Harmony’s recent buys stand out
• An R8.4bn buying spree of AngloGold Ashanti’s SA assets pays dividends for the country’s largest gold miner
The recent R4.2bn purchase of the Mponeng mine by SA’s largest gold producer, Harmony Gold, offset the cost increases and production falls at a few of its older assets during the past nine months.
The recent R4.2bn purchase of the Mponeng mine by SA’s largest gold producer, Harmony Gold, offset the cost increases and production falls at a few of its older assets during the past nine months.
Harmony has warned of a slightly lower production profile for the full year to end-June because of repairs and maintenance of its mill and conveyor belt system at its Hidden Valley gold and silver mine in Papua New Guinea.
Harmony lowered its forecast by 100,000oz to between 1.50-million and 1.55-million for the full year.
The Mponeng mine, tailings retreatment operation Mine Waste Solutions and a few mothballed mines were purchased from AngloGold Ashanti in September 2020 and started contributing to Harmony from October.
In its release of operational data for the first nine months of its 2021 financial year, the benefit of these two production assets was apparent, with Mponeng the third-largest source of gold for the period and with relatively low costs, which offset the difficulties at the Target and Joel mines.
Mponeng is the world’s deepest mine at 4km below surface.
Operating free cash flow for the nine months shot up by almost 80% to R5.3bn compared to the same period a year earlier. Harmony had net debt of R933m at the end of March.
Singling out the March quarter, Harmony said a lower rand gold price and softer production because of an unusually slower start to operations after the yearend break meant reduced cash flows for those three months.
It did not give any details apart from noting net debt increased by R373m during the period.
The inclusion of six months of output from Mponeng, formerly called Western Deep Levels and which began operating in 1987, and Mine Waste Solutions, combined with a 23% higher rand gold price, saw Harmony post increased production profit at its 15 assets in SA.
Harmony bought the Moab Khotsong mine from AngloGold for $300m (R4.2bn) in 2018.
Moab Khotsong and Mponeng generated the largest production profit in the group of R1.87bn and R1.1bn, respectively, out of the R5.7bn total for the 10 underground mines in SA.
The Mine Waste Solutions contribution of R463m production profit since October placed it in second place behind the dumps reprocessing business in Harmony’s five surface operations in SA. The dumps business generated R812m of production profit for the full nine months.
Overall, Harmony’s gold output increased by nearly 14% in the nine months to 1.124-million ounces. However, a 16% increase in all-in sustaining costs to nearly R721,000/kg took some of the shine off the production performance.
“The primary drivers behind this increase were, again, royalties on the back of an increase in the rand gold price and Covid-19-related costs, while the company has also seen an increase in costs relating to safety as it continues on its safety transformation journey,” Harmony said.
Harmony is putting up steel mesh netting at its underground operations to reduce injuries and fatalities resulting from falling rocks in tunnels and working areas, as well as from seismic events. Higher steel prices made this a more expensive project.
Five people were killed on Harmony’s mines during the nine months.
The mechanised Target underground mine in the Free State had a difficult quarter, with the failure of a pillar — a piece of unmined rock left in underground workings to support tunnels.
Target was the only mine in the group to report a loss for the nine months, notching up a production loss of nearly R108m as its all-in sustaining cost shot up to R1.16m/kg. In the previous nine-month period it had an operating profit of R49m.
“With a sturdy balance sheet and astute capital decisions, Harmony is well positioned for the next phase of its growth strategy,” the company said.
“The company has a pipeline of cash-enhancing projects that will boost its cash flow margins and sustain its production for many years to come.”