Harmony Gold, SA’s biggest producer of the precious metal, will proceed with several projects to keep annual production well above 1-million ounces and cash in on buoyant prices.
“We have identified substantial opportunities in our existing portfolio through exploration and brownfield projects which will extend the life of some of our larger and higher-grade assets, adding lower-risk, higher-margin ounces to Harmony's portfolio,” CEO Peter Steenkamp said the presentation of the company’s financial results for the year ended June.
The projects, which will be funded from internal cash flows, include the R4.5bn Zaaiplaats project, south west of Harmony’s Moab Khotsong mine in SA, that could add 24 years to the life of the mine.
The group will also pursue extend the life of its Hidden Valley mine in Papua New Guinea to 2027, while investing major capital in Mine Waste Solutions, a tailings reclamation operation it acquired in 2020 which currently treats 2.2-million tonnes per month.
Other projects that are already in the works include infrastructure upgrades at Doornkop and development at Tshepong and Target 1. In addition, Harmony is building a 30MW solar plant in the Free State and also plans to bring as much as 80MW of further green power online in the next 18 months.
The projects are forecast to keep annual gold production at about 1.4-million ounce into 2027 and bolster profit margins. “The profitability of the company will increase dramatically over time as we close down some of these older shafts or get them out of our portfolio,” Steenkamp said.
The only risk to Harmony’s expansion plans is the gold price, particularly in rand. After surging to a record above $2,000 an ounce in August 2020, the price has since dropped to about $1,800/oz as vaccinations against Covid-19 and the reopening of economies in developed markets reduced its investment appeal. The rand, meanwhile has stabilised after reaching record lows at almost R20/$, and now is now trading below R15/$. A stronger rand translates into lower profit for companies that earn in dollars and report in rand.
“At your current gold prices, and also probably a little bit lower, we will continue going forward with these projects. But obviously if that gold price falls below R700,000/kg we’re going to think about, you know, the affordability of projects,” Steenkamp told the Business Day. “We believe the R750,000/kg to R800,000/kg is a workable price. And we’ve seen that it doesn’t really fall below that in the last few years or so.”
Harmony on Tuesday reported an average rand gold price of R851,045/kg for the year ended June 30, up 16% from R735,569/kg in the 2020 financial year.
Operating free cash flow surged 83% to R6.5bn and headline earnings per share increased to R2.93, compared with a loss of per share of R1.54 in the prior year. Headline earnings is a key measure of profitability for SA companies that strips out one-off items. Net debt dropped 60% to R542m and a final dividend of 27c was declared, bringing the total dividend for the year to R1.37.
While Harmony is also keeping an eye out for potential acquisition targets, Steenkamp said strong dollar gold prices made it difficult to find a deal that will add value.
A key event during the past financial year was the successful acquisition and integration of AngloGold Ashanti’s Mponeng mine. Harmony expects a swift payback for the operation and related assets thanks to its strong free cash generation. The mine is the deepest in the world, but further deepening is on the cards and would add another 30 years life to the asset, Steenkamp said.
Harmony also continues to pursue its aspiration to become a specialist emerging market copper-gold producer through its Wafi-Golpu project in Papua New Guinea, which has been hamstrung by the permitting process.
Harmony shares were trading 4.8% lower at R54 on Tuesday afternoon. The stock is down 25% so far this year.
Steynl@businesslive.co.za
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