Gold miner Harmony Gold delivered a 38% quarter-on-quarter improvement on its gold production for the quarter ended September 30, which CEO Peter Steenkamp said was “further aided by the gold price”.

This solid performance during the quarter significantly strengthened the miner’s balance sheet, and in so doing, allowed it to achieve an operating free cash flow margin of 20%.

While Harmony is still in the process of integrating its newly acquired assets, in line with its growth strategy, the miner believes it will “be able to unlock further value” through increased ounces and various surface and service synergies going forward.

Harmony produced 313 725 oz of gold in the September quarter, up from the 226 632 oz produced in the quarter ended June 30. However, when compared with the September 2019 quarter, output was down 13%.

Gold production from underground operations during the quarter increased by 64% to 242 029 oz, mainly owing to all underground operations having resumed 100% of capacity as Covid-19 restrictions in South Africa were lifted.

During the Covid-19 lockdown, Harmony mined higher-grade panels, which impacted the quarter-on-quarter performance of the South African underground operations and resulted in a 7.2% decrease quarter-on-quarter. The September 2020 quarter reflects a return to a more normalised grade of 5.31g/t, which Harmony says is more or less in line with the underground recovered grade achieved in the comparable period in September 2019.

Gold production at Hidden Valley, in Papua New Guinea, decreased by 19% quarter-on-quarter to 31 604 oz from 38 967 oz, while production was impacted by a planned major shut down of the processing plant, as well as owing to lower mined grade as the mine transitioned between various stages of the openpit.

The key focus in the 2021 financial year will be to safely mine the current cutback to produce between 172 300 oz and 177 700 oz, while starting the next planned pushback of the main Hidden Valley pit.

Meanwhile, all-in sustaining costs (AISC) were 7% lower at R728 465/kg ($1 341/oz) compared with R783 336/kg ($1 358/oz) in the previous quarter, owing to the higher production.

Harmony's operating free cash flow almost tripled quarter-on-quarter to R1.8-billion, compared with R603-million in the previous quarter, owing to higher production and a 5.4% increase in the R/kg price of R922 398/kg ($1 698/oz, 12% higher) quarter-on-quarter. The company's operating free cash flow margin doubled in the same period, from 10% to 20%.

In terms of balance sheet and liquidity, Harmony’s stronger production cash flows enabled it to reduce its net debt to earnings before interest, taxes depreciation and amortisation (Ebitda) ratio from normalised 0.8x in June to 0.5x by quarter end.

Before normalising for the equity placement, the ratio stood at 0.2x at June 30, 2020. Net debt at the end of the quarter was R3.2-billion ($194-million) after paying for the newly acquired assets.

In June, Harmony raised $200-million (R3.4-billion) by way of a share placement to fund the $200-million cash portion of the consideration price relating to the acquisition of the Mponeng mine and Mine Waste Solutions. The cash from the placement, combined with the cash generated by the operations, resulted in net debt of R1.3-billion ($79-million) as at the end of June 2020. The inclusion of the newly acquired assets will increase future Ebitda meaningfully, the miner notes.

With current favourable market prices and current levels of production prevailing, Harmony expects to be in a net cash position by the end of March 2021.

Meanwhile, Harmony assumed full ownership of Mponeng mine, Mine Waste Solutions and related assets on October 1. The integration of these assets is currently under way.

"We expect cash flows to be boosted, as we unlock value through potential synergies with existing surface and service infrastructure, as well as adding quality replacement ounces to the company's reserves and resources," it says.

WAFI-GOLPU
Further, Harmony, together with its Wafi-Golpu joint venture (JV) partner Newcrest Mining, is looking to reengage with the Papua New Guinea government regarding a special mining lease for the project.

With regard to the permitting of the project under the Environment Act of 2000, a decision by the Minister for Environment, Conservation and Climate Change is awaited regarding the assessment of the Environment Impact Statement for the project.

Harmony says it considers deep sea tailings placement to be “the safest and most environmentally and socially responsible tailings management solution for the project for the duration of its operations and beyond mine closure, which conclusion is supported by industry leading scientific studies and extensive data gathered by over four years of oceanographic investigations”.