Wrap Text
Harmony’s Golpu Project to proceed to feasibility
Harmony Gold Mining Company Limited
Registration number 1950/038232/06
Incorporated in the Republic of South Africa
ISIN: ZAE000015228
JSE share code: HAR
(“Harmony” or “the Company”)
Harmony’s Golpu Project to proceed to feasibility
Low capital development cost and high grades maximise free cash flow
• Staged development of the Golpu deposit with the first stage
(‘Stage 1’) targeting the upper higher grade portions of the ore body
• Stage 1 comprises of two block caves. The first block cave
operating at 3Mtpa and first production forecast for 2020, followed
by a deeper block cave operating at 6Mtpa in steady state from 2024
• Attractive return on investment, with an estimated Internal Rate of
Return (IRR) of 17%
• Lowest quartile cost for copper including capital (C3) at
US$1.42/lb and the cash cost for gold at approximately negative
US$1 700/oz
• Approximate life of Stage 1 is 27 years, with annual production
peaking at 320 000 ounces of gold and 150 000 tonnes of copper in
2025
• Substantially lower project capital, with maximum negative cash
flow of US$785m to be funded by Harmony
Harmony Gold Mining Company Limited (Harmony) is pleased to advise
that the Harmony board has approved the updated prefeasibility study
(PFS) of the Golpu Project in Morobe Province, Papua New Guinea (PNG)
and has agreed to progress the project to feasibility study stage
(FS).
This updated prefeasibility study covers the first stage of Golpu’s
development. Stage 1 of the Golpu development targets the upper
higher value portion of the orebody. Work will continue on optimising
a second stage mine development (Stage 2), which will encompass the
rest of the ore reserves. Both the feasibility study for the first
stage and the updated prefeasibility study for the second stage of
the project are scheduled to be completed by the end of calendar year
2015.
The updated prefeasibility study entails low development capital
cost, targets high grades to maximise free cash flow generation and
demonstrates the potential of this world class ore body.
“The updated prefeasibility study supports our view that Golpu is a
spectacular ore body with a large copper component, affordable and
mineable. Key objectives of the study have been achieved by reducing
the capital of the project, lowering operating costs and improving
the rate of return”, said Graham Briggs, chief executive officer
(CEO) of Harmony.
Harmony’s CEO notes that the development of the Golpu Project aligns
with Harmony’s strategy of profitable, low-cost operations: “The
conclusion of the updated PFS is a major project milestone and has
demonstrated the significant potential of this world-class orebody,
which contains mineral resources of 20 million ounces of gold and 9.4
million tonnes of copper. Attributable annual production for Harmony
is significant and averages at 500 000¹ gold equivalent ounces per
year in years 2024 to 2029. Stage 1 is expected to have a life of
approximately 27 years”.
The Golpu project team, with the assistance of WorleyParsons as
project consultant, have incorporated a total of 52 000 new drill
core samples into the updated study - significantly improving the
understanding of the geological framework. This has redefined the
boundaries of the high grade porphyry event in the upper part of the
orebody, which will be mined by block caving method. This enables a
reduction in the size of the footprint of the block caves compared to
the 2012 prefeasibility study significantly reducing capital
requirements.
The Stage 1 project capital on a 100% basis is estimated at US$2.3bn,
yielding an attractive return on investment with an internal rate of
return of 17%. The updated prefeasibility study recommends the
development of twin exploration declines to establish further
geotechnical and geological data to support the feasibility study. A
decision on the declines is anticipated in the first half of 2015.
The two proposed block caves in Stage 1 are designed to access
approximately 40% of the contained metal (gold and copper) of the
Golpu reserve. The approximately 60% remaining of the reserve would
be extracted by a future deeper block cave (Stage 2). The mining and
processing infrastructure of Stage 1 would then be utilised to
support development of Stage 2.
Engagement with key stakeholders, including the PNG national
government, the Morobe provincial government, landowners and
community representatives continues to ensure clear alignment on the
project objectives.
Golpu has the potential to deliver significant benefits to local and
regional communities and the broader economy of Papua New Guinea,
including local business opportunities, taxation and royalty revenues
to all levels of government. It will also offer benefits through
training and employment opportunities, business and community
development programmes, health and education investments and improved
regional infrastructure.
Environmental baseline studies and risk and impact assessments were
undertaken as part of the updated pre-feasibility study and will be
further developed during the feasibility study in preparation for the
submission of an Environmental and Social Impact Assessment to the
PNG Government for consideration.
Harmony and Newcrest each own 50% of the Golpu Project through the
Wafi-Golpu Joint Venture (WGJV). The PNG government retains the right
to acquire up to a 30% interest in the project, at any time up to the
date of granting the mining lease, at a price equal to the sunk costs
at the date of acquisition. If this right is exercised, the
government becomes a full equity partner in the project.
“The Golpu project is a significant value accretive game-changer for
Harmony”, says Graham Briggs, CEO of Harmony. “Harmony intends to
fund the earlier stages of the project from internal cash flows, and
reviewing other funding options for the latter stages. In the current
environment of volatile gold prices, we are focussed - more than ever
- on cost control and cash generation at existing operations. In
addition, shareholder value is created through investing in Golpu,
securing a sustainable, profitable future for Harmony.”
Key items for Stage 1 (100%)
Area Measure Unit
Production First ore Date 2020
Steady-state production Date 2024
Ore mined Mt 146
Life of Stage 1 Years 27
Cu metal produced Mt Cu 2.2
Au metal produced Moz Au 3.7
Peak gold production (Year
koz pa 320
2025)
Peak copper production (Year
kt pa 150
2025)
Gold recoveries % 77
Copper recoveries % 94
Capital Project capital US$bn 2.3
Sustaining capital US$bn 0.8
Total life of Stage 1 capital US$bn 3.1
Maximum negative cash flow US$bn 1.6
Operating US$/t
Total operating cost (real) US$/lb
Cash cost (C1) (after gold Cu 34.6
credits) US$/lb 0.78
Total production cost* (after Cu 1.42
gold credits) US$/oz ~ negative
Cash costs (after copper Au 1 700
credits) US$/oz ~ negative
Total production cost* (after Au 950
copper credits)
Economic
Gold price US$/oz 1 250
assumptions
Copper price US$/lb 3.10
Exchange rates AU$/US$ 0.90
PGK/US$ 2.58
Stage 1
Percentage of reserve utilised % ~40
outcomes
Internal Rate of Return
% 17
Net present value (at a
US$bn 1.1
discount rate of 8.58%)
*Includes
capital
Overview of mining operations
Golpu is expected to comprise of at least two stages.
The updated prefeasibility study for Stage 1 of Golpu recommends two
block caves accessing the high value core of the Golpu ore body.
Stage 1 extracts 146Mt at an average grade of 1.02g/t gold and 1.60%
copper. The proposed start-up production rate is 3Mtpa mined from
Block Cave 1 (BC1) and 6Mtpa mined from the deeper Block Cave 2
(BC2).
BC1 is situated approximately 425m below surface and will extract
12Mt of cave ore over a five year period at a peak production rate of
3Mtpa. During caving operations, ore from the block cave draw points
will be delivered by diesel load haul dump units to an underground
jaw crusher and then conveyed to surface.
BC2 is situated approximately 1 050m below surface. BC2 will be
mined at a rate of 6Mtpa to extract 134Mt of cave ore over a 23 year
period.
Access to the orebody is planned to be via twin declines developed
from the Watut River flats. During the production phase it is
envisaged that an inclined conveyor is installed in one of the
declines for transportation of production ore to the process plant
located near the portal; the other being used for ventilation.
Schematic of proposed operations – refer to website
The two proposed block caves in Stage 1 are designed to access
approximately 30% of the tonnes, which contain approximately 40% of
the metal (gold and copper) of the Golpu reserve. The mining and
processing infrastructure would then be utilised to exploit the
remaining 70% of the tonnes, which contain about 60% of the contained
metal (gold and copper) of the Golpu reserve. Stage 2 will focus on
block cave 3 (BC3). Study work completed to date on Stage 1 and Stage
2 combined indicates no material difference in metal recovered from
the 2012 reserve.
Schematic cross section of Golpu porphyry deposit 2012 compared to
2014 - refer to website
Capital costs and funding
The capital cost estimate has been completed to a Prefeasibility
level of accuracy and includes all capital from 1 January 2015.
Stage 1 capital cost
estimate (100%)
Area US$m
Direct costs
Mine 893
Process plant 155
Infrastructure 554
Total direct
costs 1602
Indirect costs
Project
management 284
Owners' costs 127
Total indirect
costs 411
Contingency 287
Total capital
costs 2 300
Harmony’s 50% share of study and capital requirements for Stage 1 is
estimated to be as set out in the table below.
Harmony equity (35%)
Harmony equity
PNG Government
(50%)
buy-in
Project capital Project capital
Year
US$m US$m
2HFY15 (15) (15)
FY16 (55) (55)
FY17 (105) 45*
FY18 (205) (140)
FY19 (250) (175)
FY20 (155) (110)
Total (785) (450)
*Assuming PNG government buys a 30% interest in the project
Harmony will fund the first three years from operating cash flows and
from FY18 onwards, debt financing will also be considered. From FY21
Stage 1 will be cash flow positive after capital expenditure.
Operating costs
The key driver for the mining costs is the power requirements for
ventilation, cooling and mine dewatering, which accounts for $6.56/t
(55%) of the mining costs. The key driver for ore treatment costs is
also power, which accounts for 42% of treatment costs.
Power is a key project driver that influences both mining and
treatment cost assumptions. The study has used a power price
assumption of US20c/kWh. The Project will source bulk power from
either its own power station or from an independent power producer.
Operating costs US$/t
Underground mining 11.83
Treatment 12.86
Infrastructure 3.17
General and
6.78
administration costs
Total 34.64
Production profile of Stage 1
The Stage 1 production schedule below outlines the ore mined and the
metal recovered from BC1 and BC2 (on a 100% basis).
Production schedule graph – refer to website
The cash flow for Stage 1 forecasts a maximum negative cash position
of US$1.6bn in 2020 as the project moves into initial production from
BC1. Once BC2 is in full production in 2024, it is estimated the
project will produce significant free cash flows, with total
undiscounted free cash flow of approximately US$5.8bn over the 27
year life of Stage 1.
Stage 1 positions Golpu as a lowest quartile cost producer with
copper including capital (C3) at US$1.42/lb and the cash cost for
gold at approximately negative US$1 700/oz.
Process plant, infrastructure and waste management
The updated study anticipates the construction of a 6Mtpa process
plant scheduled for commissioning in the first year of production in
calendar year 2020, which will produce a copper-gold concentrate.
The Golpu project is located in a greenfields location. The main
infrastructure requirements for the Golpu project are access roads,
tailings storage, water management, port facilities and power supply
and transmission.
It is expected that the copper-gold concentrate will be filtered at
the mine site and transported to the Port of Lae by trucks for the
initial production, with the concentrate to be pumped to the
filtration plant located at the port as production rates increase.
Summary of next steps
The updated prefeasibility study recommends the development of twin
exploration declines to establish further geotechnical and geological
data. A decision on the declines is anticipated in the first half of
2015.
The feasibility study will address and finalise technical issues
identified in the prefeasibility study. It will progress further
environmental, social and cultural heritage studies associated with
access roads and tailings storage. Further work will also be
conducted to identify the optimal solution for power for the
operations.
Advanced exploration activities are subject to board and government
regulatory approval. The Harmony board will consider the advanced
exploration activity in the first half of calendar year 2015, once a
pre-development agreement has been concluded.
Both the Stage 1 feasibility study and the updated prefeasibility
study for Stage 2 are targeted to be completed by the end of calendar
year 2015.
¹ Equivalent gold ounces converted by using a copper price of
US$3.10/lb and a gold price of US$1250/oz
Please also refer to www.harmony.co.za/investors for the presentation
in support of this release.
Forward looking statements
This release contains "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and 21E of the Securities Exchange Act of 1934, as
amended, that are intended to be covered by the safe harbour created by such sections. These
statements may be identified by words such as “expects”, “looks forward to”, “anticipates”,
“intends”, “believes”, “seeks”, “estimates”, “will”, “project” or words of similar meaning.
All statements other than those of historical facts included in this release are forward-
looking statements, including, without limitation, (i) estimates of future earnings, and the
sensitivity of earnings to the gold and other metals prices; (ii) estimates of future gold
and other metals production and sales, (iii) estimates of future cash costs;( iv) estimates
of future cash flows, and the sensitivity of cash flows to the gold and other metals prices;
(v) statements regarding future debt repayments; (vi) estimates of future capital
expenditures; and (vii) estimates of reserves, and statements regarding future exploration
results and the replacement of reserves. Where the Company expresses or implies an
expectation or belief as to future events or results, such expectation or belief is expressed
in good faith and believed to have a reasonable basis. However, forward-looking statements
are subject to risks, uncertainties and other factors, which could cause actual results to
differ materially from future results expressed, projected or implied by such forward-looking
statements. Such risks include, but are not limited to, gold and other metals price
volatility, currency fluctuations, increased production costs and variances in ore grade or
recovery rates from those assumed in mining plans, project cost overruns, as well as
political, economic and operational risks in the countries in which we operate and
governmental regulation and judicial outcomes. For a more detailed discussion of such risks
and other factors (such as availability of credit or other sources of financing), see the
Company's latest Annual Report on Form 20-F for the year ended June 30, 2014 which is on file
with the Securities and Exchange Commission, as well as the Company's other SEC filings. The
Company does not undertake any obligation to release publicly any revisions to any "forward-
looking statement" to reflect events or circumstances after the date of this presentation, or
to reflect the occurrence of unanticipated events, except as may be required under applicable
securities laws.
Competent Persons Statement
The information in this presentation that relates to Exploration Results, Mineral Resources
and Ore Reserves is based on information compiled by Gregory Job, BSc, MSc, who has 26 years’
relevant experience and is a member of the Australian Institute of Mining and Metallurgy
(AusIMM) and a full-time employee of Harmony. He is entitled to participate in Harmony’s
equity long term incentive plan, details of which are included in Harmony’s 2014 Remuneration
Report. Mr Job has sufficient experience which is relevant to the styles of mineralisation
and types of deposits under consideration and to the activity which he is undertaking to
qualify as a Competent Person as defined in the 2012 Edition of the Australasian Code for
Reporting of Exploration Results, Mineral Resources and Ore Reserves (the “JORC Code”). Mr
Job consents to the inclusion in this presentation of the matters based on this information
in the form and context in which it appears. For details of Exploration Results, Mineral
Resources and Ore Reserves refer to the Harmony website.
For more details contact:
Marian van der Walt
Executive: Corporate and Investor Relations
+27 (0) 82 888 1242 (mobile)
Henrika Ninham
Investor Relations Manager
+27 (0) 82 759 1775 (mobile)
12 December 2014
Sponsor:
J.P. Morgan Equities South Africa Proprietary Limited
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