Confident, cash-pumping Harmony stands by 1.1Moz production forecast

JOHANNESBURG (miningweekly.com) – A confident, cash-pumping Harmony Gold on Thursday told the market that its 1.1-million-ounce production forecast for the financial year to June 30 still stood.

The JSE- and NYSE-listed gold mining company outlined in a release to Creamer Media’s Mining Weekly Online that production in the March 2016 quarter was 6% higher than in the comparative quarter, on a higher-than-forecast 5 g/t grade and stronger cash flows.

Harmony is well positioned to benefit further from the higher gold price.

Its March quarter cash operating costs were R455 000/kg against a rand gold price of R600 000/kg at an exchange rate of R15.80 to the dollar.

In dollars, its cash operating costs are $900/oz compared with a gold price at the time of going to press of $1 239.96/oz.

Foreign exchange hedging contracts entered into in February are providing the company with cash certainty, with the cash generated being used to cut debt, which fell 35% to R1.7-billion in the March quarter from R2.5-billion at the end of the previous quarter.

“Our focus is firmly set on further improving our safety, achieving close to our guided production of about 1.1-million ounces for the financial year 2016 and repaying all of our debt,” Harmony CEO Peter Steenkamp commented.

Last month, Harmony FD Frank Abbott told a Deutsche Bank virtual investor conference in which Mining Weekly Online took part that a resuscitation of dividend payments would be considered by the company at the June board meeting.

Against the backdrop of the highly leveraged gold mining company's market capitalisation having trebled since December 10, Abbott said that debt could be repaid before the end of this calendar year at current gold prices.

“Our performance is being aided by a much higher rand per kilogram price,” Abbott told the conference.

It was under his direction that the company hedged the currency to lock in the weaker rand for 12 months.

He said at the time that unit costs were poised to be shaved still further as a result of a grade of 5.33 g/t being in sight, which was up from the 5 g/t guided.

The company would not succumb to mining at lower grade on the high rand price and, with costs down, was also benefiting from a higher dollar gold price, which was strengthening cash flow considerably.

Abbott made the point that Harmony remained one of the few mining companies that was continuing to spend on projects, notably in tandem with Newcrest at the copper-gold Golpu prospect, in Papua New Guinea, and at its 100%-owned Kili Teke, where exploration drilling is surprising on the upside.

The modular project approach being adopted at Golpu would provide future optionality for an asset with a 28-year life-of-mine that would take place on a reserve-classified deposit that feasibility studies had proved should be mined.

Golpu’s first phase net present value had been pushed to $2-billion, which would provide cash to develop Stage 2.

Graphics were flashed on to computer screens indicating Golpu’s plotted production would be well above each of Harmony’s many South African operations.

Harmony, which now reports twice a year instead of four times a year, is due to present its financial results for the six months and year ended June 30 on August 17.