Harmony Gold continues to double down on extending the life of its existing portfolio after delivering a strong first quarter performance.
It reported an operating free cash flow of 60% year on year at R5.179m for the three months to end-September.
The improved cash flow was largely thanks to the ongoing gold price rally, with the average gold price up 21% year on year during the period under review.
“The high average rand gold price received continues to boost free cash flow generation, further strengthening our balance sheet this quarter,” said CEO Peter Steenkamp.
Harmony reported gold production at 13,131kg for the period, down only 1% year on year. This was partly due to a decline in output from its Hidden Valley mine in Papua New Guinea, in line with the operation’s ongoing restructuring.
Added to this was a 10% decline in production for the group’s SA underground optimised operations, primarily due to lower grades and volumes recorded at the Tshepong North and South mines.
“These optimised assets play an important role in funding our growth strategy,” said Steenkamp, as the SA underground optimised operations contribute 37% of Harmony’s total production.
He said it was necessary to continue investing “sustaining capital at these operations to maintain the necessary flexibility”.
“A continuous drive for these mines remains footwall reduction, quality mining and mining mix from the southern panels to improve the belt grade,” he said.
Declines offset
“We have seen a significant reef recovery benefit at Kusasalethu since moving the ore processing to Mponeng plant in [the first quarter of the 2022 financial year], with a cumulative benefit of 555kg or about 43kg each quarter, to date.”
However, production declines at Tshepong and Hidden Valley were offset by Harmony’s SA underground high-grade operations, the production of which increased 15% year on year to 4,872kg, primarily driven by the ongoing outperformance of its Mponeng mine.
Gold output at Mponeng was recorded at 2,997kg, up 28% from the previous comparable period due to higher recovered grades, with the operation generating R1.84m in operating free cash flow during the quarter.
The first quarter performance resulted in a strong, flexible balance sheet, said Harmony, with the group’s net cash position increasing to R6.3bn, with R15.7bn in cash and undrawn facilities.
“As a result, we are well-positioned to execute on our various life-of-mine extension projects and take our transformational copper-gold projects up the value curve,” said Steenkamp.
With large capital projects under way in the quarter, total capital expenditure increased 17% year on year.
“These projects will improve the quality of our portfolio, extend the life-of-mine at our high-grade operations and improve the group operating free cash flow margins.”
“While value-accretive acquisitions are a key part of our growth strategy, internal investment and reserve conversion remains an affordable and effective way of creating value, especially at the current high gold prices.
“We continue investing in lower-risk, high-quality and high-margin ounces which will improve the overall profitability of our portfolio over time.”
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