A PROPOSED 18.65% hike in the electricity tariff this year would have “a severe impact on our business”, said Harmony Gold CEO, Peter Steenkamp. The increase in the tariff is effective from April 1.
“We will put the increases into our planning for our new financial year and see what it might have an impact on,” he said. Electricity costs will comprise 18% to 19% of total costs whereas they were 4% to 5% a few years ago, he said. “It is a big chunk of our costs.” Harmony’s 2023 financial year closes on June 30.
“We are trying to be more efficient with energy in terms of power on demand,” Steenkamp said. “We have a run rate of R1.6bn in terms of efficiency improvements, but I worry over the psychological impact on our employees. Not all of them have the resources to install solar at home.”
Increased power costs might also have an impact on Harmony’s Mponeng Deeps project. The tariff hike “would very much feed into the feasibility, Steenkamp said. But there was “alot of new things we can do including mining of two high grade lobes” of the project. The feasibility study for Mponeng Deep is due for completion at the end of the 2023 calendar year.
The increase to the tariff would lead to an increase in electricity costs of R13.5bn by the end of 2024 – a 33% leap, said the Minerals Council South Africa in January.
Nersa, the independent energy regulator, also approved a 12.74% tariff increase for the following year which the Minerals Council said would result in a four percentage cost increase “materially squeezing profit margins”. Average input costs were running at above 15% at the end of 2022, it said.
Wafi Golpu
Newmont would “most likely” be supportive of the Wafi Golpu project currently shared with Newcrest Mining for which Newmont bid last week.
“Wafi Golpu is a big part of Newcrest’s future so Newmont would most likely want to progress it,” Steenkamp said. Newmont is “a wonderful company with a fantastic track record … We don’t know them well but they have a wonderful track record”.
Wafi Golpu, located in Papua New Guinea (PNG), has been on Harmony’s books for nearly two decades. Several feasibility studies have been run on the property but funding difficulties and, more lately, political events in PNG have led to delays.
Harmony and Newcrest have filed an application for a special mining lease in PNG which, if approved, will enable them to negotiate commercial terms with the government. Wafi Golpu, which is expected to take five years to develop, has forecast annual production of 320,000 ounces of gold and 150,000 tons of copper.
Steenkamp said more than half of Harmony’s production would be outside South Africa in five years’ time even without Wafi Golpu output. The company recently bought the Eva copper/gold project in Australia for $230m. Steenkamp said his corporate team was looking for an additional acquisition.
“We are still looking for something more and over time we will operate more outside South Africa. We will always be on the lookout for assets”. The company is spending R16bn on extending its South African production in the next two years, an outlay that has analysts concerned over Harmony’s dividend. Steenkamp said previously the company wanted to maintain dividend payments.
