[miningmx.com] – Harmony’s operations in Papua New Guinea (PNG) represented the group’s future and their development remained management’s top priority despite improved operating conditions in South Africa.
That’s according to new CEO Peter Steenkamp who was speaking in Sandton at a presentation of Harmony’s results for the December quarter. These showed improvements across the board in the operating fundamentals as well as a sharp jump in profitability thanks to the soaring rand gold price.
Steenkamp pointed out this was Harmony’s third consecutive quarter of increasing production and stressed the continued increase in underground recovered grade which was 7% up in the December quarter while all-in sustaining costs were 7% lower at R434,834/kg ( September quarter R466,061/kg).
The Harmony share price has run hard ahead of these results rising 129.2% since December 10 compared with just a 10% rise in the rand gold price over this period.
Steenkamp commented, “that shows Harmony’s leverage to the gold price and, if you look at the graphs (for costs versus rand gold price) you can see there’s quite a margin opening up.’
Despite the return of good times for the SA gold sector Steenkamp maintained that PNG was still where Harmony’s future lay.
He commented, “PNG is where we are looking to find our replacement ounces (of gold). We are focussed there and we have no other options in South Africa. Should other options come up we would have to assess them at that time but there’s nothing on the table in South Africa at this point in time.’
Steenkamp, like his predecessor Graham Briggs whom he replaced five weeks ago when Briggs retired, defended Harmony’s future ability to pay for its share of the development cost of the huge Golpu copper/gold mine in PNG which is a 50/50 JV with Australian gold major Newcrest.
General attitude of gold analysts is that Harmony will not be able to afford its share of this development which is why there has, so far, been no value for the PNG assets reflected in the group’s share price.
The point was raised again at the presentation by Citigroup analyst Johann Steyn who told Steenkamp, “there’s just no way the cash generation (to fund Golpu) will be there’ and queried whether Harmony should not sell off its stake.
Harmony financial director Frank Abbott replied that Harmony could easily fund its share of the early development stages at Golpu over the next two to three years. Steenkamp rejected the suggestion that Harmony should sell out and commented there was still considerable time before major funding on development of the mine had to be incurred.
The feasibility study for Golpu stage one and the pre-feasibility for stage two were completed in December as planned. These studies were now subject to approval by the Harmony and Newcrest boards and were scheduled to be released in the middle of February.
Steenkamp said all funding options for Golpu would be considered when the time came and added, “I am confident Harmony will be able to fund it.’
Abbott said the first priority for Harmony’s increased cash flows was to pay down net debt – which stood at R2.5bn at end-December – although he added the board would consider the possibility of paying a dividend for the financial year to end-June.
