Harmony waiting on PNG bonanza

[miningmx.com] — HARMONY Gold CEO Graham Briggs on Monday talked up the mining firm’s Wafi-Golpu partnership in Papua New Guinea’s (PNG’s) billing as the “gold find of the century’, but questions remain over the group’s immediate growth prospects as its marginal or older mines put a strain on gains elsewhere.

Posting results for the three months to end-September (the first quarter of its 2011 financial year), Harmony reported a 2.9% quarterly output decline to 336,650 ounces, leaving it with some catch-up to do if the group is to achieve its annual output target of 1.7 million oz.

Briggs said the original target included an output estimate for Harmony’s Merriespruit 1 shaft, closed last week after a productivity-linked deal with unions didn’t bear fruit, and that a revised figure of between 1.63 million oz and 1.65 million oz should be attainable.

This figure implies total output of at least 1.29 million oz for the remaining three quarters at an average of over 430,000 oz per quarter.

Briggs, however, said his optimism for reaching target was based on continued output increases at the group’s four growth projects Doornkop, Kusasalethu and Phakisa as well as Hidden Valley – Harmony’s operational open pit project in PNG.

These four projects contributed a 6,200 oz rise in quarterly gold output. Hidden Valley, which completed its first full quarter at commercial levels of production, especially started to live up to expectation, posting a 14.7% improvement in gold production to 21,500 oz.

“Harmony’s growth in the short to medium term will come from (these) four projects,’ the group said. “Most of the capital on these projects has been spent and production benefits have already started to be seen, driving the company down the cost curve.’

However, the group’s older or more marginal assets, including Bambani (down 22%), Evander (down 4.3%), Target 1 (down 3.8%), Virginia (down 4.2%) as well as surface operations at Kalgold (down 10.2%) all contributed to the overall production drop.

An analyst, who did not want to be named, said the mixed performance from Harmony’s different mines underscored the scope of possible restructuring that has to take place at the group.

“The growth assets are showing a positive trend, only to be completely discounted somewhere else,’ he said. “I think it will be a stretch if Harmony is to make even 1.5 million oz.’

Not unlike its peers, Harmony’s cash operating profit also suffered a blow from having to pay Eskom’s winter tariffs – a cost that will increase exponentially as the power utility’s granted tariff hikes come into effect during the next two years.

Harmony’s financial director Hannes Meyer said electricity expenses contributed about 8% to the group’s total costs during 2008. The figure rose to 13% in 2010, and was expected to be 16% during the current financial year.

During the period under review, total cash operating costs increased by R238m (11.2%), which consequently increased unit costs by 13.5% to R228,658 per kg. The average gold price was R287 401/kg.

WAFI-GOLPU TO STRIKE GOLD

Harmony announced in October it has obtained approval to start developing its Wafi-Golpu project and will spend $150m on a prefeasibility study.

Briggs said on Monday that based on drilling results, the project could produce between 400,000 oz to 700,000 oz of gold, and 100,000 tonnes to 200,000t of copper per year.

The group is developing the project in partnership with Australia’s Newcrest Mining.

“Exploration drilling in Wafi-Golpu showed tremendous results and emphasises the potential for the Morobe Joint Venture to establish another high quality, world class operation in Papua New Guinea,’ said Briggs.

“This (production estimates) would be sustainable over a 20-year mine life without considering the Golpu resource extensions currently being identified by drilling.’

Meyer said Wafi-Golpu would cost $3bn to develop (of which Harmony will have to foot $1.5bn) based on current estimates, with production to commence in 2016.