Harmony Gold bolsters offshore growth ambitions with $230m deal for Aussie copper project

Peter Steenkamp, CEO, Harmony gold

HARMONY Gold bolstered its offshore growth ambitions unveiling today an agreement to buy Australian project Eva Copper for $230m (R4.1bn).

The news comes on the same day the group confirmed its CEO of seven years, Pieter Steenkamp had in the last week undergone heart surgery. Steenkamp, who turns 62 in November, would recuperate from home for the next six weeks. He told Miningmx the operation, which was planned, was akin to “changing the tyres on a car”.

The Eva Copper project, to be acquired from Copper Mountain Mining Corporation, requires pre-production development capital of $597m. Project commissioning was expected to take between two to three years post a review and optimisation study. The relatively short ramp-up period was owing to the shallowness of the orebody, Harmony said.

The project, situated in Queensland, is expected to yield 100 million pounds of copper a year and 14,000 ounces of gold annually over an expected mine life of 15 years. The deal consideration would be funded from cash and Harmony’s revolving credit facility.

Importantly, the project would give the firm’s international strategy a firm push after it had been frustrated by development delays of its Wafi-Golpu gold/copper project in Papua New Guinea (PNG). Potentially an enormous enterprise, Harmony is still waiting on the PNG government to grant the project a special mining lease.

Under Steenkamp, Harmony has increased and raised the quality of its gold ounces in South Africa following the purchase of the Mponeng and Moab Khotsong mines from AngloGold Ashanti in two separate transactions totalling $600m.

However, both operations entrench the company’s position as an SA-locked, deep underground miner with all its attendant safety and technical risks. In lieu of progress on Wafi-Golpu, the Eva transaction gives Steenkamp’s Harmony a much-needed diversification.

As importantly, the project opens up an important new revenue stream, especially as the price prospects for copper are strong based on an expected supply deficit of copper in the medium- to long-term.

Debt burden

Based on a year-end presentation in September, Harmony’s gold production is expected to rise slightly from about 1.49 million oz in its 2022 financial year and rise again marginally to 1.5 million oz the year after before falling off. By 2028, Harmony will have lost a third of current output even after R8.5bn in capital expenditure in the current (2023) financial year – some R1.6bn more than previously guided – and R8.2bn in 2024.

Analysts have previously questioned the ability of Harmony to continue paying dividends given its capital burden prior to today’s deal announcement. It said today the acquisition cost “remains manageable” and below its 1x net debt to Ebitda ratio.

In return Eva has potential to add 10% to 15% in gold and gold equivalent production which Harmony said was in the first half of the global cash cost curve, according to industry research house, Wood Mackenzie.

The transaction also includes some 2,295 km² in regional exploration tenements which potentially provided Harmony with production growth through exploration.

“Acquiring Eva Copper … opens a new copper-gold frontier for Harmony within a highly attractive Australian mining area,” said Steenkamp in an announcement. “Eva Copper lowers our risk profile, providing additional scale and meaningful diversification that positions Harmony for the future,” he said.

In terms of the transaction, Harmony will pay $170m in cash with a future contingent payment of no more than $60m which is a future royalty stream due to the seller. This consists of 10% share of net incremental revenue above $3,80 per pound (up to $30m) and $30m if a new copper resource is discovered and declared.