Harmony back in the black, eyes acquisitions

JOHANNESBURG (miningweekly.com) – Gold miner Harmony Gold has bounced back into the black and is now eyeing acquisitions to reach its target of becoming a 1.5-million-ounce-a-year gold producer, at below $950/oz, within three years.

Declaring its first dividend in four years, CEO Peter Steenkamp reported a net profit of R949-million for the 12 months to June 30, a significant swing from the R4.5-billion net loss reported in the prior year.

The JSE-listed miner’s headline earnings a share were 221c in the year under review, a turnaround on the 189c headline loss a share posted in 2015.

Revenue for the year under review increased 19% to R18.3-billion, with the average rand gold price increasing by 21% to R544 984/kg.

Further, to create “cash certainty”, Harmony in July entered its first hedge – a two-year gold forward sale contract for 432 000 oz, equating to 20% of the group’s total production.

This move will likely deliver currency gains of R1-billion by the end of June 2017.

“The sharp increase in the rand per kilogram gold price provided us with an opportunity to lock in 20% of our gold sales at a very attractive average rate of approximately R682 000/kg,” explained Harmony FD Frank Abbott.

Meanwhile, Harmony reduced its net debt by 54% to R1.08-billion, with the company well on track to achieve debt-free status by the end of the year.

“It was indeed a good year for Harmony,” Steenkamp added, pointing out that the year under review realised increased margins, strong cash flow, a 6% increase in grades – for the fourth consecutive year – to 5.02 g/t and the achievement of its 1.1-million-ounce production guidance.

All-in sustaining costs (AISC) for all operations for the year were also kept under control, edging up 3% to R467 526/kg.

Now the group is mulling further growth opportunities, increased diversification into copper through the Golpu prospect in Papua New Guinea (PNG) and portfolio-enhancing gold asset acquisitions.

Harmony’s three-year strategy targets an increase in gold production to 1.5-million ounces at an AISC of $950/oz through the assessment of organic growth opportunities and growing, nurturing and developing core assets, with plans to integrate Tshepong and Phakisa, which could potentially see the mining of 1 t a month of gold, and the completion of the prefeasibility study for a treatment plant in the Free State.

Harmony aims to develop Golpu Stage 1, increasing its gold and copper footprint, which currently stands at 40% copper and 60% gold, as it continues to diversify into copper.

Harmony intends submitting an application within the next few weeks for a special mining lease under the PNG Mining Act.

However, with 220 000 oz of gold expected to be depleted from Harmony’s portfolio within the next five years, through harvesting operations that are high cost and have a short life, including Kusasalethu, Masimong and Unisel, the company needs to target acquisitions that will bolster its ambitions.

Setting the bar high, the group will only consider low-cost, cash-generative gold mines in Africa, including South Africa, and PNG, with one- to two-million-ounce reserves, delivering more than 100 000 oz/y, and having a life-of-mine beyond ten years.

Steenkamp noted that some targets have already been identified, but have not yet reached a conclusive stage.

In the 2017 financial year, Harmony plans to produce 1.05-million ounces at $1 100/oz.

The company declared a dividend of 50c a share for the 2016 financial year.