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Rapid Moab integration boosts Harmony Gold’s cash flow

21st August 2018

By: Martin Creamer

Creamer Media Editor

     

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JOHANNESBURG (miningweekly.com) – The rapid integration of the Moab Khotsong gold mine into the Harmony Gold group has boosted the company’s overall underground gold grade, lifted production, driven down all-in sustaining costs (AISC) and doubled free cash flow.

Harmony acquired the deep-level Moab Khotsong mine from AngloGold Ashanti for $300-million on March 1, with the acquisition including the Great Noligwa mine, which presents an opportunity for Harmony to mine shaft pillars, and the Zaaiplaats resource. (Also watch attached Creamer Media video).

“Moab has been an extremely important transaction for us and we’re very pleased to have it as part of our portfolio,” Harmony CEO Peter Steenkamp said at the Johannesburg- and New York-listed company’s presentation of headline earnings in the 12 months to June 30 of 171c a share ($0.13c a share) totalling R763-million.

Located in the Free State, Moab has a single shaft system mining to a depth of 3 100 m.

With the inclusion of 500 000 oz/y from Moab and another 450 000 oz/y from Hidden Valley in Papua New Guinea, Harmony’s 1.228-million ounces of gold in 2018 financial year will become 1.5-million ounces a year going forward.

Without Moab, which lowered the company’s AISC to R508 970/kg ($1 231/oz), the AISC level would have been R8 000/kg higher at R517 000/kg. In the three months to the end of June, Moab’s contribution lowered the AISC still further to R486 000/kg.

Moab lifted Harmony’s overall underground grade to 6 g/t from a previous 5 g/t and doubled operational free cash flow.

“Where we used to have 9 t of gold per quarter, we now have close to 12 t of gold a quarter. Where we used to be a 5.2 g/t type of operation in previous quarters, we now have very close to being a 6 g/t company.

“We’ve never been to 6 g/t, and we’re very pleased to have that kind of grade,” Steenkamp told the results presentation covered by Creamer Media’s Mining Weekly Online.

In response to Macquarie mining analyst Yatish Chowthee, Steenkamp said that Moab’s grade in the current financial year would be 10.08 g/t.

With a full year of production from Moab and Hidden Valley, Harmony CFO Frank Abbott forecast that Harmony’s increase in gold production would be even higher than the 13% increase in the 12 months to June 30.

Production profit rose 20% to R5.3-billion and cash generated by operating activities totalled R3.8-billion. The ratio of net debt to earnings before interest, taxes, depreciation and amortisation (Ebitda) is one-to-one, which is the lowest in South African mining.

“We’re very comfortable with that ratio at this stage. As we bring in the production from Moab and Hidden Valley, which were not included for the full period, our Ebitda will increase and that ratio will come down. It is also our intention to repay our debt as soon as we can,” Abbott said.

Harmony’s margins have been expanded for two years running as a result of Abbott’s masterful strategy of both gold and currency hedging, which generated windfall cash flows of R3.6-billion ($276-million) since implementation in its 2016 financial year and R1.8-billion ($141-million) in the 12 months to June 30.

CAPITAL ALLOCATION

Capital of R2.7-billion was invested in Hidden Valley in the period, which will provide 400 000 oz/y of production, R3.5-billion was invested in Moab, which will provide 500 000 oz/y at a very high grade of more than 10 g/t and R4.8-billion was invested as stay-in-business capital.

Capital will be allocated in this financial year to secure permitting and funding for the Wafi-Golpu copper/gold project in Papua New Guinea.

A slide flashed on to a large screen showed that the company has five major organic growth opportunities to fill a production gap that will arise in financial years 2023 and 2024 when there is a lag ahead of Wafi-Golpu coming into production.

Top of the list of opportunities is the recovery of gold from tailings at low capital outlay. This is followed by shaft pillar mining opportunities at Great Noligwa, which again will involve low capital outlay, an opening up of new horizons at the opencast Kalgold mine following extensive exploration drilling, the extension of Hidden Valley again at moderate capital expenditure and the development of Zaaiplaats.

The current Hidden Valley mine will deplete in seven years and the extension will add another three years of mine life, Steenkamp said in response to Noah Capital Markets mining analyst René Hochreiter.

“I’m quite confident that we’ll be able to fill most of that gap with all the organic opportunities that we have available,” said Steenkamp.

At steady state, Wafi-Golpu, which is close to the city of Lae, will be producing 161 000 t of copper and 266 000 oz of gold a year over 28 years.

“Certainly at the lowest cost on the curve, it will actually produce gold at negative cost. It can be a game changer and it’s very important for the future of Harmony,” Steenkamp said.

Edited by Creamer Media Reporter

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