HARMONY Gold sought to allay fears on Thursday about the funding of a major gold project in Papua New Guinea, pointing to its strong cash flow, low debt and undrawn lending facilities, as well as the quality of the project.
One of the most pressing questions raised at Harmony’s results presentations is how Harmony will fund its half of the roughly $5bn needed to bring the Wafi-Golpu copper porphyry deposit into production.
Harmony will release the results of a pre-feasibility study into the Golpu part of the project on August 29, which will give the market a line of sight on funding requirements and timelines.
Harmony and its partner, Australia’s Newcrest Mining, are accelerating work on the Wafi part of the project so that both parts are included in the full feasibility study, Harmony CEO Graham Briggs said on Thursday.
Steve Shepherd of JP Morgan Cazenove asked whether Harmony should not look to "monetise" some of its other gold discoveries in Papua New Guinea to raise money towards Wafi-Golpu.
"Is it feasible for a 1.2-million ounce gold producer in South Africa to finance all of this?" he asked at Harmony’s results presentation.
Mr Briggs said he failed to see why this was such an issue. "We just don’t see the problem in financing the project," he said.
"The big expenditure comes in three or four years’ time. Our plans at the moment look very healthy, not only for the next two years to take us through a feasibility study and early works programme, but it takes us into that period," Mr Briggs said.
The copper from the project could be sold forward.
"It is a great project. It has excellent grades and we’ll show you on the 29th it will be at the very low end of the cost curve," Mr Briggs said.
The gold equivalent grade of the deposit is about six grams a ton, making it a very desirable project, he added.
"If we need to find finance we’ll find it easily," he said.
Harmony’s financial director, Frank Abbott, said the company could write a cheque for R4bn because of its healthy financial situation. He said Harmony had paid capital expenditure of R3.2bn during the year in cash, and a R431m dividend, and had still grown its cash holdings and reduced its net debt to R43m.
Harmony Gold reported strong results for the year to June, with operating profit soaring 80% to R5.896bn in spite of gold production slipping 2% to 1.275-million ounces.
"The group’s South African operations are now showing the benefits of a number of months of restructuring and are now generating significant cash flow," said Imara SP Reid’s Percy Takunda.
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