Steenkamp styles Moab deal “a new ball game” for Harmony

Moab Khotsong

FIRST on Harmony’s do-list following the handover of AngloGold’s Moab Khotsong mine in the Vaal River Region will be an analysis on how it can cut costs at the seven-year old operation.

The two firms announced today that Harmony would acquire the mine for $300m – a move that will halve Anglo’s local production and free up cash for its international operations.

The transaction sees Harmony buying a package of assets that include the Moab Khotsong mine, which has 1.7 million ounce minerals reserve at 8.8 grams per tonne (g/t) of gold and the Great Noligwa pillar extraction project, which has the potential to extend the life of mine.

Combined, the operations produce around 280,000 oz of gold at an all-in sustaining cost (AISC) of $884/oz. But Harmony CEO, Peter Steenkamp, said the group can produce gold from the operation at a lower cost.

“We’ll be disappointed if we can’t take a significant portion of the current costs out. The [approach] to the mine by Harmony will be very different to that of Anglo, so I’m confident that will lower costs,” said Steenkamp.

Also included in the deal is the Zaaiplats extension project and the low-cost Mispah storage complex. The Zaaiplaats project, which boasts a 6.8 million oz resource at 17.2 g/t of gold, is currently in prefeasibility stage, and the company aims to move into the feasibility study phase “as soon as we take over”.

AngloGold deferred the Zaaiplaats project, a life extension of its Moab Khotsong mine, following a decline in the gold price in 2013. It said today it could not justify allocating capital to the project when set against its other priorities elsewhere in its mineral portfolio.

The Mispah tailings contains a resource base of over 70 million tonnes of ore with an average gold grade of 0.30g/t and the company says there is “considerable scope” to convert the acquired facilities to a tailings retreatment operation, in line with its current operations at Phoenix and Central Plant.

Said Steenkamp: “This is a very exciting transformational transaction that puts us in a different ball game as far as ounces and grade are concerned.”


Following the acquisition, Moab will become Harmony’s most profitable mine, expanding the group’s underground resource base by 38% and increasing its yearly South Africa production by 25%. This plays neatly into Steenkamp’s plan to boost Harmony’s overall production to 1.5 million oz a year by 2019.

The transaction is also expected to lift operational EBITDA (pretax earnings) by 42% and result in a 62% increase in South African operational free cash flow.

Steenkamp told investors this morning that the company had not seriously considered the acquisition of AngloGold’s nearby Kopanang mine, which AngloGold was also offloading as part of its streamlining strategy, as it was unlikely that the group would have been able to bring the operation’s AISC’s below $950/oz.

Anglo has instead sold the asset to Heaven-Sent SA Sunshine Investment for R100m.

Asked how the acquisition of Moab Khotsong would, if at all, affect Harmony’s plans to develop its longstanding Golpu project, in Papua New Guinea, Steenkamp said a firm decision could only be made once the project had progressed further.

“When we have the mineral rights for Golpu, we understand the feasibility study and we know the extent of government involvement, we will make a decision. Right now, the project’s holding costs are low, so we don’t need to make a decision ahead of time,” he said.


  1. Dear Fellow Readers,

    Let us well and truly dissect this transaction to its bare-bones.

    A) Legacy Liabilities: These are related to KOSH basin and are indefinite in nature. AGA walks away from these albatross.
    B) NUFCOR : This U3O8 calcining facility is really idle at the moment until the next U3O8 boom comes around. Few customers for its upkeep, although it will be best that its sold to a perennial U3O8 bull like Froneman for a quick profit. But chances are he turned-it down when it was marketed to him!

    Now the deal :

    Moab Khutsong was a lost course for AGA from the get-go given its erratic performance due to orebody geological reasons. However, we need to concern ourselves about its future NOT past. This operation has never delivered on a consistent ( >3 yrs) production >250koz/yr whilst mining its sweetest spot that is Middle-mine and upper-mine (old Great Noligwa orebody). The sweetest spots are now depleted.It has $500M). Thus cut your losses and mine GN pillar’s 1,6Moz and hope to recoup the $300M , which is possible if the gold price plays ball at > R600R/kg. I just don’t believe the hocus pocus of cutting R/t unit costs for this mine. Fellow Readers , AGA mines are leaner than most people think it’s the geological conditions that are adding R/t unit costs. Look at the TEC/g vs peers or allocate costs ( costs between Gross Profit & EBIT), even when adjusting for superior grade, and you’ll arrive at the same conclusions.HMY allocated Over heads are at ±$50/oz Whilst AGA = $45/oz, so the cutting of O/H story is a still-born argument!

    2. Put-up the dumb act & pay for stupidity: This is as per the ppt by HMY CEO. This will be expensively slow-walking yourself into a quagmire. Attempt to fast-track Zaaiplaats & other “easy wins”. I see he refers to his failed adventures at Pamodzi Gold as success by mining shaft 2 pillar. I rolled on the floor with laughter because this shaft pillar has >6000 personnel costs + legacy costs aforementioned etc , so IT WONT BE THAT EASY OK!

    Furthermore, the chief Reason AGA is selling NOW, is to avoid a “gold-production gap” that has always been there between current Level1 plans & Zaaiplaats project. A nightmare indeed in that it’s a >5 years gap. Current Zaaiplaats mining is just on the periphery of the orebody given that there has not been production related infrastructure development below 103L at Moab. So NO hope of ramp-up tonnage as envisaged by HMY CEO. Soon, I will schedule a drink with Carter & Dennison to find-out how they hoodwinked HMY chaps on this!


  2. You are just the man, are you not? You don’t want the sun to shine on anybody else but your views.
    Sad, Very Sad…..

    • Dear Spectator,

      I welcome all views…..

      Do not just disparage me, and RATHER offer counter evidence!

      Please, lets consider the facts and analyse them honestly! This is a Lousy deal for HMY….BUT a good deal for AGA!

      I have never worked or had dealings with people at HMY. I am a business analyst , and I know a value accretive deal when i see/read about it. This current HMY management is poorly equipped to take HMY forward. They commit silly mining business missteps unnecessarily and are too hasty & immature (Ditto Hidden Valley Reinvestment). They are like teenage boys in a rugby field trying to impress the new girlfriend. Its unbelievable given their average age of ±46yrs with old-age BoD of ±60yrs , with little ( only 1/14 Directors )new RSA mining management experience. IT IS NOT GOING TO END WELL!

  3. Gold speculator. Contrary to other views I relly enjoy your comments.
    You clearly have exceptional knowledge of the industry.
    Just a question: If you had to back a company tomorrow. Which company do you think is most likely to succeed.

    • Dear Jack,

      AGA will succeed. They seem to identify their challenges and resolve them, albeit slowly. HMY seems to want to replicate a model which made them fashionable only to plunge them into being a call-option on the R/kg gold price. It is is NOT a sustainable model for the long term. They will never sustainably be a >$1B gold mining company.

      Zaaiplaats (which is essentially the deal) : AGA spends SIB CapEx of some ±$40M/yr on Moab. So a project of say 15 yrs.

      For example, lets dig further into this deal with NOW “rose coloured glasses”. Lets assume that HMY discover what AGA didn’t NOT like about Zaaiplaats , and also decide to not touch it, which they will. Remember that Zaaiplaats is 3,5 -4 Km deep, deeper than any of their current ops . That leaves them with a GN pillar @ 0,7Moz and some above remnant pillars @ 2Moz ( recovered ). All this paltry stuff for $300M …incl legacy liabilities. I WILL REPEAT “THIS IS A VASTLY SUPERIOR DEAL FOR AGA!”

      To truly disassociate themselves from the aftermath , i see that AGA did not even insist on a deferred payments or NSR payment. Thats how confident of the superiority of this deal for them.

      • Should read:

        Zaaiplaats (which is essentially the deal) : AGA spends SIB CapEx of some ±$40M/yr on Moab. So a project of say 15 yrs LoM and ±150-200koz/yr @ AISC = ±$850/oz should be welcomed, UNLESS its CapEx =>$500M in RSA. But AGA , after technical studies (namely Zaaiplaats Phase 1&2) , which truly assessed this deep ( >3,5Km) orebody and it was decided its best left to ” silly others”. This created a production gap of some >5yrs in AGA’s Level1 plans for this mine, hence the rush for the exit, at a stupendous price. So I await the HMY decision on Zaaiplaats post the “expedited” Feasibility Study in CY18.

        Tshepong/Phakisa Mine ( ±2Km deep) , competent/not-faulted reef, which hoists ± 1Mt/yr , akin to Moab, has a complement of ±5000 persons. Moab, with deeper faulted reef , has complement of 6000. When Moab had 4500 complement, it hoisted 0,7Mt/yr in CY15. Hoisting capacity is 120 tpm , so it’s running at 80% utilisation currently. The Moab costs are due to geological/reef conditions NOT staffing etc. Unit costs of Moab = ±R3500/t whilst Bambanani (HMY owned), with similar high grades, also runs at R3800/t , although it’s a shaft pillar mining operation. So there is no cost discipline at HMY. More so when there is NO district/location synergies to be had with Moab. So the much touted costs savings are unlikely to be material, if any. Fellow Readers, this deal is NOT a good for HMY!

        Here is a classic note from AGA’s 2016 resource statement :

        “Moab Khotsong is not sensitive to increases in gold price due to the structurally constrained nature of the orebody BUT is sensitive to a drop in R/kg drop in gold price”

        The resources were estimated at R530K/kg whilst Harmony does its R+R at R525K/kg, with current price at ±R550K/kg. So there is only downside NO upside!

        I am willing to await the deal to pan-out and wish HMY success. I cannot see causal reasons for such a success other than gold price for this deal to work for HMY.

  4. @ Goldspeculator
    Please use spell and grammar check before posting.
    Your British aren’t very delcisiously

    • Dear Freegold,

      Blame the editor of…He cuts out sections of my comments at times resulting in the comment NOT being sensible to readers. I have decided to stop complaining and appreciate the opportunity provided to air my views on some of the mining issues that warrants such.


      • Hi Goldspeculator – Well, I’ll try to do better on retaining the sense when I make cuts. I’d prefer not to make edits at all, but some of the comments can get me into legal trouble: re: defamation. I also like to keep the comments section ‘clean’. Please fight for your views, but fight fair.


      • Agreed David, At time it will also be fair to solicit the opinions of the decision makers as well. I attempt to make fair comments without getting into a legal mess. I definitely refrain from making disparaging remarks/comments. I keep it clean.

        Thanks for the platform.


  5. This is an excellent review which puts the whole issue in perspective. And, that is why you are being attacked. What you say makes sense – don’t acquire if there is no accretive value other than PR and to sell what the future could hold.
    Steenkamp got himself into a mess at Pamodzi by focussing on rubbish forecastes just to raise cash to fill the holes and not on taking on the technical challenge of the orebody.
    Unless there are synergies and cost savings in an orebody package then leave it alone. It will end up diluting earnings
    The only ray of light is that the rand gold price is long term term up but then this needs to be seen in the context of Anglogold’s statement about sensitivities.
    Better invest in Sibanye, you face an uplift of min 2x current pricing, controlling position in Palladium (which is substantially easier to manipulate – hence its continued outperformace within the PGM price spectrum). Profitable SA gold mines which are revenue feeders for growth in PGM.
    I look forward to more of your acumen – Goldspeculator.

    • Dear Observe,

      I am glad there are people like you who assess issues on merits. The lessons will be painful and some of us can see the train wreck coming. $300M is a lot of money for HMY which is CF -ve for FY17 ( OCF($280M) – CapEx ($289M) = -$9M). Furthermore, this -ve CF has persisted as we will discover in the new year. I just CANNOT believe the incompetence of Harmony’ BoD. I have it on authority that Zaaiplaats project actually requires CapEx >$1Bn going forward hence the rush for the exit by AGA, after having assessed its RSA assets afresh for 6x months. Mining the pillar at GN will totally sink the Zaaiplaats project forever, as all its services are provided by GN Mine through Moab. Moab DOES not have a reef shaft pillar as it was sited on GN mined-out area due to faulted ground in its lease area. So mining GN shaft pillar, for its 0,7Moz, poses some serious headaches, and certainly not worth $300M.

      Given the twin-shaft nature of GN, over a faulted area, its extremely complex to mine the shaft pillar. The rock engineering studies required a shaft pillar ground radius of some 200m, to prevent shaft barrel movements etc in 1970s. Vaal Reefs is a highly seismic area, as everybody from there will attest. This is NOT Bambanani mine , or Vaal reefs no.2 shaft , which was located in an unfaulted area north of the Vaal River. This GN is on the South ( Free State side) of the Vaal River. Different mining dynamics altogether, and these are key to any shaft-pillar mining.

      As i have said before, I wish HMY well with Moab. But i don’t see any levers for costs reductions and superior margins & cash flows under HMY management. I will posit that there are actually NONE, this a deal of desperation to be seen doing something about the fast decaying portfolio of mining assets.

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