HARMONY GOLD MINING COMPANY LIMITED - ANNOUNCEMENT Release Date: 22/01/2003 09:00:17 Code(s): HAR HARMONY GOLD MINING COMPANY LIMITED - ANNOUNCEMENT
Harmony Gold Mining Company Limited
Registration number 1950/038232/06
ISIN : ZAE000015228
Trading Symbols
Ordinary Shares
JSE Securities Exchange HAR
New York Stock Exchange HMY
London Stock Exchange HRM
Euronext Paris HG
Euronext Brussels HMY
Berlin Stock Exchange HAM1
Warrants
JSE Securities Exchange HARW
New York Stock Exchange HMYWS
Options
Chicago Board Options
Exchange QHG
Doornkop South Reef Project: Our growth story continues
22 January 2003
This review includes certain information that is based on management`s
reasonable expectations and assumptions. These "forward-looking statements"
include, but are not limited to, statements regarding estimates, intentions and
beliefs, as well as anticipated future production, mine life, market conditions
and costs. While management has prepared this information using the best of
their experience and judgment, and in all good faith, there are risks and
uncertainties involved which could cause results to differ from projections.
Cautionary Note to US Investors - The United States Securities and Exchange
Commission (the "SEC") permits mining companies, in their filings with the SEC,
to disclose only those mineral deposits that a company can economically and
legally extract or produce. We may use certain terms in this quarterly review,
such as "resources", that the SEC guidelines strictly prohibit us from including
in our filings with the SEC.
Harmony`s 2002 Annual Report is available on our website at www.harmony.co.za
COMPANY HIGHLIGHTS
* Delivery of future production growth at Randfontein with excellent financial
returns
* 26% Participation by Africa Vanguard Resources (Doornkop) (Pty) Ltd (AVR), a
Black Economic Empowerment company
* Creation of 2 798 employment opportunities (41 970 man years)
FINANCIAL HIGHLIGHTS
* Capital Expenditure of R1,27 billion (Base Dec 2002)
* 20 Year life with maximum of 330 000 oz/annum for a period of 12 years
* NPV of R876 million using a real discount rate of 7,5%
* IRR of 48% (after tax) for Harmony
* Maximum funding requirement of R500 m or R360 m after the AVR payment
KEY TECHNICAL INDICATORS
* Definitive feasibility study completed - August 2002
* Resource of 20,1 m tons @ 10,17 g/t - 6,6 moz of gold
* Project to extract 18,3 m tons @ 6,36 g/t - 3,8 moz of gold
* Main shaft to be deepened from 1 340 m to 2 032 m
* Increased reef hoisting capacity from 90 000 reef tpm to 135 000 reef tpm
* Reef tonnage build up from 45 000 tpm - 135 000 tpm after 6 years
1. Project Background
1.1 Location
The Doornkop Shaft complex is located south of Krugersdorp, on the north-west
rim of the Witwatersrand Basin. The property lies between The Cooke 1 Shaft and
Durban Roodepoort Deep Mines.
1.2 Current situation
The Kimberley Reef is mined on the upper levels with the South Reef, on the
lower levels, the target resource of the proposed deepening project.
Limited trial mining of the South Reef has been done from the sub-vertical
ventilation shaft on 192 level at a depth of 1 734 m below surface.
1.3 Pre-Harmony History
Exploration in the Doornkop area commenced in the early 1930s. Of eighteen
boreholes drilled over the area, a total of thirteen boreholes provide useful
information. In addition three intersections from the Kimberley Reef workings,
and three from the adjoining Durban Roodepoort Deep area were obtained.
Evaluation from all these intersections showed the South Reef to contain
economic concentrations of gold.
During August 1983 the sod turning ceremony took place and the sinking of the
Doornkop Main Shaft and the Ventilation Shaft commenced. The plan at the time
was to mine both the Kimberley Reef and the South Reef.
A decision was later taken to initially target the shallower Kimberley Reef only
and to defer the deeper section of the Main Shaft that would have given access
to the South Reef.
During 1989 the planned production rates from the Kimberley Reefs were achieved.
The anticipated grades were not, however, achieved and adverse geological
structures were encountered. Difficulties were encountered associated with the
mechanised mining methods used.
During October 1991 the go-ahead was given for the South Reef Project which
required that a prospect shaft (the Sub-vertical Ventilation Shaft) be sunk to
intersect the South Reef. The South Reef was intersected in October 1993, with
prospect development carried out in four directions off the shaft barrel
including some 450 m of on-reef development. All work on the South Reef project
was again stopped in 1995.
The project was given yet another go-ahead and the deepening of the Main Shaft
recommenced in November 1996. All mining of the Kimberley Reef had to be stopped
and the shaft was dedicated to solid bottom sinking. Some infrastructure
development was carried out on the 5 levels from 192 Level to 212 Level from the
Sub-vertical Ventilation Shaft.
In anticipation of corporate restructuring at JCI level, the deepening project
was stopped in May 1999. At this time the Sub-vertical Shaft sinking was
complete and the deepening of the Main Shaft stopped at 1 340 m below surface.
Mechanical mining of the Kimberley Reef was resumed.
Over the years the South Reef was successfully and extensively mined on
Randfontein Estates Mines and to a limited extent on the Durban Roodepoort Deep
Mines.
1.4 History post Harmony takeover
Harmony acquired Doornkop when they took control of Randfontein in early 2000.
Harmony carried on mining the Kimberley Reef but changed back to conventional
mining methods at a reduced tonnage.
Over the last two years, ledging and limited stoping of the South Reef has taken
place from 192 level. This has allowed for sampling and mapping of the faces to
confirm the presence of a central pay shoot, adding value to the geological
model.
Harmony carried out a preliminary study on the South Reef in the period from
September 2000 to January 2001. A feasibility study to take the project to a
definitive level was then completed in August 2002, indicating a robust project
with low technical risks and excellent returns.
2. Project Description
The project is essentially a shaft deepening project and will allow access to
additional resources on the South Reef.
2.1 Geology
The South Reef lies between 1 650 and 2 000 metres below surface and at 900
metres below the Kimberley Reef dipping at 10 degrees to the southeast. It is a
very thin seam, typically 1 to 10 cm thick.
The reef plane is broken into a number of large blocks by a series of faults
associated with the Witpoortjie Horst. The project area is bounded to the
northwest by the Roodepoort Fault. A number of other faults including the Saxon
Fault, constitutes conspicuous structural breaks. A second major fault, the
Doornkop Fault, trends in an east-west direction and occurs towards the southern
portion of the project area. Within the major structural blocks, the reef plane
is relatively uncomplicated with minor throw faults.
A prominent intrusive, the "Black Duck Dyke", is known to cut across Doornkop.
This carries substantial water and is associated with bad ground conditions. The
dyke has been successfully negotiated in past mining activities.
Metallurgical test work reveals that about 70% of the gold mineralisation are in
the form of free gold. This can be successfully addressed in the design of the
recovery plant. The reef is also carbonaceous and friable in nature.
A conservative 80% was used as a mine call factor. Correct blast fragmentation,
good blast containment and effective sweeping (clean mining) should make an
improvement on the mine call factor achievable.
2.2 Mineral Resource
The resource has been modelled using data points provided from surface and
underground boreholes, as well as from underground mapping and sampling and is
defined in terms of the SAMREC code.
A central higher grade pay shoot has been defined within this above 600 cmg/t
area, which is recommended as the first phase of mining. As a result of
underground sampling, a higher degree of confidence is ascribed to this area.
South Reef Reserves
In situ Resource Recovered
Tons (millions) 20,1 18,3
Grade (g/t) 10,17 6,36
Gold (million oz) 6,6 3,8
Gold (tons) 211 117
2.3 Project Scope
The main shaft is currently at a depth of 1 340 m below surface and the sub-
vertical ventilation shaft at a depth of 1 953 m below surface. To access the
South Reef resource the main shaft will be deepened to a depth of 2 032 m and
the spillage incline shaft extended to a depth of 2 082 m from surface.
Shaft capacities:
Sub-Vertical
Shaft Main Ventilation Ventilation
Current depth 1 340 m 867 m 1 948 m
Planned depth 2 032 m Completed Completed
Current hoisting capacity 90 ktpm Nil 11 ktpm
Planned hoisting capacity 135 ktpm Nil 22 ktpm
Diameter 8 m 6,5 m 6 m
The project will be completed in the following phases:
Project phases
Phase 1: Enable production of 45 000 tpm from South Reef
* Increase hoisting capacity of the sub-vertical ventilation shaft to 1 000 tpa
* Opening of second outlets
* Completion of main shaft sinking and equipping
* Phase 1 primary and secondary development
Duration 43 months - July 2006
Phase 2: Enable production of 135 000 from South Reef
* Phase 2 primary and secondary development
* Installation of additional compressor
Duration 27 months - October 2008
Phase 3: Mining below 212 Level
* Incline Shaft below 212 Level
* Phase 3 primary and secondary development (217 and 222 Levels)
2.4 Production Build-up
The project will allow mining for 20 years with gold production of 272 kg (8 745
ounces) in year one, building up to 1 302 kg (41 859 ounces) in year four. After
year four gold production will build up rapidly to 10 362 kg (333 132 ounces)
where it will remain up to year fourteen when gold production will start
declining to the end of the project. It is estimated that 3,75 million ounces
(116,7 tons) of gold will be recovered from this reserve.
3. Capital Expenditure
For the supply of plant and equipment, formal enquiries were issued for the bulk
of the projects requirements. For the shaft sinking, development, raiseboring,
support and all construction work underground (including civil, mechanical,
structural, electrical and instrumentation) a single sinking/construction
enquiry was formally issued.
The tendered prices have been carried forward into the Capital estimates. The
capital costs are all in July 2002 money terms, with no provision for
escalation. Over 75% of the total estimated capital cost is based on tendered
prices with the balance of the costs being estimated, so giving an overall
accuracy on the estimates of 10%.
Estimated Capital Expenditure for South Reef Project - in Phases
(R million)
July 2002 Cash Base Equipment Construction Total
Phase 1 - 45 000 tpm 413 322 736
Phase 2 - 135 000 tpm 260 165 426
Phase 3 - 217 and 222 levels 20 89 108
Total 693 576 1 270
4. Mining Production
The existing levels from the sub-vertical vent shaft will be used to access the
South Reef. These levels are spaced at 50 m intervals. Rock transfer passes and
level development was stopped at various stages for each level and can easily be
restarted for the project.
The mineralised portion is a narrow band, which will probably be carried in the
middle of the face. There do not appear to be weak zones of rock in the vicinity
of the reef itself or of the footwall development and no major rock engineering
problems are foreseen.
The design of the mine is based on conventional mining methods, proven
technology and blasting techniques that will result on an average stoping width
of 120 cm and a tramming width of 130 cm.
Stoping outputs, development rates and valuation factors are within industry
norms.
Initial development will be done using the existing sub-ventilation shaft. By
carefully selecting the development targets it is possible to ensure an
immediate production rate of 45 000 t/month of reef, on commissioning of the
deepened main shaft. There will be a rapid build up of production to 135 000
t/month six years after the start of the project.
5. Working Costs
Working costs for the South Reef Project have generally been planned from a
`zero cost` base. Costs have been estimated at three levels, 45 000, 90 000 and
135 000 reef tons per month, as follows:
Mine Operating Cost (R/ton milled)
Production Level 45 000 tpm 90 000 tpm 135 000 tpm
Labour 179 155 148
Stores 86 86 86
Electric Power 42 31 28
RWB 1 1 2
Contractors 4 3 3
Metallurgy 15 14 13
Other Costs 2 2 2
Total on-mine costs 330 293 281
Randfontein Overheads 30 30 30
Total Working Costs 360 323 311
6. Economic Valuation
6.1 Assumptions used
The following assumptions were used in calculating the valuations:
Gold Price R95 000/kg
Tax Base Randfontein Estates
Tax Rate 46%
Total Labour 2 798 employees
6.2 Valuation (R million)
The valuation is after tax in real terms, using Randfontein as tax base:
Gold price 95 000 100 000
NPV 7.5% 876 1 032
IRR 48%
6.3 Cash flow
The project becomes cash positive in year 7 (2008) or in year 6 if we bring the
R140 m AVR payment into account. Maximum cumulative funding requirement amounts
to R500 million. No external funding will be required to fund cash outflows,
which will be required over a five-year period. Funds will be available from
current Randfontein working profits. Randfontein tax base will be used.
Total capital requirement: R1,271 million - Maximum funding R500 million.
6.4 Sensitivity analyses
A sensitivity analysis of plus 5%, plus 10%, minus 5% and minus 10% was
conducted on revenue (gold price and grade), working cost and capital
expenditure.
The analysis indicates that the project is marginally sensitive to capital
expenditure, with the sensitivity to revenue (gold price and grade) and working
costs more pronounced. Even at a 10% variance of one of the parameters from the
base case, the project still shows a post-tax NPV (7,5%) of R409 m, indicating
the robustness of the project.
Sensitivity to changes in main parameters for NPV of 7,5% (R million)
- 10% - 5% Base 5% 10%
Revenue
(Gold price and grade) 589 782 876 1 015 162
Working Cost 1 023 949 876 802 728
CAPEX 927 909 876 850 824
Sensitivity of IRR with respect to gold price
R/kg gold price IRR Description
95 000 48% Estimated return
82 000 22% Required hurdle rate
75 000 16% W.A.C.C
7. Black Economic Empowerment
7.1 Sale of 26% of Mineral Rights
Randfontein sells 26% of the mineral rights to African Vanguard Resources (AVR)
for R250 million. The amount will be paid as follows:
* R140 million in cash, and
* R110 million in call options on 290 000 oz of gold (the 290 000 oz of gold is
equal to 16% of the gold produced by the operations during the first 10 years)
7.2 Joint Venture Arrangement
Randfontein and AVR will manage the project as a joint venture. Randfontein will
fund all the project capital and the profit share will be Randfontein 84% and
AVR 16%
8. Key Milestone Dates
Key Milestone Dates
Phase 1: (45 000 tpm)
Project start date 22 Jan 2003
Increasing hoisting capacity of the
Sub-vertical Ventilation Shaft to 1000 tpd 21 Apr 2003
Opening a second outlet via the 132 Level raisebore 29 Nov 2003
hole
Opening a second outlet via No.1 Shaft 7 Jul 2004
Completion of Main Shaft sinking and equipping 1 May 2006
Start of Phase 1 primary development 1 Dec 2003
Completion of Phase 1 primary development 14 Jan 2005
Completion of Phase 1 secondary development 27 Jul 2006
Phase 1 project duration 43 months
Phase 2: (135 000 tpm)
Project start date (assumed) 28 Aug 2006
Completion of phase 2 primary development 20 Oct 2007
Completion of Phase 2 secondary development 14 Oct 2008
Clear site 24 Oct 2008
9. Current Infrastructure
The Doornkop shaft complex consists of two surface shafts with one Sub-vertical
ventilation shaft (originally used as a prospect shaft to access the South
Reef). The second outlet to surface is on 106 Level to Cooke No.1 Shaft.
9.1 Main Shaft
The Doornkop Main Shaft is a man and rock hoisting shaft, 8,0 m in diameter with
six winding compartments. Transfer Level (132 Level) is 1 128 m below collar
with shaft bottom being at 1 340 m below collar. The shaft is equipped with two
winders, one man winder and a dual purpose winder - each is a 4,88 m diameter by
1,83 m wide double drum unit.
This shaft complex currently has a hoisting capacity of approximately 120 000
tons per month of reef and waste from 132 Level.
These winders are suitable for the production of up to 90 000 reef tons per
month from the South Reef, but to increase to the planned 135 000 tons, a
replacement rock winder will have to be installed.
9.2 Ventilation Shaft
The upcast ventilation shaft has two surface fans. The ventilation shaft is 6,5
m diameter and extends from surface to 106 Level (867 m below surface). There is
no winding capacity available on this shaft.
9.3 Sub-Vertical Ventilation Shaft
The Sub-vertical Ventilation Shaft has an existing kibble winder and stage
winder on 96 Level with main bank access on 106 Level. This is a single outlet
for the working environment below 132 Level and thus there is a restriction on
the number of men who can work there. The shaft bottom is at 212 Level (1 948 m
below collar). The stage ropes are used as kibble guides. This shaft is to be
upgraded for the development phase to enable up to 1 000 tons per day to be
hoisted.
10. Impact of the Project on Infrastructure
10.1 Main Shaft
The shaft deepening will be effected by means of sliping into a hole raisebored
between levels rather than by solid bottom sinking. This sinking method has been
recommended for the following reasons:
* Industry safety records indicated that this method of sinking shafts is vastly
superior to solid bottom sinking methods.
* Overall advance rates will be compatible with those obtainable in solid bottom
sinking using the small kibbles dictated by the size of winding compartments;
* More time can be made available in the Main Shaft for supporting construction
and mining operations off the Sub-vertical Ventilation Shaft;
* Production from the Kimberley Reef may be continued throughout the deepening
process;
* The access via the Sub-vertical Ventilation Shaft will be used to allow for
all the capital development and construction to be completed concurrently with
the deepening of the Main Shaft.
The Main Shaft will be sliped, lined and equipped. Once the shaft has been
equipped past a level, permanent winding for men and material to the levels
above this will be possible, allowing the Sub-vertical Ventilation Shaft to be
used mainly for waste rock hoisting. As a result waste rock hoisted will
increase from about 1 000 tpd to about 2 000 tpd. During the above activities,
the spare hoisting capacity would be used to maximise the amount of level
development that is done during the shaft-deepening phase.
10.2 Increasing the Hoisting Capacity in the Sub-vertical Ventilation Shaft
It is proposed to de-bottleneck the hoisting capacity of the existing winder in
the Sub-vertical Ventilation Shaft. This would be achieved by:
* Modifying the stage so that it can be lowered to the bottom of the shaft and
the stage ropes may be used as guide ropes for the new skips. The stage would
also have a deck for the transport of large machines and heavy material between
levels;
* Installing a modular temporary skip loading arrangement on 212 Level station;
* Modifying the headgear arrangements to allow the new skips to tip into the
existing tipping arrangements.
Based on the specified assumptions, this should allow the waste hoisting
capacity of the Sub-vertical Ventilation Shaft to be increased. The skips would
also have a fixed small single deck for transport of men and material.
10.3 Pumping Arrangements
Temporary pumping arrangements would be installed in the early stages of the
project. This would comprise modular settlers, clear water and mud pumping
arrangements on 192 Level, with the existing dirty water stage pumping
arrangements on the lower levels being used.
The construction of the permanent pumping arrangements would require the
raiseboring, sliping and supporting of the two vertical dams, the installation
of the two settlers, the installation of permanent clear water and mud pumping
arrangements and the installation of permanent dirty water pumping arrangements.
A dirty water surge dam would be raisebored, sliped and equipped.
10.4 Service Water Arrangements
Temporary service water arrangements would be installed in the Sub-vertical
Ventilation Shaft in the early stages of the project.
For the permanent service water arrangements, a surge dam would be constructed
in an existing excavation. The service water feed down the shaft, complete with
pressure reducing valves would be installed either concurrently with equipping
or after completion of the shaft. The permanent service water pipes on the
levels would be equipped concurrently with the development.
10.5 Electrical Power Supply
The surface sub-station would have to be extended and the supply from the
consumer sub-station upgraded.
Shaft cables would be installed down the Sub-vertical Ventilation Shaft during
the early stages of the project. These temporary cables would be sufficient to
handle power requirements for initial pumping, ventilation, raiseboring,
construction activities, development and ledging, so reducing the criticality of
the permanent cables down Main Shaft. The permanent sub-stations would be
equipped as and when required on the levels.
10.6 Reef and Waste Rock Handling Arrangements
The reef and waste passes from have already been raisebored and have been
partially equipped. The completion of these arrangements would be done early in
the project to facilitate the handling of raiseborer chips, sliping waste and
development waste.
10.7 Rock Winder
The supply, installation and commissioning of the third permanent winder is
required for use when Main Shaft is commissioned to final depth. Once installed
it will be of significant value during the project phase if operated as a
temporary Single Drum Service Winder with a small conveyance in the South Skip
compartment. Since this winder must have a unique configuration to give the
required wide drum centres and is capable of handling loads larger than the
standard winder design; there will be minimal chances of purchasing a second-
hand unit. This new winder has been specified to have specially reinforced
drums, stronger brakes and upgraded power to satisfy the duty requirements.
10.8 Compressed Air Arrangements
The installed compressors should be sufficient for the Phase 1 requirements of
45 000 tpm (reef). A third 300 drill machine would be required for Phase 2, i.e.
135 000 tpm (ore).
10.9 Gold Plant
The Gold Plant has a nominal capacity of 225 000 tons per month at a design
grade of about 3,5 g/t. The South Reef Project will deliver reef at a grade of
between 6 and 7 g/t to the plant. The plant has been a low-grade plant, and the
introduction of relatively high-grade reef has necessitated the inclusion of
gravity recovery to reduce the impacts upon the leaching and gold recovery
circuits. In addition, the South Reef contains a considerable proportion of
gravity recoverable gold, which complements the changes in the plant.
The plant is in good condition and it should be able to operate for the required
life of the underground mine recovering the Doornkop South Reef.
Investor relations
Business address
Harmony Gold Mining
Company Limited
Suite No. 1
Private Bag X1
Melrose Arch, 2076
Telephone: +27 (11) 684 0140
Telefax: +27 (11) 684 0188
E-mail: corporate@harmony.co.za
Investor relations contacts
Corne Bobbert
Telephone: +27 (11) 684 0146
Telefax: +27 (11) 684 0188
E-mail: cbobbert@harmony.co.za
Ferdi Dippenaar
Telephone: +27 (11) 684 0147
Telefax: +27 (11) 684 0188
E-mail: fdippenaar@harmony.co.za
Share transfer secretaries
Ultra Registrars (Pty) Ltd
Contact: Polly Pollard
Telephone: +27 (11) 832 2652
Telefax: +27 (11) 834 4398
E-mail: ultra@registrars.co.za
11 Diagonal Street
Johannesburg 2001
(PO Box 4844, Johannesburg, 2000)
United States ADR Depositary
The Bank of New York
Telephone: +1888-BNY ADRS
Telefax: +1 (212) 815 3050
Shareholder Relations Department
101 Barclay Street
22nd Floor, New York, NY 10286
United States of America
United Kingdom Registrars
Capita IRG Plc
Contact: Melvyn Leigh
Telephone: +44 (208) 639 1001
Telefax: +44 (208) 478 2876
E-mail: mleigh@capita-irg.com
Balfour House
390-398 High Road, Ilford
Essex IG1 1NQ, United Kingdom
Directors
A R Fleming*+ (Chairman),
Z B Swanepoel (Chief executive),
F Abbott, F Dippenaar,
T S A Grobicki, T A Mokhobo*,
M F Pleming*, Lord Renwick of
Clifton KCMG*+,
J G Smithies*, S Lushaba, N Fakude
*Non executive directors +British
For a hard copy please contact
Corne Bobbert on
tel +27 11 684-0146 or e-mail
cbobbert@harmony.co.za.
Date: 22/01/2003 09:00:00 AM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
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