Harmony Gold to spend R7.9bn extending Mponeng to 2044

HARMONY Gold on Wednesday announced the R7.9bn extension of Mponeng which will keep the mine, located west of Johannesburg, operating until at least 2044.

Commenting in its half year results – in which a record dividend was declared – Harmony said the project would result in average steady-state annual production of 260,000 ounces of gold at an recovered grade of at least nine grams per ton (g/t). This would result in real all-in sustaining costs of about R768,000 per kilogram ($1,290/oz).

“Mponeng is an incredible mine with existing world- class infrastructure,” said Harmony CEO Peter Steenkamp in comments to the group’s results. First production will be after four years. Without the project, Mponeng would have closed in seven years.

The capital cost of the mine will be spread over the seven year project period and will be funded from Mponeng’s internally generated cash flows. Harmony expects capital expenditure to increase R1bn from 2025 when the project begins.

“The project is affordable and at a low capital intensity. Project timing is deliberate and does not put pressure on our balance sheet,” said Steenkamp in a presentation following publication of the results.

Board approval of Mponeng’s extension follows stellar results on almost every metric for Harmony Gold in the six months ended December.

Highlights of the operating numbers include a significant increase in grade from Mponeng and a major turnaround at Hidden Valley. Harmony’s Papua New Guinea mine reported R1.77bn in half year cash flow compared to an outflow of R69m in the first six months of its 2023 financial year.

Underground grades improved 11% to 6,29g/t which contributed towards a 14% increase in gold production to 832,349 oz for the six months ended December 2023. Despite the inflationary environment, total AISC fell 5% to R843,043/kg.

On top of that, Harmony had market tailwinds. An increase in the dollar price of gold combined with rand depreciation for an 18% increase in the average rand gold price of R1.14m per kilogram.

The outcome for the six months in review, however was operating free cash flow of R7.1bn, a 265% year-on-year increase – more than in the whold of the firm’s 2023 financial year – and taking Harmony into net cash of R74m ($4m) as of December 31. At the earnings level, Harmony announced basic earnings of R9.56/share compared to R2.98/share in the previous six months.

The company said it was targeting net debt to Ebitda of below 1x ahead of full year capital expenditure of R9.5bn of which only R3.8bn had been spent as of the half-year. This was on the previously announced Moab Khotsong, Zaaiplaats, and the Kareerand/Mine Waste Solutions extension projects

An interim dividend of R1.47 per share (7.6 US cents/share) was announced.

There may be more to come from Harmony in the current six months, all operating factors being equal, as the spot rand gold price is R1.25m/kg.

Despite this the company stuck to AISC guidance of “less than R975,000/kg” while production would come in between 1.38 to 1.48 million oz. “We believe the market may be slightly disappointed that management did not increase its FY24 production guidance and reduce its AISC expectations,” said UBS in a note to clients.