[miningmx.com] – HARMONY Gold confirmed it would ‘reposition’ its Wafi-Golpu project, a venture it shares with Australian firm, Newcrest Mining, as it would not deliver an adequate return based on its 2012 prefeasibility study.
“A low risk, modular, expandable development approach that is different to what was proposed in the 2012 pre-feasibility study is expected to result in an improved project value,” the company said in its fourth quarter and full-year results announcement.
Harmony Gold said in May it intended to reduce by R1bn Wafi-Golpu’s R5.1bn development bill for the company’s 2014 financial year. The Papua New Guinea project is estimated to contain 38.9 million ounces of gold and gold equivalents. It also said previously it hoped to take some R850m out of corporate costs.
The cutbacks comes amid a hefty decline in the gold price which has put the world’s gold companies on the backfoot. They have responded with enormous capital cuts, impairments and cost-cutting.
So far Harmony Gold has slashed R450m in corporate costs and services, cut about 1,200 jobs, and ripped into its capital expenditure budget for the 2014 financial year which would be R650m lower. Harmony Gold also passed on its final dividend after paying dividends for the last four years.
Commenting on Wafi-Golpu, Graham Briggs, Harmony Gold CEO, said it was proving to be difficult: “We’ve got to rethink it. We’ve got some good ideas, but they are not crystallised. It will be a smaller, lower capital projet with more attractive returns in the short-term,” he said.
He added, however, that Harmony had no thoughts of reducing its 50% stake in the project. “It is one of the best copper-gold orebodies and we have no doubt it’s going to get mined. We would like to keep our 50% stake,” he said.
Asked if Harmony Gold viewed the current margin pressure in South Africa as an opportunity to expand – as other companies sought to release assets – Briggs said the firm would be foolish to pass up opportunities.
“When there are difficulties in any business of the world … there is an advantage or opportunity. If we could do a deal and put our strategic advantages to bear then we should. If there are opportunities in South Africa we will look at them,” he said.
Harmony Gold posted a June quarter headline share earnings loss of 186c against a loss of 47c in the previous quarter despite a 12% increase in production. For the year, headline share earnings fell 92% to a positive 47c against a profit of 565c/share in the previous financial year. Production of 1.14 million ounces was 2% down year-on-year notwithstanding output losses at Kusasalethu.
Briggs said the operating environment was difficult but the gold price in rand terms, currently at R425,000 per kilogram, was “not too shabby”.
However, the margin pressure comes against a background of wage negotiations with unions asking for 60% to 100% increases for entry-level employees, and a host of additional benefit increases. A dispute has been called between unions and Harmony Gold which is being represented by the Chamber of Mines.
“Anything above CPI (consumer price inflation) is going to be incredibly difficult to promote,” said Briggs of union wage demands. “At Harmony in the past, we have had profit share and prepared to share some of the upside,” he said.
The chamber yesterday lifted is basic wage and living out allowance offer to 5.5% from 4% previously and recommended a ‘gain share’ or profit share mechanism in which gold mining companies could separately negotiate with unions.
“People will have to find middle ground that is going to suit all parties. A huge increase in double digits will damage companies to extent that some of the operations will not survive that,” said Briggs.
