Harmony on course to beat 1.05m oz gold output target

Hidden Valley, Papua New Guinea

HARMONY Gold was on course to exceed full-year guidance of 1.05 million ounces in gold production after announcing it had produced 8% more gold than in the previous six month period to end-June, 2016.

This would put gold production from August to December at just over 550,000 oz while grade remained above 5 grams per tonne (g/t). It has guided for an average grade of 5.13g/t this year on its way to 5.29g/t by its 2019 financial year.

The group, which is due to announce its December quarter and 2017 financial year interim results on February 2, said last year it would high grade its Kusasalethu mine and seek additional production through acquisition as it chased down long-term annual production of 1.5 million oz/year – an ambitious target, according to some.

As a result, the market will be seeking an update from CEO, Peter Steenkamp, on progress with acquisitions especially as gold producers in its peer group – Sibanye and Gold Fields – have pressed ahead on their respective growth plans.

Analysts calculated Harmony would require about 450,000 oz a year of brand new production in addition to developments at Hidden Valley, the Papua New Guinea mine over which it is buying 100% control from Newcrest Mining and then developing for $180m.

Given that Harmony has set down an investment criteria of one to two million ounce-sized deposits, with a ten-year life of mine, roughly three acquisitions would be required.

Steenkamp will also receive more inquiries regarding progress with the combination of the Tshepong and Phakisa mines which he said last year was being studied with a view to extracting better operational synergies.

Harmony’s capital allocation plans will be quizzed again. The company paid a dividend at the end of its 2016 financial year whilst reducing net debt, but further direction will be sought on priorities – especially the debt situation – as well as organic growth and greenfield projects.

Said Steenkamp in October: “The priority is to fix up the balance sheet in terms of our debt. We need to get flexibility and we hope to do this by year-end.

“We then want to become a dividend payer, but at the same time we can’t shrink ourselves into a small company, so we need a balance by acquiring or co-developing. We need to find the right assets to structure our portfolio,” said Steenkamp.

Labour relations will also figure highly.

On January 15, Harmony said it would launch an independent investigation into an underground sit-in by some 1,700 miners at Kusasalethu.

The miners were questioning why a bonus wasn’t paid and called for the suspension of a manager. Harmony said it would see why these matters had not been communicated properly.