Harmony to zap R2.7bn debt pile in two years

[miningmx.com] – HARMONY Gold will clear the way for its multi-billion rand Papua New Guinea project Golpu by removing R2.7bn in net debt in two years, Harmony CEO, Graham Briggs, said today.

“The intention is to repay debt over two years so that when we have to finance Golpu, we are sitting with balance sheet without debt,” he said. “We should repay debt if we have the additional cash and there’s no reason to use it on something else”.

Briggs was commenting following the announcement of company’s September quarter results, the first of its 2016 financial year, in which it reported improved production numbers, but suffered the effects of a R426m exchange loss on $250m of debt.

The outcome was a R523m headline loss for the September quarter from a R191m profit in the previous period. However, the company returned free cash flow of R122m from an outflow of R171m in the previous quarter.

The company has total borrowings of R4.2bn consisting of the dollar debt and R700m it drew down from a R1.5bn Nedbank rand-denominated facility. Against this, it was cash of some R1.48bn making for net debt of about R2.7bn.

Briggs said the first quarter results served as rebuttle to the company’s critics who have questioned the sustainability of the company. He was referring to the strong production performance which he said was the fruit of a year of restructuring.

The company removed 500 people from its Doornkop mine and restructured its Kusasalethu operation in the last 12 months. In August last year it discontinued the Phakisa decline project, impairing the asset for R1.4bn, as well as shutting Target 3.

“Harmony is proving all of its critics wrong,” said Briggs. “We continue to improve our grade performance, our underground operations are generating free cash flow, our costs are well managed and we are on track to achieve our annual production guidance,” said Briggs.

Harmony said earlier this year that it planned to produce 1.1 million ounces in the 2016 financial year at a total cost of R435,000/kg ($1,080/oz).

Gold production for the quarter came in at 281,000 ounces, a 10% improvement quarter-on-quarter, achieved despite the loss of 33 production days at the group’s Hidden Valley operation owing to a safety investigation into a fatality.

“Overall, a very strong set of results that bucks a recent trend of production misses and cost overruns,” said Briggs. “The guys are doing well on the operations; the mood is good,” said Briggs in a webcast.

“Overall, a very strong set of results that bucks a recent trend of production misses and cost overruns,” said Goldman Sachs in a note to clients.


Harmony expected to spend $150m in capital expenditure on Golpu in the current and 2017 financial year, but said the outlay would not necessarily stop it from paying dividends to shareholders.

“Our first priority is to pay back on debt,” said Frank Abbott, CFO of Harmony. “If we could pay back in two years, then we would be in good position to finance Golpu.

“As a board, at end of the current six months [interim stage] we would sit down and look at what size dividend would be affordable. If gold price goes up that would certainly be considered,” he said.

Briggs added that most of Harmony’s capital intensive projects had been paid for with only maintenance capital necessary.

“A lot of our capex in the growth sense come to an end,” said Briggs. “The Bambanani decline is virtually done; the Joel decline has got about two years to go. South African capex will be static for some time going forward.

“We haven’t been shy on capex, but most of it is really maintenance capital including development. We certainly haven’t been starving our operations of capital,” he said.