Tailings streaming agreement concludes after 16 years

Last month, Harmony Gold Mining Company concluded the final delivery to the streaming agreement between gold-focused royalty and streaming company Franco-Nevada and its tailings retreatment operation Mine Waste Solutions (MWS).

With this streaming agreement contract – starting on December 17, 2008 – completed, MWS’s average gold price received will increase and will now be in line with market prices.

Consequently, MWS’s free cash flow will increase by more than R1-billion on a yearly basis, assuming the current spot rand/kg gold price.

Harmony subsidiary Chemwes, the owner of the MWS operation, entered a contract with Franco-Nevada Barbados (Franco-Nevada), where Franco-Nevada was entitled to receive 25% of all the gold produced through MWS at a predetermined price.

As part of the acquisition of Mponeng and related assets on October 1, 2020, MWS was included in the transaction, with Harmony assuming the obligations determined in the Franco-Nevada contract and delivering the outstanding 100 686 oz.

Franco-Nevada paid $125-million upfront for the right to purchase 25% of the gold production through MWS for a fixed amount until the balance of the gold cap is delivered.

The gold cap was a provision included in the contract, which stipulated the maximum quantity of gold to be sold to Franco-Nevada over the term of the agreement.

It was calculated that the gold would be delivered throughout the original life of the mine and would terminate once the required gold had been delivered.

The consideration for the contract was determined as the lower of the quoted spot gold price as per the London Metals Exchange – $400/oz, adjusted with a yearly escalation adjustment.

Tailings Expansion

Further, Phase 1 of the Kareerand tailings storage facility (TSF) expansion project has also been commissioned and delivered on time and within budget.

This increased storage capacity will enable the continued remining of old tailings in the region and extend MWS’s life-of-mine by 15 years, to 2040. This facility has been constructed in line with the guidelines of the Global Industry Standards on Tailings Management and now covers an area of 900 ha.

The broader expansion plans for MWS also include the addition of a fourth processing stream and increasing plant throughput capacity from 25-million tonnes a year to 28-million tonnes a year.

As a result, gold production at MWS is forecast to average about 110 000 oz/y over the life of the operation.

Harmony has also provided guidance for a further R1.2-billion in major capital expenditure to be deployed at MWS in the 2025 financial year as it completes Phase 1 of the extension.

A total of R2.3-billion was allocated to the TSF extension project in the 2024 and 2025 financial years, with the bulk being used to complete Phase 1.

The Phase 2 scope of work entails completing all outstanding aspects related to the construction of the entire area covered by the Kareerand TSF.

This includes the installation of the necessary infrastructure and services to reticulate the tailings for cyclone deposition. While Phase 1 – comprising 55% of the project – involved preparing the low-lying basin of the facility, Phase 2 – comprising the remaining 45% – applies to the north-western side of the basin.

Phase 2 is scheduled to be completed and commissioned by the end of the 2025 calendar year, after which operating free cash flow margins will be further boosted, the company reports.

“The conclusion of the Franco-Nevada streaming contract will allow MWS to fully deliver on the value of its production and contribute meaningfully to the broader Harmony group. This project will be repaid within three years,” says CEO Peter Steenkamp.

He adds that the profitability of this operation more than justifies the capital invested at MWS, and that expanding Harmony’s surface retreatment business is in line with the company’s strategy to invest in low-cost, high-margin, quality ounces.