[miningmx.com] – FORMER Gold Fields CEO, Chris Thompson, once
threatened in the text of that company’s annual report to “harvest” its South African
mines if the government failed to support its proposed merger with Franco-Nevada.
In the end, that merger with Franco-Nevada never happened, but you couldn’t escape
the suspicion that the South African mines were likely to be harvest fodder anyway in
the wake of the aggressive offshore expansion Franco-Nevada offered.
Similarly, there’s a view that Harmony is also putting its South African mines into a
sort of harvest mode while it prepares the ground for Wafi-Golpu, its Papua New
Guinea mine. When all’s said and done, the copper/gold porphyry in Papua New
Guinea is Harmony’s Franco-Nevada.
Harmony CEO, Graham Briggs, can’t contain his excitement about it: “If all the gold
mines in the world were to close, this would be the last one to close,” he said on
Wednesday regarding the price insensitivity of Wafi-Golpu, essentially a copper mine.
“This animal called Golpu will have a negative cash cost. It is very [price] insensitive
and will support a gold price of well below $1,000/oz,” he said. Harmony is building it
on a gold price assumption of $1,400/oz.
It makes you wonder where all the speculation came from that Harmony might sell its
50% stake in Wafi-Golpu, which it shares with Newcrest Mining. “You don’t sell your
best assets,” said Frank Abbott, CEO of Harmony Gold.
Rather, you make sure they are fully financed which is why Abbott says the strategy
with Harmony’s South African mines is that they provide cash flow, and not cause
undue problems. Once Wafi-Golpu is producing gold – an asset expected to do so for
between 20 and 30 years – Harmony will be in a different ball game, part of which will
be looking for new discoveries in the Wafi-Golpu complex.
It’s for this reason that Briggs was able to comment that Harmony doesn’t chase gold
production, even in the face of missed production guidance.
Production for the 2011/12 financial year will be 70,000 oz shy of the 1.35 million
ounces promised earlier in the year, and the company was unlikely to make that
production back – an outcome that drew criticism.
“We don’t run our business like that,” said Briggs in a response to a observation by
Citi’s Johann Steyn at the group’s third quarter presentation in Johannesburg that
Harmony was making a habit of missing production guidance.
Harmony decided to upgrade its shaft infrastructure at its Doornkop operation which
cost it production; it is similarly being careful about how it develops its other assets
such as Bambanani and Phakisa. With Wafi-Golpu expected to cost up to $4bn,
Harmony wants to be able to follow its rights.
“The one thing we don’t lose sleep over is financing Wafi-Golpu,” Briggs said at the
presentation adding that one of several options was to sell copper production from the
mine forward. It’s not a swear word to hedge copper it would seem.
Financially, Harmony is in pretty good shape. Helped by a tax credit, and a strong
gold price, the company has reported headline earnings of just over R1bn in each of
the last two quarters. “This is sustainable,” said Abbott, provided the gold price
remains supportive.
“We said we would break-even this [fiscal] year,” said Briggs. “But we will exceed
this … Financially we’re strong and we’ll do what we need to do.
“We won’t doggedly chase production. We will take the flak for not getting the
production in order to do the right thing”.
