[miningmx.com] — THE latest update from Harmony Gold’s Papua New Guinea-based operations has underscored these projects’ billing as potential company makers which might offer long-term upside to a lacklustre share.
Harmony said on Tuesday gold production at Hidden Valley, which came into full production towards the end of 2010, improved 23% quarter-on-quarter at 26,584 ounces for the period to end-December. According to the company, the production increase was due to higher gold feed grades and improved recoveries.
Further drilling of the Wafi-Golpu project also affirmed the company’s claims that it would be a significant gold and copper deposit.
“The Golpu resource continues to expand to the north as ongoing drilling defines further mineralisation,’ said CEO Graham Briggs. “We are well on track in achieving our previously stated exploration target of 30 million oz of gold and 8 million tonnes of copper.’
Both Hidden Valley and Wafi-Golpu are part of Harmony’s 50% stake in the Morobe Mining joint venture with Australia’s Newcrest Mining.
Briggs said in November Wafi-Golpu could produce between 400,000 oz to 700,000 oz of gold and 100,000 t to 200,000t of copper per year, sustainable over a 20-year lifespan.
Harmony has in recent times placed much emphasis on the PNG projects’ potential as long-term company makers, as the group’s marginal and older mines have placed a strain on production gains made elsewhere.
This was illustrated by guidance issued on Friday, which stated a 3% to 5% drop in production for the December quarter. Harmony’s stated production target of 1.65 million oz for 2011 now seems out of reach, given that it would have to produce almost 1 million oz in the remaining two quarters until end-June to achieve this.
In research published earlier in January, JP Morgan Cazenove analysts Steve Shepherd, Allan Cook and Abhishek Tewarri said the market has yet to factor in the upside potential at Wafi-Golpu in the share price. “Harmony is the least expensive SA gold major on our numbers,’ the analysts said.
This view was affirmed by Imara SP Reid gold mining analyst Percy Takunda on Tuesday, who said Harmony’s portfolio showed “considerable value’.
“With most capital projects complete, Hidden Valley should become net cash positive in 2011,’ said Takunda. “The likely cash flow benefits will go into the development of the Wafi-Golpu project, which has shown considerable potential.’
He said production at the group would peak between 2013 to 2017, with output expected to be close to 2 million oz.
“We believe Harmony is a long-term investment in a rand depreciation and strong gold price (environment),’ Takunda said, rating the company as a long-term hold.
Harmony was trading at around R75 per share on Tuesday, almost the same level it was trading at during January 2010 and around 25% down from the R100/share seen in January 2009.
