Harmony Gold won’t risk dividend as it seeks “five or six” options to finance Wafi-Golpu

Peter Steenkamp, CEO, Harmony Gold

HARMONY Gold would protect cash generated from its South African assets whilst it weighed “five or six different options” to finance its Wafi-Golpu project in Papua New Guinea, said Peter Steenkamp, CEO of Harmony Gold.

“We won’t be putting all of our cash into Wafi-Golpu,” he said. “A copper offtake might be part of the solution,” Steenkamp said when asked how Harmony, capitalised at R35bn, would pay its one-half share of the R42bn Wafi-Golpu was estimated to cost in a 2019 feasibility study.

The other half of the mine’s development would be shouldered by Harmony’s joint venture partner, Newcrest Mining, although there is uncertainty as to the PNG government’s interest in the project, and how much of that would be free-carried, if any.

Steenkamp said the Wafi-Golpu partners first wanted to conclude a special mining lease (SML) agreement with the PNG government which would give clarity to equity participation of each party.

Negotiations regarding the SML have been pending ever since a change of PNG government in 2019 in which James Marape was appointed prime minister. Steenkamp said the PNG government was showing a “huge amount of urgency” to conclude the SML, but an agreement is nonetheless three years outstanding.

Harmony generated R3.4bn in cash flow from operations in the six months to December, a more than two-thirds increase in its margin to 23%, enabling it to resume dividend payments. The improvement was largely owing to the higher rand gold price, but the acquisition since 2018 of Moab Khotsong and Mponeng from AngloGold Ashanti for $600m has also played a role. The two mines comprised a third of operating free cash flow.

“We won’t paralyse the business while we’re waiting for the SML,” said Marian van der Walt, senior group executive for enterprise and investor relations. “We are not spending a cent there (currently).” Harmony also has targeted brownfields South African projects including Zaaiplaats, an extension of its Moab Khotsong, which was priced at $252m by the former owner, AngloGold Ashanti.

In Harmony’s hands, the project’s capital cost is likely to be lower. Project details are subject to a feasibility study which Steenkamp said was a priority for the group. “We want to submit it before the end of our financial year. In a month or two,” he told media during the firm’s results briefing last month.

Shaft pillar mining at Mponeng has also been targeted in the short term, but the deepening of Mponeng is viewed as a later stage project, currently not receiving priority attention. Harmony is also considering extending its gold retreatment activities with plans to convert existing processing facilities.