With the SA gold mining industry in the mature phase, analysts say Harmony Gold’s move to diversify into commodities such as copper that are expected to benefit from the green transition may prove sensible as the group seeks sustainable growth and begins to play a role in the global transition to a low-carbon economy.
Harmony Gold, SA’s biggest gold producer, announced on Thursday that it has agreed to buy the Eva Copper project in Australia and its exploration land package for R4.1bn.
Copper is a key commodity for the green transition, being most suitable for electrical conductivity, with applications in electricity generation, transmission and end-use.
Demand for copper is set to rise sharply, driven by new investment in renewable energy generation and the transition from internal combustion engines to electric vehicles, the production of which uses 10 times the amount of copper than that of conventional combustion engines.
Pearson Mururi, head of precious metals and related commodities at independent research house Afriforesight, said new copper supply will be needed to meet the anticipated demand, while profit margins in copper mining are expected to remain strong for decades.
Faheema Adia, equity analyst at Momentum Securities, said Harmony appears to have made a good deal.
“In addition to the importance of copper in the renewable energy transition, the Eva copper project is a tier-one asset that’s based in Australia,” she said. “It’s obviously a very high-quality asset, so the transaction price seems like a fairly good one.”
Adia noted that one challenge with the deal is that it is still at the development stage, thus much capital expenditure will have to be made before any copper comes out of the ground.
With the costs estimated to be about $600m to develop the project that will only begin in 2025 and take about two to three years, it will pressure the business in terms of increasing the capital expenditure requirements in the next few years.
“Thus, in terms of the current price, we’ll need to see what comes back from that feasibility study,” she said. “We need to see how much copper will actually translate into proper, inferred and indicated resources, because ... it’s still too early to tell.”
The Eva open-pit copper mine is expected to yield 100-million pounds of copper a year and 14,000oz of gold annually over an expected mine life of 15 years, according to Mining.com.
Since the SA gold industry is suffering from low grades and high operating costs, with some high-cost mines losing money at present prices, “gold miners are expected to seek to invest in gold projects outside SA, as well as diversify into commodities that are expected to benefit from the green transition, with copper being a metal with a good investment case,” said Mururi.
Adia added that gold mining companies need to position themselves to benefit from the opportunities such as those from copper.
“The world is changing. We need to bring these newer metals into production so that we can actually succeed with the just energy transition,” she said. “We’ve got the resources right here in SA, so we definitely need to make use of that and take advantage of these opportunities.”
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