Shareholders grill Harmony Gold

• CEOs face questions on Hidden Valley mine and investment plans

Harmony Gold’s presentation of its strong six-month financial and operational performance and first interim dividend in four years was almost overshadowed by tough questions about the miner’s investment plans.

CEO Peter Steenkamp and Johannes van Heerden, the CEO for Southeast Asia, were hardpressed to defend a decision to buy the 50% of the Hidden Valley gold and silver mine in Papua New Guinea it did not already own and invest $180m to get it back into commercial production of 180,000oz of gold and 3-million ounces of silver from June 2018.

Harmony’s plans to buy an operating gold mine producing more than 100,000oz a year in SA, Africa or Papua New Guinea to replace ageing South African mines also came up for scrutiny, with Johann Steyn from Citigroup particularly critical.

“I think it’s highly debatable if you will be a more profitable firm if you have a strategy of maintaining your size. Most likely, a lot more cash flow will come out of Harmony if it became a smaller operation that does not reinvest cash back into the business as you have done and most gold companies have done over the past 20 years.”

Steenkamp said Harmony needed to get to a critical mass of 1.5-million ounces of gold output a year from about 1.1-million ounces now as it moved into the construction of the Golpu copper and gold mine it shares with Newcrest Mining in Papua New Guinea in the next few years.

Harmony was looking at a number of targets and had confidentiality agreements in place, precluding him from divulging any details, said Steenkamp.

The company was looking for a mine producing 100,000oz to 200,000oz of gold a year with 2-million ounce resources and all-in sustaining costs of $950/oz. This purchase, depending on the size, would be funded through debt and cash and possibly a rights issue.

Steenkamp responded robustly to a suggestion from Steyn that a number of Harmony’s investments including Hidden Valley, Phakisa, Target and Kusasalethu did not “turn out to be successful and in fact a lot of these were failures”.

He said: “I don’t necessarily agree with all what you’re saying. I think Phakisa is a good success story, but I don’t want to dwell too much on things in the past. I want to focus on things that I’ve found. I’ve spent a lot of time at Hidden Valley.

“Technically, there’s no reason this mine can’t do well.”

Adrian Hammond, an analyst at Standard Bank, also questioned the investment in Hidden Valley, saying it did not have a good history, alluding to years of losses and underperformance.

Steenkamp and Van Heerden said Hidden Valley would become a $850-$950 ounce producer and an important mine in the group. They had a robust business plan backed by sound engineering to make the mine a success, the executives said.

Harmony paid its first interim dividend in four years, returning 50c to shareholders for the six months to end-December, adding to the 50c per share dividend it paid at the end of its 2016 financial year last June. It cut its net debt to R289m from R1.1bn at the end of June as net profit ballooned to R1.5bn compared to a R445m loss in the same period a year earlier.