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UPDATE 2-S.Africa's Harmony Gold scales back Papua-New Guinea project
May 6, 2014 / 12:35 PM / 4 years ago

UPDATE 2-S.Africa's Harmony Gold scales back Papua-New Guinea project

* PNG project funding now “well within reach”

* Harmony undertaking independent safety review (Adds Papua New Guinea project details)

By Ed Stoddard

JOHANNESBURG, May 5 (Reuters) - South Africa’s Harmony Gold has scaled back the size and expenditure on building its Papua New Guinea Wafi-Golpu mine, enabling it to raise funding for the project, its chief executive said.

The gold and copper project, a joint venture with Newcrest Mining, sits on deposits with a metal content estimated to be worth $85 billion at current prices. The plans unveiled in 2012 called for spending of almost $6 billion to develop it.

The mining firm is now looking at a “significantly lower capex, something that will be well within our reach to fund”, CEO Graham Briggs told Reuters on Tuesday, after Harmony released its results for the March quarter.

“August is the time when we will be able to release more information on that,” he added.

Harmony has scaled back its original plans as mining investors globally have shied away from big capital expenditures on projects in the face of rising costs and falling prices.

“The timing of big builds and the raising of that sort of money, and debt levels and shareholder views changed our minds, and now we are talking about a significantly smaller mine,” Briggs said.

“In 2012 we were looking at roughly a mine that would be producing somewhere between 20 and 25 million tonnes a year. We are now looking at between 1 and 5 million tonnes a year,” he said.

Harmony said on Tuesday it had a cash balance of over 2 billion rand ($190 million).

That level would have made it difficult for Harmony to raise almost $3 billion to fund its share of Wafi-Golpu in the current environment of investor caution.

Briggs also said the mine’s start-up date would probably move forward now from a previous estimate of 2019.


Harmony also said it had swung back to a quarterly profit despite a fall in production as it benefited from a smaller foreign-exchange loss on a U.S. dollar-denominated loan.

The company said it had begun a safety improvement drive to avoid a repeat of a February accident at its Doornkop mine, where a fire and rock fall killed nine miners.

Briggs said the company was taking “fairly drastic measures” on safety.

“We have independent outsiders doing a complete safety review on all our operations ... We have to have a safe mine environment,” he said on a conference call. The review’s outcome will be known in around two months.

South Africa’s gold mines are the deepest and among the most dangerous in the world, but the industry has made strides to improve safety in recent years.

Because of the Doornkop incident and other operational problems, the company’s gold production fell 12 percent in the quarter to 269,000 ounces.

But Harmony cashed in on a higher rand price for gold, which increased 8 percent to 451,000 rand/kg because of a weakening of the domestic currency. This benefits metals producers in South Africa because most of their costs are in rand.

The company reported headline earnings per share of 12 cents for the quarter to the end of March after a loss of 21 cents in the previous three months.

Headline earnings are the main profit measure in South Africa, stripping out various one-off items.

The grade of the ore that Harmony is mining improved by 5 percent to 5.1 grams per tonne in the third consecutive quarter of improvement, a trend that will also flow to its bottom line. ($1 = 10.5157 South African Rand) (Editing by Tom Pfeiffer and Jane Baird)

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