HARMONY Gold outlined the financial metrics to build a large copper and gold mine in Papua New Guinea for a cost of $2.6bn, a project that will dwarf all of its South African mines and generate strong cash flows.

Analysts said they still regarded the project as highly risky and one that could, if Harmony’s assumptions of copper and gold prices were wrong, potentially destroy the company.

Harmony’s 50% share of the R41.2bn first stage of the Wafi project it shares with Australia’s Newcrest Mining is more than its R17.6bn market capitalisation. Harmony would have to raise $250m over a three-year period from 2021 towards its share of developing two block caves at Wafi for an average 102,000 tonnes a year of copper and 198,000oz of gold up to 2033.

The high-volume block cave mining method was capital intensive to set up, but had low operating costs, said Johannes van Heerden, CEO of Harmony’s Southeast Asia division.

"Once built, this mine will be in the lowest-cost quartile of copper producers … 70% of our revenues will be copper-driven," he said.

In the two-stage plan to build the mine, the partners would target the high-grade, shallower portion of the carrot-shaped deposit, building twin 3km-long declines to develop the first of three planned block cave mines, one under the other, he said.

If the Papua New Guinea government bought the full 30% of the Wafi project it has a right to, not only would Harmony receive a cash injection of $37m in 2019, but its capital expenditure commitments in the expensive years would fall to manageable levels, Harmony chief financial officer Frank Abbott said.

But some analysts were not as upbeat about the Wafi project as Harmony’s management. Johann Steyn, an analyst from Citi, said while the project looked impressive and a lot of work had clearly gone into the studies to develop the mine, there was still a level of risk.

"The key trouble for something like this is it looks exceptionally exciting. It looks as if it can be hugely valuable, but the execution risk on something so complex can really be the swing factor between this being very profitable and being massively value destroying," Mr Steyn said on Monday.

Mr Van Heerden said Harmony and Newcrest had learnt valuable lessons from the construction and operation of Hidden Valley, a mine that is the subject of a study by the partners as to whether to invest a further $50m in the perennially loss-making operation or to sell it or put it into care and maintenance.

But Mr Steyn said that if the gold price were to fall sharply to $1,000/oz for the first three or four years of operations, or if the project was delayed for two more years, "it could put you out of business."

"Assessing the downside risk, to me it seems extraordinarily big," he said.

Mr Abbott said the capital was needed over a long time and that Harmony’s mines in SA were generating a lot of cash, leaving the company debt free by the end of December.

Harmony would pay for its portion of the development, he said. The mine was important to Harmony because it would become by far its biggest source of metal and profits, dwarfing even its biggest South African mine, he said.

Harmony and Newcrest had set two years aside to get the Wafi project fully approved and permitted by the government, local authorities and communities, basically putting the project into care and maintenance until those requirements had been met, Mr van Heerden said, basing the estimate on the time it took the partners to secure permits for Hidden Valley.