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Harmony Gold on track to being debt free and mining more gold

South Africa's No. 3 gold producer, Harmony, is well on track to reducing its net debt to zer by the middle of the year opening its doors to further expansion and the revival of its dividend.

Author: Lawrence Williams
Posted: Tuesday , 03 Mar 2009

TORONTO -

In an interview with Mineweb on the fringes of the PDAC Convention in Toronto. Harmony CEO, Graham Briggs, confirmed that the company was well on the way to meeting its target of being debt free by June. Helped by some good operating results and the strong gold price, the company is recording some excellent figures having succeeded in getting to grips with many of the operational problems which had been besetting it over the previous few years.

Briggs took over at Harmony as acting CEO following Bernard Swanepoel's resignation in 2007, and was appointed as full chief executive at the beginning of 2008. Since then he has focused on structural and operational issues which had been holding the company back, and while there may well be still some tweaking left to be done - in mining there always is - Harmony, under his tutelage, is now in a far more comfortable position than when he took over, showing good profits and is now almost debt-free.

Better gold prices have been more than helpful in the company achieving this as Briggs will confirm, but he is confident that the gold price, despite its recent dip, will remain strong going forward.

The debt-free position has been one of Briggs' principal focuses, with the belief that once this burden is removed it re-opens the way for Harmony to move forward. Expansions and acquisitions may be in mind, and he has stated that he would like to return Harmony to the dividend list once the debt has gone. As an indication of the progress in achieving this aim, Briggs points to the recent quarterly performance in the net debt position. As recently as June last year, net debt stood at R4.1 billion (around US$410 million), which was reduced to R1.2 billion by the end of the year, despite the company maintaining a strong capital expenditure programme on its operations. At this rate of debt decline Harmony should comfortably reach a zero net debt position by mid-2009 - a very creditable performance in these difficult times for the mining sector - although not perhaps quite so difficult for a major gold miner.

The decline of South Africa's Rand against the US dollar has also been helpful in terms of improving margins with the Rand gold price at record levels recently. Virtually all of Harmony's income is currently South African based. But looking ahead Briggs is very happy with the way the company's jv development in Papua New Guinea with Newcrest is going. Here construction at the Hidden Valley project is 74% complete and mill commissioning is on target for mid-2009. The mine is being geared up to produce 250,000 ounces of gold per annum and 4 million ounces of silver over a life of mine of 14 years.

But Harmony's future lies very much on home ground in South Africa with the major Doornkop project near Randfontein which is being expanded from its current production level of 12,000 ounces of gold a quarter up to 297,000 ounces a year by 2012 - with a prospective reserve of 16.1 million tonnes grading 5.15 grams per tonne. The 'new mine' here will be to exploit the South Reef. The old Randfontein mined a multiplicity of reefs, but the South Reef was of primary importance there in its heyday when it was one of South Africa's largest gold mines.

The other major South African projects at the moment are the Elandsrand deep levels extension on the Far West Rand which is also due for completion in 2012 and at Phakisa in the old Orange Free State gold mining area - the heart of Harmony's South African gold operations - which is due on stream in mid 2011 with a production target of 253,000 ounces a year.

Harmony is already one of the world's largest gold miners, and its new developments will see it expanding further, with the prospect of further new projects and/or acquisitions once the debt has been eliminated and it builds a very strong financial position. It is a relatively high cost producer though, so the gold price performance is particularly relevant to its continuing progress. But if the price stays above $800 an ounce the company is well set for further growth and as the fine tuning continues should see further improvements in efficiency and profits.