Wrap Text
Golpu feasibility study confirms robust investment case
Harmony Gold Mining Company Limited
Registration number 1950/038232/06
Incorporated in the Republic of South Africa
ISIN: ZAE000015228
JSE share code: HAR
(“Harmony” and/or “the Company”)
Golpu feasibility study confirms robust investment case
- High grades, early cash flow
- Staged development with future optionality and flexibility
- Robust returns
- Lowest quartile costs for copper
- Significant attributable annual production for Harmony at
approximately 500 000 gold equivalent ounces per year during peak
production
Harmony Gold Mining Company Limited (“Harmony”) is pleased to announce
the results of the Golpu Stage 1 Feasibility1 and Stage 2 Prefeasibility
studies and declare updated Resources and Reserves for the Golpu
project. Both studies have confirmed a robust investment case – one
that supports proceeding with the project
“The Golpu porphyry is a world-class resource due to its size, high
grades, long-life and low operating costs. The design of the mine
allows optionality and flexibility to scale the operation up with a
relatively low capital investment in response to increasing commodity
prices. Golpu is part of Harmony’s future and will create value for our
shareholders in the long term”, says Harmony chief executive officer,
Peter Steenkamp.
The Stage 1 project capital on a 100% basis is estimated at US$2.6bn,
yielding an internal rate of return of 16%. The Stage 1 Feasibility
study justifies the development of twin exploration access declines,
with two proposed block caves designed to extract approximately 50% of
the contained metal (gold and copper) of the Golpu reserve. The
approximately 50% remaining reserve is to be extracted by a deeper
block cave (BC3) below block cave 2 (Stage 2). The common path mining
and processing infrastructure of Stage 1 will be utilised in support of
the development of Stage 2.
Engagement with key stakeholders, including the PNG national
government, the Morobe provincial government, landowners and community
representatives continues so as to ensure clear alignment on the
project objectives.
Key findings of the feasibility study2
• Low operating costs will withstand low commodity price cycles and
will benefit from high returns in higher commodity price cycles
• The updated Ore Reserve as at 31 December 2015, is estimated to
contain 5.5 million ounces of gold and 2.4 million tonnes of copper
(Harmony’s 50% interest)
• Project de-risked, with no significant deviation from the Stage 1
prefeasibility study economic outcomes and technical recommendations
• Golpu is amenable to “staged development”
- allows for optimising the capital efficiency
- progressively de-risks the project prior to further
investments
• Financial metrics3 of Stage 1:
- Net present value (NPV): US$1.1bn
- Internal rate of return (IRR): ~16%
- Maximum negative free cash flow (100% basis): US$1.8bn
• Stage 1 targets higher-grade sections of the deposit thereby
optimising free cash flow.
• The development of the near surface block cave 1 (BC1), as part of
Stage 1, affords early cash flow thereby reducing the maximum
negative cash outflow
• Block caving is the preferred mining method for the following
reasons:
- ore body geometry and indicative rock mass characteristics are
suited to block caving
- it is a high productivity, low operating cost underground mining
method
• The Golpu Stage 2 Prefeasibility study focused on optimising Stage 1
and then expanding block cave 2 (BC2) throughput before the
establishment of a third block cave (BC3) below BC2
• The project is located in close proximity to the City of Lae with
established infrastructure such as roads, marine port, airport, and
light industry
• Studies conducted by WorleyParsons (South Africa) and other
consultants under direct management of the joint venture project team
- more than 460 000 man hours worked on the latest studies
GOLPU STAGE 1 FEASIBILITY STUDY2
Stage 1 of the development of Golpu focuses on the development of two
block caves, BC 1 and BC 2 and all associated infrastructure required.
A third block cave, BC 3 is contemplated in Stage 2.
Refer to https://www.harmony.co.za/our-business/exploration/golpu-
project for Schematic 1: Cross section of Golpu porphyry4 -
Summary of key metrics for Stage 1 (100%)3
Stage 1
Area Measure Unit
FS
First ore Months from start
Production Month ~60
milled5 of earthworks
Steady-state Months from start
Month ~90
production5 of earthworks
Ore mined and
Mt 149
milled
Life of mine Years 28
Copper metal
Mt Cu 2.2
produced
Gold metal
Moz Au 3.6
produced
Peak Au
koz pa 297
production
Peak Cu
kt pa 135
production
Au recoveries % 70
Cu recoveries % 94
Capital Project capital USD billion 2.6
Sustaining
USD billion 1.6
capital
Total life of
USD billion 4.2
project capital
Maximum negative
USD billion 1.8
cash flow
Total operating
Production USD/t 30.66
cost (real)
Realisation cost USD/t 17.61
Cash cost6 USD/lb produced 0.59
Total sustaining
USD/lb produced 0.89
production cost7
Total production
USD/lb produced 1.45
cost8
Economic
Gold price USD/oz 1200
Assumptions
Copper price USD/lb 3.00
Exchange rates AUD/USD 0.80
PGK/USD 2.85
Discount rate
% 8.50
(real)
Stage 1 Net present
USD billion 1.1
Outcomes Value
Internal rate of
% ~16
return
The operating cost estimate covers all the operating expenditure to
mine, treat and administer extraction of the orebody, as well as
transporting, dewatering and ship-loading of the concentrate at the
Port of Lae. Cash cost and total production costs include treatment and
refining charges, freight to end customers, royalties and mining
levies. Total production cost includes sustaining and construction
capital costs. The realisation cost estimate in the financial model
equals U$17.61/t, this includes treatment and refinery costs,
concentrate transport and handling costs, and royalties and is not
included in the total operating cost. Any real, above inflation,
price escalation of costs to the time of forecast expenditure has been
excluded. Costs are however sourced and forecast in the underlying
currency in which they are incurred.
Additional information: BC1 and BC2
2016
Ore extracted Metric Feasibility
study
BC1 - tonnes Mt 8
BC1 – gold grade g/t 0.99
BC1 – copper grade % 2.00
BC2 - tonnes Mt 143
BC2 – gold grade g/t 1.05
BC2 – copper grade % 1.54
Key milestones9,10
The project will only progress into execution upon the grant of a
Special Mining Lease (SML) which will include all necessary permits,
approvals and consents required from the Papua New Guinea Government,
landowners and other relevant stakeholders. Assuming all such approvals
are obtained, the development timeline outlined in the Stage 1
feasibility study is set out below.
Refer to https://www.harmony.co.za/our-business/exploration/golpu-
project for Schematic 2: Development timeline
If signed prior to the grant of a SML, approval will be sought from the
Boards of both Wafi Golpu joint venture parties to bring forward the
advanced exploration work and earthworks for establishment of the
access declines. Advanced exploration via underground access will
afford an opportunity to obtain further data at depth and as a result,
a revisit of the current proposed Stage 1 base case capital profile,
schedule and execution approach.
Further work on the Stage 1 Feasibility study
As planned the following areas will be the focus of further assessment
to optimise the study outcomes and the incorporation of additional data
which will be collected in the next study phase.
Access declines: Declines towards the orebody affording drilling
platforms is required in order to verify geotechnical and hydrological
interpretations of the orebody at depth
Geotechnical interpretation: Further underground drilling and mapping
work is required to confirm assumptions of the rock mass
characteristics in each cave and the rock mass response to the changing
stress regime.
Tailings management: Further assessment of tailings disposal options
Hydrology: The management of water will be central to the success of
the mining operation, primarily due to the nature of the geological
environment of the project site. Further investigation and modelling of
water will focus on increasing the confidence in the geohydrology model
by obtaining additional data from drilling campaigns, modelling the
effectiveness of a dewatering bore field around the block cave
subsidence zone, and streamflow and surface hydrology modelling and
management
Permitting and environmental approvals: Work will continue with the PNG
Government to obtain statutory environmental approvals and other
regulatory permits for the project
Port and power: Further assessment of optimal arrangements for port
facilities and power supply
Community engagement
In parallel with further technical studies and project definition, the
local communities will be actively engaged and appraised of the project
development roadmap and next steps. In the December 2015 quarter, 90
meetings attracting 2,756 local community participants were held. The
three major communities involved are the Hengambu, Yanta and Babuaf
spread over 15 villages in the region. The local communities remain
supportive of the project.
Capital costs
Harmony’s share (50%) of the estimated capital requirements for Stage 1
from grant of the Special Mining Lease are approximately as follows:
Refer to https://www.harmony.co.za/our-business/exploration/golpu-
project for Schematic 3: Harmony’s (50%) estimate capital requirements
GOLPU STAGE 2 PREFEASIBILITY STUDY
The Stage 2 pre-feasibility study was conducted in parallel to the
Stage 1 feasibility study. The first step of Stage 2 looked at
debottlenecking the 6Mtpa capacity from Stage 1 BC2. The
debottlenecking increased the production capacity to 7Mtpa by making
minor and low cost modifications to the process plant grinding circuit
and the underground material handling system. (Stage 2-1)
The access declines to the block caves in both the Stage 1 feasibility
study and Stage 2 pre-feasibility study were treated as common path
access imbedding optionality and flexibility in the designs to scale
the operation up with a relatively low capital investment in response
to increasing commodity prices.
The second step for Stage 2 is increasing the mine’s production rate.
By optimising all existing Stage 1 infrastructure and increasing the
size of the underground loader fleet a higher mining production output
from BC2 can be achieved, without a significant capital investment. A
second process plant with a capacity of 7Mtpa will be constructed to
bring total plant capacity to 14mtpa. (Stage 2-2)
The third and final stage investigated by the pre-feasibility study for
Stage 2 was to extend the life of the operation with the construction
of a third block cave below BC2. Additional capital is required to
extend the decline access and conveyor belt system, the ventilation
system and establish the associated underground infrastructure (Stage
2-3).
Refer to https://www.harmony.co.za/our-business/exploration/golpu-
project for Schematic 4: Staged development of Stage 1 and Stage 2
11,12,13
Prefeasibility Study key metrics for Stage 2 (100%)
Description Unit Stage Stage 2 Stage 2 Stage 2
1 FS PFS 2-1 PFS 2-2 PFS 2-3
Financials
NPV* USD M 1,087 1,240 1,338 1,954
real
IRR* % 15.6 16.3 16.8 17.5
Maximum USD M 1,763 1,763 1,763 1,763
negative
cash flow
(real)
Free Cash USD M 249 298 405 402
Flow real p.a.
Generation* steady
state avg
Schedule
Ore Mtpa 6 7 14 14
throughput*
First ore Date FY2023 FY2023 FY2023 FY2023
Life of Mine years 28 25 18 35
Production
Ore mined* Mt 149 153 155 379
Cu Grade % 1.58 1.58 1.57 1.26
Au Grade g/t 1.06 1.06 1.05 0.91
Cu kt 2,233 2,301 2,306 4,547
Recovered*
Cu Recovered Ktpa LOM 80 92 128 130
average
Au koz 3,573 3,527 3,509 7,058
Recovered*
koz pa 128 141 195 202
LOM
Au Recovered average
Capital
expenses
Project USD M 2,640 2,656 2,656 2,656
capital real
Expansion USD M - 10 572 1,261
capital real
Sustaining USD M 1,551 1,499 2,175 3,725
and real
Expansion
Capital
Operating
expenses
Total USD/t ore 30.66 28.12 24.16 23.95
Operating milled
Cost
USD/lb Cu 0.59 0.55 0.44 0.60
real
LOM
Cash Cost average
*Cumulative
RESOURCE AND RESERVE UPDATE (100%)
Mineral Resource
The Golpu Mineral Resource has been updated as at 31 December 2015 to
align with the results of Golpu 2015 Stage 1 feasibility study and
Stage 2 (Life-of-Mine) prefeasibility study. The key change is the
applied cut-off grade that defines the volume with reasonable prospects
of eventual economic extraction. The Golpu Mineral Resource is
constrained within a marginal breakeven shell using WGJV 2015 gold and
copper revenues and the estimated long term cost structure developed in
the 2015 Golpu Stage 2 PFS. The December 2014 Mineral Resource was
reported within a 0.2% Cu shell representative of the revenue and cost
structures of the 2012 Golpu PFS. There has been no additional drilling
in 2015 that impacts the Golpu mineralised volume and the underlying
geology and grade model is unchanged from that used in the December
2014 Mineral Resource.
See the updated Resource table below:
Table 1: Current Indicated and Inferred Mineral Resource (100%)
Metal
Gold Copper Silver Molybdenum
>>
tonnes grade metal grade metal grade metal grade metal
Mt g/t Moz % Mt g/t Moz ppm kt
Total 820 0.70 18.6 1.0 8.6 1.3 33.1 90 74
Mineral
Resource
Measured - - - - - - - - -
Mineral
Resource
Indicated 690 0.71 15.8 1.1 7.5 1.3 28.5 94 65
Mineral
Resource
Inferred
Mineral 140 0.63 2.8 0.85 1.2 1.1 4.6 72 9.7
Resource
Rounding in table may cause discrepancies.
Table 2: Current Mineral Resource compared with previous estimate
(100%)
Metal
Gold Copper Silver Molybdenum
>>
tonnes grade metal grade metal grade metal grade metal
Mt g/t Moz % Mt g/t Moz ppm kt
Previous
Mineral 1 080 0.59 20.2 0.87 9.4 1.09 37.5 94 100
Resource
This 820 0.70 18.6 1.1 8.6 1.3 33.1 90 74
Mineral
Resource
Rounding in table may cause discrepancies
For full details of the Mineral Resource estimation basis refer to the
Appendix on the Harmony website at https://www.harmony.co.za/our-
business/exploration/golpu-project.
Ore Reserve
The Golpu Reserve is informed by the 2015 Stage 1 feasibility study and
prefeasibility study (Stage 2) of the Golpu project.
The updated Reserve is tabled below:
Table 1 – Current Ore Reserve
Ore Gold Copper
tonnes grade metal grade metal
Mt g/t Moz % Mt
Total Ore Reserve 380 0.91 11.0 1.3% 4.8
Proved Ore Reserve - - - - -
Probable Ore Reserve 380 0.91 11.0 1.3% 4.8
The key changes to the December 2015 Ore Reserve relative to the 30
June 2015 Ore Reserve are primarily due to:
• Revised Operating and Sustaining Capital costs following the
completion of the Stage 2 prefeasibility Study in December 2015
• Application of updated Modifying Recovery Factors for Mining
• Removal of Silver and Molybdenum from the estimate
Table 2 – Current Ore Reserve Compared With Previous Estimate (100%)
Ore Gold Copper Silver Molybdenum
tonne grad meta grad meta grad meta grad meta
s e l e l e l e l
Mt g/t Moz % Mt g/t Moz ppm kt
Previous Ore
450 0.86 12.4 1.2% 5.4 1.4 20 80 36
Reserve
This Ore
380 0.91 11.0 1.3% 4.8 - - - -
Reserve
For full details of the Ore Reserve estimation basis refer to the
Appendix on the Harmony website at https://www.harmony.co.za/our-
business/exploration/golpu-project.
For full details of Harmony’s other Resources and Reserves please refer
to www.harmony.co.za.
Harmony updates its full Resources and Reserves statement on 26 October
2016 with the publication of the Integrated Annual Report.
PNG tax and project interest
• Company tax rate is 30%
• Mining royalty 2% of revenue less shipping and refining costs
• Interest withholding tax is 0% (approved resource projects only)
• PNG government retains the right to acquire up to 30% of the project
up to the grant of the special mining lease
- payment based on historical exploration expenditure
- full equity participant thereafter
About the Golpu project
Harmony and Newcrest Mining Limited each currently own 50% of Golpu
through the Wafi-Golpu Joint Venture. The PNG Government retains the
right to purchase, for its pro-rata share of historical costs, up to a
30% equity interest in any mineral discovery at Wafi-Golpu, at any time
before the commencement of mining. If the PNG Government chooses to
take-up its full 30% interest, the interest of each of Newcrest and
Harmony will become 35%.
The Golpu deposit is located approximately 65km south-west of Lae in
the Morobe Province of PNG which is the second largest city in PNG and
will host Golpu’s export facilities. The proposed mine site sits at an
elevation of approximately 400 metres above sea level in moderately
hilly terrain and is located near the Watut River approximately 30km
upstream from the confluence of the Watut and Markham rivers.
Location of Wafi-Golpu
Refer to https://www.harmony.co.za/our-business/exploration/golpu-
project for Schematic 5: Map of Papua New Guinea
Footnotes in support of press release:
1
Full feasibility study level is considered to be at ±15% accuracy.
2
Findings are subject to the further feasibility work described above
to be undertaken.
3
As timing for finalisation of PMDA is uncertain, valuation outcomes
are shown at the time of commencement of earthworks for the access
declines. Costs are based on 2016 real estimates. Neither the costs
nor cost escalation impacts prior to commencement of earthworks are
included in the valuation outcomes. All numbers are based on
information derived from work undertaken for the Stage 1 feasibility
study and are subject to completion of the further feasibility study
work, investment approval, receipt of all necessary permits and
approvals and market and operating conditions and engineering. Refer to
the statement on last page in relation to forward looking statements.
All figures are at 100% ownership unless otherwise stated.
4
Cave wireframes are a representation of the shape of economic draw of
mixed cave material from the Mineral Resource and not a cave excavation
shape
5
Subject to Advanced Exploration Work.
6
Includes gold credit and realisation costs
7
Cash cost including sustaining capital
8
Includes construction capital, sustaining capital and gold credits
9
Timeline is indicative to prefeasibility study level
10
Concentrator expected to achieve 3Mpta approximately three months
after BC1 first production then expanded at later date to accommodate
production from BC2 at 6mMpa
11
Costs are based on 2016 real estimates. All numbers are based on
information derived from work undertaken for the Stage 1 feasibility
study and are subject to completion of feasibility work, investment
approval, receipt of all necessary permits and approvals and changes to
market and operating conditions and engineering. Refer to the statement
on last page in relation to forward looking statements.
12
As timing for finalisation of a PMDA is uncertain valuation outcomes
are shown at the time of the grant of the SML. Costs are based on 2016
real estimates. Neither the costs nor cost escalation impacts prior to
commencement of earthworks are included in the valuation outcomes.
13
All prefeasibility study outcomes are shown on a Life of Mine basis
and are inclusive of Stage 1.
FORWARD-LOOKING STATEMENTS
PRIVATE SECURITIES LITIGATION REFORM ACT
Safe Harbour Statement
This report contains forward-looking statements within the meaning of
the safe harbor provided by Section 21E of the Securities Exchange Act
of 1934, as amended, and Section 27A of the Securities Act of 1933, as
amended, with respect to our financial condition, results of
operations, business strategies, operating efficiencies, competitive
positions, growth opportunities for existing services, plans and
objectives of management, markets for stock and other matters. These
include all statements other than statements of historical fact,
including, without limitation, any statements proceeded by, followed
by, or that include the words “targets”, “believes”, “expects”, “aims”
“intends” “will”, “may”, “anticipates”, “would”, “should”, “could”,
“estimates”, “forecast”, “predict”, “continue” or similar expressions
or the negative thereof.
These forward-looking statements, including, among others, those
relating to our future business prospects, revenues and income,
wherever they may occur in this report and the exhibits to this report,
are essentially estimates reflecting the best judgment of our senior
management and involve a number of risks and uncertainties that could
cause actual results to differ materially from those suggested by the
forward-looking statements. As a consequence, these forward-looking
statements should be considered in light of various important factors,
including those set forth in this report. Important factors that could
cause actual results to differ materially from estimates or projections
contained in the forward-looking statements include, without
limitation: overall economic and business conditions in South Africa,
Papua New Guinea, Australia and elsewhere, estimates of future
earnings, and the sensitivity of earnings to the gold and other metals
prices, estimates of future gold and other metals production and sales,
estimates of future cash costs, estimates of future cash flows, and the
sensitivity of cash flows to the gold and other metals prices,
statements regarding future debt repayments, estimates of future
capital expenditures, the success of our business strategy, development
activities and other initiatives, estimates of reserves statements
regarding future exploration results and the replacement of reserves,
the ability to achieve anticipated efficiencies and other cost savings
in connection with past and future acquisitions, fluctuations in the
market price of gold, the occurrence of hazards associated with
underground and surface gold mining, the occurrence of labor
disruptions, power cost increases as well as power stoppages,
fluctuations and usage constraints, supply chain shortages and
increases in the prices of production imports, availability, terms and
deployment of capital, changes in government regulation, particularly
mining rights and environmental regulation, fluctuations in exchange
rates, the adequacy of the Group’s insurance coverage and socio-
economic or political instability in South Africa and Papua New Guinea
and other countries in which we operate.
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 Integrated Annual Report on Form 20-F which is on file
with the Securities and Exchange Commission, as well as the Company’s
other Securities and Exchange Commission filings. The Company
undertakes no obligation to update publicly or release any revisions to
these forward-looking statements to reflect events or circumstances
after the date of this annual report or to reflect the occurrence of
unanticipated events, except as required by law.
Competent Person’s Statement
The information in this presentation that relates to the Golpu Mineral
Resources is based on information compiled by Mr Paul Dunham. Mr Dunham
is Principal Geologist, Ore Deposit Knowledge for Newcrest Mining
Limited. He is a full-time employee of Newcrest Mining Limited.
Newcrest is Harmony’s 50/50 Joint Venture Partner in the Wafi Golpu
Joint Venture.
The information in this presentation that relates to the Golpu Ore
Reserves is based on information compiled by Mr Pasqualino Manca. Mr
Manca is the Area Manager Mining – Golpu Project Feasibility Study and
a full-time employee of Newcrest Mining Limited.
Both are Members of The Australasian Institute of Mining and Metallurgy
and both have sufficient experience which is relevant to the styles of
mineralisation and types of deposits under consideration and to the
activity which they are undertaking to qualify as a Competent Persons
as defined in the JORC Code and SAMREC. Mr Dunham and Mr Manca consent
to the inclusion in this presentation of the matters based on the
information in the form and context in which it appears including
sampling, analytical and test data underlying the results
Mr Gregory Job, BSc, MSc, who has 27 years’ relevant experience and a
member of the Australian Institute of Mining and Metallurgy (AusIMM),
is Harmony’s competent person for Papua New Guinea.
Mr Jaco Boshoff, BSc (Hons), MSc, MBA, Pr. Sci. Nat, MSAIMM, MGSSA is
Harmony’s lead competent person. Mr Boshoff who has 20 years’ relevant
experience, is registered with the South African Council for Natural
Scientific Professions (SACNASP) and is a member of the South African
Institute of Mining and Metallurgy (SAIMM).
Please refer to our website at https://www.harmony.co.za/our-
business/exploration/golpu-project for the appendix, the presentation
and a video in support of this release.
For more details contact:
Henrika Ninham
Investor Relations Manager
On +27 (0)82 759 1775
Marian van der Walt
Executive: Corporate and Investor Relations
+27(0) 82 888 1242
Johannesburg, South Africa
15 February 2016
Sponsor:
J.P. Morgan Equities South Africa Proprietary Limited
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