Harmony’s Wafi-Golpu project in limbo, but rand gold price provides cash boost

Wafi Golpu: beset by red tape, politics ...

HARMONY Gold said it had doubled its cash margin in the September quarter – the first of its 2020 financial year – which more than compensated for a decline in production from the group’s Papua New Guinea (PNG) mine, Hidden Valley.

There was other disappointing news from PNG as the South Africans confirmed comments made by their joint venture partner, Newcrest Mining, that the Golpu-Wafi project in PNG was going precisely nowhere.

Miningmx quoted Newcrest MD and CEO, Sandeep Biswas in October as saying “unresolved legal proceedings” and other delays had beset the project. As a result, the Wafi-Golpu Joint Venture (WGJC) has deferred the planned work programme, he said. Newcrest also said it had scaled back employees working on the venture.

Harmony’s take on the project was that it was “… difficult to estimate the duration of the delay”. It added that the PNG government continued to signal its support for the project, but – interestingly – the company would persist with other opportunities.

“Harmony continues to pursue safe profitable production and increased margins, as well as value-accretive opportunities and organic growth, to replenish mined ounces,” it said.

Harmony is thought to have cast its hat into the ring for the Mponeng and Mine Waste Solutions assets that AngloGold Ashanti hoped to sell. It’s possible, although not confirmed by Harmony, that the firm is zeroing in on these opportunities with greater focus.

The rand gold price averaged R683,572 per kilogram in the first (September) quarter, an increase of 12% quarter-on-quarter. As a result of the improvement in the gold price, and the volatility and weakening of the rand against the dollar, Harmony had extended its hedging programme, it said.

All in all, Harmony has hedged 598,000 oz – just over half of its annual gold production – for the remainder of the current financial year as well as the 2021 financial year and the first quarter of the 2022 financial year.

Operationally, outside of Hidden Valley, Harmony reported a decent quarter despite a setback at Kusasalethu where unexpected geology interrupted mining at four panels. This would affect the mine until near the end of the financial year. Improved grades have been a feature of CEO, Peter Steenkamp’s time at Harmony, but there were on the wane in the first quarter, down 7% year-on-year to 5.26 grams per ton.

The winter electricity tariff imposed by power utility, Eskom, made its presence felt in the quarter in which Harmony also absorbed R181m in annual wage increases. The two items accounted for 5.5% and 3.7% of the 10.9% increase in total cash operating costs.

All-in sustaining costs were R589,597/kg, higher than the forecast average for the year of R579,000/kg. On a year-on-year basis, AISC were 12% higher.

But the gold price was all-forgiving.

Total gold revenue was 20% higher at about R8bn whilst production profit was 34% higher at R2.4bn owing to an increase in total quarterly gold output of some 361,085 oz. The cash operating margin had doubled, it said.

Harmony Gold confirmed full-year gold production guidance of 1.46 million oz.