over 18 months starting from February. That 800kg is worth R215m at the current rand gold price. Briggs estimated it should cost around R50,000/kg to extract the gold.

It will treat 35,000 tonnes/month of material from the rock dumps at its nearby Target plant, extracting 18 kg/month of gold at a cost of R140,000/kg.

Work at the Steyn 1 and 2 and Loraine 3 shafts will begin in February. In the first year, Harmony will inject capital of R160m to produce 100,000 oz of gold at a cost of R218,000/kg. The second year entails expenditure of a further R130m to produce 150,000 kg of gold for R160,000/kg.

The capex on the mines if R290m, bringing the cost of the acquisition to at least R695m. The gold reserves are estimated at 2.26 million oz, with a further 14.8 million oz of resources. Harmony will revise these figures by June this year.

At Golpu, Harmony and its partner, Australia’s Newcrest, are exploring porphyry containing gold and copper. At the moment, the resource stands at 2.9 million oz of gold and 1.76 million tonnes of copper at grades of 0.6 grams/tonne of gold and 1.1% copper.

The plan is to use block-cave mining to extract the ore body and studies are underway into improving the financials of the possible project.