Harmony faces a crunch year as key decisions loom on Wafi-Golpu

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

The Wafi-Golpu copper/gold project in Papua New Guinea is a “game changer” for Harmony and will deliver for the group in the same way that the highly profitable Mogalakwena mine does for Anglo American Platinum.

That’s according to Harmony CEO Peter Steenkamp who told analysts and fund managers at a presentation held in Sandton on Tuesday that the current financial year to end-June would be critical for the project.

He said the environmental impact statement for Wafi-Golpu had been submitted in June 2018 and the current development timetable targeted the granting of a special mining lease (SML) by June 2019.

Steenkamp commented that  “negotiations with all stakeholders are encouraging”  and added it was also crucial for Harmony to “secure a funding solution” during the current financial year to demonstrate the group could afford the development.

Wafi-Golpu is a 50/50 JV between Harmony and Australian gold major Newcrest.  The PNG government holds an option to buy 30% of the project. The revised feasibility study published in March estimated the capital cost of Wafi-Golpu at US$5.38bn.

At steady state production the mine would produce 161,000t of copper  and 266,000oz of gold annually for a life-of-mine of 28 years.

Wafi-Golpu is critical for the long-term future of Harmony which faces sharply declining production at its existing South African gold mines from the  2023 financial year  onwards although Steenkamp played this down in reply to questions.

He commented, “ I have been involved with Harmony for many years – going back to my time when Bernard Swanepoel was CEO – and the situation was always that the group had only five or six years of life-of-mine remaining in front of it.

“We are still here. We have always found a way to extend our lives.  This is not something that worries me or keeps me awake at night.”

According to a graph in the Harmony presentation the group’s gold production is expected to reach about 1.5m oz this year and decline marginally to around 1.4m oz by financial year  (FY) 2023.

After that, Harmony’s gold production falls off a cliff as a number of South African mines shut down and plunges to around 500,000oz by FY 2026.  Harmony took a total impairment charge of R5.4bn against a number of mines during the year to end-June because of cost inflation and “subdued” gold prices.

After FY2026 gold production is forecast to start recovering as Wafi-Golpu kicks in and return to around 1.3m oz  (gold equivalent) annually by about FY 2030.

Steenkamp pointed to a number of “short to medium term organic opportunities” that management was looking at which could help plug the looming production gap.

These included: an expansion of the Central Tailings plant; exploration of the high-grade underground Zaaiplaats project; underground exploration at Target North; the Great Noligwa pillar extraction; exploration at Kalgold and the extension of the Hidden Valley mine in PNG.

Steenkamp also mentioned “value accretive merger and acquisition activity”  – such as the deal done to buy the high-grade Moab Khutsong mine from AngloGold Ashanti – but added, “there’s nothing on the radar screen as we speak.”

He highlighted the progress that Harmony had made with the redevelopment of the  Hidden Valley mine in PNG which Harmony had taken over from partner Newcrest and then invested another $175m in a deal that was widely criticised by analysts.

Steenkamp pointed out commercial production levels at Hidden Valley were achieved for the month of June 2018 and he guided production from the mine for FY 2019 at 200,000oz at an all-in sustaining cost of under R515,000/kg.

He commented delivering on those forecasts was a priority focus for FY 2019  and he wanted to ; “prove everybody wrong on Hidden Valley. “

 

5 COMMENTS

  1. Dear Fellow Readers,

    Last year, upon HMY acquiring Moab Khutsong , the yours truly made the following commitment:

    I HEREBY BODLY COMMIT THAT: I WILL BUY 5X MININGMX.COM READERS A BOTTLE OF THEIR FAVOURITE RSA MADE WINE IF MOAB KHUTSONG MINE GENERATES FCF > $90M (NINETY MILLION UNITED STATES OF AMERICA CURRENCY) FOR THE FULL CALENDAR YEAR 2018 USING THE GOLD PRICE = R570 000/KG (thus removing the gold price as an excuse!).

    I also doubled down with this commitment:

    HMY will NEVER lower Moab Khotsong unit costs to below R 2500/t or AISC= R400K/kg at production base > 150koz/yr ! If they do, I will record a YOUTUBE video of myself kissing/licking my own elbow!

    Well, we are half-way through CY2018, so its time to take count the FCF:

    AGA ownership: (January 2018 – February 2018)

    Prod (Koz) = 39koz
    AISC = R464990/kg
    GoldPrice = R491029
    Reported FCF = $6M ( R72M) , at Gold Price R570k/kg =R132M ($11M)

    4months (March 2018 – June 2018) of HMY ownership:

    Prod (Koz) = 106koz
    AISC = R474594/kg
    GoldPrice = R528 387/kg
    Reported FCF = $13,7M (R170M) , at Gold Price R570k/kg =R302M

    Therefore, given that the gold price was not >R570 000 (if it was, we will be affording HMY management the benefit of guessing it correctly by using the higher R/kg gold price) , using the said gold price :

    FCF (before tax) for 1HFY18 = $35,5M received (adjusted for Goldprice = R570000/kg) ; Actual received = $19,7M , which is a huge shortfall from $90M /yr

    The flawed CPR for Moab has the following FCF forecast (pg 155 of CPR):

    2018 : R1,22Bn ( for 1H CY2018 : R242M) , let’s hope for Erdogan ^2 (or Zuma x 0,5) for R/$ to deteriorate & deliver Goldprice > R1Million/kg for 2HCY2018 so that Moab can deliver R1,22Bn FCF!
    2019 : R1,26Bn
    2020 : R0,86Bn
    2021 : R0,53Bn
    2022 : R0,24Bn
    2023 : -R0,22Bn

    SO IF MINES COULD TALK:

    ( Somewhere in St James Office Park , Randfontein , Kusasalethu & Moab Khutsong bump into each other at the water cooler ( or its Tea Kitchen) )

    Kusasalethu : hey, I have met you somewhere, haven’t I?

    Moab : Sure, I was under development when you were sold to HMY in 2001. I was still full of promise & certainly a newer shinning example that deep shaft gold mines can be built in RSA. But your name was Elandsrand?

    Kusasalethu : Jaa, that was when I was still Cash-flow positive, but HMY changed my name to Kusasalethu then…

    Moab : Kusasalethu means “Our future” isn’t? so that’s a compliment? I mean when they got you, you had M+I >10Moz of gold …..so what happened?

    Kusasalethu: Well, I was mean’t to be HMY future, but they changed my mining method , plans etc and did NOT understand my orebody so …..I went after them big time …..I have cumulatively since 2001 stuck them with negative NINE-BILLION RANDS Cash Flow! My buddy in PNG called Hidden-Valley, he has delivered cumulatively since 2009 NEGATIVE FIVE HUNDRED MILLION DOLLARS, and he still got another $180Million 2016-2018 ….so we are legends in this offices. SO do you think you can deliver better blows than that?

    Moab: HOLD MY BEER!

    Note to HMY Investor relations executive :
    Instead of trying to bully the editor of miningmx.com to disclose my real name to you , rather focus on ensuring that your accounting is clean. The editor does not know me, nor has he ever met me. I am known by your executives (CEO, COO of Business Development (essentially the BEE appointee) , Exec of Mineral Reserves , Naidoo lady ; Exec for Stakeholder affairs ( essentially an equivalent of Apartheid era “ Minister of Native Affairs “ given that he handles all things related to Black People ) ; Manager of Business Development ( mastermind of Moab Khutsong CPR) ; GM of Central Projects and other technical people; and two of your senior directors in the BoD Technical Committee). So get them to crack their skulls, and maybe they will give you leads.

    However, you can choose a more elegant approach by engaging (using “alternative Facts” ) in this forum. I hereby suggest some pseudonyms for you:

    Moab-is-our-next-kusasalethu
    Frank-the-David Copperfield- accountant–makes-Opex-Disappear
    OpEx-CapEx –same-difference
    Bambanani-mine-pillar-forever-and-ever
    In-high-costs –we-trust-R/kg goldprice-will-keep-going-up-forever
    Hedging-is-the-new-mining-operation-and-cashflow-generator
    Lies-ooh-lies-ooh-lies -Doo, doot doot dooo ( Des’ree song!)

    The full frontal, bare knuckled , no holds barred, spare no holy cows …..FY18 analysis of HMY is loading…….

  2. Heish, I hope I will not have to (be forced to) drink South African wine… That is why I started investing in the first place, so that we would not be degraded such…

    • Study the results disclosed by the Company , and you’ll discover that miracles need to happen for Moab to deliver FCF= R1,22B ( or $90M) for CY2018. Unless you are a party to the HMY/Nedbank CIB deal , then you are compelled to peddle the narrative!

  3. GSpec

    Thank you for your post. You are certainly not the average blind investor. And the numbers vindicate you.

    Keep posting please. I wanna know what is really going on. Mr or Ms Editor please go easy on the guy. His comments are technical mostly.

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