Runs on the board for Harmony in solid production start to 2018

Peter Steenkamp, CEO, Harmony Gold. Source: Harmony Gold

HARMONY Gold kicked off its 2018 financial year in promising fashion reporting higher gold production at most of its underground mines in the first quarter although on a year-on-year basis, the company was not assisted by the rand gold price which was lower.

Total gold output was about 15,000 ounces higher quarter-on-quarter at some 290,644 oz which includes Hidden Valley, Harmony Gold’s Papua New Guinea (PNG) mine, where production was heavily down. In July, Harmony embarked on an investment plan to expand the operation to 180,000 oz a year, equal to 1.2 million oz over its seven-year life of mine.

Of the South African underground mines, only Bambanani and Kusasalethu produced less gold quarter-on-quarter. In terms of cash margin, however, there were leakages at Joel and Kusasalethu, and a positive turnaround in cash margin at Target 1. All in all, the cash margin was 2% after being break-even in the preceding June quarter.

The biggest hemorrhage was at Hidden Valley.

“This has been planned and communicated since we acquired and announced the investment plan in Hidden Valley,” said Lauren Fourie, a spokeswoman for Harmony Gold. “The four month plant stoppage was due to the ore gap caused by delaying the stage 5 and 6 investment – a decision made when we still held Hidden Valley 50:50 with Newcrest.”

“The ore gap allowed us to do upgrade and maintenance work on the plant and crusher. But this was always planned for,” she said. “Hidden Valley will start processing again at the end of November. The investment plan is on budget and on schedule.” Harmony Gold bought Newcrest’s stake in the mine for $1 in 2016 with a view to developing it for $180m.

The acquisition of Newcrest’s 50% stake in Hidden Valley was the first substantive decision of Harmony CEO, Peter Steenkamp since his appointment in November 2015, along with a plan to high grade Kusasalethu and reduce its life of mine from 25 years to six. Since then, however, it has become clear that Harmony is a company in significant transition.

On October 19, the company said it would buy AngloGold Ashanti’s Moab Khotsong mine (which included Great Noligwa which has been incorporated earlier by AngloGold) for $300m. The transaction will add more than 250,000 ounces a year in additional gold production – an increase of about 25% on current production, and boost Harmony’s gold resources by some 38% to some 17.5 million oz.

Harmony said today the circular relating to the proposed acquisition of Moab Khotsong would be posted to shareholders at the beginning of December. “The recently announced Moab Khotsong acquisition will further enhance free cash flows and enforces Harmony’s belief that it offers an attractive investment case,” said Steenkamp in a statement.

Asked for details regarding how Moab Khotsong would add to Harmony’s investment case, Fourie said there was the possibility of extending the mine’s life. “Harmony is a mining pillar specialist (currently mining the pillar at Bambanani – one of the highest, lowest cost mines in South Africa) and believe we will be able to extend the life of mine and enhance the reserve by mining the pillars and isolated blocks of ground at Great Noligwa.

“We don’t expect this to entail a significant amount of capital – but can only give further detail when we take over the assets,” said Fourie.

As for Wafi-Golpu, Harmony’s prospect in PNG, the group said it was negotiating with the authorities regarding the grant of a special mining lease. An optimised feasibility study on the project was scheduled for publication in March. Harmony shares Wafi-Golpu with Newcrest.


  1. Dear Fellow Readers,

    My take on HMY Q1 FY18 results is still as dim, if not more, than my previous assessment. Here are the glaring “fool me not” u/g mines issues:

    Tshepong Ops : Yield Grade increase to 5,8 g/t (Jun 17 : 5,23), even above FY18 forecast of 5,38 g/t , drove the improvement in gold production and decrease in AISC . But 2P grade = 4,26 g/t. So this a high-grading lipstick which will wear off quickly henceforth. The unit costs are unmoved at ±R2100/t , thus no sign of much acclaimed cost discipline.
    Bambanani : All the limitations of shaft pillar mining are becoming evident. Grade dropped ±2,5g/t q/q, with a resultant increase in AISC. This potent ill for HMY Cash Flows , as this operation contributes ±$40M/yr.
    Doornkop : High grading leads to improvement in gold production q/q of 29%. ROM head grade = 5,4 g/t (2P = 4,96 g/t) . Unit costs = R1903/t are still above 2P = R 1781/t level. Worse, R/t have increased 3%. Similar sentiments applies to Joel Mine.
    Kusasalethu : This mine continues to bleed with AISC = ±R597K/kg vs Gold Price= R570K/kg. Grade = 6,77g/t ( Jun FY17 : 8,37 g/t) has collapsed as highgrading has run its course. FY16 2P Grade= 6.41 g/t . Unit costs = ±R3500/t ( 2P unit costs = R2164/t). So there is going to be a lot of unprofitable gold left behind at this mine, so the LoM = 5 yrs, is exceedingly unrealistic at these losses. So another 140koz/yr in the hole of a 1,5Moz/yr production figure.

    Other Rats & Mice Mines ( Masimong, Joel, Unisel, Target 1) : These are for all intents and purposes just clunkers waiting to be put-out of their misery by some much needed decisive management action.

    Hidden Valley: This operation will remain CF –ve forever!!! Like it has always been. No need for analysis here. It is NOT for-profit Mine.

    I am going to repeat, Given its justified (higher speculators/gamblers attraction/ ratings) obsession with being a >1Moz/yr producer , HMY needs to acquire ±700 Koz/yr profitable production, and the Moab deal is just NOT it. HMY must do more to address its mining assets portfolio.

    Overall, the Net Mine CF margin of HMY is 2% , as per Q1 FY18 report. This is as lousy as it gets in gold mining. After all the highgrading , I am stunned at the highcosts nature of HMY operations. The portfolio is rotten and as we have recently observed, it seems that there is no self-help & funded solutions to remedy the situation. HMY needed bridge funding for closing a mere $300M transaction.

    • In a land far, far away, there lived a miserable old money lender. He enjoyed telling all of the people his view on who should be regarded as worthy of speculation, and why others should beware of not heeding his advice. For these purposes, he used those numbers and statistics he deemed important, and challenged nay seekers to prove him otherwise.
      Some of the lands people enjoyed his negativity and focus, and even more on how he was condescending to those investments and companies he deemed unworthy, or those persons that questioned his wisdom! This is a common trait nowadays, and even has a name for it in a different land, namely ‘schadenfreude’, which loosely translated refers to ‘joy in others misfortune’. He sought all manners of ways to convey his negative messages to all that would listen, for reasons he alone could fathom.
      He particularly favoured one Company above all others, and revelled in how he saw it excelling in disposing of those assets he believed it had exhausted good value from, to those less fortunate and privileged Companies he enjoyed mocking. Again, he sought to drive home his points, using figures he saw as key indicators. Less emphasis placed on what he would consider ‘soft’ issues, nor indeed consideration of past, present and future consequences.
      Negativity feeds off negativity and vice versa. Everyone’s view should be respected and in most cases valued. What the money lender appears to forget is that unless we all win, then we will probably all lose. He should look for positives and benefits for all, and remember that which Mothers have probably been tellng their children for centuries past, if you cannot think of something nice to say, then don’t say anything at all. Or, in another context, if you cannot be constructive then avoid being destructive.

      • Dear Fellow Readers,

        ” Everyone’s view should be respected and in most cases valued.” The truth hurts sometimes, but it needs to be embraced. I just tell it the way it is from the numbers.

        Those who are afraid of the truth will try hard to ensure that it does NOT see the light of day. In capital markets, we say lets see all the disclosures. And some of us, actually read the said disclosures and as always interpret things which are NOT said in such disclosures. The “old wife tale” as narrated by Experienced, is ipso facto.

        HMY asset portfolio is rotten, and it needs to do more to remedy the situation. THAT IS THE FACT!

        I will NOT be quiet BUT will share my views, BE THEY POSITIVE OR NEGATIVE.

        Here are positive things about HMY:
        1. It has u/g gold mines in South Africa, employing >30K ppl
        2. Its an old mining company, founded in 1950
        3. It is listed on the JSE & NYSE

  2. when gold price reaches $1500, all the problems will not be the problems. This gold miner has the lowest price to sales ration.

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